THE DE FACTO CORPORATION

Ocean Park Acquisition L.P. v. R All Mgmt. Svcs. Inc., Date filed: 2022-05-26, Court: Supreme Court, Queens, Judge: Justice Sally Unger, Case Number: 715695/20:

"Management seems to believe it can escape liability in this action because of the corporate dissolution in 2003. However, generally, where a corporation’s term of existence has expired but the corporation carries on its business affairs and exercises its corporate powers as it did prior to the dissolution, it is a de facto corporation (see, Garzo v. Maid of Mist Steamboat Co., 303 N.Y. 516, 104 N.E.2d 882 (1952). "A corporation continues to exist as a legal entity after dissolution, at least for purposes of actions and proceedings." Independent Investor Protective League v. Time, Inc., 50 NY2d 259, 428 NYS2d 671 (1980). To allow the corporate defendant to be shielded from responsibility based upon its own underlying malfeasance, i.e., failure to pay franchise taxes, would make a mockery of our system of justice.

In the case at bar, Management continued to operate and held itself out as a viable corporate entity despite its corporate dissolution, by entering into the Lease approximately seven years thereafter. “A corporation may be held liable on a cause of action that accrues after dissolution if the corporation continued its operations, operated its premises, and held itself out as a de facto corporation, notwithstanding its dissolution.” (Emphasis added) Bruce Supply Corp. v. New Wave Mechanical, Inc., 4 AD3d 444 (2nd Dept 2004), citing Ludlum Corp. Pension Plan Trust v. Matty's Superservice, Inc., 156 AD3d 339, 548 NYS2d 292 (2nd Dept 1989). Therefore, Management is most certainly liable to the plaintiff for rent at least until its surrender of the subject premises."

PIERCING THE CORPORATE VEIL

WEST HOUSTON PROP., LLC v. NEW YORK PILATES NYC, LLC, 2021 NY Slip Op 32150 - NY: Supreme Court October 21, 2021:

"The plaintiff landlord in this breach of contract action seeks to recover unpaid rent under a commercial lease agreement with defendant New York Pilates NYC, LLC (Pilates NYC). The plaintiff also seeks to recover against all other defendants on a corporate veil-piercing theory and under the New York State Debtor and Creditor Law (Debtor and Creditor Law). The defendants now move pursuant to CPLR 3211(a)(7) to dismiss the second, third, fourth, and fifth causes of action of the complaint. The plaintiff opposes the motion. For the following reasons, the motion is granted.

When assessing the adequacy of a pleading in the context of a motion to dismiss under CPLR 3211(a)(7), the court's role is "to determine whether [the] pleadings state a cause of action." 511 W. 232nd Owners Corp. v Jennifer Realty Co., 98 NY2d 144, 151-152 (2002). To determine whether a claim adequately states a cause of action, the court must "liberally construe" it, accept the facts alleged in it as true, accord it "the benefit of every possible favorable inference" (id. at 152: see Romanello v Intesa Sanpaolo, S.p.A., 22 NY3d 881 [2013]; Simkin v Blank, 19 NY3d 46 [2012]), and determine only whether the facts, as alleged, fit within any cognizable legal theory. See Hurrell-Harring v State of New York, 15 NY3d 8 (2010); Leon v Martinez, 84 NY2d 83 (1994). "The motion must be denied if from the pleading's four corners factual allegations are discerned which taken together manifest any cause of action cognizable at law." 511 W. 232nd Owners Corp. v Jennifer Realty Co., supra, at 152 (internal quotation marks omitted); see Leon v Martinez, supra; Guggenheimer v Ginzburg, 43 NY2d 268 (1977).

