Articles Posted in Pleadings

When starting an action against a debtor, the creditor’s attorney wants to make sure good service is made upon the debtor if it is a corporation, limited liability company or limited partnership. Good practice skills teaches that the easiest and best way to serve an entity that must register with New York’s Secretary of State is to serve the Secretary of State because under New York’s Business Corporation Law §§ 306 and 402, when such an entity registers with the Secretary of State, the organization document designates the Secretary of State as the authorized agent to receive service of process. In connection with that registration, the organization document requires that an address be set forth so that the Secretary of State can then mail by certified mail directly to the entity whatever document has been served on it. BCL §402. Indeed, New York courts have specifically held that an entity who registers with the Secretary of State has a duty to keep that mailing address current. FGB Realty Advisors, Inc. v. Norm-Rick Realty Corp., 227 A.D.2d 439 (2nd Dep’t. 1996) (“FGB Realty”). And see FedEx TechConnect, Inc. v. OTI, Inc., WL 5405699 (S.D.N.Y. 2013).

The alternative to serving the Secretary of State is to serve the entity directly, which depending on the entity is going to involve serving some person connected to the entity clothed with sufficient authority so as to meet minimum due process requirements. So, for example, if the entity to be served is a corporation, then New York’s Civil Practice Law and Rules (“CPLR”) §311, states the individual to be served must be an officer, director, managing or general agent, or cashier or assistant cashier. Unless there is sufficient advance information on exactly who is an officer, manager, cashier, etc., the seasoned practitioner knows that serving such an individual is a probable invitation to a challenge from the debtor that service was not made properly because, of course, Joe Smith is not a manager of the debtor, and moreover, there is no such person named Joe Smith who works for the debtor. The challenge works in the debtor’s favor because it slows down the litigation process, usually requiring a hearing on the service.

The savvy creditor’s attorney therefore foregoes the chance that she will not find an appropriate employee of the entity to serve, and, instead, pursuant BCL §306, effects service of the summons and complaint on the Secretary of State. Service on the Secretary of State is good service, so the creditor’s attorney diaries the date an answer is due and prepares for a possible default application and pursuant to CPLR 3215, serves an additional copy of the Summons on the debtor. Lo and behold, no answer is filed or received in the required time period, and the creditor’s attorney enters a default judgment and serves notice of entry of the judgment on the debtor at the address known to the creditor, which, for argument’s sake, is the same address listed by the debtor in its filing with the Secretary of State. Continue reading

When a business deal goes bad, it has to be someone’s fault, right? And if it is someone’s fault then that someone should have to pay the other participants in the deal who lost money, particularly where that someone has not been completely honest about the risks involved, right? Not always, and not where the business investor who is sophisticated enough to have known better should have been asking the right questions from the beginning, but simply failed to do so because that investor was a little too greedy.

That is what a federal district court ruled in applying New York law to a case we handled where our client because of a failed business venture was counter-sued by one of the participants for fraud and damages for all of the supposed money the participant would have made but for our client’s alleged misrepresentations concerning its experience and skills. See Street-Works Development LLC v. John Richman; 13 CV 774 (VB), SDNY, decided February 4, 2015.

The particular context of the case concerned whether the defendant in his counterclaims against our client and against individual members of the client had sufficiently and adequately plead fraud under New York law. In his pleadings, the defendant specifically let the court know just how sophisticated he was by claiming that “he had been the developer on real estate projects since he left graduate school”; had “partnered with high net-worth individuals”; and “successfully orchestrated over $3 Billion of real estate projects nationwide”. Given such experience and skill, the Court held that the defendant could have investigated the experience and background of the members, but since he failed to do so he could not have plausibly relied on the representations of our clients. Continue reading