Opinion
INDEX NO.: 656111/2020
04-24-2023
AMERICAN EXPRESS NATIONAL BANK, Plaintiff, v. PINO NAPOLI TILE & GRANITE, LLC, and Phil Colbert, Defendants.
Zwicker & Associates, P.C., Piscataway Township, NJ (Carl E. Zapffe of counsel), for plaintiff. No appearance for defendants.
Zwicker & Associates, P.C., Piscataway Township, NJ (Carl E. Zapffe of counsel), for plaintiff.
No appearance for defendants.
Gerald Lebovits, J.
This is an action to collect on allegedly unpaid loans, brought by plaintiff, American Express National Bank, against defendants, Pino Napoli Tile & Granite, LLC, and Phil Colbert. This court previously denied plaintiff's unopposed motion for default judgment against defendants, based on the court's conclusion that plaintiff had not established valid service on defendants, nor the facts constituting its claims. ( American Express Natl. Bank v. Pino Napoli Tile & Granite, LLC , 2022 N.Y. Slip Op. 50488[U], 2022 WL 2126211 [Sup. Ct., N.Y. County June 13, 2022].) The court's order permitted plaintiff to renew its motion to remedy these defects. ( Id. at *3-4.)
Plaintiff now moves again for default judgment, still without opposition. The renewed motion is again denied—albeit on narrower grounds than before. In considering plaintiff's arguments on this motion, the court addresses an issue of apparent first impression relating to the proper interpretation of Business Corporation Law (BCL) § 1314 (c).
DISCUSSION
On the prior motion, this court concluded that plaintiff had not established (i) valid service on defendants; (ii) that plaintiff may bring this action against defendants; or (iii) the facts constituting plaintiff's claims against defendants—each required by CPLR 3215 (f) on a default-judgment motion. Plaintiff's renewed motion attempts to address all three bases for this court's ruling. The court addresses them in turn.
I. Whether Plaintiff Has Shown that it Validly Served Defendants
A plaintiff moving for default judgment must establish valid service on defendant(s). Defendants here were served out of state in Arizona, where defendant Colbert resides. To serve an out-of-state resident, this court must have personal jurisdiction over that resident under CPLR 301 or CPLR 302. (See CPLR 313.)
On the prior motion, plaintiff argued that it validly served defendants in Arizona under CPLR 313 because defendants had consented to this court's jurisdiction over them through a forum-selection clause in the underlying loan agreement. (See NYSCEF No. 20 at 11 § V [agreement].) The court found that argument, as presented, unpersuasive. This court explained that "the document does not mention either of the defendants here by name, is not signed by them, and indeed has no signature page," and thus that plaintiff did not establish that defendants were bound by the agreement, including the forum-selection clause. ( Pino Napoli Tile & Granite , 2022 N.Y. Slip Op. 50488[U], at *1.) Absent evidence of defendants’ consent to jurisdiction, the court ruled, plaintiff did not show that CPLR 313 service was valid. ( Id. )
As a result, there is no merit to plaintiff's argument that this court erred in sua sponte raising issues relating to the enforceability of the loan agreement. (See NYSCEF No. 26 at 9-11.) In the circumstances of this case, a direct connection runs from the enforceability (or not) of the loan agreement, to that agreement's forum-selection clause, to the presence or absence of personal jurisdiction, to the validity of service. And it is plaintiff's burden to demonstrate valid service when moving for default judgment. (See CPLR 3215 [f].) Thus, assessing whether plaintiff has established an element of its request for relief on this motion requires this court to consider what would ordinarily be affirmative defenses that would have to have been raised by defendants.
Plaintiff now relies on Utah law, which governs the loan agreement (NYSCEF No. 20 at 11 § V), to argue that the agreement "does not have to be signed in order to be enforceable." (NYSCEF No. 26 at 1.) This court agrees. The Utah statute of frauds provides that an unsigned agreement will still be binding and enforceable "if: (i) the debtor is provided with a written copy of the terms of the agreement; (ii) the agreement provides that any use of the credit offered shall constitute acceptance of those terms; and (iii) after the debtor receives the agreement, the debtor, or a person authorized by the debtor, requests funds pursuant to the credit agreement or otherwise uses the credit offered." (Id. at 2 [citing Utah Code Ann. § 25-5-4 (2) (e) ].) Plaintiff persuasively contends that the loan agreement satisfies these requirements, because (i) plaintiff's affidavit states that plaintiff provided defendants with a copy of the agreement; (ii) the agreement provides that defendants’ submission of details required as part of a loan application will constitute defendants’ "agreement to the terms of this Agreement"; and (iii) plaintiff's affidavit and the attached Statement of Account provide specific details of the loans that were disbursed by plaintiff to Pino Napoli. (Id. at 3-4.) Because the loan agreement is enforceable, plaintiff's service was valid under the agreement's forum-selection clause.
