In one of my January 30 posts I addressed the New York Court of Appeal decision involving a claim by a New York plaintiff against a “foreign” (ie. out of state or out of country) defendant. The issue in that case dealt with whether the New York courts would agree to assume jurisdiction to hear the claim against the defendant. Last week, the Appellate Division of the Supreme Court of New York (2nd division) dealt with the flip-side: whether a “foreign” company can sue in the New York courts against a New York company.
In Highfill, Inc., the plaintiff was a Louisiana auction company that was hired to conduct a “going out of business” sale for a New York company. When a dispute arose the Louisiana company commenced a lawsuit in New York. The problem, though, was that the Louisiana company was not licensed to conduct business in New York, so the New York defendant sought to have the lawsuit dismissed because the lack of a license was fatal to the Louisiana company’s claim based on Section 312(a) of the New York Business Corporation Law.
The lower court and the Appellate Division agreed with the New York defendant. The fact that the Louisiana company actively solicited business in New York meant that it was “doing business in New York” and therefore had to be properly licensed.
The upshot of this decision (which doesn’t create new law but restates existing law) is that if you wish to do business in New York but you do not take the proper measures to be licensed there, then (a) if you get stiffed on a bill you might be prevented from suing the other side; and (b) if a problem arises, you could still be pulled in as a defendant and will not be able to argue that the New York courts should not hear the case against you. A double standard? Well, yes. However, if you want to play in somebody else’s sandbox, you’d better learn the rules because otherwise you play at your own peril.
I should mention that the requirement for obtaining a “local” license to do business in the State is not unique to New York. A similar rule exists in Ontario in Section 20 of its Extra-Provincial Corporations Act that prevents non-Canadian corporations from suing on contracts in the Ontario courts where the plaintiff has not obtained the required license.