DEVELOPMENT MANAGEMENT CORP v. BLUMBERG (1997)

A. ISSUE

TWO BE OR NOT TO BE-A dispute over the rights by two (2) different parties to use an identical corporate name granted by the New York State Secretary of State on different dates under Business Corporation Law (BCL) 403 and Tax Law 203-a.   That is the legal question.   Which takes priority-where & when?   A novel issue of law and equity!

B. PROCEDURAL HISTORY & FACTS

Plaintiff, H.E.G. Development & Management Corp.'s (hereinafter “HEG2”) CPLR 6301 motion for a preliminary injunction, to stay Civil Court proceedings and to substitute Naomi Blumberg as a party defendant in the action entitled Jaffee v. H.E.G. Development & Management Corp. (hereinafter HEG1) (Supreme Court, New York County Index # 115307/96) and defendant's CPLR 6301 cross-motion for a preliminary injunction are consolidated for determination.

On June 28, 1980, the defendant caused a Certificate of Incorporation for H.E.G. Development & Management Corp. (“HEG1”) to be filed with the New York State Secretary of State.   This corporation was formed to purchase, lease and manage property, including, but not limited to, 127 Second Avenue, 129 Second Avenue and/or 36 St. Mark's Place.   On June 21, 1991, HEG1 was dissolved by proclamation by the Secretary of State pursuant to Tax Law 203-a, for failure to pay its corporate franchise taxes.   HEG1, however, still continued to do business under its corporate name including bringing non-payment summary proceedings in Civil Court:  New York County:  Housing Part:  H.E.G. Development & Management Corp. (HEG1) v. Patricia Melvin, L & T # 87335/95 and H.E.G. Development & Management Corp. (HEG1) v. Spencer Matthews, L & T # 117390/96, and defending in the action entitled, George & Helen Jaffee v. H.E.G. Development & Management Corp. (HEG1), et al., Supreme Court:  New York County Index # 115307/96.

On July 26, 1996, Ruth Baumann caused a Certificate of Incorporation for H.E.G. Development & Management Corp. (“HEG2”), plaintiff herein, to be filed with the New York State Secretary of State after a search revealed the name ‘H.E.G. Development & Management Corp.’ was available.   This corporation was formed to engage in the business of the dissemination and communication of sports information.   The above (HEG2) Certificate of Incorporation was accepted by the Secretary of State on July 26, 1996 under BCL 403.

C. PARTIES' CONTENTIONS

Plaintiff alleges that HEG1 no longer has the right to do business in the State of New York under the name ‘H.E.G. Development & Management Corp.’, and further use of that name will create confusion and possible irreparable harm to plaintiff.

Defendant alleges HEG1 is a de facto corporation because it continued to conduct business after the dissolution by proclamation by the New York State Secretary of State.

D. APPLICABLE LAW

A corporation is a legal entity created by the state and may be dissolved by the state, under Tax Law 203-a(3) & 217, and yet continue as a de facto corporation.  Matter of Intelligent Bank Mgmt. [East Coast Fin. Corp.], 207 A.D.2d 760, 616 N.Y.S.2d 618 (1st Dept.-1994);  see also, National Bank v. Paskow, 75 A.D.2d 568, 569, 427 N.Y.S.2d 262 (1st Dept.-1980), aff'd 53 N.Y.2d 953, 441 N.Y.S.2d 443, 424 N.E.2d 277 (1981).   Ordinarily, no one but the State of New York may question its existence.   14 NY Jur.2d (Business Relationships, B. De Facto Existence) §§ 143, 144.   However, a corporation which continues to conduct new business after dissolution by the state may also be a de facto corporation, by holding itself out to the outside world as a legally incorporated company, as to those parties with which it conducted business.  D & W Central v. Copymasters, Inc., 122 Misc.2d 453, 471 N.Y.S.2d 464 (Civ.Ct. Queens Co.-1983).   Therefore, as to those parties with which it conducted business, HEG1 is a de facto corporation, and entitled to continue to conduct such business as it did before the filing of HEG2's Certificate of Incorporation.

E. ANALYSIS & FINDINGS

Thus, applying the above stated principles, upon subject facts, in the interest of justice and equity, plaintiff's CPLR 6301 motion for a preliminary injunction is granted only to the extent of preventing defendant, Naomi Blumberg, as HEG1, from:  (1) initiating any new Court action or special proceeding from the date of service of a true copy of this Court's Order with Notice of Entry, pending further Court Order;  and, (2) using the name, ‘H.E.G. Development & Management Corp.’ in connection with any educational or sports publication upon the condition plaintiff duly file an undertaking, under CPLR 6312(b) in the sum of $10,000.00 within thirty (30) days hereof, otherwise denied.

Defendant's CPLR 6301 cross-motion for a preliminary injunction is granted only to the extent of prohibiting plaintiff, (HEG2):  1. from interfering with or taking part in the business of HEG1, including but not limited to any court action or special proceedings commenced prior to plaintiff's service of a true copy of this Court's Order with Notice of Entry, including, but not limited to:  (a) H.E.G. Development & Management Corp. (HEG1) v. Patricia Melvin, Civil Court:  New York County L & T # 87335/95;  (b) H.E.G. Development & Management Corp. (HEG1) v. Spencer Matthews, Civil Court:  New York County L & T # 117390/96 and (c) George & Helen Jaffee v. H.E.G. Development & Management Corp. (HEG1), et al., Supreme Court:  New York County Index # 115307/96;  2. exercising any control over, interfering with or taking part in the ownership interest of real property known as 127 Second Avenue, 129 Second Avenue and/or 36 St. Mark's Place, New York, New York;  3. discharging or releasing Patricia Melvin from any and/or all obligations she may have to HEG1;  and 4. confessing to any order, directive or monetary judgment against HEG1 upon the condition defendant duly file an undertaking, under CPLR 6312(b) in the sum of $10,000.00 within thirty (30) days hereof;  otherwise denied.

F. CONCLUSION

Accordingly, for the above reasons, both plaintiff's and defendant's CPLR 6301 motions are granted upon the above specified conditions;  otherwise denied.

NORMAN C. RYP, Justice.