The complaint avers that the plaintiff and Pilates NYC entered into a commercial lease dated March 22, 2018, for a term ending on March 31, 2028. The lease obligated Pilates NYC to pay rent, additional rent, and other fees to the plaintiff on or before the first day of each month of the lease term. However, Pilates NYC failed to make payments in the sum of $258,078.84 from March 1, 2020, through November 1, 2020. The first cause of action, sounding in breach of contract, seeks to recover unpaid rent as against Pilates NYC. The second cause of action seeks to recover unpaid rent as against all defendants other than Pilates NYC by piercing the corporate veil. The third and fourth causes of action seek to recover unpaid rent as against all defendants by voiding any conveyances and/or transfers of the assets of defendant Pilates NYC to the other defendants under Debtor and Creditor Law §§ 274, 275, and 276. The fifth cause of action, sounding in unjust enrichment, likewise seeks to recover unpaid rent as against all defendants.

Ordinarily, a corporation exists independently of its owners, as a separate legal entity, and its owners are not liable for the actions of the corporation. See Matter of Morris v New York State Dept. of Taxation & Fin., 82 NY2d 135 (1993). The doctrine of piercing the corporate veil is a limitation to this rule, "typically employed by a third party seeking to go behind the corporate existence in order to circumvent the limited liability of the owners and to hold them liable for some underlying corporate obligation." Id. "Piercing the corporate veil requires a showing that (1) the owners exercised complete domination of the corporation in respect to the transaction attacked; and (2) that such domination was used to commit a fraud or wrong against the plaintiff which resulted in plaintiff's injury." Ciavarella v Zagaglia, 132 AD3d 608, 608-609 (1st Dept. 2015) (quotation and citation omitted); see also Fantazia Int'l Corp. v CPL Furs New York, Inc., 67 AD3d 511 (1st Dept. 2009). "[U]ndercapitalization of a corporation and the corporation's owner's personal use of corporate funds, which results in the corporation's being unable to pay a judgment, constitute wrongdoing and injury sufficient to satisfy the second prong of [Matter of Morris v New York State Dept. of Taxation & Fin., supra.]" Ciavarella v Zagaglia, supra at 609. However, a simple breach of contract, without more, does not constitute a fraud or wrong warranting the piercing of the corporate veil. See Skanska USA Bldg., Inc. v Atalntic Yards B2 Owner LLC, 146 AD3d 1 (1st Dept. 2016); Bonacasa Realty Co., LLC v Salvatore, 109 AD3d 946 (2nd Dept. 2013); Treeline Mineola, LLC v. Berg, 21 AD3d 1028 (2nd Dept. 2005).

The complaint's second cause of action alleges, "[u]pon information and belief," (1) that all the other defendants dominated and controlled defendant Pilates NYC "so that Pilates NYC had no separate mind, will or existence of its own" and was the "mere alter ego of all of the other defendants." Further, the complaint states that Pilates NYC "did not comply with the standard company formalities required of a limited liability company," that the property of Pilates NYC was "used by the individual and company defendants as if it were their own," and that all defendants "shared, commingled and intermingled the same property including the name and goodwill of the business, the same employees and customers and the same offices and trade fixtures, furniture and equipment and the same website, customer lists, appointment schedules etc."

The foregoing allegations are insufficient to state a cause of action for alter ego liability. To begin, they are "wholly conclusory and consist of no more than a recitation of the elements of the claim, `upon information and belief.'" 501 Fifth Ave. Co. LLC v Alvona LLC, 110 AD3d 494, 494 (1st Dept. 2013); see Board of Managers of Gansevoort Condominium v 325 West 13th, LLC, 121 AD3d 554 (1st Dept. 2014). Moreover, the complaint, even as supplemented by the plaintiff's submissions in opposition to the instant motion, "is devoid of any allegations as to how [all other defendants] used their domination of [Pilates NYC] to commit a wrong against the plaintiff[]." TMCC, Inc. v Jennifer Convertibles, Inc., 176 AD3d 1135, 1136 (2nd Dept. 2019); see Cornwall Management Ltd. v Kambolin, 140 AD3d 507 (1st Dept. 2016). The plaintiff has offered no specific facts as to what the other defendants did and how they allegedly controlled Pilates NYC, or as to the other defendants' actual personal gain and possession of money or assets in which the plaintiff had an interest. See Suverant LLC v Brainchild, Inc., 191 AD3d 513 (1st Dept. 2021); Arben Corp. v Durastone, LLC, 186 AD3d 599 (2nd Dept. 2020). Instead, the plaintiff relies on the bare observation that the Pilates NYC website and social media platforms show it has studios in several locations and offers members the ability to use one or all of its locations. "[T]he failure to allege any fraud or unjust conduct is fatal" to the second cause of action, especially where Pilates NYC performed for two years under the subject lease and, after missing payment for nine months, has apparently continued to perform under the lease. 501 Fifth Ave. Co. LLC v Alvona LLC, supra at 494. Accordingly, the second cause of action is dismissed.

