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Secretary of State Admits to Delays in Mailing Documents Served on Corporate Defendants, Prejudicing Plaintiffs’ Ability To Obtain Default Judgments

SUMMARY:
When a defendant fails to serve an answer to a complaint, CPLR 3215 provides a mechanism for obtaining a judgment on default by motion. For corporate defendants, this process almost invariably hinges on commencement documents served upon the Secretary of State. But what happens when that office fails to perform its mandated function to promptly forward these documents, as it has admittedly continued to do?

By Michelangelo Macchiarella and Peter S. Sanders ________________________________________

When a defendant fails to serve an answer to a complaint, CPLR 3215 provides a mechanism for obtaining a judgment on default by motion. For corporate defendants, this process almost invariably hinges on commencement documents served upon the Secretary of State. But what happens when that office fails to perform its mandated function to promptly forward these documents, as it has admittedly continued to do?

One of the most tried-and-true methods for corporate service is via the Secretary of State pursuant to CPLR 311(a)(1), incorporating Business Corporation Law (BCL) 306 (domestic) and 307 (foreign). (We will put aside, for purposes of this article, whether a corporation is subject to this state’s general jurisdiction based on constitutional parameters for their mere registration to do business here, which subject was neatly explored in a recent article authored by Adam C. Calvert and Brian Ramkissoon of Marshall Dennehey, NYLJ, Nov. 10, 2023, “Out-of-Staters Finding the Basis for Personal Jurisdiction”).

Service under this method obviates the need to determine at the outset of litigation, when little is often known of the corporate structure of a defendant, who is legally authorized to accept service on behalf of that corporation. Suffice to say that unless you know exactly who is authorized to accept service on behalf of a corporation, guessing is a recipe for disaster should a deadline under a statute of limitations be approaching or if it provides a defendant a basis to vacate or dismiss based on your purportedly improper choice.

However, corporate service on the Secretary of State under the BCL has been upended in recent years by admitted “delays” in that office’s obligation to “promptly mail” commencement documents to corporate defendants under BCL 306(b)(1). In an advisory that may have gone unnoticed by the Bar, the Department of State stated, “The mailing of legal process (summons and complaints) served on the Secretary of State to entities being served has also been delayed” (see “Important Updates: Division of Corporations, State Records and Uniform Commercial Code” (publication date unavailable; last accessed Nov. 21, 2023)).

“Extensive delays” have also been recognized in McKinney’s commentaries to CPLR 3012 since at least January 2022, citing one example where a complaint was not forwarded for 75 days and a second for 71 days. Indeed, the authors’ law office has encountered this very scenario, where a defendant subject to a motion for default produced a letter in opposition from the Secretary of State alleging that the summons and complaint was forwarded no less than 92 days after service was complete. Certainly, a question arises at this point as to how the Bar can continue to rely on this method of service without that office’s reconfirmed commitment to uphold its statutory obligations to “promptly mail” these documents.

Nevertheless, because service is “complete” merely upon a plaintiff’s delivery of the initiatory documents to the Secretary of State (BCL 306(b)(1)), even a minor delay in forwarding the same to a corporate defendant can put that entity in danger of default under CPLR 3012(c) and 320(a), which only grant 30 days to appear or respond. Thus, while a defendant can by law be held in default after 30 days, as a practical matter, they cannot given this defense that would likely qualify for a cross-motion to extend time to plead under CPLR 3012(d) pre-entry or vacate post-entry under CPLR 5015(a)(1) for excusable default (but not CPLR 5015(a)(4) for lack of personal jurisdiction, which is acquired when the Secretary of State is served).

There is an additional precondition to the entry of default judgment that must also be kept in mind and may rely on the Secretary of State—the requirement of the “additional mailing” under CPLR 3215(g)(4).

For a corporation, a copy of the summons and complaint must be mailed to its last known address, accompanied by “a notice to the corporation that service is being made or has been made pursuant to that provision [BCL 306(b)].” See CPLR 3215(g)(4)(i)-(ii). (This procedure likewise applies to a natural person, with a few changes, but only if the cause of action is based on the “nonpayment of a contractual obligation” under CPLR 3215(g)(3).) This may be accomplished simultaneously with the service of the Summons and Complaint and also accomplished through the Secretary of State. Id. at (ii); BCL 306(b)(2). (Authors’ note: BCL 306(b)(2) references CPLR 3215(f) and not (g), but the legislative history makes clear that this was merely the Legislature’s failure to renumber the corresponding section in the BCL when CPLR 3215(f) was changed to CPLR 3215(g). See e.g., 1990 N.Y. Sess. Law Serv. 419 (McKinney)).

