FAIRBANKS ARCTIC BLIND COMPANY v. PRATHER & ASSOCIATES, INC.; DOUGLAS PRATHER; PHOTOSTEALTH FABRIC COMPANY, INC., LTD.
Annotate this Case
Download PDF
RENDERED:
OCTOBER 21, 2005; 2:00 P.M.
TO BE PUBLISHED
Commonwealth Of Kentucky
Court of Appeals
NO. 2004-CA-001257-MR
FAIRBANKS ARCTIC BLIND COMPANY
v.
APPELLANT
APPEAL FROM FAYETTE CIRCUIT COURT
HONORABLE PAMELA GOODWINE, JUDGE
CIVIL ACTION NO. 98-CI-02333
PRATHER & ASSOCIATES, INC.;
DOUGLAS PRATHER; PHOTOSTEALTH
FABRIC COMPANY, INC., LTD.
APPELLEES
OPINION
REVERSING AND REMANDING
** ** ** ** **
BEFORE:
GUIDUGLI AND TAYLOR, JUDGES; HUDDLESTON, SENIOR JUDGE. 1
HUDDLESTON, SENIOR JUDGE:
Fairbanks Arctic Blind Company was
incorporated on November 12, 1990, for the purpose of
manufacturing and selling hunting blinds.
The corporation
quickly turned its efforts to the research and development of a
process to transfer photographs onto cloth in order to produce
realistic camouflage fabric; Fairbanks referred to this as its
“photo-identical process”.
1
Senior Judge Joseph R. Huddleston sitting as Special Judge by assignment of
the Chief Justice pursuant to Section 110(5)(b) of the Kentucky Constitution
and KRS 21.580.
On May 11, 1993, Fairbanks and Douglas Prather entered
into a contract in which Prather agreed to assist the
corporation in developing and marketing its photo-identical
process.
However, prior to execution of the contract, the
Secretary of State had administratively dissolved Fairbanks on
November 1, 1991, for failing to file an annual report. 2
Fairbanks was not reinstated until February 9, 1998.
In February 1995, Prather resigned from Fairbanks and,
according to the corporation, began using the photo-identical
process as his own.
So, in 1998, Fairbanks filed suit against
Prather seeking damages for breach of contract since the 1993
2
Ky. Rev. Stat. (KRS) 271B.14-200 provides that the Secretary of State may
administratively dissolve a corporation for any of the following reasons:
(1) the corporation has not filed an annual report with the Secretary of
State within sixty days from the date the report is due; (2) the corporation
has failed to maintain a registered agent or registered office in the
Commonwealth; (3) the corporation has failed to notify the Secretary of State
that the corporation’s registered agent or registered office has changed,
that its registered agent has resigned or that its registered office has
closed; or (4) the corporation’s time period set forth in its articles of
incorporation has expired.
According to KRS 271B.14-210, once the Secretary of State has determined
that one of the grounds set forth KRS 271B.14-200 exists the Secretary is to
send a written notice to the corporation. The corporation has sixty days
from the date of notice to correct any deficiency. If the corporation fails
to do so, then the Secretary of State is to issue a certificate dissolving
the corporation, which is sent to the corporation. Also, according to KRS
271B.14-210(3), while in dissolution, the corporation continues to exist
“but may not carry on any business except that necessary to wind up and
liquidate its business and affairs[.]”
After the effective date of the dissolution, the corporation may apply for
reinstatement. It must pay a reinstatement penalty, the current fee for
filing a delinquent annual report and any taxes owed. If the Secretary of
State is satisfied with the corporation’s application, the Secretary will
cancel the certificate of dissolution and execute and send to the
corporation a certificate of existence.
-2-
contract stipulated that the corporation exclusively owned the
photo-identical process.
On January 30, 2004, Prather moved, pursuant to
Kentucky Rules of Civil Procedure (CR) 12, to dismiss Fairbanks’
claim on the ground that, according to Kentucky Revised Statutes
(KRS) 271B.14-210, a corporation that has been administratively
dissolved is prohibited from carrying on any business except
that which is necessary to wind up and liquidate its business. 3
Since Fairbanks had been administratively dissolved in 1991,
Prather argued, it was prohibited from entering into the 1993
contract and thus the contract was null and void.
