Opinion
Index No. 908373-19
01-06-2022
CONTRACTORS COMPENSATION TRUST, Plaintiff, v. $49.99 SEWER MAN, INC. et al., Defendants.
E. Stewart Jones Hacker Murphy, LLP, Attorneys for Plaintiff, (Thomas J. Higgs, of counsel), 28 Second Street, Troy, New York 12180 Allen W. Potts, Self-Represented Defendant Dale B. Stuhlmiller, Self-Represented Defendant
E. Stewart Jones Hacker Murphy, LLP, Attorneys for Plaintiff, (Thomas J. Higgs, of counsel), 28 Second Street, Troy, New York 12180
Allen W. Potts, Self-Represented Defendant
Dale B. Stuhlmiller, Self-Represented Defendant
Richard M. Platkin, J. Plaintiff Contractors Compensation Trust ("Trust") is a group self-insured trust organized pursuant to the Workers’ Compensation Law and attendant regulations. Defendants are alleged to be former members of the Trust or individuals associated with former Trust members.
The Trust commenced this commercial collection action on December 3, 2019 through the electronic filing of a summons and verified complaint naming 1,411 defendants. The Trust alleges that defendants failed to pay the deficit assessment issued to them on December 12, 2013 (see NYSCEF Doc No. 1 ["Complaint"]).
On December 2, 2020, the Trust moved for entry of a default judgment against many of the named defendants based on their failure to answer the Complaint or otherwise appear in this action (see NYSCEF Doc Nos. 442-443). By Decision & Order dated August 11, 2021 (see NYSCEF Doc No. 765 ["Prior Decision"], reported at 72 Misc. 3d 1217[A], 2021 N.Y. Slip Op. 50787[U], 2021 WL 3557549 [Sup. Ct., Albany County 2021] ), the Court denied the motion.
The Court first concluded that the corporations and other business entities against whom the motion was directed ("Corporate Defendants") had not been properly served under Business Corporation Law ("BCL") § 306 and Limited Liability Company ("LLC") Law § 303 by the Trust's delivery to the New York Secretary of State of a flash drive containing an electronic copy of the 809-page Complaint and 242-page "Schedule A" (see 2021 NY Slip Op 50787[U], *1, *3).] And given the lack of clarity in the record as to whether the "Individual Defendants" also were served via a flash drive, the Court denied the Trust's motion as to them, but did so "without prejudice to renewal upon papers showing proper service of process" (id. , pp. 7-8).
The Trust now moves for leave to reargue/renew its motion for entry of a default judgment or, alternatively, for an extension of time to re-serve the Corporate Defendants and Individual Defendants (collectively, "Subject Defendants"). Defendants Allen W. Potts and Dale B. Stuhlmiller have filed papers in opposition to the motion.
DISCUSSION
A. Reargument/Renewal
A motion for reargument "is addressed to the sound discretion of the court and is properly granted upon a showing that the court overlooked or misapprehended the facts and/or the law or mistakenly arrived at its earlier decision" ( Loris v. S & W Realty Corp. , 16 A.D.3d 729, 730, 790 N.Y.S.2d 579 [3d Dept. 2005] [internal quotation marks and citation omitted]; see CPLR 2221 [d] [2] ; Cascade Bldrs. Corp. v. Rugar , 154 A.D.3d 1152, 1154, 63 N.Y.S.3d 543 [3d Dept. 2017] ). Such a motion "is not designed to provide an unsuccessful party with successive opportunities to reargue issues previously decided, or to present arguments different from those originally presented" ( Degraw Constr. Group, Inc. v. McGowan Bldrs., Inc. , 178 A.D.3d 772, 773, 111 N.Y.S.3d 898 [2d Dept. 2019] [internal quotation marks and citation omitted]; see Matter of Mayer v. National Arts Club , 192 A.D.2d 863, 865, 596 N.Y.S.2d 537 [3d Dept. 1993] ).