The loan agreement also contains a joint-and-several-liability provision. (See NYSCEF No. 20 at 5-6 § 3.) Given that agreement's enforceability, plaintiff has sufficiently shown that Colbert should be held liable on any default judgment that this court grants against defendant Pino Napoli. (See NYSCEF No. 26 at 8-9 [making this point].)
II. Whether Plaintiff Has Shown that it May Sue Defendants
On the prior motion, this court concluded that plaintiff (headquartered in Utah) had not shown that it could maintain this action against Pino Napoli (located in Florida) or Colbert (living in Arizona), consistent with BCL § 1314. (See Pino Napoli Tile & Granite , 2022 N.Y. Slip Op. 50488[U], at *2.) Section 1314 (b) restricts actions brought in New York by a foreign corporation against another foreign corporation or nonresident. Plaintiff does not attempt to show that it can satisfy the requirements of § 1314 (b). Instead, it relies on § 1314 (c), which carves out an exemption from those requirements for any "corporation which was formed under the laws of the United States and which maintains an office in this state." But plaintiff has not demonstrated that it comes within this exemption.
As this court noted on the prior motion (2022 N.Y. Slip Op. 50488[U], at *2 ), it is unclear whether these restrictions go to this court's subject-matter jurisdiction or merely defeat a plaintiff's cause of action. (Compare Airtran New York, LLC v. Midwest Air Grp., Inc. , 46 A.D.3d 208, 214, 844 N.Y.S.2d 233 [1st Dept. 2007] [describing § 1314 as "determin[ing] when New York has subject matter jurisdiction over an action by a foreign corporation against another foreign corporation"], with Pollicina v. Misericordia Hosp. Med. Ctr. , 82 N.Y.2d 332, 338-339, 604 N.Y.S.2d 879, 624 N.E.2d 974 [1993] [emphasizing that with two exceptions not relevant here, "Supreme Court is competent to entertain all causes" in the exercise of its general original jurisdiction, such that the Legislature "cannot oust the Supreme Court from jurisdiction or limit the scope of its authority" in particular types of actions].) The distinction between jurisdictional bar and cause-of-action bar, though, is not material for purposes of this motion.
Plaintiff does not provide an affidavit from a corporate representative to support its argument that § 1314 (c) permits it to bring this action. Instead, plaintiff relies only on an affirmation of counsel. (See NYSCEF No. 27 at ¶ 7.) Counsel represents that "Plaintiff is the U.S. bank subsidiary of American Express Company," which, "in turn, is a New York corporation ... headquartered at 28 Liberty Street in Lower Manhattan." (Id. ) In making this representation, counsel relies on American Express Company's 2021 Form 10-K, available online on the Securities and Exchange Commission website. (Id. ) Assuming for now that the Form 10-K's brief description of plaintiff as American Express Company's "U.S. bank subsidiary" means that plaintiff is "formed under the laws of the United States" under § 1314 (c), plaintiff still has not shown that it "maintains an office in this state."
Plaintiff has shown only that its parent holding company maintains an office in New York. Plaintiff provides no authority for the proposition that this office can be, in effect, imputed to plaintiff for § 1314 (c) purposes. Nor has this court's research identified any precedents addressing whether and when a corporation can be deemed to maintain an in-state office based on an office that is formally that of the corporation's parent or subsidiary.
That said, in considering this new issue, the court does not write entirely on a clean slate. In GS Plasticos Limitada v. Bureau Veritas , the Appellate Division, First Department, addressed whether a plaintiff may predicate § 1314 (b) jurisdiction over a corporate defendant on the in-state activities of that defendant's subsidiary. (See 80 A.D.3d 511, 512, 915 N.Y.S.2d 68 [1st Dept. 2011].) The court held that to rely on that basis for jurisdiction, a plaintiff must show that the subsidiary is "merely a department of [the parent company]," i.e. , that it was "performing the same activities (i.e., ‘doing all the business’) that [the parent] would have performed had it been doing or transacting business in New York." ( Id. , quoting Porter v. LSB Indus., Inc. , 192 A.D.2d 205, 213, 214, 600 N.Y.S.2d 867 [4th Dept. 1993].) This formulation applies New York's longstanding alter-ego/department test for assessing the relationship for jurisdictional purposes of parent and subsidiary corporations. That test is a demanding one: It permits "a finding of agency for jurisdictional purposes" only when "the parent company's degree of control over the subsidiary's activities ‘must be so complete that the subsidiary is, in fact, merely a department of the parent.’ " ( Amsellem v. Host Marriott Corp. , 280 A.D.2d 357, 359, 721 N.Y.S.2d 318 [1st Dept. 2001], quoting Delagi v. Volkswagenwerk AG of Wolfsburg, Germany , 29 N.Y.2d 426, 432, 328 N.Y.S.2d 653, 278 N.E.2d 895 [1972] ; see also Porter , 192 A.D.2d at 213-214, 600 N.Y.S.2d 867 [identifying factors to be considered in applying the test].) This court concludes that the existing alter-ego/department test is the appropriate standard for the § 1314 (c) exemption, as well as for the § 1314 (b) requirements. As in the subsection (b) context, an out-of-state plaintiff seeking the benefit of subsection (c) is asking the court to disregard the corporate form, practically speaking. Doing so here, for example, would require this court to pass over the allegation in plaintiff's complaint that it is headquartered in Utah (see NYSCEF No. 1 at ¶ 1), and focus only on plaintiff's representation on this motion that its separately incorporated parent holding company is headquartered in Manhattan (NYSCEF No. 27 at ¶ 7.) This court may do so only if plaintiff establishes that American Express Company exercises control over plaintiff "so pervasive as to render [plaintiff] a mere department of [American Express Company]," rather than a truly separate corporation. ( Porter , 192 A.D.2d at 213, 600 N.Y.S.2d 867.)