Following an
evidentiary hearing, Fayette Circuit Court granted Prather’s
motion and dismissed Fairbanks’ claim with prejudice.
On appeal, Fairbanks cites Kentucky statutory law and
what it describes as the majority rule in arguing that
reinstatement of a dissolved corporation validates the actions
it took during the interim dissolution period.
Some states have reinstatement statutes that
specifically validate a dissolved corporation’s interim acts. 4
In contrast, other states have reinstatement statutes that are
silent regarding a dissolved corporation’s interim acts.
3
The
See note 2.
4
See Annot., Reinstatement of Repealed, Forfeited, Expired, or Suspended
Corporate Charter as Validating Interim Acts of Corporation, 42 A.L.R.4th 392
(2004).
-3-
majority rule among the latter group is that reinstatement
validates a dissolved corporation interim acts.
Fairbanks cites
J.B. Wolfe v. Salkind 5 as one of the leading cases adopting the
majority rule.
In that case, the New Jersey Supreme Court held
that reinstatement of a dissolved corporation relates back to
the date of dissolution and “validates corporate action taken in
the interim.” 6
The Court reasoned that
[t]he object of [corporate dissolution and
reinstatement statutes] being solely the
raising of revenue for the State . . . it
would be inequitable to permit third
persons, such as the defendants here, who
had dealt with the corporation in the period
when its charter had been forfeited to
defend suits against them on this ground
after the corporation had complied with [the
reinstatement statute] and it had been
reinstated as a corporation and entitled to
all its franchises and privileges. In good
conscience the defendants, who are strangers
to the dealings between plaintiff and the
State, should not be allowed to take
advantage of the plaintiff’s default in
paying its taxes to escape their own
obligations to the plaintiff, when its
default has been cured by its subsequent
compliance with the statutory requirements. 7
Relying on the reasoning found in J.B. Wolfe, Fairbanks
encourages us to adopt the majority rule.
5
3 N.J. 312, 70 A.2d 72, 13 A.L.R. 2d 1214 (N.J. 1949).
6
Id. at 76.
7
Id.
-4-
Fairbanks also relies on Tennessee law in support of
its argument.
Tennessee’s reinstatement statute, Tennessee Code
Annotated § 48-24-203(c), provides that
[w]hen the reinstatement is effective, it
relates back to and takes effect as of the
effective date of the administrative
dissolution, and the corporation resumes
carrying on its business as if the
administrative dissolution had never
occurred.
In comparison, Kentucky’s reinstatement statute, KRS 271B.14220(3), provides that
[w]hen the reinstatement is effective, it
shall relate back to and take effect as of
the effective date of the administrative
dissolution or revocation and the
corporation shall resume carrying on its
business as if the administrative
dissolution or revocation had never
occurred.
Both statutes are, Fairbanks observes, virtually
identical.
Moreover, Fairbanks points out that the Tennessee
Court of Appeals, relying on J.B. Wolfe, 8 adopted the majority
rule in 1983. 9
Inasmuch as our reinstatement statute and
Tennessee’s reinstatement statute are substantially the same,
and since Tennessee has adopted the majority rule, Fairbanks
urges us to follow suit.
In the alternative, Fairbanks contends that, given the
language found in KRS 271B.14-220(3), common sense dictates that
8
Supra, note 5.
9
Kerney v. Cobb, 658 S.W.2d 128, 131 (Tn. App. 1983).
-5-
reinstatement validates a corporation’s interim activities.
Fairbanks urges us not to adopt Prather’s interpretation since
it would render much of the language found in KRS 271B.14-220(3)
meaningless, contrary to the rules of statutory construction.
When we interpret a statute, we attempt to ascertain
and effectuate the intent of the General Assembly. 10
We also
construe the statute in such a way that, if possible, no part of
it will be rendered meaningless or ineffectual. 11
to nor subtract from the statute.
We neither add
Neither will we interpret it
in such a way as to produce an absurd result. 12
Since this is an issue of first impression in the
Commonwealth, we believe that J.B. Wolfe offers valuable
guidance in construing Kentucky’s reinstatement statute.