With respect to the third and fourth causes of action, the court initially notes that the complaint, though filed on December 22, 2020, cites to outdated sections of the Debtor and Creditor Law that existed prior to the enactment of amendments effective on April 4, 2020. While the plaintiff cites to Debtor and Creditor Law § 276 under the third cause of action of the complaint, it appears that the plaintiff actually intended to state a claim pursuant to current Debtor and Creditor Law § 273(a)(1), which provides that "[a] transfer made or obligation incurred by a debtor is voidable as to a creditor, whether the creditor's claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation ... with actual intent to hinder, delay or defraud any creditor of the debtor." Where a plaintiff seeks to void a transfer pursuant to this provision, fraudulent intent must be pleaded with particularity. See CPLR 3016(b); RTN Networks LLC v Telco Group, Inc., 126 AD3d 477 (1St Dept. 2015) (addressing analogous provision of prior version of Debtor and Creditor Law); see also Carlyle LLC v Quik Park 1633 Garage LLC, 160 AD3d 476 (1st Dept. 2018) (addressing analogous provision of prior version of Debtor and Creditor Law).

The third cause of action avers "[u]pon information and belief" that Pilates NYC "with the intent and purpose to hinder, delay and defraud its creditors and in particular the plaintiff, caused the transfer and conveyance of its assets, including but not limited to customers, the name and good will of the business, accounts receivables, membership fees, trade fixtures, equipment and furniture, without any consideration being paid or such assets," and that such transfer rendered Pilates NYC insolvent. Again, the plaintiff's allegations are wholly conclusory and merely recite the elements of an intentional fraudulent conveyance claim. They fail to plead with particularity the defendants' intent to defraud and, inasmuch as they are pleaded upon information and belief, fail to reveal the basis for the plaintiff's claims. See Brennan v 3250 Rawlins Avenue Partners, LLC, 171 AD3d 603 (1st Dept. 2019); RTN Networks LLC v Telco Group, Inc., supra. The third cause of action is dismissed.

While the plaintiff cites to Debtor and Creditor Law §§ 274 and 275 under the fourth cause of action of the complaint, it appears that the plaintiff intended to state a claim pursuant to current Debtor and Creditor Law § 273(a)(2). That statute provides that a transfer made or obligation incurred by a debtor is voidable as to a present or future creditor if the debtor made the transfer or incurred the obligation ... without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor:

(i) was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or

(ii) intended to incur, or believed or reasonably should have believed that the debtor would incur, debts beyond the debtor's ability to pay as they became due.

Since Debtor and Creditor Law § 273(a)(2) is not based in actual fraud, the heightened pleading requirements of CPLR 3016(b) do not apply.

Nonetheless, the fourth cause of action fails even under ordinary pleading standards. The complaint contains a perfunctory recitation of the elements of a constructive fraud claim pursuant to Debtor and Creditor Law § 273(a)(2) but does not plead a single fact identifying any conveyance from Pilates NYC to another defendant. Nor does the plaintiff identify the source of his belief that Pilates NYC transferred its assets without fair consideration. For these reasons, the fourth cause of action is subject to dismissal. See RTN Networks, LLC v Telco Group, Inc., supra (addressing analogous provisions of prior version of Debtor and Creditor Law).