The court expresses no opinion at this time about whether plaintiff can make out this showing. But plaintiff has not yet done so. It therefore has not demonstrated that it may maintain the current action against defendants, either—as needed for this court to grant default judgment. (See Dyno v. Rose , 260 A.D.2d 694, 698, 687 N.Y.S.2d 497 [3d Dept. 1999] [emphasizing that the "legal conclusions to be drawn from the applicant's complaint and factual allegations are reserved for the court's determination," and that the trial court may properly deny a default-judgment motion if it concludes that those allegations "fail to establish a prima facie case" of defendant's liability].)
III. Whether Plaintiff Has Shown that Defendants Owe the Sums Claimed
Even if this court were to conclude that plaintiff could sue defendants, plaintiff still has not shown that they owe the $87,442.95 that plaintiff claims. On the prior motion, this court noted that the "affidavit of plaintiff's records custodian," phrased in generic terms, does not "attach corresponding borrower-specific documentation" that might show that plaintiff "disburs[ed] funds to defendants pursuant to their loans," or provided defendants with access to "running online [loan] statements," as the affidavit suggests. ( Pino Napoli Tile & Granite , 2022 N.Y. Slip Op. 50488[U], at *3.) At most, plaintiff provided a September 2019 loan statement. (See NYSCEF No. 21.) This court held that the 2019 statement, standing alone, could not establish prima facie plaintiff's claim that defendants still owed the $87,442.95 when plaintiff moved for default judgment in 2022. (See id. ) On this motion, plaintiff contends that this court erred in finding plaintiff's evidence insufficient. (See NYSCEF No. 26 at 4, 6.) This court remains unpersuaded. For one, the loan statement on which plaintiff chiefly relies is not so clear as to be self-explanatory, particularly with regard to defendants’ payment history (or lack thereof); and the affidavit of plaintiff's records custodian does not attempt to explain the information contained in the statement.
More fundamentally, that defendants apparently owed plaintiff money in September 2019 does not, without more, establish that defendants still owed plaintiff money in March 2022. The only basis in plaintiff's papers for its claim that defendants still owe the money is a conclusory statement in the record-custodian affidavit, "[p]ursuant to American Express's records," that "[a]fter giving Defendant(s) credit for all payments made, if any, the amount justly due and owing as of 03/22/22 is $87,442.95," plus interest and attorney fees. (NYSCEF No. 19 at ¶ 9.) Without supporting documentation—and plaintiff provides none—this statement is inadmissible hearsay that cannot underpin the grant of default judgment. (See Wells Fargo Bank, NA v. Oziel , 196 A.D.3d 618, 621, 152 N.Y.S.3d 123 [2d Dept. 2021] [holding that an "affidavit constituted inadmissible hearsay and lacked probative value" because the affiant's representations about her knowledge were "based upon her review of unidentified and unproduced business records"].)
Plaintiff asserts that the loan statement "alone, coupled with the fact that all of Plaintiff's allegations must be deemed admitted at this juncture," establishes plaintiff's entitlement to default judgment. (NYSCEF No. 26 at ¶ 8.) But CPLR 3215 (f) requires a plaintiff to provide "proof of the facts constituting the claim ... and the amount due" through an "affidavit made by the party" or through a "verified complaint" if one has been served. Plaintiff's complaint was not verified. (See NYSCEF No. 1.) It is the record-custodian's affidavit and any supporting documents, therefore, not the complaint, on which plaintiff must rely.
Accordingly, it is ORDERED that plaintiff's renewed motion for default judgment is denied without prejudice; and it is further
ORDERED that if plaintiff does not file a renewed motion within 60 days of entry of this order the action will be administratively dismissed; and it is further
ORDERED that plaintiff shall serve a copy of this order with notice of its entry on defendants by certified mail, return receipt requested, directed to their respective last-known addresses.