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Home > 2016 > January > 18 > Failure of non-New York Entity to Register in New York can Bar Legal NY Action
Published January 18, 2016 by Yuri Starikov

Failure of non-New York Entity to Register in New York can Bar Legal NY Action

NYDOSGenerally speaking, foreign companies (e.g. Delaware or other non-N.Y. corporations or companies) that are doing business in New York are required to register with N.Y. Department of State.  N.Y. BCL § 1301 (a foreign corporation shall not do business in this state until it has been authorized to do so as provided in this article).  A non-N.Y. company, doing business in New York, that fails to register with N.Y. Dept. of State, and then wishing to commence action in New York courts can face a CPLR 3211(a)(7) motion to dismiss for failure to state a cause of action.  The basis for dismissal are found under N.Y. BCL § 1312(a), which states:

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. This prohibition shall apply to any successor in interest of such foreign corporation.

N.Y. BCL § 1312(a) constitutes a bar to the maintenance of an action by a foreign corporation in New York if that corporation is found to be “doing business” in New York without having obtained the requisite authorization to do so.  Caselaw bringing this point home is Highfill, Inc. v. Bruce & Iris, Inc., 50 A.D.3d 742, 855 N.Y.S.2d 635 (2d Dept. 2008).  The buzz phrase here is “doing business.”  The question of whether a foreign corporation is “doing business” in New York must be approached on a case-by-case basis with inquiry made into the type of business being conducted. Id.  Foreign corporate plaintiff’s business activities in New York must be “systematic and regular,” intrastate in character, and essential to plaintiff’s corporate business.  Id.  Accordingly, non-N.Y. entity that did not register can assert that it is not “doing business” in New York as a defense.  Foreign entity can show lack of “doing business” in New York, if its New York activities qualify for “purely interstate commerce.”  Von Arx, A. G. v. Breitenstein, 52 A.D.2d 1049, 384 N.Y.S.2d 895 (4th Dept. 1976).  Denial of access to New York courts by such foreign corporations engaged solely in interstate commerce would constitute such unlawful interference.  Id.  The rationale is based on the Commerce Clause of the U.S. Constitution: “no state may exclude or condition admission of a foreign corporation that engages solely in interstate or foreign commerce.”

In order to claim registration exemption under the Commerce Clause, non-N.Y. entity must solely and purely engage in interstate commerce.  If entity’s business activities in New York are “systematic and regular,” intrastate in character, and essential to plaintiff’s corporate business, then the plaintiff must comply with requirements set forth under N.Y. Bus. Corp. Law.  See Highfill, Inc., 50 A.D.3d at 743.

In Von Arx, A. G., 52 A.D.2d 1049, the court found that plaintiff solely and purely engaged in interstate commerce and therefore was not “doing business” in New York State within the context of section 1312 of the Business Corporation Law.  Von Arx plaintiff shipped goods to New York from Switzerland for further shipment by defendant within or without the state.  Von Arx plaintiff accepted defendant’s orders in Switzerland with no solicitation or advertising taking place in New York State by plaintiff’s agents or employees.  Von Arx court further noted that “[p]laintiff maintains no office or warehouse in New York; it has no New York bank account; it holds no real estate or personal property here; it sends no officers or employees regularly into the state to perform or oversee services.” Id. at 1050.

In light of the above, if non-N.Y. entity, through its website, advertises and solicits business tailored to New York customers; advertises and conducts “New York” services; holds property in New York State; focuses its financial flows through New York State by opening the New York account – then, entity’s activities cannot constitute sole and pure engagement in interstate commerce, but rather may form a deliberate course of business conduct specifically targeted to “doing business” in New York State.  Accordingly, N.Y. Bus. Corp. Law § 1312(a) can foreclose such entity from bringing action before New York courts, because such entity is “doing business” in New York.

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