Summary
In Paper Manufacturers, supra, a Pennsylvania paper manufacturer was found to be doing business in New York under B.C.L. § 1312 based on the company's intrastate business activity.
Summary of this case from Netherlands Shipmortgage Corp. v. MadiasOpinion
March 19, 1976
Milton S. Zeiberg for defendant.
Samuels Roth (Allan Charles Samuels of counsel), for plaintiff.
If a foreign corporation does business in New York without a certificate of authority it is precluded from access to our courts unless and until it obtains such certificate and pays all arrears in fees, penalties and taxes (Business Corporation Law, § 1312).
On the eve of trial herein defendant, relying on this statute, moves to dismiss plaintiff's cause of action. Plaintiff opposes claiming waiver under CPLR 3211 (subd [a], par 3; subd [e]).
This is an action for goods sold and delivered. Plaintiff is a Pennsylvania paper manufacturer who sold to several New York paper distributors including defendant. During the period in question plaintiff's Mr. Nolan was regularly in New York with the title "Manager, New York District" and there was an office and telephone listing here in plaintiff's name. In addition to selling and servicing accounts Mr. Nolan also regularly called upon major ultimate users of papers to promote specification of plaintiff's products when they ordered labels for their merchandise. Plaintiff never obtained a certificate of authority from the Secretary of State.
No real dispute of fact exists except that plaintiff claims that the office and telephone listing here were maintained not by it but by Mr. Nolan for his individual convenience.
Turning first to the procedural point, there is no waiver worked by the provisions of CPLR 3211, nor by defendant's interposition of a counterclaim (Ac-Tin-O-Lyte Roofing Co. v Werner, 209 App. Div. 742; American Can Co. v Grassi Contr. Co., 102 Misc. 230, but see Angldile Computing Scale Co. v Gladstone, 164 App. Div. 370, 375 ). The Ac-Tin-O-Lyte case (supra) arose before the CPLR but the pertinent provisions of CPLR 3211 were carried over from section 278 of the Civil Practice Act then in effect.
The apparent inconsistency between the Ac-Tin-O-Lyte result and the procedural statutes has been defended on public policy grounds (Yager v Yager, 214 App. Div. 671; see Bonnell Co. v Katz, 23 Misc.2d 1028, 1031; see Penn Collieries v McKeever, 183 N.Y. 98, 102).
A better view of the Ac-Tin-O-Lyte result, however, is that section 1312 of the Business Corporation Law and its predecessors in the General Corporation and Stock Corporation Laws do not create any disability inherent in the character of the foreign corporation. Hence there is no true legal incapacity to sue (Hooton Chocolate Co. v Star Chocolate Novelties, 63 Misc.2d 482; Ascher Corp. v Horvath, 35 Misc.2d 375). The foreign corporation is not precluded from commencing an action. Once the action is started the foreign corporation is entitled to a presumption that it is doing business in the State of its organization and not here. If that presumption is rebutted, the foreign corporation's right to "maintain" the action is merely suspended until compliance. Proof of compliance then becomes part of the prima facie case, and the Ac-Tin-O-Lyte result stands for the simple proposition that failure to thus prove a prima facie case can be raised at any time prior to judgment. On the other side of the coin, lack of compliance with section 1312 of the Business Corporation Law can be cured at any time prior to judgment (Hot Roll Mfg. Co. v Cerone Equip. Co., 38 A.D.2d 339; Dixie Dinettes v Schaller's Furniture, 71 Misc.2d 102, 104-105; Oxford Paper Co. v S.M. Liquidation Co., 45 Misc.2d 612; Bonnell Co. v Katz, 23 Misc.2d 1028, 1030; Globe Knitwear Co. v Screen Modes, NYLJ, July 15, 1971, p 10, col 1).
Turning now to the substance of the motion, the test of doing business in New York for the purpose of section 1312 of the Business Corporation Law and its predecessors is not the same as doing business here for jurisdictional purposes. They both raise constitutional questions, but the latter involves the due process clause while the former involves the interstate commerce clause. Judge CARDOZO himself emphasized this distinction in the seminal Tauza v Susquehanna Coal Co. ( 220 N.Y. 259, 266-267) and its companion International Text Book Co. v Tone 220 N.Y. 313, 318).
