New York Law Review

Tag: Business Corporation Law § 307

  • Frommer v. Truxmore, Inc., 86 N.Y.2d 773 (1995): Strict Compliance with Service Requirements for Out-of-State Corporations

    Frommer v. Truxmore, Inc., 86 N.Y.2d 773 (1995)

    Strict compliance with the affidavit of compliance requirement of Business Corporation Law § 307(c)(2) is necessary to obtain jurisdiction over an unauthorized foreign corporation, and failure to comply is a jurisdictional defect, not a mere irregularity.

    Summary

    This case addresses the requirements for serving process on an unauthorized foreign corporation under New York Business Corporation Law § 307. The plaintiff, Frommer, failed to file an affidavit of compliance as required by the statute. The Court of Appeals held that this failure constituted a jurisdictional defect, not a mere irregularity that could be cured. Because the plaintiff did not strictly comply with the statute’s requirements, the Supreme Court lacked jurisdiction over the defendant, Truxmore, Inc., and the motion to dismiss was properly granted. The court emphasized the necessity of following the precise procedures outlined in § 307 to effect service on such corporations.

    Facts

    The plaintiff, Frommer, attempted to serve the defendant, Truxmore, Inc., an out-of-state corporation not authorized to do business in New York. The method of service was governed by Business Corporation Law § 307(c)(2). Crucially, Frommer failed to file an affidavit of compliance with the Secretary of State as mandated by the statute. Truxmore, Inc. moved to dismiss the action for lack of personal jurisdiction, arguing that Frommer’s failure to file the affidavit was a fatal defect in service.

    Procedural History

    The Supreme Court granted Truxmore’s motion to dismiss, finding that the failure to file the affidavit of compliance deprived the court of jurisdiction. The Appellate Division affirmed the Supreme Court’s decision. The case then went to the New York Court of Appeals. The Court of Appeals affirmed the Appellate Division’s order, holding that strict compliance with Business Corporation Law § 307(c)(2) is required for obtaining jurisdiction over an unauthorized foreign corporation.

    Issue(s)

    Whether the failure to file an affidavit of compliance as required by Business Corporation Law § 307(c)(2) constitutes a jurisdictional defect that deprives the court of personal jurisdiction over an unauthorized foreign corporation, or whether it is a mere irregularity that can be cured.

    Holding

    No, because strict compliance with the procedures of Business Corporation Law § 307 is required to effect service on an unauthorized foreign corporation, and the failure to file the affidavit of compliance is a jurisdictional defect that cannot be cured.

    Court’s Reasoning

    The Court of Appeals reasoned that the plaintiff’s failure to file the affidavit of compliance was a jurisdictional defect, not a mere procedural irregularity. The Court relied on precedent, including Flick v. Stewart-Warner Corp., which held that strict compliance with the procedures of Business Corporation Law § 307 is required to effect service on an unauthorized foreign corporation. The court also cited Stewart v. Volkswagen of Am., emphasizing the “mandatory sequence and progression of service completion options” necessary to acquire jurisdiction over a foreign corporation not authorized to do business in New York. The Court emphasized the need for strict adherence to statutory requirements when dealing with service on foreign corporations, stating that failure to follow these requirements divests the court of jurisdiction. The court did not elaborate on policy considerations beyond the established precedent of requiring strict compliance with service statutes. There were no dissenting or concurring opinions noted in the memorandum opinion.

  • Stewart v. Volkswagen A.G., 81 N.Y.2d 203 (1993): Strict Compliance Required for Service on Foreign Corporations

    Stewart v. Volkswagen A.G., 81 N.Y.2d 203 (1993)

    When seeking to obtain jurisdiction over a foreign corporation not authorized to do business in New York by serving the Secretary of State, strict compliance with the sequential service requirements of Business Corporation Law § 307(b)(2) is mandatory.

