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Current Developments in the Commercial Divisions of the
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Posted: April 23, 2014

Acting as Sub-landlord Doing Business Within the Meaning of BCL Prohibition on Foreign Unregistered Business Lawsuits

On April 21, 2014, Justice Demarest of the Kings County Commercial Division issued a decision in MKC-S, Inc. v. Laura Realty Co., 2014 NY Slip Op. 50650(U), analyzing whether the plaintiff was a foreign corporation not registered to do business in New York.

In MKC-S, the plaintiff moved for a Yellowstone injunction. The defendant, its landlord, argued “that the . . . motion should be denied, because [the plaintiff] lacks standing to bring this action pursuant to BCL §1312(a) as a foreign corporation not registered to do business in New York.” In deciding the motion, the Court had to evaluate whether the plaintiff was subject to the requirements of BCL §1312(a):

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, as defined in section eighteen hundred of such law, as well as penalties and interest charges related thereto, accrued against the corporation.

While [the plaintiff] does not claim that it is authorized to do business in New York, it asserts that it is not doing business in New York within the meaning of the statute. [The plaintiff] correctly argues that BCL § 1312(a) acts as a bar to a foreign corporation bringing an action in this state only if the corporation is doing business in New York within the meaning of the statute. To come within BCL § 1312(a), a corporation must do more than make a single contact, engage in an isolated piece of business, or an occasional undertaking; it must maintain and carry on business with some continuity of act and purpose. The question of whether a foreign corporation is doing business in New York is approached on a case-by-case basis. The burden is on the defendant asserting the statutory bar to prove that plaintiff’s business in New York was so systematic and regular as to manifest continuity of activity in the jurisdiction. Absent sufficient evidence that the plaintiff is doing business in New York, the presumption is that the plaintiff does business in its state of incorporation, here Delaware.

Plaintiff argues that it is not doing business in New York because it has no place of business in New York; owns no property in New York; has no employees, officers or directors residing or working in New York; has no bank accounts, telephone numbers, or mailboxes in New York; does not solicit any business in New York, and does not physically occupy any portion of the Property. Defendant counters that Plaintiff has acted as sub-landlord for the Property for a number of years. . . .

The Court finds that acting continuously as the sub-landlord for commercial property is doing business within the meaning of BCL § 1312(a). [The plaintiff] has held the leasehold rights to the Property, directly or through a subsidiary, since 1993. It has subleased the property continuously since then. The Court finds that, upon the facts admitted, [the plaintiff’s] subleasing activity was wholly intrastate, systematic, and regular. Until it has registered with the State of New York and paid all applicable fees, taxes, and penalties, [the plaintiff] is precluded from maintaining this action in New York.

(Internal quotations and citations omitted) (emphasis added). Because “noncompliance with BCL § 1312(a) is curable during the pendency of an action,” the court gave the plaintiff time to cure the deficiency “by obtaining authority to do business in New York.”

This decision shows that, while a curable deficiency, BCL § 1312 can be a trap for an unwary plaintiff.

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