Failure Strictly to Comply With Service Requirements of LLC Law 304 Makes Service Ineffective

On December 22, 2017, the Fourth Department decided in Chan v. Onyx Capital, LLC, 2017 NY Slip Op. 08966, holding the failure strictly to comply with the service requirements of LLC Law Section 204 makes service ineffective, explaining:

We agree with SRP that plaintiff failed to comply strictly with Limited Liability Company Law § 304 and thus the court did not have jurisdiction over defendant. Pursuant to that statute, first, service upon the unauthorized foreign limited liability company may be made by personal delivery of the summons and complaint, with the appropriate fee, to the Secretary of State. That was done by plaintiff in this case. Second, in order for the personal delivery to the Secretary of State to be sufficient, the plaintiff must also give the defendant direct notice of its delivery of the process to the Secretary of State, along with a copy of the process. The direct notice may be given to the defendant personally. That was attempted by plaintiff, but the process server was unable to make personal service inasmuch as the property was unoccupied. In the alternative, the direct notice may be sent to the defendant by registered mail, return receipt requested. That was attempted by plaintiff in this case, but the mail was returned to plaintiff as undeliverable.

In the final step, plaintiff must file an affidavit of compliance. Where, as here, a copy of the process is mailed in accordance with this section, there shall be filed with the affidavit of compliance either the return receipt signed by such foreign limited liability corporation or other proof of delivery or, if acceptance was refused by it, the original envelope with a notation by the postal authorities that acceptance was refused.

It is well settled that strict compliance with Limited Liability Company Law § 304 is required, including as to the filing of an affidavit of compliance. The Court of Appeals in Flick v Stewart-Warner Corp. (76 NY2d 50 [1990], rearg denied 76 NY2d 846 [1990]) analyzed Business Corporation Law § 307, which is substantively identical to Limited Liability Company Law § 304. The Court explained that the statute contains procedures calculated to assure that the foreign corporation, in fact, receives a copy of the process. The Court held that the proof called for in the affidavit of compliance is that the required actual notice has been given either by personal service or by registered mail. These are not mere procedural technicalities but measures designed to satisfy due process requirements of actual notice.

In this case, as outlined above, plaintiff failed to comply with step two of Limited Liability Company Law § 304. We reject plaintiff's contention that nothing more was required of her after the registered mail was returned as undeliverable. Inasmuch as plaintiff failed to comply with step two, she necessarily also failed to comply with step three, which would show that a party complied with the service requirements of section 304.

The rules regarding how you start a lawsuit and bring the defendants into it can sometimes be esoteric. And, as shown here, there are sometimes special rules regarding the service of businesses. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have a question regarding the proper way to serve a defendant, bringing them into a lawsuit.