    Summary

    Plaintiffs sued Volkswagen A.G. (VWAG), a German corporation, for injuries allegedly caused by unintended acceleration in Audi vehicles. They attempted service by serving the New York Secretary of State and mailing a copy of the summons and complaint to Volkswagen of America (VOA) in New Jersey, purportedly on behalf of VWAG. VWAG moved to dismiss for lack of personal jurisdiction, arguing non-compliance with Business Corporation Law § 307(b)(2). The Court of Appeals held that the plaintiffs failed to meet the strict sequential requirements of the statute. Mailing to VOA was insufficient, and plaintiffs did not demonstrate attempted compliance with the prior service options outlined in the statute.

    Facts

    Plaintiffs filed suit against Volkswagen A.G. (VWAG), a German corporation, for personal injuries related to alleged unintended acceleration of Audi 5000 vehicles.

    VWAG manufactured the vehicles and exported them to the United States, transferring title to Volkswagen of America, Inc. (VOA).

    VOA sold the vehicles to World Wide Volkswagen Corp., which distributed them to Audi dealers, who then sold them to consumers.

    Plaintiffs attempted to obtain jurisdiction over VWAG by serving the New York Secretary of State, pursuant to Business Corporation Law § 307(b)(2), and by mailing a copy of the summons and complaint to “Volkswagen of America on behalf of Volkswagenwerk-Aktien Gesellschaft” in New Jersey.

    Procedural History

    VWAG moved to dismiss the complaint under CPLR 3211(a)(8), arguing that plaintiffs failed to obtain personal jurisdiction due to improper service under Business Corporation Law § 307(b)(2).

    Supreme Court denied the motion, holding that VOA was a proper agent for service on VWAG.

    The Appellate Division affirmed, reasoning that jurisdiction could be acquired over a foreign corporation by serving a local corporation so controlled by the foreign entity that the local corporation is deemed a mere department of the foreign corporation.

    The Court of Appeals granted leave to appeal.

    Issue(s)

    1. Whether plaintiffs could rely on mailing the summons and complaint to “the last address of such foreign corporation known to the plaintiffs” under Business Corporation Law § 307(b)(2) without attempting to satisfy the preceding service prescriptions.

    2. Whether mailing the summons and complaint to Volkswagen of America (VOA) in New Jersey satisfied the requirement of mailing to the “address of such foreign corporation [VWAG]”.

    Holding

    1. No, because Business Corporation Law § 307(b)(2) establishes a mandatory sequence and progression of service completion options that must be strictly followed.

    2. No, because mailing to VOA in New Jersey was not mailing to VWAG’s “last known address,” even if VOA was a mere department of VWAG, and because the plaintiffs possessed an address for VWAG in Germany.

    Court’s Reasoning

    The Court emphasized that plaintiffs bear the burden of proving that statutory and due process prerequisites for jurisdiction and service of process have been satisfied. Business Corporation Law § 307 establishes a mandatory sequence of service options to acquire jurisdiction over a foreign corporation, and these steps are “requirements of a jurisdictional nature which must be strictly satisfied.”

    Plaintiffs failed to show they attempted to ascertain whether VWAG had a specified post office address for receiving process or a registered office address on file with the German equivalent of the Secretary of State before resorting to the “last known address” option. The court found that plaintiffs could not randomly select from the options available in the statute.

    Even if plaintiffs were permitted to proceed directly to the “last known address” option, they did not correctly utilize it because they sent the process to VOA in New Jersey “on behalf of” VWAG. The court stated, “That is not VWAG’s ‘last known address,’ as prescribed and contemplated by the statute, even if VOA is a mere department of VWAG.” The court also noted that plaintiffs’ own documents indicated that they possessed an address for VWAG in Germany.

    The court rejected the argument that service on VOA, as an alleged “mere department” of VWAG, was sufficient. Business Corporation Law § 307 provides for constructive service on the Secretary of State, and the provisions must be strictly complied with; it does not authorize alternative notification through an agent when jurisdiction is invoked initially by service on the Secretary of State.

    The Court distinguished Luciano v Garvey Volkswagen, stating that the case addressed liability under an express warranty and did not establish that VOA is an agent of VWAG for service of process purposes under Business Corporation Law § 307(b)(2).

