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Foreign Corporation Not Engaged in Continuous and Systemic Business in New York Not Barred Under BCL § 1312(a) From Bringing Action

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  • Posted on: Sep 17 2018

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). Business entities that do business in New York without authority may not affirmatively use the courts of the State until they obtain authority to do so. BCL §1312(a).

Whether an entity is “doing business” in New York is an issue of fact. Highfill, Inc. v. Bruce & Iris, Inc., 50 A.D.3d 742, 743 (2d Dept. 2008). In order for a foreign corporation to be “doing business” within the meaning of BCL § 1312(a), “the corporation must be engaged in a regular and continuous course of conduct in the State.” Commodity Ocean Transp. Corp. of N.Y. v Royce, 221 A.D.2d 406, 407 (2d Dept. 1995). If the entity’s activity is essential to its business, it will be deemed to be doing business within the State. If the activity is merely incidental to the business, it will not. Highfill, 50 A.D.3d at 744.

A defendant relying upon BCL § 1312(a) as a statutory bar to a plaintiff’s lawsuit “bears the burden of proving that the [plaintiff] corporation’s business activities in New York ‘were not just casual or occasional,’ but ‘so systematic and regular as to manifest continuity of activity in the jurisdiction.’” S & T Bank v. Spectrum Cabinet Sales, 247 A.D.2d 373, 373 (2d Dept. 1998), quoting Peter Matthews, Ltd. v. Robert Mabey, Inc., 117 A.D.2d 943, 944 (3d Dept. 1986). 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).

On August 14, 2018, Justice Sylvia G. Ash of the Supreme Court, Kings County, Commercial Division, issued a decision in Radiance Capital Receivables Twelve LLC v. JPMorgan Chase Bank, N.A., 2018 N.Y. Slip Op. 32092(U) (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.

Radiance Capital involved a special proceeding to enforce a judgment that Radiance Capital Receivables Twelve LLC (“Radiance Capital” or “Petitioner”) obtained against Alexander Klein (“Alexander”). In connection with Radiance Capital’s collection efforts, it served a restraining notice and information subpoena on the Respondent JPMorgan Chase Bank, N.A. (“Chase”). In response to the information subpoena, Chase advised Radiance Capital that it had in its possession a safe deposit box that was jointly owned by Alexander and Respondents, Joseph Klein (“Joseph”) and Betty Klein (“Betty”), and that the box had been restrained pursuant to the restraining notice. Radiance Capital commenced the proceeding pursuant to CPLR 5225(b) against Respondents seeking a turnover of the contents in the safe deposit box.

By Decision and Order dated June 6, 2018 (“Denial Order”), the Court denied Radiance Capital’s application for a turnover on the basis that it lacked standing to maintain the application as it was not licensed or authorized to do business in New York pursuant to the BCL or the LLCL.

Radiance Capital sought reargument of the Denial Order contending that it had standing because it qualified as a “foreign investment corporation” under New York Banking Law Article l §2(10), which allows it to perform the same functions and enjoy the same privileges as a banking corporation in the State.

Joseph opposed the application arguing, among other things, that Radiance Capital had not shown that it is a foreign investment corporation or that a foreign investment corporation is the equivalent a bank.

In response, Radiance Capital maintained, among other things, that it met the definition of a “foreign investment company” because it is a limited liability company organized under the laws of the state of Washington and that its principal business is the purchase of mortgages on distressed real property and the notes attributable thereto in the secondary market. Radiance Capital argued that its business activities in New York were limited to the underlying action and enforcing its judgment – that is, its activities primarily involved interstate commerce.

The Court granted the motion to reargue, and upon reargument denied the motion to dismiss on BCL §1312(a) grounds. The Court found that Joseph failed to show that Radiance Capital’s activities in New York were “systematic and regular as to manifest continuity of activity in the jurisdiction.” Moreover, the Court accepted Radiance Capital’s representation that “at the present time, its only activity in New York relates to the enforcement of the judgment at issue here.” The Court noted that “Joseph fail[ed] to present any fact to the contrary.”

Takeaway

Under New York law, a foreign business entity – that is, a business entity formed under the laws of another state or foreign government – may not do business in New York until it has been authorized to do so.  BCL § 1301 (“A foreign corporation shall not do business in this state until it has been authorized to do so as provided in this article.”). Business entities that do business in New York without authority may not affirmatively use the State’s courts until they obtain authority to do so. BCL §1312(a). As a result, the entity’s action is subject to dismissal. In that regard, some courts have conditioned dismissal upon the continued failure of the foreign entity to comply with Section 1312, while other courts have unconditionally dismissed claims for failure to comply with the BCL. Nasso v. Seagal, 263 F. Supp. 2d 596,607 (E.D.N.Y. 2003) (collecting cases).

Motions to dismiss on BCL §1312(a) grounds are fact intensive. As Radiance Capital 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 Radiance Capital, or if its activities qualify as purely interstate commerce, may save the case from dismissal under BCL § 1312(a). However, if the entity is “doing business” in New York, and dismissal ensues, then the entity may face a statute of limitations issue.  In that event, the entity should obtain authority to do business in the State and, if possible, file a new lawsuit.

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