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Failure to Demonstrate that Foreign Company Had Engaged in Systemic and Regular Activity in New York Results in Denial of Dismissal Motion Under BCL § 1312(a)

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  • Posted on: Mar 18 2020

As a general matter, business entities (e.g., for-profit and not-for-profit corporations, limited liability companies, and limited partnerships) formed outside the State of New York (whether in another state or a foreign country) may not do business within the State unless they receive authority to do so. See generally, Business Corporation Law (“BCL”) §§ 1301-1320 (corporations), Limited Liability Company Law (“LLCL”) §§ 801-809 (limited liability companies), Not-for-Profit Corporation Law §§ 1301-1321 (not-for-profit corporations), and Partnership Law §§ 121-901 – 121-908 (limited partnerships).  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. See United Envtl. Techniques, Inc. v. State Dep’t 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).

Under BCL § 1312(a), also known as the “door-closing statute” (Netherlands Shipmortgage Corp. v. Madias, 717 F.2d 731, 735 (2d Cir. 1983)), 

a foreign corporation doing business in this state without authority shall not maintain any action or special proceeding in this state unless and until such corporation has been authorized to do business in this state and it has paid to the state all fees and taxes imposed under the tax law or any related statute …. 

The purpose of BCL § 1312 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.” 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). The statute is not intended to permit foreign companies from avoiding their contractual obligations. Id. 

When applying BCL § 1312(a), the relevant inquiry is whether the foreign entity is “doing business” in the State. 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.” Von Arx, 52 A.D.2d at 1050.

Notably, “not all business activity engaged in by a foreign corporation constitutes doing business in New York.” Netherlands Shipmortgage, 717 F.2d at 735-36. 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. 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)). 

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.” 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). The entity’s activities cannot be “merely casual or occasional.…” 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).

New York courts consider a number of factors, both quantitative and qualitative, when considering the entity’s activity in the State. Netherlands Shipmortgage, 717 F.2d at 738. Among the factors the courts consider are: (a) whether the entity maintains a physical presence or has employees located within the State (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); (b) the frequency and regularity of activities within the State (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)); and (c) the volume and nature of the activities within the State (United Arab Shipping Company v. Al-Hashim, 176 A.D.2d 569 (1st Dept. 1991) (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). 

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. Netherlands Shipmortgage, 717 F.2d at 738; Von Arx, 52 A.D.2d at 1049 (the shipment of goods into New York from a foreign country for further shipment within or without the state is considered incidental to interstate and international commerce); 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)). 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).” Digital Ctr., S.L. v. Apple Indus., Inc., 94 A.D.3d 571, 572 (1st Dept. 2012) (citation omitted). 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. 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).

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. Maro Leather, 161 Misc. 2d at 923). 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.” Cadle Co. v. Hoffman, 237 A.D.2d 555 (2d Dept. 1997); see also Highfill, 50 A.D.3d at 744. 

“[W]hether [the business entity] was doing business in New York” is determined by looking “at the time the action was commenced.” 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).

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. Tri-Term. Corp. v. CITC Indus., Inc., 78 A.D.2d 609 (1st Dept. 1980). Instead, the courts conditionally grant the dismissal motion and provide the plaintiff with a reasonable time period to cure its deficiency under BCL § 1320. 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 (“In any event, the failure of plaintiff to obtain a certificate pursuant to BCL 1312 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).

[Ed. Note: This Blog previously examined BCL § 1312(a) here.]

On March 11, 2020, Justice Louis L. Nock of the Supreme Court, New York County issued a decision in Bilcare GCS, Inc. v. Spring Bio Solutions, Ltd., 2020 NY Slip Op 30772(U) (Sup. Ct., N.Y. County Mar. 11, 2020) (here), in which the Court denied a motion to dismiss under BCL § 1312(a) on the grounds that the plaintiff was not “doing business” in New York. 

Bilcare GCS, Inc. v. Spring Bio Solutions, Ltd.

Background

Bilcare arose from a dispute between two foreign corporations that were both in the business of procurement and supply of rare or difficult to obtain pharmaceutical goods. Plaintiff, Bilcare GCS, Inc. (“Bilcare”), is a Delaware corporation with its principle place of business in Pune, India, and Defendant, Spring Bio Solutions, Ltd. (“Spring Bio”), is an English corporation with its principle place of business in the United Kingdom. 

On or about July 7, 2016, Bilcare received an order from non-party Reliant Specialty LLC (“Reliant”) for a supply of certain difficult to obtain pharmaceutical goods, which it was to supply to Reliant in New Britain, Connecticut. By a purchase order dated January 24, 2017 (the “Purchase Order”), Bilcare ordered the pharmaceutical goods from Spring Bio for $990,000. Spring Bio was to deliver the goods to non-party PHSE, USA (“PHSE”) in Elmont, New York. As alleged, Spring Bio delivered or attempted to deliver goods to PHSE that did not conform with the Purchase Order. 

Bilcare brought the action in November 2018 to recover the damages for the portion of the order that was unfulfilled or non-conforming.

On April 26, 2019, Spring Bio filed a pre-answer motion, seeking dismissal of the action pursuant to CPLR § 3211(a)(3) and BCL § 1312(a) on the grounds that Bilcare lacked capacity to bring the action because it is a foreign corporation doing business in New York and had failed to register with the New York Secretary of State. The Court denied the motion.

The Court’s Decision

The Court held that Spring Bio failed demonstrate that Bilcare was doing business in New York. At most, said the Court, “Defendant … demonstrated that Plaintiff shipped a single sale involving a pharmaceutical to a New York address, utilized a New York bank account, and engaged the services of a third-party company located within New York to receive mail and provide administrative services on its behalf in order to facilitate its business activities.” Slip Op. at *4. “Plaintiff’s use of a New York bank account and engagement of a New York company to receive mail and provide administrative services on its behalf do[es] not constitute ‘doing business’ within the state.” Id. at *5 (citation omitted). 

The Court noted that Bilcare did “not own or lease real property in the state, maintain an office, have employees in New York, or conduct advertising or marketing activities in the state.” Id. at *5. Instead, Bilcare took minimal steps to facilitate a transaction “between two foreign corporations” that “took place outside the state.” Id. “[T]he mere shipment of goods purchased outside the state into New York does not constitute ‘doing business’ for the purposes of BCL § 1312,” said the Court. Id. (citation omitted).

Finally, the Court rejected Spring Bio’s contention that because Bilcare’s business “include[d] the purchase, sale, and shipment of pharmaceuticals … that the State[] normally regulates … even de minimis activity … should constitute ‘doing business’ for the purposes of the statute.” Slip Op. at *6. Such an argument, held the Court was “supported by neither fact nor law.” Id.  In any event, noted Justice Nock, “[t]he question of Plaintiff’s compliance or non-compliance with relevant portions of [New York statutory law] governing the sale and distribution of pharmaceuticals is not before this court at this time.” Id. Without evidence and briefing on the issue, the Court held that it could not make a ruling on the argument, especially since the record consisted solely of “the description of a single transaction set forth in the pleadings.” Id.

Takeaway

Motions to dismiss on BCL § 1312(a) grounds are fact intensive. As Bilcare shows, courts will examine the facts and circumstances to determine whether the business activities of a foreign business entity in New York are “systematic and regular,” intrastate in nature, and essential to the plaintiff’s business. A finding that the entity is not “doing business” in New York, as in Bilcare, can save the case from dismissal under BCL § 1312(a). 

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