Court Opinion

ID: 9964535
Source: CourtListenerOpinion
Date Created: 2024-04-30 14:07:32.895447+00
Date Added: 2024-06-11T08:25:34.572992
License: Public Domain

NOT FOR PUBLICATION WITHOUT THE
                               APPROVAL OF THE APPELLATE DIVISION
        This opinion shall not "constitute precedent or be binding upon any court ." Although it is posted on the
     internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.

                                                        SUPERIOR COURT OF NEW JERSEY
                                                        APPELLATE DIVISION
                                                        DOCKET NO. A-0775-22

NG FLOORING, INC., d/b/a
FLOORINGDOCTOR.COM,

          Plaintiff-Appellant,

v.

DEROCHI DESIGN AND
BUILD, LLC,

     Defendant-Respondent.
__________________________

                   Submitted April 8, 2024 – Decided April 30, 2024

                   Before Judges Sabatino and Vinci.

                   On appeal from the Superior Court of New Jersey, Law
                   Division, Mercer County, Docket No. L-1769-20.

                   Jeffrey Harris Ward, attorney for appellant.

                   Law Offices of Cohen & Riechelson, attorneys for
                   respondent (Philip Cohen, on the brief).

PER CURIAM
      This appeal arises from the trial court's application of provisions within

the New Jersey corporate statutes that affect a plaintiff's standing to bring suit

in our state courts. The appeal concerns the Law Division's dismissal with

prejudice of a complaint by plaintiff, NG Flooring, Inc. ("NG Flooring"), doing

business as flooringdoctor.com, against defendant, DeRochi Design and Build,

LLC ("DeRochi"), for breach of contract and other claims. The trial court

dismissed the lawsuit because of NG Flooring's alleged noncompliance with

various annual corporate registration requirements set forth in Title 14A. Based

on our de novo review of the legal questions presented, we reverse and reinstate

NG Flooring's lawsuit.

      We briefly summarize the relevant facts and allegations. Pursuant to a

written contract, NG Flooring, a Pennsylvania corporation, completed flooring

work for DeRochi in New Jersey, starting in 2016 and ending in 2017. At the

time of those services, NG Flooring had a valid certificate of authority to do

business in this State under N.J.S.A. 14:12-11(1). A dispute over the work

arose, and NG Flooring claimed that DeRochi owed it $87,677. DeRochi denied

owing that amount and, in fact, claimed that NG Flooring owed it money.

      Of pertinence here, NG Flooring's certificate of authority was revoked by

the State on July 16, 2019, because it had not paid the $75 annual registration

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fee for calendar years 2017 and 2018. By that point, NG Flooring was no longer

engaged in business activities in New Jersey.

      In October 2020, NG Flooring filed the present breach of contract action

against DeRochi. DeRochi filed a counterclaim against NG Flooring, but that

pleading was dismissed with prejudice and the dismissal is not cross-appealed.

      On the brink of trial in 2022, DeRochi moved to dismiss NG Flooring's

lawsuit, upon discovering that NG Flooring no longer had a valid certificate of

authority and had not been filing annual reports with the Secretary of State as a

foreign corporation pursuant to N.J.S.A. 14A:13-15. DeRochi asserted NG

Flooring now lacks standing to be a plaintiff in the New Jersey courts , relying

upon preclusive language within N.J.S.A. 14A:13-11(1) and N.J.S.A. 14A:13-

20. NG Flooring responded that it does not need a certificate or to file reports

because it is not transacting business in New Jersey at present, although it had

been making the requisite filings when it was doing business here.

      The trial court agreed with defendant's interpretation of the statutes and

dismissed the complaint due to lack of subject matter jurisdiction. The court

also denied NG Flooring an opportunity to cure the filing defect, specifying that

the dismissal was with prejudice.

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                                       3
      We analyze the legal issues of statutory interpretation and jurisdiction

presented by NG Flooring de novo. "The determination of whether subject

matter jurisdiction exists is a legal question, which we review de novo."

AmeriCare Emergency Med. Serv., Inc. v. City of Orange Twp., 463 N.J. Super.

