Service on an Unregistered Foreign CorporationPrint Article
- Posted on: Sep 23 2020
A threshold question for litigants is whether the court can exercise personal jurisdiction over the defendant. After all, a court cannot issue a valid and binding judgment without possessing such jurisdiction.
Assuming the court can exercise such jurisdiction, the next issue to consider is service of process. The Civil Practice Law and Rules (“CPLR”) govern the methods and manner of service in cases filed in the courts of New York. Where a corporation is a defendant, the Business Corporation Law (“BCL”) or the Limited Liability Company Law, as applicable, should also be considered.
In today’s article, we examine service of process upon a foreign corporation that is not registered to do business in the State of New York.
Service of Process Under the CPLR and the BCL
Section 311(1) of the CPLR provides that personal service upon a foreign or domestic corporation must be made by delivering the summons “to an officer, director, managing or general agent, or cashier or assistant cashier or to any other agent authorized by appointment or by law to receive service.” Pursuant to BCL § 304(a), “[t]he secretary of state shall be the agent of every domestic corporation and every authorized foreign corporation upon whom process against the corporation may be served.” Pursuant to BCL § 307(a), the Secretary of State is also authorized to receive service on behalf of unauthorized foreign corporations amenable to the State’s jurisdiction. Thus, when the Secretary of State is authorized to receive service on behalf of a corporation, delivery of the summons to the Secretary of State constitutes compliance with the jurisdictional requirements of CPLR § 311(1).
BCL §§ 306 and 307 contain additional requirements as to the manner of service of process when the Secretary of State is served on behalf of a corporation with the former containing the applicable provisions in the case of a domestic or foreign corporation registered to do business in New York and the latter containing the applicable provisions in the case of an unregistered foreign corporation. Both sections provide that delivery of process to the Secretary of State or his/her deputy or his/her designated agent must occur at the office of the Department of State in the City of Albany.
Under BCL § 306 (b), duplicate copies of process must be delivered to the Secretary of State. Service is complete when the Secretary of State is so served. Id. Pursuant to BCL § 307, only one copy of process has to be served to the Secretary of State and a second copy, together with notice of service on the Secretary of State, must be personally delivered to the foreign corporation or sent to it by registered mail with return receipt requested; service is complete 10 days after an affidavit of compliance, together with certain other papers, is filed with the clerk of the court in which the action is pending. BCL § 307(b), (c).
The requirements in BCL §§ 306 and 307 are jurisdictional and require strict compliance. Meyer v. Volkswagen of Am., 92 A.D.2d 488 (1st Dept. 1983).
Notably, New York permits service on unregistered, foreign corporations outside of New York “if the service through the Secretary of State of [the foreign corporation] was consistent with service under a New York statute other than [BCL] 307, then personal jurisdiction [is] validly obtained over defendant.” Breer v. Sears Roebuck & Co., 184 Misc. 2d 916, 921 (Sup. Ct., Bronx County 2000). Under CPLR § 313, a person or entity “may be served with the summons without the state, in the same manner as service is made within the state, by any person authorized to make service within the state or by any person authorized to make service by the laws of the state….” Thus, a defendant subject to long-arm jurisdiction in New York may be served outside of New York State in a manner consistent with New York law. Id. at 922.
The foregoing issues were recently considered by the Appellate Division, Third Department. In Garrow v. Pittsburgh Logistics Systems, Inc., 2020 N.Y. Slip Op. 05010 (3d Dept. Sept. 17, 2020) (here), the Court reversed the motion court’s order to extend the time for service on defendant Pittsburgh Logistics Systems, Inc. (PLS”), an unregistered foreign corporation, because plaintiff failed to comply with the requirements of BCL § 307.
Garrow v. Pittsburgh Logistics Systems, Inc.
In March 2018, plaintiffs filed a summons with notice in the Saratoga County Clerk’s office naming PLS and United Furniture Industries, Inc. (“United Furniture”) as defendants. Plaintiffs thereafter sought to effectuate service upon PLS, a foreign corporation not authorized to do business in New York, by personally delivering the summons with notice to an authorized agent of the Secretary of State and sending a copy of the summons with notice by registered mail, return receipt requested, to the address that PLS had registered with the Bureau of Corporations and Charitable Organizations within Pennsylvania’s Department of State. The mailing, however, was not ultimately received by PLS, having instead been returned to plaintiffs’ attorney as undeliverable – a fact, noted the Court, that went unnoticed by plaintiffs for several months. Slip Op. at *1.
