In New York, foreign entities – that is, corporations, limited liability companies and partnerships authorized to do business in another jurisdiction or country – are required to register to business with the Secretary of State. The failure to receive such authority deprives the foreign entity of the ability to affirmatively access the courts of New York and subjects any action commenced by the foreign entity to dismissal.
The purpose of the registration requirement is to regulate foreign companies that are conducting business within New York State so that they are not doing business under more advantageous terms than “those allowed a corporation of this State.”
When applying BCL § 1312(a), the subject of today’s article, the relevant inquiry is whether the foreign entity is “doing business” in the State. The test of doing business in New York for the purpose of BCL § 1312(a) “is not the same as that for jurisdictional purposes.” “Both raise constitutional questions, but the latter involves the due process clause while the former involves the interstate commerce clause.” In construing statutes which license foreign corporations to do business within New York State, the courts try to avoid any interference by the State with interstate commerce.
Whether a company is “doing business” in New York “depends upon the particular facts of each case with inquiry into the type of business activities being conducted.” Moreover, “whether [the business entity] was doing business in New York” is determined by looking “at the time the action was commenced.”
Notably, “not all business activity engaged in by a foreign corporation constitutes doing business in New York.” A foreign corporation is permitted to transact “some kinds of business within the state without procuring a certificate” authorizing it to conduct business in New York.
In order for a foreign corporation to be doing business in New York within the context of BCL § 1312, “the intrastate activity of the foreign corporation [must] be permanent, continuous, and regular.” The entity’s activities cannot be “merely casual or occasional.…”
New York courts consider a number of factors, both quantitative and qualitative, when considering the entity’s activity in the State. Among the factors the courts consider are: (a) whether the entity maintains a physical presence or has employees located within the State; (b) the frequency and regularity of activities within the State; and (c) the volume and nature of the activities within the State.
Merely entering into a single contract, engaging in an isolated piece of business, or engaging in an occasional undertaking will not suffice to invoke application of BCL § 1312. Similarly, “the solicitation of business and facilitation of the sale and delivery of merchandise incidental to business in interstate and/or international commerce is typically not the type of activity that constitutes doing business in the state within the contemplation of section 1312 (a).” However, regularly and continuously entering the State to solicit, complete and manage sales to customers in New York may constitute doing business in the State.
The party seeking dismissal under BCL § 1312(a) must show that the business activities within the State were so systematic and regular as to manifest continuity of activity. Absent sufficient evidence to establish that a plaintiff is doing business in the State, “the presumption is that the plaintiff is doing business in its State of incorporation … and not in New York.”
Finally, if the foreign business entity is found to have been continuously and regularly conducting business in the State, the courts often refrain from dismissing the action. Instead, the courts conditionally grant the dismissal motion and provide the plaintiff with a reasonable time period to cure its deficiency under BCL § 1320.
In Central Care Solutions, LLC v. Grand Great Neck, LLC, 2023 N.Y. Slip Op. 04749 (2d Dept. Sept. 27, 2023) (here), the Appellate Division, Second Department considered the foregoing principles in modifying the dismissal of a complaint with prejudice on BCL § 1312(a) grounds.
Central Care Solutions is an action to recover damages for, inter alia, breach of contract. The action was commenced in January 2020 by Clean-Tex Services, Inc. (“Clean-Tex”) and two other plaintiffs.
In March 2020, defendants moved to dismiss the amended complaint insofar as asserted by Clean-Tex on the ground that, inter alia, Clean-Tex lacked the capacity to sue pursuant to BCL § 1312(a), as it was a foreign corporation doing business in New York without registering to do so. Clean-Tex opposed the motion.
On November 2, 2020, the motion court granted the motion with respect to Clean-Tex, directing that Clean-Tex take all necessary actions to obtain authorization to conduct business in New York within six months or else the amended complaint insofar as asserted by Clean-Tex would be dismissed with prejudice upon defendants’ submission of a proposed order of dismissal.
Clean-Tex did not obtain authorization to conduct business in New York by the court-ordered deadline of April 29, 2021. However, on April 23, 2021, Clean-Tex submitted an affirmation to the motion court, with notice to defendants, acknowledging that it had not yet obtained the authorization and explaining its efforts so far. In this affirmation, without a notice of motion, Clean-Tex requested a 90-day extension to comply with the motion court’s November 2, 2020 order.
On April 30, 2021, one day after the court-ordered deadline, defendants submitted a proposed order and argued that the amended complaint insofar as asserted by Clean-Tex should be dismissed with prejudice. In response, Clean-Tex once again requested an extension to comply with the order and argued that dismissal with prejudice would be a disproportionate and drastic remedy.
On May 17, 2021, the motion court entered judgment dismissing the amended complaint insofar as asserted by Clean-Tex with prejudice. On June 8, 2021, 40 days past the court-ordered deadline, Clean-Tex obtained its authorization to conduct business in New York.
As noted, on appeal, the Second Department modified the judgment to make the dismissal without prejudice.
In a terse opinion, after briefly discussing the purpose of BCL § 1312(a), and noting “the clear preference for disposition of cases on the merits,” the Court held that, “[u]nder all of the circumstances present here, … the Supreme Court … improvidently exercised its discretion in” dismissing the amended complaint as asserted by Clean-Tex “with prejudice”.
