Our client sued to recover monies owed for maintenance supplies sold and delivered to multiple buildings. The debtors did not answer the summons and complaint and we were ultimately able to enter a default judgment against the delinquent customer. However, their lack of response was due to failing to update their business address with the New York Secretary of State.
Once the court entered the judgment, we were able to freeze the full amount of the judgment from the debtor’s bank account. An action that got the attention of the debtors. Rather than make a plan to pay or resolve in any manner, they enlisted the help of counsel, who attempted to vacate the default judgment.
In order to vacate a default judgment, one must provide an excusable default and a meritorious defense. Although the debtors claimed they were owed credits or other adjustments, the issue, in this case, was the service. The debtors claimed they were never served because the state did not have their correct address. The debtor claimed to have inadvertently updated their address. Could the debtor benefit from their own oversight causing the creditor to lose their judgment?
How to Serve a Corporate Defendant a Summons and Complaint
According to the New York Rules of Civil Practice, there are multiple ways to serve a corporate defendant with a summons and complaint. One method is serving through the Secretary of State’s office. The Secretary of State is considered an “agent of every domestic corporation and every authorized foreign corporation upon whom process against the corporation may be served.”
By serving through this method, the process server will go to the Secretary of State’s office in Albany and serve two copies of the summons and complaint on the secretary’s office. The secretary will keep the first copy and forward the second one to the address the defendant corporation has on file. Under the New York Civil Rules, this constitutes proper service on a corporate debtor.
But what if the defendant changed addresses and failed to register the new address with the Secretary of State? Without the new address, the Secretary of State’s office will forward the summons and complaint to the debtor’s old address, likely meaning the defendant will have no knowledge of the summons and complaint. After the defendant’s time to answer the complaint expires, the court will enter a judgment against the defendant. In this case, can the defendant have the default judgment vacated?
What Happens If You Fail to Update Your Business Address?
The answer is not necessarily clear. The courts hold a strong public policy favoring the resolution of cases where each side can argue their point of view. Courts decide cases where both parties present their side “on the merits.” When possible, courts prefer to vacate a default judgment and allow a defendant to file an answer.
That’s not to say that the court vacates all judgments entered on default. Under the civil rules, a New York court may only vacate a default judgment if the defendant has both a “reasonable excuse” for failing to answer the summons and complaint, and a “meritorious defense” to the causes of action contained in the complaint. Moreover, the defendant must move to vacate the judgment within one year of learning of it, but not more than five years after the judgment’s entry.
However, the courts have held that where a defendant does not receive service of process because the defendant failed to keep a current address on file with the Secretary of State, courts will not find a reasonable excuse for a default.
Going back to the fact pattern above, in a recent motion to vacate a default judgment that this office opposed, the court denied the defendant’s motion. The court ruled that the defendant’s failure to update its address with the Secretary of State prevented the defendant from demonstrating a “reasonable excuse” to vacate the judgment. The judgment stood and we were able to deliver our client a successful outcome.
