Dismissal of Complaint With Prejudice Due To Violation of BCL § 1312 Modified To Allow Unregistered Foreign Corporation To Register With The State

Freiberger Haber LLP

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.[1] 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.[2]

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.”[3]

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.”[4] “Both raise constitutional questions, but the latter involves the due process clause while the former involves the interstate commerce clause.”[5] 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.[6]

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.”[7] Moreover, “whether [the business entity] was doing business in New York” is determined by looking “at the time the action was commenced.”[8]

Notably, “not all business activity engaged in by a foreign corporation constitutes doing business in New York.”[9] 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.[10]

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.”[11] The entity’s activities cannot be “merely casual or occasional.…”[12]

New York courts consider a number of factors, both quantitative and qualitative, when considering the entity’s activity in the State.[13] Among the factors the courts consider are: (a) whether the entity maintains a physical presence or has employees located within the State;[14] (b) the frequency and regularity of activities within the State;[15] and (c) the volume and nature of the activities within the State.[16]

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.[17] 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).”[18] 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.[19]

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.[20] 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.”[21]

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.[22] Instead, the courts conditionally grant the dismissal motion and provide the plaintiff with a reasonable time period to cure its deficiency under BCL § 1320.[23]

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,”[24] 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”.[25]

[1] See, e.g., BCL § 1312(a).

[2] See United Envtl. Techniques, Inc. v. State Dept. of Health, 88 N.Y.2d 824, 825 (1996) (finding that foreign corporation was not registered to do business in New York and therefore lacked capacity to sue).

[3] Von Arx, A.G. v. Breitenstein, 52 A.D.2d 1049, 1050 (4th Dept. 1976); see also National Lighting Co. v. Bridge Metal Indus., LLC, 601 F. Supp. 2d 556, 566 (S.D.N.Y. 2009) (additional citation omitted).

[4] Great White Whale Adver., Inc. v. First Festival Prods., 81 A.D.2d 704, 706 (3d Dept. 1981).

[5] Id.

[6] Id. (citations omitted).

[7] Id.

[8] Remsen Partners, Ltd. v. Southern Mgmt. Corp., No. 01 Civ. 4427, 2004 WL 2210254, at *3 (S.D.N.Y. 2004) (citation and internal quotation marks omitted) (alteration in original).

[9] Netherlands Shipmortgage Corp. v. Madias, 717 F.2d 731, 735-36 (2d Cir. 1983).

[10] Globaltex Group, Ltd. v. Trends Sportswear, Ltd., No. 09-CV-235, 2009 WL 1270002, at *3 (E.D.N.Y. May 6, 2009) (quoting Int’l Fuel & Iron v. Donner Steel, 242 N.Y. 224, 229 (1926)).

[11] Manney v. Intergroove Tontrager Vertriebs GMBH, No. 10 Civ. 4493, 2011 WL 6026507, at *8 (E.D.N.Y. Nov. 30, 2011) (quoting Netherlands Shipmortgage, 717 F.2d at 736) (alteration in original).

[12] United Arab Shipping Co. (S.A.G.) v. Al-Hashim, 176 A.D.2d 569, 570 (1st Dept. 1991); see also Maro Leather Co. v Aerolineas Argentinas, 161 Misc. 2d 920, 923 (Sup. Ct., App. Term 1st Dept. 1994) (“where a corporation’s activities within New York are merely incidental to its business in interstate and international commerce, BCL § 1312(a) is not applicable.”); Schwarz Supply Source v. Redi Bag USA, LLC, 64 A.D.3d 696, 696-97 (2d Dept. 2009) (same); Paper Mfrs. Co. v. Ris Paper Co., Inc., 86 Misc. 2d 95, 98 (Civ. Ct., N.Y. Cty. 1976) (noting that if a “foreign corporation is engaged in local business on more than an isolated or accidental basis, it must comply with the statute” and obtain authorization before bringing suit).

[13] Netherlands Shipmortgage, 717 F.2d at 738.

[14] Uribe v. Merchants Bank of New York, 266 A.D.2d 21, 21 (1st Dept. 1999) (Plaintiff was not doing business where it maintained no office or telephone listing, owned no real property and had no employees in the State).

[15] G.P. Exports v. Tribeca Design, 147 A.D.3d 655, 656 (1st Dept. 2017) (a single business transaction within the State did not warrant the application of BCL § 1312(a)).

[16] United Arab Shipping, 176 A.D.2d at 570 (Plaintiff was doing business within the State where its New York office employed approximately 17 full-time employees, actively solicited business, conducted sales activities, negotiated and executed contracts, and generated substantial in-state revenue).

[17] Netherlands Shipmortgage, 717 F.2d at 738; Von Arx, 52 A.D.2d at 1049; Airline Exch., Inc. v. Bag, 266 A.D.2d 414, 415 (2d Dept. 1999) (having a bank account, occasionally using an office in the State, and engaging in three transactions in the State, did not support a finding that the business activity was so systematic and regular and essential to its corporate activities as to constitute doing business in New York); 8430985 Canada Inc. v. United Realty Advisors LP, 148 A.D.3d 428 (1st Dept. 2017) (an investment vehicle not subject to the registration requirements of BCL § 1312(a)).

[18] Digital Ctr., S.L. v. Apple Indus., Inc., 94 A.D.3d 571, 572 (1st Dept. 2012) (citation omitted).

[19] Highfill, Inc. v. Bruce & Iris, Inc., 50 A.D.3d 742, 744 (2d Dept. 2008) (corporation was doing business where its regional vice president regularly sent employees to New York to manage “special sales,” and made approximately $6,600,000 in New York sales over several years).

[20] JPMorgan Chase Bank, N.A. v. Didato, 185 A.D.3d 801, 802-803 (2d Dept. 2020); Maro Leather, 161 Misc. 2d at 923.

[21] Cadle Co. v. Hoffman, 237 A.D.2d 555 (2d Dept. 1997); JPMorgan Chase, 185 A.D.3d at 803; Airline Exch., 266 A.D.2d at 415.

[22] Tri-Term. Corp. v. CITC Indus., Inc., 78 A.D.2d 609 (1st Dept. 1980).

[23] E.g., Showcase Limousine, Inc. v. Carey, 269 A.D.2d 133, 134 (1st Dept. 2000), mod in part, 273 A.D.2d 20 (1st Dept. 2000); Uribe, 266 A.D.2d at 22 (noting that the failure of the plaintiff to register with the State may be cured prior to the resolution of the action); Credit Suisse Int’l v. URBI, Desarrollos Urbanos, S.A.B. de C.V., 41 Misc. 3d 601, 604 (Sup. Ct., N.Y. County 2013) (ordering plaintiff to comply with BCL § 1312 within 60 days or face dismissal of its complaint).

[24] Slip Op. at *1 (citations omitted).

[25] Id. (citations omitted).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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