Initially, the Court observes that it raised the manner of service on its own initiative, based on the requirement that a movant for a default judgment demonstrate that the defaulting parties were properly served (see Prior Decision, pp. 3, 7; CPLR 3215 [f] ; 306 [a]; Daniels v. King Chicken & Stuff, Inc. , 35 A.D.3d 345, 345, 827 N.Y.S.2d 186 [2d Dept. 2006] ; Nemetsky v. Banque Dev. De La Republique Du Niger , 59 A.D.2d 527, 527, 397 N.Y.S.2d 353 [2d Dept. 1977], affd 48 N.Y.2d 962, 425 N.Y.S.2d 277, 401 N.E.2d 388 [1979] ). As the Trust did not have an opportunity to address the specific statutes and regulations relied upon by the Court in denying the motion (see Prior Decision, pp. 4-5), it is proper to grant reargument. 1. Corporate Defendants
The Court did, however, take judicial notice of the Trust's prior submissions concerning the propriety of service of the Complaint via a flash drive, which were filed in opposition to a motion to dismiss the Complaint that was withdrawn by the movant prior to the issuance of a decision (see Prior Decision, p. 7 & n 5; see also NYSCEF Doc Nos. 384-388).
In contending that the Corporate Defendants properly were served, the Trust relies on the Uniform Rules for the New York State Trial Courts ("Uniform Rules"), which permit service of initiating papers "by electronic means if the party served agrees to accept such service" ( 22 NYCRR 202.5-b [f] [1]; accord 22 NYCRR 202.5-bb [b] [3]). The Trust asserts that the Secretary of State is the Corporate Defendants’ statutory agent for service of process (see BCL § 304 [a] ; LLC Law § 301 [a]) and argues that the agent's acceptance of "service of the Complaint by flash drive," together with "the statutory fee paid by Plaintiff [for] said service," constitutes an agreement to accept service by electronic means that is binding on the Corporate Defendants (Higgs Aff., ¶¶ 22-26).
The Court begins its analysis with BCL § 304 (a), by which the Secretary of State is designated as the "agent of every domestic corporation and every authorized foreign corporation upon whom process against the corporation may be served." "In addition to such designation of the secretary of state, every domestic corporation or authorized foreign corporation may designate a registered agent in this state upon whom process against such corporation may be served" (id. § 305 [a]). The term "process" is defined in this context to mean "judicial process and all orders, demands, notices or other papers required or permitted by law to be personally served on a domestic or foreign corporation, for the purpose of acquiring jurisdiction of such corporation" (id. § 102 [11] [emphasis added]).
While the following discussion focuses on the BCL, the pertinent provisions of the LLC Law are identical in all material respects (see LLC Law §§ 102 [x]; 301 [a]; 302 [a]; 303 [a]).
The method of service upon a corporate agent is prescribed by BCL § 306. "Service of process on a registered agent may be made in the manner provided by law for the service of a summons, as if the registered agent was a defendant" ( id. § 306 [a] ). In contrast, "[s]ervice of process on the secretary of state as agent of a domestic or authorized foreign corporation" must be made "by personally delivering to and leaving with the secretary of state ... duplicate copies of [the] process together with the statutory fee" (id. [b]). "Service of process on [a] corporation shall be complete when the secretary of state is so served" (id. ). Thus, the BCL contemplates the service of "papers" ( BCL § 102 [11] ) and provides that service on the Secretary of State, as the statutory agent for a corporation, shall be "complete" when "duplicate copies" of the initiatory papers have been personally delivered ( id. § 306 [b] ). There simply is nothing within this framework that allows the Secretary of State to relax the statutory requirements for service of process or to accept service on behalf of a corporation by a method other than the one established in BCL § 306 (b) (see Cedar Run Homeowners’ Assn., Inc. v. Adirondack Dev. Group, LLC , 173 A.D.3d 1330, 1330-1331, 102 N.Y.S.3d 740 [3d Dept. 2019] [requiring strict compliance with the statutory requirements for service of process on an LLC]).
To be sure, nothing in BCL article 3 "shall affect the right [of a plaintiff] to serve process in any other manner permitted by law" (BCL § 306 [d] ). However, the Trust's argument that the Corporate Defendants properly were served is predicated solely upon BCL § 306 and the corresponding provisions of the LLC Law.
Against this backdrop, it is apparent that the Trust's reliance on the Uniform Rules is misplaced. The rule allowing electronic service where "the party served agrees to accept such service" ( 22 NYCRR 202.5-b [f] [1]) cannot be read to apply to the Secretary of State acting as a statutory agent for a corporation. In such cases, the Secretary of State is limited to accepting process served via the method prescribed by BCL § 306 (b), and service is not complete until made in accordance with such method. Indeed, a contrary interpretation of the Uniform Rules would place them in an impermissible conflict with the statutes governing service of process on corporations and other business entities (see generally Travis v. New York State Dept. of Envtl. Conservation , 185 A.D.2d 714, 715, 585 N.Y.S.2d 929 [4th Dept. 1992] ; Framan Mech., Inc. v. Dormitory Auth. of the State of N.Y. , 63 Misc. 3d 1218[A], 2019 N.Y. Slip Op. 50583[U], *5, 2019 WL 1747007 [Sup. Ct., Albany County 2019] ).
