Source: https://www.newyorkbusinesslitigationlawyersblog.com/
Timestamp: 2019-04-24 00:36:36+00:00

Document:
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.
Recently, suing a non-resident debtor in New York became somewhat more complicated. Two types of jurisdictional analysis are involved. First, there is an analysis that examines the general activity of a non-resident actor in the state. Does the non-resident actor have an office in the state and conduct regular business, and if so, how much and how often? This type of jurisdiction is often referred to as “presence” jurisdiction. The second kind of analysis focuses on specific activity of the non-resident actor in the state and whether the activity has a nexus to the claim against the non-resident actor. This second form of jurisdiction is commonly referred to as “long-arm” jurisdiction.
What if all that a debtor has left is literally its good name and that name has been legally registered with the United States Patent and Trademark Office? Though there are not many cases dealing with the subject, two cases in New York say yes, provided the trademark will be used by someone in the same business as the debtor. The first case involved a debtor who published a magazine called Chocolate Singles and had obtained trademark registration for the name. Victoria Graphics, Inc. v. Priorities Publications, Inc., 167 Misc.2d 607 (Civ. Ct. Queens Co. 1996) (“Victoria Graphics”). Unable to find any other assets of the debtor, who was for all intents and purposes defunct, the creditor commenced an Article 52 turnover proceeding to force the debtor to assign the trademark to the creditor. Analyzing the issue by analogy to the power of a bankruptcy trustee to assign a trademark, the Court in Victoria Graphics stated that often trademarks are assigned where the assignment is made in conjunction with all of the good will associated with the trademark and other tangible assets are being assigned as well. However, the Victoria Graphics Court when on to state that some assignments of tradenames are made separate from the underlying business, particularly where “the assignee is producing a product … substantially similar to that of the assignor [such that] consumers would not be deceived or harmed” or when there is “continuity of management, and “[t]hus, a trademark may be validly transferred without the simultaneous transfer of any tangible assets, as long as the recipient continues to produce goods of the same quality and nature previously associated with the mark.” Based upon this holding, the Court in Victoria Graphics set the matter down for a hearing to detemine, among other things, whether the creditor or another person, as assignee, would be utilizing the trademark in a substantially similar business.
In a recent decision out of the federal district court for the Eastern District of New York, the district court, in the context of a post-judgment proceeding, was faced with the issue of whether the 100% owner of an insolvent debtor could enter into a consulting agreement with a competitor of the debtor, whereby the debtor’s owner agreed to move the debtor’s “book of business” to the competitor in return for a payment of some $300,000.00. In a very reasoned decision, the district court held that the “book of business” was property of the debtor, and not the debtor’s owner; and therefore subject to New York’s fraudulent conveyance act (Article 10 of the Debtor and Creditor Law). Mitchell v. Lyons Professional Services, Inc., 09 Civ. 1587 (EDNY, Decided June 8, 2015).
Originally commenced as a post-judgment proceeding in the district court based upon Article 52 of New York’s Civil Practice Law and Rules (“CPLR”), the following facts were presented. The debtor, a company providing security guard services, had a certain number of customer accounts. While these customer accounts were not represented by written agreements, they did represent on-going business of the debtor. Shortly after entry of the judgment, Christopher Lyons (“Lyons”), the debtor’s owner, entered into a consultant agreement with a competitor of the debtor, whereby Lyons represented that he was terminating his employment with the debtor; that he had the right to solicit the debtor’s customers; that the debtor’s customers were developed through his efforts and that after payment of the consultant fee, the competitor would become the owner of the accounts.
Next to the purchase of a home, the purchase of an automobile is the most expensive transaction most consumers in this country make. And like the purchase of a home, most car buyers finance this purchase with a bank loan, where the lender as security for the loan gets a lien on the car so as to allow the bank to repossess the car in the event the car buyer defaults on the loan.
When there is a default on a car loan, most lenders do not immediately repossess the vehicle. Instead, there is a long process of notices, demand letters, calls, and attempts to work out a payment plan. If none of these efforts work, in all likelihood, the lender takes steps to repossess the car and sell it in a commercially reasonable manner in order to recoup as much of the default loan amount as possible from the sale proceeds. After that, collection efforts may continue until it is clear that the borrower will not pay anymore. Upon reaching that point, the lender may send the claim to its attorneys for collection, assign the claim to a collection agency or perhaps sell the claim to a debt buyer. Thereafter, these subsequent entities in the chain of collection may pursue further collection efforts and then ultimately sue the borrower.
If you are a vendor or supplier of services outside of New York you may want your transaction with your New York customer to be controlled by the law of your state and not that of New York. There may be some good reasons to want your state’s law to control, particularly if it provides certain advantages to you as a seller if you end up having to sue your customer in New York. So, you ask your company’s attorneys to draft up language in your standard contract which provides that in the event of a dispute the law of your state will govern. You think you are protected until the day you end up suing that New York customer you knew was going to be trouble and your customer’s attorneys argue that despite what the contract says, applying your state’s law is unfair. How do New York courts handle choice of law clauses?
In Welsbach Electic Corp. v. MasTec North America, Inc., 7 N.Y.3d 624 (2006) (“Welsbach”), New York’s highest court set forth a two-pronged approach in determining whether a choice of law clause in a written contract would be enforced. First, the Court stated that as a general matter, a choice of law clause would be enforced if the chosen law bears a reasonable relationship to the parties or the transaction. If the agreement is clear and unambiguous, a court will not interfere with the contract and the intent of the parties in choosing a particular law. However, New York’s highest court goes on to state that a contract, which is clearly illegal or contravenes some fundamental principle that is deeply rooted in New York State’s history, or as the high court put it — those foreign laws that are “truly obnoxious” — will not be enforced. If this type of moral repugnancy is not present, New York will enforce the intent of the parties in choosing to be governed by a sister state’s law.
Creditors do not want to hear it, but the answer to the question of when a debtor can defeat a claim for collection of monies due based upon a defense of no written agreement is – “it depends”, the dreaded, sometimes unhelpful response that attorneys give. So what are the parameters of “depends”? On a general level the answer to the question is a function of what kind of transaction is at issue. Sales of goods are governed by a special set of rules, whereas brokerage claims, employment contracts and real estate agreements are covered by other rules.

References: §402
 v. 
 v. 
 §311
 v. 
 v. 
 v.