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Two Recent Second Department Cases Remind Us That Business Entities Should Keep Up-To-Date Mailing Addresses On File With The Secretary Of State

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  • Posted on: Sep 14 2018

If a domestic or authorized foreign corporation is named as a defendant in a lawsuit pending in New York, section 306 of New York’s Business Corporation Law permits service of process on that corporation through the New York secretary of state.  Pursuant to BCL § 306, “[s]ervice of process on search corporation shall be complete when the secretary of state is so served.” (See BCL § 306.)  Once served, the “secretary of state shall promptly send one of such copies by certified mail, return receipt requested, to such corporation, at the post office address, on file in the department of state, specified for that purpose.”  (See BCL § 306.)  The same procedure is available for service upon a limited liability company.  (See § 303 of New York’s Limited Liability Company Law) Due to the relative ease of service of process, business entities are frequently served pursuant to BCL § 306 and LLC § 303.  Accordingly, it is important that business entities maintain up-to-date addresses with the secretary of state so that they will be promptly notified when they are served with process.  Frequently, however, corporations are not diligent in this regard and, therefore, default in responding to legal process.

Under such circumstances, the defaulting business entity may be afforded some relief under CPLR § 317, which provides:

A person served with a summons other than by personal delivery to him … within or without the state, who does not appear may be allowed to defend the action within one year after he obtains knowledge of entry of the judgment, but in no event more than five years after such entry, upon a finding of the court that he did not personally receive notice of the summons in time to defend and has a meritorious defense.  If the defense is successful, the court may direct and enforce restitution in the same manner and subject to the same conditions as where a judgment is reversed or modified on appeal….

Similarly, relief may also be available under CPLR 5015(a), which provides that, on motion:

[t]he court which rendered a judgment or order may relieve a party from it upon such terms as may be just, on motion of any interested person with such notice as the court may direct, upon the ground of:

1. excusable default, if such motion is made within one year after service of a copy of the judgment or order with written notice of its entry upon the moving party, or, if the moving party has entered the judgment or order, within one year after such entry….

The New York Court of Appeals, in Eugene DiLorenzo, Inc. v. A. C. Dutton Lumber Corp., 67 N.Y.2d 138 (1986), addressed CPLR §§ 317 and 5015.  There, defendant was served with process through the New York Secretary of State.  The process mailed to the defendant was returned to the Secretary of State with the notation “moved, not forwardable,” because defendant did not update its address after relocating.  As is typically the case, defendant moved to vacate a default judgment after a restraining notice was served on defendant’s bank.  In its motion papers, defendant argued: that plaintiff knew defendant’s new address and made no effort to serve defendant personally; and, offered a defense to plaintiff’s claim.  On the other hand, plaintiff argued that defendant “deliberately failed to update its address with the Department of State in an attempt to defraud creditors, and that its default was therefore willful.”

The Eugene Di Lorenzo Court also noted that defendant’s order to show cause failed to indicate the statutory provision upon which it relied in seeking to vacate the default judgment, but that the attorney’s supporting affidavit “set forth entitlement to relief under CPLR 5015(a).”  A defendant seeking relief under CPLR 5015, the Eugene Di Lorenzo Court stated, “must demonstrate a reasonable excuse for its delay in appearing and answering the complaint and a meritorious defense to the action.”  The Court then discussed that “[a] second provision for obtaining relief from a default judgment is found in CPLR 317” and that “there is no necessity for a defendant moving pursuant to CPLR 317 to show a ‘reasonable excuse’ for its delay.”  Although the Eugene Di Lorenzo defendant failed to move under CPLR 317, the Court of Appeals held that “a court has the discretion to treat a CPLR 5015(a) motion as having been made as well pursuant to CPLR 317,”  and determined that “the decision by Special Term to consider CPLR 317 was not an abuse of discretion, and reversal by the Appellate Division ‘on the law’ was improper.”

The Court noted that “[a] defendant who meets the requirements of that section normally will be entitled to relief, although relief is not automatic, as the section states that a person meeting its requirements ‘may be allowed to defend the action.’”  (Emphasis in original.)   Thus, the Court suggested that relief under CPLR 317 may be unavailable where the defendant made a deliberate attempt to avoid notice of the summons.  The Court also noted that there is no per se rule under CPLR 5015 that a corporation served through the Secretary of State, that failed to update its address, cannot demonstrate “excusable default”.

On September 12, 2018, the Supreme Court of the State of New York, Appellate Division, Second Department, issued two decisions applying CPLR 317.  In Acqua Capital, LLC v. 510 West Boston Post Road, LLC, an action to foreclose a tax lien, the Acqua court affirmed an order vacating a judgment of foreclosure and sale pursuant to CPLR 317 “on the condition that [defendant] pay all amounts owed within 30 days of the date of the order.”

In Acqua, the defendant moved to vacate its default “on the ground that it never received notice of the delinquency, of its right to redeem, or of the foreclosure action, and that it had paid other municipal taxes of which it received notice and was ready, willing, and able to pay the Village taxes at issue and all of the plaintiff’s expenses in acquiring and enforcing the lien.” In granting relief to the defendant, the Acqua court found that a meritorious defense to the foreclosure action was articulated and that the “evidence does not suggest that [defendant’s] failure to update its service address with the Secretary of State while its principal offices were undergoing renovations constituted a deliberate attempt to evade notice….”

Dwyer Agency of Mahopac, LLC v. Dring Holding Corp., is a breach of contract action in which the defendant was served through the Secretary of the State.  After the defendant failed to appear in the action, the Dwyer court entered judgment against it for in excess of $17,000.  Four months after the default order and one month after the entry of judgment, defendant move to vacate the default pursuant to CPLR 317 and 5015(a)(1).  In determining under CPLR 317 that the “defendant failed to establish that it did not personally receive notice of the summons in time to defend the action,” the Dwyer court stated that:

[h]owever, the “mere denial of receipt of the summons and complaint is not sufficient to establish lack of actual notice of the action in time to defend for the purpose of CPLR 317.”  Here, the defendant failed to establish that it did not personally receive notice of the summons in time to defend the action. The affidavit of the defendant’s representative, who appears to be an attorney, stated that the complaint was not delivered “personally” to the defendant, but rather, “to an inaccurate address through the Secretary of the State,” which address had not been valid “for several years.”  This representative’s affidavit does not appear to be based on personal knowledge.  Furthermore, there is no allegation contained in the affidavit that the defendant, in fact, never received a summons and complaint, nor is there any detail as to where the defendant moved to and when, nor whether defendant made any efforts to update its address on file with the Secretary of State.  Under these circumstances, the defendant did not demonstrate lack of actual notice of the action.

The Dwyer court also found that defendant failed to establish a reasonable excuse for the default under CPLR 5015(a)(1) because the court should consider, among other factors, the length of time for which the address that had not been kept current and “[h]ere, no evidence was presented as to how long the address was not updated.”

TAKEAWAY

Make every effort to keep a business entity’s mailing address current with the Secretary of State to avoid default judgments and/or the cost, expenses and uncertainty of seeking to have a default judgment vacated.

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