562, 570 (App. Div. 2020) (citing Santiago v. N.Y. & N.J. Port Auth., 429 N.J.

Super. 150, 156 (App. Div. 2012)). "A trial court's interpretation of the law and

the legal consequences that flow from established facts are not entitled to any

special deference." Rowe v. Bell & Gosset Co., 239 N.J. 531, 552 (2019)

(quoting Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366,

378 (1995)).

      The issues before us involve an assortment of provisions within Title 14A

applicable to out-of-state corporations such as NG Flooring that conduct

business activities in New Jersey. We highlight the pertinent terms of those

provisions, as follows.

      Chapter 13 of the General Corporations Act ("the Corporations Act")

contains directives on how that statute is applied to foreign corporations. 1 The

main provision of the Corporations Act involved here is N.J.S.A. 14A:13-11(1),

1
  For purposes of analysis, a "foreign" corporation is one organized under the
laws of another state or country.
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which specifies the need for certain foreign corporations to obtain a certificate

of authority to do business in this State, and the consequences of failing to obtain

and maintain such a certificate when it is required.

      Specifically, N.J.S.A. 14A:13-11(1) states:

             (1) No foreign corporation transacting business in this
             State without a certificate of authority shall maintain
             any action or proceeding in any court of this State, until
             such corporation shall have obtained a certificate of
             authority.

             [Ibid. (emphasis added).]

      Meanwhile, N.J.S.A. 14A:13-2, specifies the rights and privileges that

foreign corporations can enjoy after obtaining a certificate of authority , as well

as penalties for not obtaining a certificate:

             (2) A foreign corporation which receives a certificate
             of authority under this act shall, until a certificate of
             revocation or of withdrawal is issued as provided in this
             act, enjoy the same, but no greater, rights and privileges
             as a domestic corporation 2 organized for the purposes
             set forth in the application pursuant to which such
             certificate of authority is issued; and, except as in this
             act otherwise provided, shall be subject to the same
             duties, restrictions, penalties and liabilities now or

2
  Among the sixteen enumerated general powers provided to corporations under
the General Corporations Act is the power: "to sue and be sued, complain and
defend and participate as a party or otherwise in any judicial, administrative,
arbitrative or other proceeding, in its corporate name[.]" N.J.S.A. 14A:3-1, -(b)
(emphasis added).
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                                         5
            hereafter imposed upon a domestic corporation of like
            character.

            (3) A foreign corporation which transacts business in
            this State without a certificate of authority under this
            act shall be subject to the same duties, restrictions,
            penalties and liabilities now or hereafter imposed upon
            a foreign corporation procuring such certificate of
            authority.

            [N.J.S.A. 14A:13-2(2), (3) (emphasis added).]

The Commissioner's Comment to this provision issued upon its enactment in

1968 observes that "Subsection 14A:13-2(3) leaves to the courts the question of

the rights and privileges of foreign corporations which transact business in this

State without a certificate of authority." Ibid., Commr's cmt. (1968) (emphasis

added).

      Of central importance here, the Corporations Act delineates when a

foreign corporation is "transacting business" in New Jersey and thereby required

to obtain and maintain a certificate of authority:

            (1) No foreign corporation shall have the right to
            transact business in this State until it shall have
            procured a certificate of authority to do so from the
            Secretary of State. . . .

            (2) Without excluding other activities which may not
            constitute transacting business in this State, a foreign
            corporation shall not be considered to be transacting
            business in this State, for the purposes of this act, by

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             reason of carrying on in this State any one or more of
             the following activities 3

                    (a) maintaining, defending or otherwise
                    participating in any action or proceeding,
                    whether judicial, administrative, arbitrative or
                    otherwise, or effecting the settlement thereof or
                    the settlement of claims or disputes; 4

             [N.J.S.A. 14A:13-3(1), (2), (2)(a) (emphasis added).]

      The Corporations Act next expresses the purpose of the certificate of

authority and how long the "authority to transact . . . business" continues:

             Upon the issuance of a certificate of authority by the
             Secretary of State, the foreign corporation shall be
             authorized to transact in this State any business of the
             character set forth in its application. Such authority
             shall continue so long as it retains its authority to
             transact such business in the jurisdiction of its
             incorporation and its authority to transact business in
             this State has not been surrendered, suspended or
             revoked.