Finally, the fifth cause of action, sounding in unjust enrichment, must be dismissed as against Pilates NYC because there is a valid lease governing the subject matter between the plaintiff and Pilates NYC. See Suverant LLC v Brainchild, Inc., supra. Additionally, the fifth cause of action must be dismissed as against all remaining defendants because the complaint contains no allegations of a "relationship between the parties that could have caused reliance or inducement" that is not "too attenuated." Georgia Malone & Co., Inc. v Rieder, 19 NY3d 511, 517 (2012)."

THE "DE FACTO CORPORATION" DOCTRINE

Torto Note Member, LLC v Babad, 2021 NY Slip Op 01438, Decided on March 10, 2021, Appellate Division, Second Department:

"....The appellants also failed to raise a triable issue of fact as to whether the assignment of the note to the plaintiff was a nullity on the ground that the plaintiff, a limited liability company, was not yet formed or in existence on the date of the assignment. New York has recognized that an unincorporated entity can take title or acquire rights by contract if it is a de facto corporation (see Lehlev Betar, LLC v Soto Dev. Group, Inc., 131 AD3d 513, 514). "Under very limited circumstances, courts may invoke the de facto corporation doctrine where there exists (1) a law under which the corporation might be organized, (2) an attempt to organize the corporation and (3) an exercise of corporate powers thereafter" (Matter of Hausman, 13 NY3d 408, 412; see Lehlev Betar, LLC v Soto Dev. Group, Inc., 131 AD3d at 514). The de facto corporation doctrine is equally applicable to LLCs (see Matter of Hausman, 13 NY3d 408, 412; Lehlev Betar, LLC v Soto Dev. Group, Inc., 131 AD3d at 514). Here, the plaintiff submitted affidavits that demonstrated the applicability of the de facto corporation doctrine (see Lehlev Betar, LLC v Soto Dev. Group, Inc., 131 AD3d at 514). Specifically, the plaintiff demonstrated that there was a law under which the LLC might be organized (see Limited Liability Company Law §§ 203, 209), that the plaintiff made a "colorable attempt" to comply with the statutes governing the formation of an LLC, including the filing requirement, and that the plaintiff exercised its powers as an LLC thereafter (see Lehlev Betar, LLC v Soto Dev. Group, Inc., 131 AD3d at 514-515)."

SERVING CORPORATIONS UNDER BCL 306

See NOTE below.

Siemens Elec. LLC v New York Elec. Power Servs. LLC, 2019 NY Slip Op 32715(U), September 11, 2019, Supreme Court, New York County, Docket Number: 653803/2018, Judge: Arlene P. Bluth:

""CPLR 5015 (a) provides that a party may be relieved from a judgment on the ground of, among others, 'excusable default.' A defendant seeking to vacate a default under this provision must demonstrate a reasonable excuse for its delay in appearing and answering the complaint and a meritorious defense to the action" (Eugene Di Lorenzo, Inc. v A.C. Dutton Lumber Co., 67 NY2d 138, 141, 492 NE2d 116 [1986]).

While a corporation is required to keep its address updated with the Secretary of State, mistakes happen, and the Court may relieve a defendant of its default for that reason as a reasonable excuse. "It is also well established that service on a corporation through delivery of process to the Secretary of State is not personal delivery to the corporation or to an agent designated under CPLR 318. Thus, corporate defendants served under Business Corporation Law § 306 have frequently obtained relief from default judgments where they had a wrong address on file with the Secretary of State, and consequently, did not receive actual notice of the action in time to defend" (Eugene Di Lorenzio, Inc. v A.C. Dutton Lumber Co., Inc., 67 NY2d 138, 141, 42, 501 NYS2d 8 [1986] [citations omitted]). This Court finds defendant's mistake excusable."

NOTE: Judge Bluth earlier that year held the same in HESS CORP. v. 936-938 CLIFFCREST HOUS. DEV. FUND CORP., 2019 NY Slip Op 30384 - NY: Supreme Court 2019:

"The fact is that courts often grant motions to vacate default judgments where the summons and complaint was served via the Secretary of State and the corporation claims it never received the commencing papers (Eugene Di Lorenzio, Inc., 67 NY2d at 141). Case law is clear that these types of cases should be decided on the merits."