In
addition, we find the reasoning in Joseph A. Holpuch Co. v.
United States 13 useful as well.
In the latter case, Holpuch
entered into a contract with the federal government to do
extensive construction work for the Veterans’ Administration.
Later, the government’s contracting officer determined that
Holpuch would not be able to complete the work on time, so he
reformed the contract.
10
Holpuch sued the United States in the
KRS 446.080(1); Commonwealth v. Reynolds, 136 S.W.3d 442, 445 (Ky. 2004).
11
Hardin County Fiscal Court v. Hardin County Board of Health, 899 S.W.2d
859, 861 (Ky. App. 1995).
12
Commonwealth v. Reynolds, supra, note 10, at 445.
13
58 F. Supp. 560 (Ct. of Claims 1945).
-6-
Court of Claims for breach of contract.
The government moved
for dismissal and argued that, at the time Holpuch negotiated
the contract, it had been administratively dissolved for failing
to pay franchise taxes to the State of Illinois and consequently
was prohibited from conducting any business, including contract
negotiations.
Thus, the United States contended, the contract
was null and void. 14
Although the Court of Claims ultimately
dismissed Holpuch’s suit, it rejected the government’s argument
noting that Holpuch had been reinstated:
[W]e are of opinion that the decree vacating
the dissolution decree was intended to put
the plaintiff corporation in the same
situation as it would have been in had it
paid its franchise taxes when due. This is
because the decree vacating and setting
aside and holding for naught the former
decree was predicated on the fact that the
taxes in default had been paid and the
penalties had been paid for failure to pay
them when due. Had the taxes been paid when
due, there would have been no basis for the
entry of the dissolution decree. Their
subsequent payment, together with the
payment of penalties for non-payment when
due, removed the reason for the dissolution
and put the corporation in the same
situation it would have been in had the
taxes been paid when due.
. . .
So when [the State of Illinois] accepted
payment of taxes in default, together with
penalties, and set aside the dissolution
decree, we think it intended to validate the
14
Id. at 562.
-7-
exercise of the corporate franchise in the
years for which the taxes were paid.
. . .
[T]he defendant here [the United States]
cannot complain; its rights were in nowise
prejudiced thereby. Only the State levying
the taxes is interested in the
nonenforcement of contracts entered into
without prior payment of them. The other
contracting party is not injured thereby.
If defendant has breached its contract with
plaintiff, certainly it should not escape
liability therefore because the corporation
did not pay its taxes when due, where the
State, in consideration of the payment of
penalties, has forgiven the corporation
therefor. 15
When the General Assembly stated in KRS 271B.14-220(3)
that reinstatement
shall relate back to and take effect as of
the effective date of the administrative
dissolution . . . and the corporation shall
resume carrying on its business as if the
administrative dissolution . . . had never
occurred[,]
we conclude, applying the rationale of J.B. Wolfe and Joseph A.
Holpuch, that it intended for reinstatement to restore a
corporation to the same position it would have occupied had it
not been dissolved and that reinstatement validates any action
taken by a corporation between the time it was administratively
dissolved and the date of its reinstatement.
Simply put, the
General Assembly meant what it said, that upon reinstatement, it
15
Id. at 563.
-8-
is “as if the administrative dissolution . . . had never
occurred.” 16
Prather urges us to focus solely on the word “resume”
found in KRS 271B.14-220(3) and construe the statute to disavow
interim corporate activities.
This would effectively redact the
statute to read, “When the reinstatement is effective . . . the
corporation shall resume carrying on its business [.]”
However,
as noted above, we may not subtract language from a statute nor
may we render any of its language meaningless, if we can avoid
doing so.
Since Prather’s interpretation would do so, we
decline to adopt it.
The judgment is reversed and this case is remanded to
Fayette Circuit Court for further proceedings.
ALL CONCUR.
BRIEF FOR APPELLANT:
BRIEF FOR APPELLEE:
Charles A. Taylor
Lexington, Kentucky
William C. Rambicure
Rambicure, Miller & Pisacano,
P.S.C.
Lexington, Kentucky
16
KRS 271B.14-220(3).
-9-
Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You should read the full case before relying on it for legal research purposes.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.