3
   The Commissioner's Comment in 1968 explains that "Subsection 14A:13-3(2)
is new . . . . It differs from Title 14 by setting forth a non-exclusive list of certain
activities . . . any one or more of which a foreign corporation may carry on in
this State without having first secured a certificate of authority." N.J.S.A.
14A:13-2, Commr's cmt. (1968) (emphasis added).
4
  A treatise on New Jersey corporations law and forms similarly points out that
"N.J.S.A. 14A:13-3(2) sheds some light on th[e] question [of when a corporation
must apply for a certificate of authority] by providing that a foreign corporation
need not obtain a certificate of authority if its only contacts with New Jersey"
include the listed activities. 15A N.J. Practice, Legal Forms § 28:1, ¶3 (James
H. Walzer) (4th ed. 2009) (emphasis added).
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                                           7
            [N.J.S.A. 14A:13-5 (emphasis added).]

      The effect of a certificate of authority's revocation is addressed in N.J.S.A.

14A:13-10, which provides:

            (1) In addition to any other ground for revocation
            provided by law, the certificate of authority of a foreign
            corporation to transact business in this State may be
            revoked by the Secretary of State upon the conditions
            prescribed in this section when
                  ...

                   (e) the corporation has failed to file its
                   annual report within the time required by
                   this act.
                   ...

            (4) The issuance of the certificate of revocation shall
            have the same force and effect as the issuance of a
            certificate of withdrawal under subsection 14A:13-
            8(2).

            [N.J.S.A. 14A:13-10 (emphasis added).]

      The above cross-reference to N.J.S.A. 14A:13-8(2), equating the

consequences of a certificate of authority's revocation to that of a foreign

corporation's   withdrawal    from    New    Jersey,   portends    the   following

consequences:

            (2) Upon the filing of the application for withdrawal,
            the Secretary of State shall issue to the corporation a
            certificate of withdrawal, whereupon

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                                         8
                  (a) the authority of the corporation to
                  transact business in this State shall cease;

                  (b) the authority of its registered agent in
                  this State to accept service of any process
                  against the corporation shall be deemed
                  revoked;

                  (c) the corporation shall be deemed to have
                  irrevocably consented that service of
                  process in any action or proceeding based
                  upon any liability or obligation incurred by
                  it within this State before the issuance of
                  the certificate of withdrawal may thereafter
                  be made on such corporation by service
                  thereof on the Secretary of State or the
                  chief clerk in his office . . . .

            [N.J.S.A. 14A:13-8(2) (emphasis added).]

      Applying these provisions from the Corporations Act to the circumstances

of this case, the pivotal question of law is "Was NG Flooring 'transacting

business' in New Jersey at the time it filed its complaint against defendant in

October 2020?" The answer is no.

      There is no dispute that, at the time NG Flooring provided services to

DeRochi in 2016 and 2017, it possessed a valid certificate of authority. It is

further uncontested that when NG Flooring filed suit against DeRochi in 2020,

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                                       9
it was no longer selling or providing products or services to customers within

this State.

      The plain language of N.J.S.A. 14A:13-3(2)(a) makes clear that a foreign

corporation's act of "maintaining . . . or otherwise participating in any action or

proceeding, whether judicial, administrative, arbitrative or otherwise"—i.e., the

sole identified activity of NG Flooring in New Jersey in 2020—"shall not be

considered to be transacting business in this State, for the purposes of [the

Corporations Act]." N.J.S.A. 14A:13-3(2)(a). NG Flooring was "maintaining"

a lawsuit against defendant for unpaid goods and services it previously supplied

in 2016 and 2017. It therefore was not "transacting business" by virtue of filing

that lawsuit in our courts. The revocation of its certificate of authority in 2019

has no bearing on the issue.

      The trial court erred in reaching a contrary conclusion. Its reliance on an

unpublished opinion cited to it by defendant, which allegedly interpreted the

statute differently in a fact pattern in which a foreign corporation had actually

been transacting business without a valid certificate, was misplaced. See R.