Yet Judge Engoron this year may have felt differently in Commissioners of State Ins. Fund v. NEWGLE CORP., 2019 NY Slip Op 31456 - NY: Supreme Court 2019:

"Service of process upon a corporation under Business Corporation Law § 306 (b) is complete upon delivery of the summons and complaint to the Secretary of State (see State Farm Mut. Auto. Ins. Co. v Dr. Ibrahim Fatiha Chiropractic, P.C., 147 AD3d 696, 696 [1st Dept 2017], lv denied 29 NY3d 912 [2017]). Jurisdiction is obtained "irrespective of whether the process ever actually reached [the corporate] defendant" (Shanker v 119 E. 30th, Ltd., 63 AD3d 553, 554 [1st Dept 2009])."

USURY DEFENSE NOT AVAILABLE TO CORPORATION

Is a corporation a person? Not when it comes to the defense of usury.

Principis Capital LLC v FNI Healthcare, Inc., 2019 NY Slip Op 51202(U), Decided on July 18, 2019, Supreme Court, New York County, Reed, J. :

"In opposition, defendants failed to raise a triable issue of fact. They do not contest that they owe money to plaintiff pursuant to the agreements. The only legal stance in opposition to the motion is that the contract is usurious (see NYSCEF Doc No. 23). However, a "corporation ... is prohibited from asserting the defense of usury" (Schneider v Phelps, 41 NY2d 238, 242 [1977]). "Likewise, an individual guarantor of a corporate obligation is also precluded from asserting such a defense" (id.). Defendants' defense of usury must therefore be stricken pursuant to CPLR 3211(b) (dismissing a defense where it has no merit). Likewise, their counterclaim for usury must be dismissed (see Intima-Eighteen, Inc. v A.H. Schreiber Co., Inc., 172 AD2d 456, 457 [1st Dept 1991])."

This is codified in General Obligations Law 5-521:

"1. No corporation shall hereafter interpose the defense of usury in any action. The term corporation, as used in this section, shall be construed to include all associations, and joint-stock companies having any of the powers and privileges of corporations not possessed by individuals or partnerships.

2. The provisions of subdivision one of this section shall not apply to a corporation, the principal asset of which shall be the ownership of a one or two family dwelling, where it appears either that the said corporation was organized and created, or that the controlling interest therein was acquired, within a period of six months prior to the execution, by said corporation of a bond or note evidencing indebtedness, and a mortgage creating a lien for said indebtedness on the said one or two family dwelling; provided, that as to any such bond, note or mortgage executed by such a corporation and effective prior to April sixth, nineteen hundred fifty-six, the defense of usury may be interposed only in an action or proceeding instituted for the collection, enforcement or foreclosure of such note, bond or mortgage.

Any provision of any contract, or any separate written instrument executed prior to, simultaneously with or within sixty days after the delivery of any moneys to any borrower in connection with such indebtedness, whereby the defense of usury is waived or any such corporation is estopped from asserting it, is hereby declared to be contrary to public policy and absolutely void.

3. The provisions of subdivision one of this section shall not apply to any action in which a corporation interposes a defense of criminal usury as described in section 190.40 of the penal law."

WHAT IS A REASONABLE EXCUSE FOR A CORPORATION TO DEFAULT

Corporations can be served through service of the Secretary of State so it is important to have a current address on record to have Albany send you the summons and complaint.

Dove v 143 Sch. St. Realty Corp., 2019 NY Slip Op 04136, Decided on May 29, 2019, Appellate Division, Second Department:

