Why was a $2.35M judgment overturned for failure by a foreign LLC to register in Virginia?

The Virginia Supreme Court in the case of World Telecom Exchange Comm. LLC v. Sidya (VLW 017- 6-056) found that the lower court erred by allowing the plaintiff to litigate a claim without first obtaining an SCC certificate as required by Va. Code § 13.1-1057(A). In doing so, it reversed one of the largest Virginia verdicts of 2015.

Va. Code § 13.1-1057(A) states that a foreign limited liability company (LLC) “transacting business in the Commonwealth may not maintain any action, suit, or proceeding in any court of the Commonwealth until it has registered in the Commonwealth.” See our November 2016 newsletter in which we discuss registering your Virginia entity in other states where it transacts business.

One of the plaintiffs was a private foreign company organized in Dubai in the United Arab Emirates. The record shows that it was aware of the failure to register but, nevertheless, failed to cure the registration issue before the trial concluded. The company argued that it did not transact business in Virginia, and that only its wholly-owned subsidiary (also a plaintiff in the litigation) transacted business in Virginia. The court rejected this defense, opining that a parent company transacts business in the Commonwealth if its wholly-owned subsidiary transacts business in the Commonwealth. The defendant’s lawyer argued at trial that the Dubai company did not want to register in order to avoid paying taxes to Virginia. The company did obtain the certificate during the appeal process, but the Supreme Court held that a proper certificate was necessary before the final judgment was entered.

The Supreme Court remanded the case with instructions for the Fairfax County Circuit Court to enter a final judgment dismissing the foreign company’s claims against the defendant.

The ruling in this case illustrates just one reason why it is important for foreign companies transacting business in Virginia to obtain a certificate of authority before doing business in Virginia.

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