Every state requires its domestic and registered foreign corporations, limited liability companies, limited partnerships, limited liability partnerships, and other statutory business entities to appoint and continually maintain a registered agent in the state. The main function of the registered agent is to receive service of process for the business entities for which it has been appointed as registered agent in the state and forward the documents to the business entities.
Some lawyers may offer to act as the registered agent for their clients. But before doing so it is important for the lawyer to understand the risks involved. There are scores of case law examples where a default judgment was entered against a company where the company claims its registered agent did not provide it with notice of the lawsuit. The courts generally prefer to decide cases on the merits and may vacate the default. But this is not a sure thing. And if the default is not vacated, the company may seek compensation from the registered agent. And even if the default is vacated, the company may still have the expense of fighting the default and might seek compensation. Furthermore, even if the registered agent is not actually at fault (say because the documents were not actually received) that can be hard to prove.
Risks and responsibilities of lawyers as registered agents
Below are some case law examples involving default judgments where the registered agent is a lawyer, and the defendant company claims it was never notified of the lawsuit. Consider them a cautionary tale.
In Millennium Outdoors, LLC v. Leader Accessories, LLC, 2024 US Dist. LEXIS 131929, the plaintiff sued the defendant and properly served the lawyer who was its registered agent. A default was entered and the LLC moved to set aside the default. The LLC contended that it didn’t know about the lawsuit because its registered agent didn’t tell anyone about it. The US District Court in Wisconsin, in upholding the default, stated that the defendant was responsible for any dereliction by its registered agent.
In First National Bank of Illinois v. O’Neill-Perez, 102 N.E.3d 942 (Ind. App. 2018) the summons and complaint were sent to the defendant by certified mail care of its registered agent – a lawyer. The delivery was returned as “Unsuccessful- Unable to Forward”. The sheriff then left the summons and complaint at the registered agent’s office. A default judgment was obtained. The company blamed confusion because it had been acquired. The appellate court, in upholding the default, stated that a breakdown in communication between the registered agent and defendant does not constitute mistake, excusable neglect, surprise, or any other reason for relief.
Portland General Electric Company v. Ebasco Services, Company, 326 P.3d 1274 (Ore App. 2014) arose out of a lawsuit against an insurance company for breaching an insurance policy. The policy named a law firm as agent for service of process in lawsuits against subscribing insurers. The plaintiff sued one of the subscribing insurers and served the law firm. The law firm contacted someone at the insurance company that issued the policy and was told to send process to an Oregon law firm that had been representing some of the subscribing insurers. The law firm that was the agent for service of process forwarded the summons and complaint to the Oregon law firm. However, the Oregon law firm did not represent the defendant in this case and did not forward the summons and complaint or notify the defendant. A default was entered, which was upheld by the appellate court, which acknowledged the mistakes made here by the process agent and others but found the defendant did not meet its burden of establishing its negligence was excused.
The defendant was luckier in West Bend Mutual Insurance Company, LLC v. 3RC Mechanical & Contracting Services, LLC, 8 N.E. 3d 456 (Ill. App [1st Dist.] 2014). In this case, the sheriff served the lawyer was who the defendant’s registered agent. The registered agent failed to notify the defendant, and a default was entered. The default was vacated by the appellate court, which pointed out that the record showed the relationship between the lawyer and the defendant was “estranged”. The court conceded that the lawyer-registered agent was negligent in failing to notify the defendant but stated it would not hold the defendant liable for the lawyer’s failure.
The West Bend Mutual case is one example of how the line between a lawyer acting as both a registered agent for a client and as an attorney can get blurred. Another example is Sadr v. NCL (Bahamas) Ltd., 2018 Cal. App. Unpub. LEXIS 4492. In this case, the trial court granted the defendant relief from a default judgment under a section of the California Code of Procedure granting relief due to the fault of an attorney. The defendant’s registered agent was an attorney. He was properly served when the summons and complaint were signed for by his secretary. However, he mistakenly believed that this was not proper service and never forwarded the summons and complaint, default judgment, or any other documents related to the case to the defendant. The trial court deemed the default to be the product of a legal judgment and granted relief. However, the appellate court reversed, stating that acting as a registered agent is a “decidedly non-legal task”. The court noted that a registered agent does not have to be an attorney. The registered agent has one job – convey to the defendant any papers served on him. This action fell outside the scope of any legal services he provides to the defendant.
The Sadr case serves as a reminder of another risk to lawyers acting as registered agent. Does their malpractice insurance cover liability for actions taken, or not taken, when they are acting as a registered agent for their clients?
The benefits of using a corporate service provider for registered agent services
Providing registered agent services is more complex than many people realize. Much can go wrong, and if a company receives a default judgment it will often blame the registered agent – rightly or wrongly. This is just one of several reasons why lawyers should think twice before acting as their clients’ registered agent. A much better idea for both the lawyer and the client is to recommend they appoint a corporate service provider that can provide expert registered agent services.
By leveraging the expertise of dedicated corporate service providers, businesses can ensure compliance and reduce the risk of default judgments. Lawyers, on the other hand, can focus on their core legal responsibilities without the added burden and potential liabilities of acting as registered agents. Ultimately, making informed decisions about registered agent services can protect both the lawyer and the client from unnecessary complications and legal challenges.
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