1:36-3.

      We turn to the second basis on which the trial court dismissed NG

Flooring's complaint: its failure to file annual reports of its business activities

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                                       10
with the Secretary of State under N.J.S.A. 14A:13-20(a). Defendant's dismissal

motion fails as a matter of law on this ground as well.

      N.J.S.A. 14A:13-20(a) is part of the Corporation Business Activities

Reporting Act, N.J.S.A. 14A:13-14 to -22 ("the Reporting Act"). The statute

denotes when foreign corporations are precluded from affirmatively accessing

the New Jersey courts for failure to comply with its terms.

      Section 13-20 of the Reporting Act provides as follows:

            a. No foreign corporation carrying on any activity or
            owning or maintaining any property in this State which
            has not obtained a certificate of authority to do business
            in this State and disclaims liability for the corporation
            business tax and the corporation income tax shall
            maintain any action or proceeding in any State or
            Federal court in New Jersey, until such corporation
            shall have filed a timely notice of business activities
            report.

            b. The failure of a foreign corporation to file a timely
            report shall prevent the use of the courts in this State
            for all contracts executed and all causes of action that
            arose at any time prior to the end of the last accounting
            period for which the corporation failed to file a required
            timely report.

            c. The court in which the issues arise shall be granted
            the power to excuse the corporation for failure to file a
            report when due, and restore the right of access to the
            courts in this State. Such failure to file a report shall
            be excusable where the court finds the corporation has
            sustained the burden of establishing that

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                                       11
                    (1) the failure to file a timely report was
                    done in ignorance of the requirement to
                    file, such ignorance was reasonable in all
                    circumstances; and

                    (2) all taxes, interest and civil penalties due
                    the State for all periods have been paid, or
                    provided for by adequate security or bond
                    approved by the director, before the suit
                    may proceed.

              [N.J.S.A. 14A:13-20 (emphasis added).]

        The Reporting Act specifies which activities within New Jersey require

foreign corporations to file a notice of business activities report with the State:

              Every foreign corporation which during any calendar or
              fiscal accounting year . . . carried on any activity or
              owned or maintained any property in this State, unless
              specifically exempted under section 3 of this act,5 shall
              be required to file a notice of business activities report,
              as hereinafter provided.

              Activities or property maintenance in this State which
              require corporations to file this report are:

                    ...

                    e. receiving payments from persons
                    residing in this State, or businesses located
                    in this State, aggregating in excess of
                    $25,000.00 regardless of any other
                    connections with this State; or

5
    Section 3 is codified at N.J.S.A. 14A:13-16.
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                                         12
                  f. the derivation of income from any source
                  or sources within this State; or

                  g. any other activity or property in, or
                  interrelationships with, this State as
                  designated by the director.

                  [N.J.S.A.    14A:13-15,     15(e)-(g)   (emphasis
                  added).]

      N.J.S.A. 14A:13-16 provides that:

            A foreign corporation shall not be required to file a
            notice of business activities report if

                  a. by the end of an accounting period for
                  which it was otherwise required to file a
                  notice of business activities report under
                  this act, it had received a certificate of
                  authority to do business in this State; or

                  b. a timely return has been filed under the
                  Corporation Business Tax Act or the
                  Corporation Income Tax Act for such
                  accounting period.

            [(Emphasis added).]

      In interpreting these provisions, our Supreme Court has explained that

"[e]very foreign corporation subject to the Reporting Act must file an Activities

Report with the Director of the Division of Taxation of the State of New Jersey,

on or before the fifteenth day of the fourth month after the close of the

corporation's calendar or fiscal accounting year." First Fam. Mortg. Corp. v.

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                                      13
Durham, 108 N.J. 277, 281 (1987) (citing N.J.S.A. 14A:13–18(a)) (emphasis

added).   However, as the Court further explained, "[p]ursuant to N.J.S.A.

14A:13-16[(a), and] (b), a foreign corporation is not required to file, if it has

received . . . a certificate of authority to do business in this [S]tate." Ibid.

(emphasis added).

