Filing Lawsuits and Owning an Interest in Property Not Doing Business in New York for LLC Law Section 808 Purposes

On April 16, 2014, Justice Schweitzer of the New York County Commercial Division issued a decision in Spectrum Origination LLC v. Hess, 2014 NY Slip Op. 31034(U), holding that the plaintiff was not a foreign LLC doing business in New York.

In Spectrum Origination, the plaintiff moved for summary judgment in lieu of complaint on a guarantee. Among the defendant's arguments in opposition to the motion was that the plaintiff did "not have the authority to maintain" the "action under New York's Limited Liability Company Law 808(a)," which provides:

A foreign limited liability company doing business in this state without having received a certificate of authority to do business in this state may not maintain any action, suit or special proceeding in any court of this state unless and until such limited liability company shall have received a certificate of authority in this state.

The court rejected that argument on the ground that the plaintiff did not do business in New York for purposes of Section 808, explaining:

The burden is on the party seeking to impose the barrier to show that the foreign LLC's activities are permanent, continuous, and regular. To support his claim that [the plaintiff] does business in New York within the meaning of LLC 808(a), [the defendant] first cites the fact that [the plaintiff] has commenced six lawsuits in New York since 2001. Six lawsuits (including the instant action), over a span of thirteen years, does not constitute doing business in New York and [the plaintiff] has cited no authority that suggests that any number of lawsuits, standing alone, are sufficient to meet his burden. In fact, it is well settled that the mere maintenance of an action by a foreign corporation does not constitute doing business within the State.

[The defendant] also submitted documents that purportedly show regular financial dealings by [the plaintiff] within the state of New York, which [the defendant] claims satisfies his burden under
LLC 808(a). The documents show that on or around December 13, 2012, [the plaintiff] and 215 W. 28th Equities LLC entered into a mortgage agreement by which [the plaintiff] extended a loan to 215 W. 28th Equities LLC in exchange for a mortgage on a set of properties located within New York City and owned by 215 W. 281h Equities LLC. Furthermore, the documents show that on or around September 16, 2013, [the plaintiff] assigned its security interest in these properties to Middle Patent Capital, LLC. The mere fact that [the plaintiff] held a security interest in property located in New York City does not constitute permanent, continuous, and regular business contacts under LLC 808(a).

(Internal quotations and citations omitted).

This is yet another example of how the doing business in New York rules can complicate life for non-New York plaintiffs, even if they can be overcome in most circumstances.