In June 2016, the plaintiff commenced this action, inter alia, against the defendants for specific performance of two contracts for the sale of real property. The defendants were served on June 20, 2016, by delivery of copies of the summons and complaint to the Secretary of State (see Business Corporation Law § 306). The defendants failed to appear or answer the complaint. In August 2016, the plaintiff moved, inter alia, for leave to enter a default judgment against the defendants. The defendants did not oppose the plaintiff's motion and, in an order dated November 23, 2016, the Supreme Court granted that branch of the plaintiff's motion which was for leave to enter a default judgment against the defendants on the issue of liability (hereinafter the default order). The defendants did not appear at a subsequent settlement conference held on December 20, 2016, or at an inquest held on January 23, 2017, despite having received notice of those appearances. On March 1, 2017, the defendants moved, in effect, to vacate the default order pursuant to CPLR 317 and 5015(a)(1). The plaintiff opposed the motion. In an order dated May 22, 2017, the court denied the defendants' motion, and a judgment dated May 24, 2017, was entered in favor of the plaintiff and [*2]against the defendants, inter alia, directing specific performance of the contracts with a reduction of the purchase price of the subject properties. The defendants subsequently moved, inter alia, for leave to renew their prior motion to vacate the default order. In an order dated November 30, 2017, the court, in effect, upon renewal, adhered to the determination in the order dated May 22, 2017. The defendants appeal from the judgment dated May 24, 2017, and from so much of the order dated November 30, 2017, as, in effect, upon renewal, adhered to the prior determination.

"Pursuant to CPLR 317, a defaulting defendant who was served with a summons other than by personal delivery' may be permitted to defend the action upon a finding by the court that the defendant did not personally receive notice of the summons in time to defend and has a potentially meritorious defense" (Booso v Tausik Bros., LLC, 148 AD3d 1108, 1108, quoting CPLR 317). "There is no necessity for a defendant moving pursuant to CPLR 317 to show a reasonable excuse for its delay" (Kircher v William Penn Life Ins. Co. of N.Y., 165 AD3d 1241, 1243; see Evans v City of Mt. Vernon, 163 AD3d 770, 772). "The determination of a motion pursuant to CPLR 317 is addressed to the sound discretion of the trial court, the exercise of which will generally not be disturbed if there is support in the record therefor" (Acqua Capital, LLC v Camarella Contr. Co., Inc., 164 AD3d 1197, 1198 [internal quotation marks omitted]). Contrary to the defendants' contention, the evidence in the record demonstrated that they received actual notice of the summons in time to defend the action. The self-serving affidavits of the defendants' owner averring, inter alia, that he was in Florida when the summons and complaint were delivered to a post office box address in New York, amounted to nothing more than a mere denial of receipt of the summons and complaint, and was insufficient to demonstrate that the defendants were entitled to relief under CPLR 317 (see Moran v Grand Slam Ventures, LLC, 160 AD3d 944, 945; Ultimate One Distrib. Corp. v 2900 Stillwell Ave., LLC, 140 AD3d 1054, 1055; Xiao Lou Li v China Cheung Gee Realty, LLC, 139 AD3d 724, 726; Wassertheil v Elburg, LLC, 94 AD3d 753, 754).

In contrast to a motion pursuant to CPLR 317, a defendant seeking, pursuant to CPLR 5015(a)(1), to vacate an order or judgment entered upon a default must demonstrate a reasonable excuse for the default (see Golden Mtn. Income, LLC v Spencer Gifts, LLC, 167 AD3d 850, 850; Dwyer Agency of Mahopac, LLC v Dring Holding Corp., 164 AD3d 1214, 1216; Zovko v Quittner Realty, LLC, 162 AD3d 1102, 1103-1104). The determination of what constitutes a reasonable excuse lies within the sound discretion of the trial court (see Mid-Hudson Props., Inc. v Klein, 167 AD3d 862, 864; GMAC Mtge., LLC v Guccione, 127 AD3d 1136, 1138). Here, the defendants' conclusory denial of receipt of the summons and complaint served through the Secretary of State did not amount to a reasonable excuse for the defendants' default. Although the defendants' owner averred, inter alia, that he was caring for his terminally ill mother, who died on July 29, 2016, and that he did not learn of the action until after the defendants' time to appear or answer the complaint had elapsed, the defendants failed to establish a reasonable excuse for failing to oppose the plaintiff's subsequent motion, inter alia, for leave to enter a default judgment and for otherwise failing to appear in the action until more than three months after the issuance of the default order (see Jing Shan Chen v R & K 51 Realty, Inc., 148 AD3d 689, 691; Alterbaum v Shubert Org., Inc., 80 AD3d 635, 636). Furthermore, the defendants' additional assertion that ongoing settlement negotiations between the parties excused their default in failing to appear or answer the complaint, even after the plaintiff indicated its intent to move for leave to enter a default judgment, is without merit (see Turko v Daffy's, Inc., 111 AD3d 615, 616; Community Preserv. Corp. v Bridgewater Condominiums, LLC, 89 AD3d 784, 785; Kouzios v Dery, 57 AD3d 949, 950; Antoine v Bee, 26 AD3d 306, 306).