An affidavit attesting to this additional mailing must be provided with the moving papers seeking default (CPLR 3215(f)), and failure to do so generally mandates denial of the motion. See Schilling v. Maren Enterprises, 302 AD2d 375 (2d Dept 2003). This is a clear-cut issue.

However, a conflict has arisen in the trial courts as to what exactly satisfies the additional mailing requirement. Most courts are understandably forgiving in this respect, especially when the “spirit of the law” has been fully complied with and did not cause the default.
This leniency may be due to the fact that litigators are often unaware of this provision’s existence, and a defendant’s failure to receive the additional copy is often tied to their own negligence in failing to update their mailing address with the Secretary of State.

For example, several trial courts have held that a motion for default judgment itself, with a Summons and Complaint attached as an exhibit, satisfies the “additional mailing” requirement (mailing still required when the defendant has not consented to electronic filing). See Perez v. Batiz, 2019 WL 4732011 (Sup Ct, NY County 2019) resettled without applicable distinction at 2020 WL 5912265; 55c Group v. Lcd Residence, 2013 WL 2155577 (Sup Ct, NY County 2013); Aydin v. New Super Gujrat Auto Repair, 34 Misc 3d 1221(A) (Sup Ct, Kings County 2012).

But one trial court has stated that the requirement, although apparently “trivial,” remains a prima facie element of a motion for default, explicitly disagreeing with this caselaw. See Perez v. Master East 167, 2016 WL 11775322 (Sup Ct, Bronx County 2016).

Given the split in trial courts, it is best practice when moving for default to:

  • send the additional mailing yourself with the cover-notice;
  • to the last known address of the defendant, which may be different from the address on file with the Secretary of State; and
  • file a separate affidavit attesting to this separate service and notice with the motion (at least until an appellate court grants its imprimatur on the exhibit-as-additional-mailing procedure).

Finally, and notwithstanding the requirement of CPLR 3215(g), should a court issue a default judgment, vacatur thereof will nonetheless not lie for a movant’s failure to comply. See Rothschild v. Finkelstein, 248 AD2d 701 (2d Dept 1998); Fleet Finance v. Nielsen, 234 AD2d 728 (3d Dept 1996); Palais Partners v. Vollenweider, 173 Misc 2d 8 (Civ Ct, NY County 1997).

While it may appear superficially persuasive to apply the same argument that prohibits entry of default to vacatur of the same default, statutory conflicts bar such an interpretation. That is, where jurisdiction has been indisputably obtained and default entered, an entire body of caselaw under either CPLR 5015 and/or CPLR 317 would have to be supplanted, which require a meritorious defense and/or a reasonable excuse to vacate a default once jurisdiction is obtained.

Indeed, service of a CPLR 3215(g) notice presupposes valid jurisdiction. See again Palais Partners, supra (discussing how the Legislature moved CPLR 3215(g) from Article 3 (jurisdiction) to Article 32 (summary dispositions)). Therefore, appellate case law has uniformly upheld denials of vacatur based on this failure alone.

At most, since CPLR 3215(g) is a prerequisite to “entry” of default, a motion seeking to set aside a default judgment based solely on this failure could, at a maximum, empower a court to vacate the entry itself, but not the liability which is concomitant to the default. See 342 Madison Avenue Associates Limited Partnership v. Suzuki Associates, 187 Misc 2d 488 (Sup Ct, NY County 2001). This would, in theory, permit a party to vacate the entry of default and contest only damages at inquest. See McKinney’s Commentary to CPLR 3215(g) at C3215:26 (“[i]f a default judgment is entered in error because CPLR 3215(g)(4) has not been complied with by the plaintiff, a later motion by the defendant to vacate the judgment should be granted. Vacatur nullifies the judgment, but does not vacate the defendant’s underlying concession of liability by virtue of its earlier default”).

Default judgments are essential to the operations of the courts and provide expedient justice to litigants. For indeed, what is the meaning of any given rule absent the mechanisms of its enforcement? While the authors here suggest some best practices to avoid the pitfalls created by a state body that is not performing as assumed by the law, only the Legislature or the Department of State can correct the underlying problem.

By failing to perform, that office has prejudiced obtaining defaults and, by extension, has itself most likely caused many defaults. Perhaps someone will take notice.


Peter S. Sanders is a partner with Capell Barnett Matalon & Schoenfeld and the chair of its litigation practice.
Michelangelo Macchiarella is an associate with the firm’s litigation practice and the primary author of this article.