In June 2018, plaintiffs filed a complaint, seeking to recover for personal injuries that plaintiff Ross Garrow had allegedly sustained during a furniture delivery to his place of employment. PLS learned of the personal injury action in July 2018 through correspondence from United Furniture’s insurance carrier and later sought and obtained a copy of the summons and complaint from the carrier. In September 2018, PLS filed an answer to the complaint, asserting various affirmative defenses, including lack of personal jurisdiction, and a cross claim against United Furniture.
Thereafter, PLS moved, pursuant to CPLR §§ 311(a) and 3211(a)(8), to dismiss the complaint against it on the ground that plaintiffs had failed to effectuate service in strict compliance with BCL § 307 and, thus, the motion court had not acquired personal jurisdiction over it. Plaintiffs opposed the motion and cross-moved for an order pursuant to CPLR § 2004 granting them a 30-day extension to file “the package containing the undelivered mailing of the [s]ummons with [n]otice” with the Saratoga County Clerk, as well as an order dismissing PLS’s affirmative defense alleging lack of personal jurisdiction. Slip Op. at *1. The motion court denied PLS’s motion, granted plaintiffs’ cross motion to the extent of affording them a 120-day extension of time under CPLR § 306-b “to start again” and otherwise denied plaintiffs’ cross motion. Id. PLS appealed.
In the proceedings below, plaintiffs conceded that they failed to strictly comply with the requirements of BCL § 307. Slip Op. at *1. In particular, plaintiffs failed to timely file within 30 days an affidavit of compliance, together with the process and “the return receipt signed by [PLS,] or other official proof of delivery or … the original envelope with a notation by the postal authorities that acceptance was refused.” Id. (citing BCL § 307(c)(2). In seeking to extend the 30-day period within which to file the affidavit of compliance and the requisite accompanying documents, plaintiff relied on the extension provision contained in CPLR § 2004. That section provides that, “[e]xcept where otherwise expressly prescribed by law, the court may extend the time fixed by any statute, rule or order for doing any act, upon such terms as may be just and upon good cause shown, whether the application for extension is made before or after the expiration of the time fixed.” Importantly, because the failure to strictly comply with the procedures of BCL § 307 constitutes a jurisdictional defect, rather than a mere irregularity, the 30-day time period in BCL § 307(c)(2) is not subject to extension under CPLR § 2004. See Flannery v. General Motors Corp., 86 N.Y.2d 771, 773 (1995); Flick v. Stewart-Warner Corp., 76 N.Y.2d 50, 56-57 (1990); Smolen v. Cosco, Inc., 207 A.D.2d 441, 441-442 (2d Dept. 1994). Thus, held the Court, the motion court “should have denied plaintiffs’ cross motion on this basis.” Slip Op. at *1.
“Instead,” noted the Court, “on its own initiative, [the motion court] used CPLR 2004 to grant plaintiffs an extension under CPLR 306-b, affording plaintiffs 120 days from the date of its decision and order ‘to start again; i.e., to re-serve PLS in full compliance with all of the terms of [Business Corporation Law] § 307.’” Id. In doing so, the motion court used the extension standard set forth in CPLR § 2004, rather than the one contained in CPLR § 306-b, which provides that a court may extend the 120-day time period for service following the commencement of the action “upon good cause shown or in the interest of justice.” The Court concluded that “[w]hen the proper standard [was] applied, plaintiffs would not have been entitled to an extension of time under CPLR 306-b to properly serve PLS in accordance with Business Corporation Law § 307. Id.
As noted, to be entitled to an extension of time to effectuate service upon a defendant under CPLR § 306-b, a plaintiff must make a showing of “good cause” for the failure to timely serve the defendant or, alternatively, that an extension of time is warranted “in the interest of justice.” The “good cause” showing is the more stringent ground for extension under CPLR § 306-b, requiring the plaintiff to establish that reasonably diligent efforts were made to effectuate service. See Leader v. Maroney, Ponzini & Spencer, 97 N.Y.2d 95, 104-105 (2001); Bumpus v. New York City Tr. Auth., 66 A.D.3d 26, 31-32 (2d Dept. 2009).
The Court found that “plaintiffs did not make reasonably diligent efforts to comply with the procedures of Business Corporation Law § 307.” Slip Op. at *1. The Court explained that “[a]lthough plaintiffs personally delivered the summons with notice to an authorized agent of the Secretary of State and sent a copy of the summons with notice by registered mail, return receipt requested, to the address that PLS had registered with the Bureau of Corporations and Charitable Organizations within Pennsylvania’s Department of State (see Business Corporation Law § 307 [a], [b] ), they made absolutely no effort to thereafter file the affidavit of compliance and the requisite accompanying documents (see Business Corporation Law § 307 [c] ).” Id. Moreover, noted the Court, “the excuse provided for plaintiffs’ failure to timely serve PLS in accordance with Business Corporation Law § 307 amount[ed] to law office failure, an excuse that has been held to be insufficient to constitute good cause.” Id. (citing Leader, 97 N.Y.2d at 104-105; Zegelstein v. Faust, 179 A.D.3d 541, 542 (1st Dept. Jan. 21, 2020); Rodriguez v. Consolidated Edison Co. of N.Y., Inc., 163 A.D.3d 734, 736 (2d Dept. 2018). Thus, concluded the Court, “as plaintiffs did not make the requisite showing, they [were] not entitled to an extension ‘upon good cause’ under CPLR 306-b.” Id.