Further support for this conclusion is found in the State Legislature's recent enactment of an optional program for electronic service of process on corporations and other business entities. Effective January 1, 2023, business entities may, at their option, "make[ ] an affirmative choice to receive service of process through electronic means" (L 2021, ch 56, part KK, §§ 1, 1-b). Such service shall be made by "[e]lectronically submitting a copy of the process to the department of state together with the statutory fee ... through an electronic system operated by the department of state" (id. , § 2). Even if this new legislation had been in effect at pertinent times, however, service on the Corporate Defendants still would be improper because (i) the Corporate Defendants did not affirmatively elect to receive service by electronic means, and (ii) the Complaint was delivered on a flash drive, rather than through a secure portal operated by the Department of State (see Prior Decision, p. 6 [highlighting security concerns associated with flash drives of uncertain provenance]).
Accordingly, the Trust has failed to demonstrate that the Court overlooked or misapprehended the facts and/or the law or otherwise erred in concluding that the Corporate Defendants had not been properly served under BCL § 306 and LLC Law § 303.
2. Individual Defendants
The Trust argues that, because "[n]one of the Individual Defendants objected to service of the Complaint on the flash drive, ipso facto , the Individual Defendants accepted service by electronic means" and waived any objection thereto (Higgs Aff., ¶¶ 37-44). The Trust also invokes CPLR 2101 (f) (see id. , ¶ 40), which allows for the correction of defects "in the form of a paper," and CPLR 3211 (e), which requires any objection to service to be made in a pre-answer motion or within 60 days of the filing of an answer asserting the affirmative defense of improper service.
The Court finds the Trust's arguments to be unpersuasive. The Individual Defendants’ failure to appear in this action does not constitute their affirmative "agree[ment] to accept" service by electronic means within the meaning of 22 NYCRR 202.5-b (f) (1). And insofar as the Trust relies on CPLR 2101 (f), it is well established that the statute is limited to the correction of "defect[s] in the form of ... paper[s]," such as irregularities in the caption, the omission of an index number and the like (see e.g. Gau v. Kramer , 289 A.D.2d 804, 805, 735 N.Y.S.2d 433 [3d Dept. 2001] ; Connolly v. Chenot , 275 A.D.2d 583, 583 n., 712 N.Y.S.2d 234 n. [3d Dept. 2000] ). CPLR 2101 (f) is inapplicable where personal jurisdiction over the defendants has not been obtained through service of process in accordance with a statutorily-prescribed method (see Matter of Recycle v. Lacatena , 163 A.D.2d 693, 694, 558 N.Y.S.2d 299 [3d Dept. 1990] ).
Finally, the Trust's argument that the Individual Defendants’ waived any objection to the method of service disregards CPLR 3215 (f), which obliges the movant for a default judgment based on a defendant's nonappearance to establish that the defaulting defendant properly was served (see U.S. Bank N.A. v. Gilchrist , 172 A.D.3d 1425, 1427, 102 N.Y.S.3d 625 [2d Dept. 2019] ; Daniels , 35 A.D.3d at 345, 827 N.Y.S.2d 186 ; Nemetsky , 59 A.D.2d at 527, 397 N.Y.S.2d 353 ; see also Diaz v. Perez , 113 A.D.3d 421, 421, 980 N.Y.S.2d 69 [1st Dept. 2014] ).
Accordingly, the Trust has failed to demonstrate that the Court overlooked or misapprehended the facts and/or the law or otherwise erred in concluding that personal jurisdiction had not be acquired over the Individual Defendants served by electronic means.
3. Renewal
"Given that many of the Individual Defendants were improperly served by electronic means without their consent and the Court [could not] ascertain the particular manner of service employed as to other Individual Defendants," the Trust was granted leave to renew its motion for entry of default judgment "upon papers showing proper service of process upon the subject defendants" (Prior Decision, pp. 7-8). The Trust now states that it "cannot make a good faith representation to the Court as to exactly what medium of the Complaint each [Individual] Defendant received" (Higgs Aff., ¶ 33). In light of the foregoing, the branch of the Trust's motion seeking leave to renew its prior motion must be denied.
