Ng Flooring, Inc. v. Derochi Design and Build, LLC ( 2024 )

NOT FOR PUBLICATION WITHOUT THE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Of pertinence here, NG Flooring's certificate of authority was revoked by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.
A-0775-22
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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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).
A-0775-22
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[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
A-0775-22
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(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,
A-0775-22
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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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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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(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.
A-0775-22
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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.
A-0775-22
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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).
A-0775-22
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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
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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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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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