    “Because the appointment of the Secretary of State as agent is a constructive rather than an actual designation, the statute contains procedures calculated to assure that the foreign corporation, in fact, receives a copy of the process…and ‘strict compliance with [those procedures] is required’.”

  • Flick v. Stewart-Warner Corp., 76 N.Y.2d 50 (1990): Strict Compliance Required for Service on Unauthorized Foreign Corporations

    Flick v. Stewart-Warner Corp., 76 N.Y.2d 50 (1990)

    Strict compliance with Business Corporation Law § 307 is required to effect service on an unauthorized foreign corporation because the designation of the Secretary of State as agent for service is constructive, not actual, requiring measures to ensure the corporation receives a copy of the process.

    Summary

    This case addresses whether a court obtains personal jurisdiction over an unauthorized foreign corporation when the plaintiff fails to strictly comply with the service requirements of Business Corporation Law § 307. The plaintiff served the Secretary of State, but did not send a copy of the process to the defendant by registered mail or file an affidavit of compliance as required by the statute. The Court of Appeals held that strict compliance with § 307 is necessary for service on an unauthorized foreign corporation because the statute’s procedures ensure the corporation receives actual notice, satisfying due process requirements. The court reversed the lower court’s decision, finding that jurisdiction was not properly obtained.

    Facts

    Plaintiff sustained injuries from a malfunctioning hose, allegedly manufactured by defendant, Stewart-Warner Corp. The defendant was a Virginia corporation with its principal office in Chicago, Illinois, and was not authorized to do business in New York, having surrendered its certificate of authority in 1952. The plaintiff, mistakenly believing the defendant was authorized to do business in New York, served two copies of the summons with notice on the Secretary of State in Albany pursuant to Business Corporation Law § 306. The Secretary of State forwarded a copy to the defendant via certified mail, and the defendant received it.

    Procedural History

    After the defendant’s time to answer expired, the plaintiff moved for a default judgment. The defendant opposed the motion and cross-moved to dismiss the action, arguing ineffective service because the plaintiff failed to comply with Business Corporation Law § 307. Supreme Court denied the motion to dismiss but also denied the default judgment, ordering the plaintiff to accept the defendant’s notice of appearance and serve a complaint. The Appellate Division affirmed, concluding that the failure to comply with § 307 was a mere irregularity and not jurisdictional. The Appellate Division then granted the defendant leave to appeal to the Court of Appeals.

    Issue(s)

    Whether strict compliance with the procedures of Business Corporation Law § 307 is required to effect service on an unauthorized foreign corporation, or whether serving the Secretary of State is sufficient, with subsequent deviations from the statute excused as mere irregularities.

    Holding

    No, because strict compliance with the procedures of Business Corporation Law § 307 is required to effect service on an unauthorized foreign corporation. The statute’s procedures, including registered mail and affidavit of compliance requirements, are designed to ensure actual notice, satisfying due process requirements, and are not mere irregularities.

    Court’s Reasoning

    The Court of Appeals reasoned that jurisdiction over an unauthorized foreign corporation is predicated on its doing business in the state, creating a constructive presence. Business Corporation Law § 307 outlines the required method for serving process on such a corporation. Because the designation of the Secretary of State as agent is constructive, the statute contains procedures to ensure the foreign corporation receives actual notice. The court emphasized that service is not complete until ten days after the affidavit of compliance is filed. The Court contrasted this with service on authorized foreign corporations, where the designation of the Secretary of State is actual, making service complete when the Secretary of State is served under Business Corporation Law § 306. The court stated, “These are not mere procedural technicalities but measures designed to satisfy due process requirements of actual notice.” Failure to adhere to these procedures deprives the court of jurisdiction. The court distinguished Marine Midland Realty Credit Corp. v Welbilt Corp., noting that it involved a foreign corporation authorized to do business in the State, which had filed an actual designation of the Secretary of State as agent for service of process. The court concluded that strict compliance with Business Corporation Law § 307 is required for service on an unauthorized foreign corporation.