Addressing the alternative “interest of justice” standard, the Court analyzed “the factual setting of the case” and balanced “the competing interests presented by the parties.” Id. (quoting Leader, 97 N.Y.2d at 105). In conducting the analysis, “courts may consider the plaintiff’s diligence in attempting service, ‘along with any other relevant factor …, including [the] expiration of the [s]tatute of [l]imitations, the meritorious nature of the cause of action, the length of delay in service, the promptness of a plaintiff’s request for the extension of time, and [any] prejudice to [the] defendant.” Id. (quoting Leader, 97 N.Y.2d at 105-106; Heath v. Normile, 131 A.D.3d 754, 755 (3d Dept. 2015).
“In addition to plaintiffs’ failure to make reasonably diligent efforts to effectuate service pursuant to Business Corporation Law § 307,” said the Court, “plaintiffs did not seek an extension of time to complete service until November 2018 — approximately four months after sending a copy of the summons with notice to PLS by registered mail and roughly eight months after filing the summons with notice.” Slip Op. at *1. Notably, observed the Court, “[s]uch extension request was not prompted by plaintiffs’ own discovery of their failure to comply with Business Corporation Law § 307 (c) (2); rather, it was in response to PLS’s motion to dismiss the complaint against it for failure to properly effectuate service.” Id.
Finally, said the Court, although the motion court was under the impression that the statute of limitations had not yet run, there was “no indication in the record as to why the three-year statute of limitations did not expire in March 2016, three years after the alleged injuries occurred and two years prior to the commencement of th[e] action.” Id. (footnote omitted) (citing CPLR § 214(5). “Together,” concluded the Court, “the foregoing considerations weigh[ed] heavily against an extension under CPLR 306-b in the interest of justice.” Id. (citing Zegelstein, 179 A.D.3d at 542-543; Jung Hun Cho v. Bovasso, 166 A.D.3d 868, 870 (2d Dept. 2018).
Accordingly, the Court held that the motion court should have granted PLS’s motion to dismiss the complaint against it and denied plaintiffs’ cross motion.
Garrow shows that the failure to comply with the requirements of BCL § 307 will result in dismissal of the action. Such requirements are jurisdictional and not mere irregularities.
Garrow also highlights the interplay between CPLR § 306-b and BCL § 307. Under CPLR § 306-b, if the plaintiff fails to comply with the service requirements of the CPLR and, as in Garrow, the BCL, “the court, upon motion, shall dismiss the action without prejudice as to that defendant, or upon good cause shown or in the interest of justice, extend the time for service.” The “good cause” and “interest of justice” prongs of Section 306-b constitute separate grounds for extensions, and are defined by separate criteria. Leader, 97 N.Y.2d at 104.
“A good cause extension requires a showing of reasonable diligence in attempting to effect service upon a defendant.” Henneberry v. Borstein, 91 A.D.3d 493, 496 (1st Dept. 2012) (internal quotation marks omitted). “Good cause will not exist where a plaintiff fails to make any effort at service … or fails to make at least a reasonably diligent effort at service.” Bumpus, 66 A.D.3d at 31. Law office failure does not constitute “good cause”. Henneberry, 91 A.D.3d at 496. “By contrast, good cause may be found to exist where the plaintiff’s failure to timely serve process is a result of circumstances beyond the plaintiff’s control.” Bumpus, 66 A.D.3d at 31-32 (internal citations omitted) (noting difficulties of service with a person in the military or difficulties with service abroad through the Hague Convention).
The interest of justice standard, however, is more lenient, allowing courts to accommodate late service that might be attributed to mistake, confusion or oversight, so long as it does not prejudice the defendants. Leader, 97 N.Y.2d at 104-105. As noted, courts may consider such factors as diligence, or lack thereof; the expiration of the statute of limitations; the meritorious nature of the causes of action; the length of the delay in service; the promptness of plaintiff’s request for an extension of time; and the prejudice to defendants. See Spath v. Zack, 36 A.D.3d 410, 413-414 (1st Dept. 2007).
In Garrow, the Court found that plaintiffs could not satisfy either the “good cause” or the “interest of justice” standards.