      The statute, as worded, signified that a "[f]ailure to file an Activities

Report prevents a corporation from using New Jersey courts to pursue any cause

of action arising 'at any time prior to the end of the last accounting period for

which the corporation failed to file a required timely report.'" Id. at 288 (quoting

N.J.S.A. 14A:13-20(b)) (emphasis added).         That "harsh penalty" burdening

interstate commerce led the Court to declare it "constitutionally infirm," and

resulted in the Court construing the statute to treat the preclusion as a temporary

problem rather than a permanent one. Id. at 288-89, 292. In that vein, several

published opinions of our state courts have allowed foreign corporations to cure

the filing deficiency during the pendency of litigation. See e.g., Materials Rsch.

Corp., 64 N.J. 74, 77, 77 n.1 (1973); Davis & Dorand, Inc. v. Patient Care Med.

Servs. Inc., 208 N.J. Super. 450, 454, 459-60 (Law Div. 1985); Grow Farms

Corp. v. Nat'l State Bank, 167 N.J. Super. 102, 114 (Law Div.1979); Menley &

James Labs., Ltd. v. Vornado, Inc., 90 N.J. Super. 404, 414 (Ch. Div. 1966).

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                                        14
      Applying these provisions and related case law principles, we are

constrained to reverse the trial court's dismissal based on NG Flooring's alleged

violation of the Reporting Act. The relevant sequence of events is instructive.

      The record indicates NG Flooring began its work for defendant in New

Jersey in September 2016, and received its certificate of authority in December

2016. Accounting periods are defined under the Reporting Act to "mean the

calendar or fiscal year, or part thereof, for which a report is due under this act."

N.J.S.A. 14A:13-17(e). The business activity reports, if required by N.J.S.A.

14A:13-15, are due annually. N.J.S.A. 14A:13-18. Thus, the record clearly

shows NG Flooring had duly obtained its certificate by the end of the first

accounting period for which it would otherwise have needed to produce a report.

Therefore, NG Flooring met the exemption provided for by N.J.S.A. 14A:13 -

16(a) for the 2016 calendar year. That certificate remained in force through

2017, the year when NG Flooring completed its work for defendant. It was not

until July 2019 when the certificate was revoked.

      A plain reading of the Reporting Act signifies that a foreign corporation

need not file a business activity report while its certificate of authority is still

valid. See First Fam. Mortg., 108 N.J. at 281 (noting that "[p]ursuant to N.J.S.A.

14A:13-16[(a), and ](b), a foreign corporation is not required to file, if it has

                                                                              A-0775-22
                                        15
received . . . a certificate of authority to do business in this [S]tate"). Therefore,

NG Flooring also meets the exemption for filing notice of business activity

reports for the years 2017 and 2018 while its certificate was still valid.

      NG Flooring would have been required to submit a business activity report

in December 2019 and annually thereafter only if it was "carrying on any

activity" in New Jersey under N.J.S.A. 14A:13-15. See id. at 279-82, 287

(noting "the reporting requirement is carefully limited to those corporations that

satisfy any of the conditions cited in N.J.S.A. 14A:13-15"). There is no proof

that NG Flooring carried on any such activity in New Jersey since its certificate

was revoked and no record facts indicate the contrary. See Bonnier Corp. v.

Jersey Cape Yacht Sales, Inc., 416 N.J. Super. 436, 444 (App. Div. 2010)

("Although the record before us is limited, it is apparent that defendant, as the

moving party invoking what are, in essence, the windfall benefits of N.J.S.A.

14A:13-11, has failed to sustain its burden by demonstrating that plaintiff has

engaged in intrastate commerce within this State.").

      Hence, under a plain reading of the Reporting Act, N.J.S.A. 14A:13-14 to

-22, NG Flooring is beyond the scope of its annual requirements, and the

statute's penalty of the denial of access to the courts of this State does not apply.

Even if we were to conclude otherwise, the trial court erred in dismissing the

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                                        16
complaint with prejudice and depriving NG Flooring of an opportunity to cure

the filing omission pursuant to the criteria set forth in N.J.S.A. 14A:13-20(c).

      Reversed. Plaintiff's complaint is reinstated, and the case is remanded for

further proceedings. Jurisdiction is not retained.

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