Ability To Maintain Lien Foreclosure Claim As An Unauthorized Foreign Corporation

Section 1312(a) of the Business Corporation Law, New York’s “door closing” statute, precludes foreign corporations doing business in the state without authority from maintaining an action in the state.  The purpose of this statute is to regulate foreign companies actually conducting business in the state.  As held in Special Breaks, LLC v. 201 Murray Ave., 2017 WL 987199 (Sup. Ct. Westchester Co. Mar. 10, 2017), the statute does not apply to those foreign companies that are not “doing business” within the state.

The defendant in Special Breaks moved to dismiss the complaint filed by foreign corporate plaintiff on two related grounds:

  1. That the foreign corporation was barred from maintaining an action in New York because it was not authorized to do business in the state, and
  2. That the mechanic’s lien filed by the foreign corporation lacked sufficient information because it did not provide either a principal place of business within the state or its attorneys’ information.

The Court denied the motion on both grounds for the following reasons.

With respect to the defendant’s first argument, that the plaintiff lacked standing to sue in New York under Business Corporation Law Section 1312 because it was an out-of-state entity that was not authorized to do business in New York State, the plaintiff countered that the statute was never intended to bar all foreign corporations from accessing New York’s courts.  In fact, Section 1312 of the Business Corporation Law provides, in pertinent part, that 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….”  (Emphasis added.)  The burden rests with the defendant to prove that the plaintiff is “doing business” in New York and that such business activities are “systematic and regular.”  Id. at *3.

In this case, the Court denied the motion to dismiss, finding that a “single 12 day job does not constitute systematic and regular activity in New York, as is required to establish ‘doing business’ within the meaning of Business Corporation Law § 1312.”

The defendant also challenged the validity of the plaintiff’s mechanic’s lien because, among other things, it did not list either its principal place of business within New York State or its attorney’s information.  New York Lien Law Section 23 provides that “[a] substantial compliance with its several provisions shall be sufficient for the validity of a lien and to give jurisdiction to the courts to enforce same.”  Citing to this portion of the Lien Law, and case law holding that substantial compliance is all that is required, the Court found that the lien substantially complied with the statute.  While a foreign corporation lacking a principal place of business within the state is required to specify an attorney within the state for service purposes, the Court held that it did “not find it unreasonable to require [the plaintiff], a foreign corporate lienor being represented by New York counsel, to amend its notice of mechanic’s lien to include the name and address of its (in-state) counsel.”  Id. at *4.