4. Conclusion
Upon reargument, the Court adheres to its prior determination that the Trust failed to demonstrate that service on the Corporate and Individual Defendants was "made ... in an authorized manner" ( CPLR 306 [a] ; see CPLR 3215 [f] ).
B. Alternative Relief
Alternatively, the Trust moves pursuant to CPLR 306-b for additional time to re-serve the Subject Defendants for "good cause shown" and/or "in the interest of justice" (Higgs Aff., ¶¶ 46-47).
Inasmuch as the Court did not enter judgment dismissing the action for lack of personal jurisdiction, plaintiff's request for extension of time to complete service is proper (see Cooke-Garrett v. Hoque , 109 A.D.3d 457, 457, 970 N.Y.S.2d 81 [2d Dept. 2013] ; accord State of New York Mtge. Agency v. Braun , 182 A.D.3d 63, 69, 119 N.Y.S.3d 522 [2d Dept. 2020] ).
" ‘Good cause’ and ‘interest of justice’ are two separate and independent statutory standards" ( Wells Fargo Bank, NA v. Barrella , 166 A.D.3d 711, 713, 88 N.Y.S.3d 36 [2d Dept. 2018] [internal quotation marks and citations omitted], lv denied 33 N.Y.3d 908, 2019 WL 2441591 [2019] ; see Leader v. Maroney, Ponzini & Spencer , 97 N.Y.2d 95, 104, 736 N.Y.S.2d 291, 761 N.E.2d 1018 [2001] ). "To establish good cause, a plaintiff must demonstrate reasonable diligence in attempting service" ( Barrella , 166 A.D.3d at 713, 88 N.Y.S.3d 36 [internal quotation marks and citations omitted]).
"If good cause for an extension is not established, courts must consider the ‘interest of justice’ standard of CPLR 306-b, which requires a careful judicial analysis of the factual setting of the case and a balancing of the competing interests presented by the parties ( id. ).
Unlike an extension request premised on good cause, a plaintiff seeking an extension in the interest of justice need not establish reasonably diligent efforts at service as a threshold matter. However, the court may consider diligence, or lack thereof, along with any other relevant factor in making its determination, including expiration of the statute of limitations, the potentially meritorious nature of the cause of action, the length of delay in service, the promptness of a plaintiff's request for the extension of time, and prejudice to defendant
( id. ; see Leader , 97 N.Y.2d at 105-106, 736 N.Y.S.2d 291, 761 N.E.2d 1018 ). "Whether to grant [an interest-of-justice] extension rests within the trial court's discretion" ( Pierce v. Village of Horseheads Police Dept. , 107 A.D.3d 1354, 1356-1357, 970 N.Y.S.2d 95 [3d Dept. 2013] [citations omitted]; see Matter of Delaware Operations Assoc. LLC v. New York State Dept. of Health , 187 A.D.3d 1560, 1561, 132 N.Y.S.3d 489 [4th Dept. 2020] ).
As an initial matter, "an attempt at service that later proves defective cannot be the basis for a ‘good cause’ extension of time to serve process pursuant to CPLR 306-b" ( Estate of Fernandez v. Wyckoff Hgts. Med. Ctr. , 162 A.D.3d 742, 743, 80 N.Y.S.3d 271 [2d Dept. 2018] [citations omitted]). The Court therefore must apply the "more flexible ‘interest of justice’ standard," which "accommodates late service that might be due to mistake, confusion, or oversight" ( id. ). Here, application of the relevant factors weighs heavily in favor of granting the Trust an extension of time to complete service.
As to the length of the delay, the Trust promptly requested an extension of time to re-serve the Subject Defendants once the Court determined that service of the Complaint via a flash drive was improper. To be sure, one defendant previously had moved for dismissal on this ground, but that motion was made following the completion of service and was withdrawn prior to the Court ruling on the issue.
Relatedly, the Court emphasizes the novelty of the service issue, the Trust's good faith, and the legitimate concerns that animated the Trust's decision to serve the 809-page Complaint and 242-page "Schedule A" by electronic means (see Prior Decision, p. 6).
Next, the six-year statute of limitations for the Trust's contractual claim to collect upon the March 3, 2014 deficit assessment has expired (see id. , p. 9). "[W]here the Statute of Limitations had otherwise run on a claim, ‘extensions of time should be liberally granted whenever plaintiffs have been reasonably diligent in attempting service’ " ( Hafkin v. North Shore Univ. Hosp. , 279 A.D.2d 86, 89, 718 N.Y.S.2d 379 [2d Dept. 2000], quoting Mem of Off of Ct Admin No. 97-67R, 1997 NY Legis Ann, at 319, affd sub nom. Leader v. Maroney, Ponzini & Spencer , 97 N.Y.2d 95, 736 N.Y.S.2d 291, 761 N.E.2d 1018 [2001] ).
