Commercial Division Blog

Posted: January 16, 2015 / Categories Commercial, Court Rules/Procedures, Corporations

Issues of Fact As To Whether Foreign Unlicensed Corporation Was Doing Business In New York Preclude Dismissal Under BCL § 1312

On January 7, 2015, Justice Kornreich of the New York County Commercial Division issued a decision in Skycom SRL v. F.A. & Partners, Inc., 2015 NY Slip Op. 30007(U), holding that issues of fact as to whether the plaintiff, a foreign unlicensed corporation, was “doing business in New York” precluded dismissal of the corporation’s claims under to Business Corporation Law Section 1312.

BCL § 1312 provides that an unlicensed foreign corporation doing business in New York "shall not maintain any action or special proceeding in this state unless and until such corporation has been authorized." The Court explained the application of this rule as follows:

The purpose of the section is not to enable defendants to avoid contractual obligations but to regulate such foreign corporations which are in fact conducting business within the state.

However, the power of a state to regulate foreign corporations is limited. A state cannot interfere with a foreign corporation's right to engage in purely interstate commerce, or in activities incidental to commerce between states. Therefore, a corporation of one state may enter into another, without obtaining a license of the latter, for all the legitimate purposes of such commerce; and any statute of the latter state which obstructs or lays a burden on the exercise of this privilege is void under the commerce clause.

As a result, there is a presumption in an action brought by a foreign corporation that it is doing business in the state of incorporation, rather than in New York. Hence, the party invoking BCL § 1312 bears the burden of proving that the corporation's business activities in New York were not just casual or occasional but rather so systemic and regular as to manifest continuity of activity in the jurisdiction.

There is no precise measure of the nature or extent of activities necessary to find that a foreign corporation is "doing business" in New York; courts consider the facts of each case. To qualify as "doing business", New York courts weigh several factors including: (1) the number of transactions the corporation entered into; (2) the services !he corporation provided; and (3) whether the corporation has an office, bank account, telephone number, employees, or property or advertised in New York. Where a company's activities within New York are merely incidental to its business in interstate and international commerce, § 1312 is not applicable.

(Citations omitted). Justice Kornreich found that the evidence presented was not sufficient to determine whether the plaintiff's New York contacts "were systematic and regular enough to warrant compliance with [BCL § 1312]," and a "question of fact" remained on this issue. Defendant’s motion to dismiss was therefore denied.

BCL § 1312 can be a stumbling block in the path of a foreign corporation seeking to file a lawsuit in New York. However, as Justice Kornreich pointed out, even if the foreign corporation is found to be "doing business in New York in violation of BCL § 1312, it could register with the state and pay all fees, taxes, penalties and interest charges during the pendency of the action, thereby avoiding dismissal."