Supreme Court, New York County, April 24, 2023

Zwicker & Associates, P.C., Piscataway Township, New Jersey (Carl E. Zapffe of counsel), for plaintiff.

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, 75 Misc 3d 1214[A], 2022 NY Slip Op 50488[U] [Sup Ct, NY County, June 13, 2022].) The court's order permitted plaintiff to renew its motion to remedy these defects. (2022 NY Slip Op 50488[U], *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 § 1314 (c).

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 [*2]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{**79 Misc 3d at 671} 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 NY St Cts Elec Filing [NYSCEF] Doc 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 NY Slip Op 50488[U], *1.) Absent evidence of defendants' consent to jurisdiction, the court ruled, plaintiff did not show that CPLR 313 service was valid.^[FN1] (Id.)

[1] Plaintiff now relies on Utah law, which governs the loan agreement (NYSCEF Doc No. 20 at 11 § V), to argue that the agreement "does not have to be signed in order to be enforceable." (NYSCEF Doc 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{**79 Misc 3d at 672} 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.^[FN2]

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 Business Corporation Law § 1314. (See Pino Napoli Tile & Granite, 2022 NY Slip Op 50488[U], *2.) Section 1314 (b) restricts actions brought in New York by a foreign corporation against another foreign corporation or nonresident.^[FN3] Plaintiff does not attempt to show that it can satisfy the requirements of section 1314 (b). Instead, it relies on section 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.

[2] Plaintiff does not provide an affidavit from a corporate representative to support its argument that section 1314 (c) permits it to bring this action. Instead, plaintiff relies only on{**79 Misc 3d at 673} an affirmation of counsel. (See NYSCEF Doc No. 27 ¶ 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 section 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 section 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 section 1314 (b) jurisdiction over a corporate defendant on the in-state activities of that defendant's subsidiary. (See 80 AD3d 511, 512 [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., 192 AD2d 205, 213, 214 [4th Dept [*4]1993].) This formulation applies New York's long-standing 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 AD2d 357, 359 [1st Dept 2001], quoting Delagi v Volkswagenwerk AG of Wolfsburg, Germany, 29 NY2d 426, 432 [1972]; see also Porter, 192 AD2d at 213-214 [identifying factors to be considered in applying the test].){**79 Misc 3d at 674}

This court concludes that the existing alter-ego/department test is the appropriate standard for the section 1314 (c) exemption, as well as for the section 1314 (b) requirements. As in the paragraph (b) context, an out-of-state plaintiff seeking the benefit of paragraph (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 Doc No. 1 ¶ 1), and focus only on plaintiff's representation on this motion that its separately incorporated parent holding company is headquartered in Manhattan (NYSCEF Doc No. 27 ¶ 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 AD2d at 213.)

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 Matter of Dyno v Rose, 260 AD2d 694, 698 [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

[3] 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 NY Slip Op 50488[U], *3.) At most, plaintiff provided a September 2019 loan statement. (See NYSCEF Doc 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.){**79 Misc 3d at 675}

On this motion, plaintiff contends that this court erred in finding plaintiff's evidence insufficient. (See NYSCEF Doc 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 [*5]statement in the records-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 Doc No. 19 ¶ 9.) Without supporting documentation—and plaintiff provides none—this statement is inadmissible hearsay that cannot underpin the grant of default judgment.^[FN4] (See Wells Fargo Bank, NA v Oziel, 196 AD3d 618, 621 [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"].)

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.