New York Debt Collection and Standing to Sue

Man standing with briefcase. You cannot see his face.New York debt collection and standing to sue, do you have that standing? Can a company that is unauthorized with NY State have standing to sue? Can such a company maintain NY state debt collection litigation to recover monies owed from a non-paying customer?

Do you know the answer to these questions?

The answers hinge on whether yours is an unauthorized corporation. They determine whether you may or may not sustain your New York debt collection litigation. An unauthorized corporation is a corporation not authorized with NY state to be “doing business” in New York state.

A Typical Debt Collection Case

Take the example of a company incorporated in a state other than New York. That company’s New York customer is not paying them. To enforce their rights to payment, the company pursues debt collection litigation in New York.

As part of the complaint, the creditor includes their corporate status. The corporate status clearly shows that the New York Department of State has not authorized the vendor.

With this in mind, an eager debtor’s attorney will notice that the creditor has no authorization to do business in NYS. That attorney may believe that provides an opportunity to thwart attempts to get their client to repay. Based on the unauthorized standing of the creditor, the debtor’s attorney would make a motion to dismiss the case. The theory being that the unauthorized – by New York state – creditor company lacks standing to sue his client in New York debt collection litigation.

A motion to dismiss the complaint for lack of standing faces the creditor. Why? Because the company is operating in New York as an unauthorized corporation. That may mean the company has no standing to sue. And successful New York debt collection and standing to sue go hand in hand.

Get the Focus on the Debtor

Unfortunately, the focus is not on the nonpaying customer. The debtor’s attorney turned the tables on the creditor. He raised an issue to the court that the creditor has no standing. That means to that attorney that the creditor should not win the debt collection litigation. And that’s because they are an unauthorized corporation without standing to sue.

Is all lost? Maybe not, because of what the eager-beaver attorney doesn’t know. In reality, an unauthorized foreign corporation selling to a New York resident and suing in New York does not have to mean the court must dismiss the case.

The debtor’s attorney must do more than raise the issue in motion papers. He must meet the burden of proof to support the allegation that the creditor is doing business in New York State as an unauthorized corporation.

The debtor must prove that the creditor is systematically conducting business in New York. That means that the unauthorized creditor solicits business in  New York, which is a problem. Having someone from New York decide to buy from the creditor is not problematic. It’s all right for the creditor to sell and deliver merchandise into the state.

Relevant Debt Collection Laws

In a nutshell, N.Y. BCL (Business Corporation Law) Section 1312 provides that if a decision issues that a company is doing business in New York, they must have authority from the state to do so.

The court defines “doing business” on a case-by-case basis.

For a court to find that a corporation is doing business in New York within the meaning of Business Corporation Law§ 1312 (a),  the corporation must be engaged in a  regular and continuous course of conduct in the state. The doing-business standard under BCL § 1312 (a) requires a greater amount of local activity by a foreign corporation than the doing-business standard applied to New York’s Long Arm Statute.

The debtor bears the burden of proving that the corporation’s business activities in New York were not just casual or occasional, but so systematic and regular as to manifest continuity of activity in the jurisdiction.

Consequently, the debtor must show that the creditor conducted continuous activities in New York essential to its corporate business (Id. at 374). Absent sufficient evidence to establish that a creditor is doing business in this state, the presumption is that the creditor is doing business in its state of incorporation and not in New York.

Is the Creditor Doing Business in New York?

Even as it sells to New York customers, the creditor therefore and thereby is not doing business in New York. The mere solicitation of sales in New York and the placement of orders does not constitute doing business in this state within the meaning of Business Corporation Law even when coupled with other activities.

When the foreign corporation’s contacts, no matter how extensive, are merely for the purpose of soliciting business and incidental to the sale and delivery of merchandise into the state, the foreign corporation is engaged in interstate commerce and is constitutionally beyond the reach of Business Corporation Law§ 1312 (a).

If the unauthorized corporation merely engaged in interstate commerce and was not doing business, the debtor will lose. The debtor will have to pay.

If you are an out-of-state company authorized or not authorized to do business in New York and want to receive payment from your New York customer, contact us by phone at (212) 686-0100 or by email.