In light of the foregoing, it is unnecessary to determine whether the defendants demonstrated the existence of a potentially meritorious defense (see Wells Fargo Bank, N.A. v Leonardo, 167 AD3d 816, 817; Dwyer Agency of Mahopac, LLC v Dring Holding Corp., 164 AD3d at 1217). Accordingly, we agree with the Supreme Court's determination, in effect, upon renewal, to adhere to its original determination denying the defendants' motion, in effect, to vacate the default order.

FOR CORPORATIONS - SECRETARY OF STATE SERVED BUT ADDRESS FOR SERVICE NOT CHANGED

Dwyer Agency of Mahopac, LLC v Dring Holding Corp., 2018 NY Slip Op 06001, Decided on September 12, 2018, Appellate Division, Second Department:

:CPLR 317 provides that a person served with a summons, other than by personal delivery to him or her, who does not appear, may be allowed to defend the action within one year after he or she obtains knowledge of entry of the judgment upon a finding of the court that he or she did not personally receive notice of the summons in time to defend and has a potentially meritorious defense (see Eugene Di Lorenzo, Inc. v A.C. Dutton Lbr. Co., 67 NY2d 138, 141; Moran v Grand Slam Ventures, LLC, 160 AD3d 944, 945). However, the "mere denial of receipt of the summons and complaint is not sufficient to establish lack of actual notice of the action in time to defend for the purpose of CPLR 317" (Goldfarb v Zhukov, 145 AD3d 757, 758; see Moran v Grand Slam Ventures, LLC, 160 AD3d at 945; Thas v Dayrich Trading, Inc., 78 AD3d 1163, 1164). Here, the defendant failed to establish that it did not personally receive notice of the summons in time to defend the action. The affidavit of the defendant's "representative," who appears to be its attorney, stated that the complaint was not delivered "personally" to the defendant, but rather, "to an inaccurate address through the Secretary of State," which address had not been valid "for several years." This representative's affidavit does not appear to be based on personal knowledge. Furthermore, there is no allegation contained in this affidavit that the defendant, in fact, never received the summons and complaint, nor is there any detail as to where the defendant moved to and when, nor whether the defendant made any efforts to update its address on file with the Secretary of State. Under these circumstances, the defendant did not demonstrate lack of actual notice of the action (see Moran v Grand Slam Ventures, LLC, 160 AD3d at 945; Xiao Lou Li v China Cheung Gee Realty, LLC, 139 AD3d 724, 725-726).

In contrast to a motion pursuant to CPLR 317, on a motion pursuant to CPLR 5015(a)(1), the movant is required to establish a reasonable excuse for his or her default. In general, a defendant's failure to keep a current address on file with the Secretary of State does not constitute a reasonable excuse (see Gershman v Midtown Moving & Stor., Inc., 123 AD3d 974, 975; Sussman v Jo-Sta Realty Corp., 99 AD3d 787, 788; Bontempts v Aude Constr. Corp., 98 AD3d 1071, 1072; Castle v Avanti, Ltd., 86 AD3d 531). However, there is no per se rule that a corporation served through the Secretary of State, and which failed to update its address on file there, cannot demonstrate an "excusable default." Rather, a court should consider, among other factors, the length of time for which the address had not been kept current (see Eugene Di Lorenzo, Inc. v A.C. Dutton Lbr. Co., 67 NY2d at 143). Here, no evidence was presented as to how long the address was not updated. Accordingly, the defendant failed to establish a reasonable excuse for its default."