It is often asserted that more is necessary for section 1312 of the Business Corporation Law purposes than for jurisdiction (International Text Book Co. v Tone, supra; Librairie Hachette, S.A. v Paris Book Center 62 Misc.2d 873; Marion Labs. v Wolins Pharmacal Corp., NYLJ, Nov. 24, 1969, p 17, col 7, affd 34 A.D.2d 895, affd 28 N.Y.2d 884). Lending support thereto and even more frequent are the cases which articulate the test in terms of corporate continuity of conduct here (Penn Collieries Co. v McKeever, 183 N.Y. 98, 103; International Fuel Iron Corp. v Donner Steel Co., 242 N.Y. 224, 229; Conklin Limestone Co. v Linden, 22 A.D.2d 63; Laurence Univ. v State of New York, 68 Misc.2d 408, revd other grounds 41 A.D.2d 463; Dixie Dinettes v Schaller's Furniture, 71 Misc.2d 102, 103; Bonnell Co. v Katz, 23 Misc.2d 1028, 1030-1031.)
Such articulation even though emanating from most respected sources tends to confuse. The "more" that is required for section 1312 of the Business Corporation Law cases lies not in the quantum but rather in the nature of the business in New York. If the foreign corporation's contacts here, no matter how extensive, are merely for the purpose of soliciting business and activities incidental to the sale and delivery of merchandise into the State, then the foreign corporation is engaged in interstate commerce and is constitutionally beyond the reach of section 1312 of the Business Corporation Law. If, on the other hand, the foreign corporation is engaged in local business on more than an isolated or accidental basis, it must comply with the statute (International Fuel Iron Corp. v Donner Steel Co., supra; International Textbook Co. v Tone, 220 N.Y. 313, supra; Hovey v De Long Hook Eye Co., 211 N.Y. 420; Sirois Leather v Lea-Suede Corp., 44 A.D.2d 815; Conklin Limestone Co. v Linden, 22 A.D.2d 63; James Talcott, Inc. v Delaney Carpet Co., 28 Misc.2d 600, affd 14 A.D.2d 866; Plastic Moulding Power v Marcucilli, NYLJ, June 3, 1965, p 21, col 7, Stafford-Higgins Inds. v Gaytone Fabrics, 300 F. Supp. 65).
Certainly plaintiff was soliciting and filling interstate orders from New York distributors such as defendant. In addition defendant alleges that plaintiff was regularly promoting its products to ultimate New York users. The purpose was to induce the users to specify plaintiff's products when they placed orders with distributors. Plaintiff not only does not dispute these allegations, but on the contrary appears to substantiate them in correspondence with defendant.
This latter kind of activity has been considered specifically and has been held to constitute local intrastate business requiring compliance with the regulatory statutes of the forum (Lilly Co. v Sav-on-Drugs, 366 U.S. 276; Marion Labs. v Wolins Pharmacal Corp., NYLJ, Nov. 24, 1969, p 17, col 7, affd 34 A.D.2d 895, affd 28 N.Y.2d 884). As Mr. Justice BLACK said in Lilly Co. (supra, p 282): "The fact that the business of 'inducing' intrastate sales, as engaged in by Lilly, is primarily a promotional and service business which does not include a systematic solicitation of orders goes only to the nature of the intrastate business Lilly is carrying on, not to the question of whether it is carrying on intrastate business".
There was a caveat by Mr. Justice BLACK that he was not passing upon circumstances wherein a foreign corporation was engaged in local business but the suit involved an interstate rather than a local contract. The instant case presents such circumstances. But the apparent loophole left by Mr. Justice BLACK had earlier been firmly closed by the Supreme Court (Cheney Bros. Co. v Massachusetts, 246 U.S. 147; International Text Book Co. v Tone, 220 N.Y. 313; People ex rel. Pa. R.R. Co. v Wemple, 138 N.Y. 1; Conklin Limestone Co. v Linden, 22 A.D.2d 63).
Accordingly, the apparent conflict in the papers as to whether the office in New York was maintained by plaintiff or by its salesman as an individual need not be resolved. The motion to dismiss is granted and defendant's counterclaim severed unless prior to trial plaintiff obtains authority to do business in New York pursuant to sections 1301 and 1312 of the Business Corporation Law. Trial now scheduled for March 19, 1976 at the courthouse at 50 Park Place, New York City, is hereby adjourned to April 26, 1976 at the same place.