Moreover, the Trust is "in wind-down mode and trying to meet its obligations under the Workers’ Compensation Law," and its inability to re-commence this action would potentially shift the cost of workers’ compensation coverage to other self-insured employers and, ultimately, to the State of New York (Higgs Aff., ¶ 56). Thus, the denial of CPLR 306-b relief would prejudice the Trust and potentially other self-insured employers in New York State.
The Court further observes that the Trust's causes of action for breach of contract and account stated, which are based on the defendant-members’ agreement to be jointly and severally liable for the Trust's deficit, have the appearance of merit (see e.g. New York State Workers’ Compensation Bd. v. Any-Time Home Care Inc. , 156 A.D.3d 1043, 1045-1046, 66 N.Y.S.3d 690 [3d Dept. 2017] ; New York State Workers’ Compensation Bd. v. 21st Century Constr. Corp. , 58 Misc. 3d 1211[A], 2018 N.Y. Slip Op. 50050[U], *6, 95 N.Y.S.3d 125 [Sup. Ct., Albany County 2018] ).
Finally, the Subject Defendants will suffer little or no prejudice from an extension of time, given that all but a handful failed to appear in this matter or oppose the Trust's motion.
Accordingly, the Court finds, in the exercise of discretion and the interest of justice, that plaintiff should be afforded an extension of time to re-serve the Subject Defendants (see Estate of Fernandez , 162 A.D.3d at 744, 80 N.Y.S.3d 271 ; Wishni v. Taylor , 75 A.D.3d 747, 749, 903 N.Y.S.2d 813 [3d Dept. 2010] ; Dujany v. Gould , 63 A.D.3d 1496, 1498, 882 N.Y.S.2d 343 [3d Dept. 2009] ).
Defendants Potts and Stuhlmiller oppose the Trust's motion. Stuhlmiller's unsworn letter in opposition seeks the affirmative relief of being "removed as a defendant" without having cross-moved for such relief and without articulating any legal basis for dismissal. Potts's opposition largely is based on his speculative averment that, "[i]f Plaintiff cannot properly serve 22-pages to 3 Defendants, then in my opinion, the probability of the Plaintiff previously properly serving the initiating papers for [this] case ... [is] highly unlikely" (NYSCEF Doc No. 797, ¶ 9).
The Trust also requests that the Court permit the Subject Defendants to be re-served "by summons with notice or in another manner deemed appropriate by the Court" (Higgs Aff., ¶ 8 & Wherefore). However, the Trust cites no authority for the novel proposition that a plaintiff who has commenced an action through the filing of a summons and complaint may re-serve the defendants with an entirely different type of initiatory paper: a summons with notice (cf. Prior Decision, pp. 6-7). Further, to the extent that the Trust seeks to employ an alternate method of service, it did not move for such relief and, in any event, does not make any arguments that service by statutorily-prescribed means is impracticable (see CPLR 308 [5] ; 311 [b]; 311-a [b]; JPMorgan Chase Bank v. Kothary , 178 A.D.3d 791, 794, 113 N.Y.S.3d 738 [2d Dept. 2019] ).
Other than the suggestion that it be permitted to re-serve defendants with a summons with notice, plaintiff has not proposed any alternative method of service.
CONCLUSION
Accordingly, it is
ORDERED that the branch of plaintiff's motion seeking reargument is granted; and it is further
ORDERED that, upon reargument, the Court adheres to its Prior Decision denying plaintiff's motion for a default judgment based on plaintiff's failure to demonstrate proper service of process on the Subject Defendants; and it is further
ORDERED that the branch of plaintiff's motion seeking leave to renew its motion for a default judgment is denied; and it is further
ORDERED that the branch of plaintiff's motion seeking extension of time to re-serve the Subject Defendants is granted; and it is further
ORDERED that plaintiff shall have sixty (60) days from the date of this Decision & Order to re-serve the Subject Defendants with the initiatory papers by a statutorily-authorized method; and finally it is
ORDERED that the Trust shall provide the Court with a written status update no later than March 18, 2022.
This constitutes the Decision & Order of the Court.