The opinion of the court was delivered by: WEINFELD
Plaintiff Azuma N.V. (Azuma), a Netherlands Antilles corporation with its principal place of business in St. Martens, commenced this action against the defendants Earl Sinks a/k/a Earl Richards ("Sinks") and Ernest G. Barbella ("Barbella") to recover upon their written guarantees of payment of a note in the sum of $150,000.00, executed by HME Records, Inc. ("HME") of which Sinks and Barbella are principal stockholders and directors. Upon default in the payment of the note by HME, plaintiffs seek recovery from Sinks and Barbella of the principal sum plus interest and reasonable attorney's fees as provided for by their guarantees.
Plaintiff Michael L. Wyler ("Wyler") asserts separate claims for judgment against Sinks upon allegations of an agreement between them pursuant to which Wyler purchased 50% of the shares of Sound Lady, Inc. ("Sound Lady") for the sum of $49,000.00 with an absolute right in favor of Wyler to "put" the shares back to Sinks whereupon Sinks was to return the purchase price; that he notified defendant of his intention to relinquish his interest and Sinks refused to accept the tender and return the $49,000.00. A separate claim of failure to accept the return of shares in a put transaction is alleged with respect to the shares of another company, CSI Music Group Corp., in which the amount of the purchase and put was $ 165,000.00. Jurisdiction over the claims alleged by the plaintiffs is based upon diversity of citizenship.
Sinks and Barbella move for an order dismissing Azuma's action either (a) pursuant to Fed. R. Civ. P. 12(b)(6) on the ground that Azuma does not have capacity to sue since it is not authorized to do business in New York State under New York's "door closing statute," New York Business Corporation Law (B.C.L.) Section 1312 or (b) because all matters involved in the action are at issue in proceedings now pending in the United States Bankruptcy Court for the Middle District of Tennessee, where HME, the obligor under the defaulted note, is a debtor in a Chapter 11 proceeding. In the alternative, defendants move that this Court stay or abstain from hearing Azuma's claims on the grounds set forth in (b). Finally, Sinks also moves to dismiss the actions of both plaintiffs against him pursuant to Rule 12(b)(5) because process was not sufficiently served on him.
The plaintiffs cross-move pursuant to Rule 56 for summary judgment on the respective claims against each defendant in support of which they have filed a statement pursuant to Local Rule 3(g).
(1) Service of Process Upon Sinks
We first consider Sinks' motion to dismiss both plaintiffs' complaints on the ground of improper service, since a favorable disposition would render moot the balance of the motions as to that defendant. Sinks' contention is that the person upon whom service of the summons and complaint was made at his home at Springfield, Tennessee, did not reside there, was not his employee, and had no authority to accept service and that a copy had not been mailed to defendant. Plaintiff contends such service was proper, but to avoid the issue caused service of another summons and complaint to be effected by leaving a copy at Sinks' home with Sinks' son, over 18 years of age, a copy of which was also mailed to Sinks at his home address. Although Sinks denies having received the summons and complaint by mail, such receipt is not necessary under Fed. R. Civ. P. 4(d)(1), which permits service by delivery at defendant's "dwelling house or usual place of abode with some person of suitable age or discretion then residing therein." Sinks does not challenge the allegation of delivery to his son at his residence. Since Rule 4(d)(1) is controlling this case,
the motion to dismiss for inadequate service of process is denied.
We next consider Sinks' motion to dismiss the Azuma action on the ground that Azuma lacks capacity to sue because it has been doing business in New York State in violation of the state's B.C.L. Law without having obtained a certificate of authorization.
If Azuma is an unauthorized corporation, B.C.L. ? 1312 precludes the maintenance of this action, not only in the New York State Courts but also in the Federal Courts located in the State.
To support the claim that Azuma is doing business in New York State without authorization, the defendant refers to the note executed by HMS which states that HMS "hereby promises to pay to the order of Azuma N.V., a Netherlands Antilles corporation having a representative at Loeb, Block and Wacksman, 70 Pine Street, New York, New York, Attention: Charles Block, Esq., the principal amount of...$150,000.00." Block is a member of the law firm, Loeb, Block and Wacksman representing plaintiffs in this action. Defendant also argues that Azuma has a representative at said firm and that Rene Loeb, another partner of the law firm and one of the three managing directors of the foreign corporation which served as Azuma's managing director, resides in New York; that the law firm serves as Azuma's United States counsel; and that Azuma has a New York bank account.
In opposition to defendants' motion, another partner of the law firm representing the plaintiffs has submitted an affidavit swearing that the only business conducted in New York State by Azuma was the defaulted $150,000.00 loan; that Azuma has no offices or employees in New York, nor does it have a telephone listing or general mailing address in the state; that it neither sells nor solicits the sale of any goods in the state; and that it does not own or rent N?W York real property.
The issue as to whether or not the nature and extent of Azuma's activities in this state constitute doing business so as to come within the prohibition of B.C.L. § 1312 must be decided on its own facts. For Azuma to be doing business here--an issue different from whether it is subject to the in personam jurisdiction of the New York Courts--it "must do more than make a single contract, engage in an isolated piece of business, or an occasional undertaking; it must maintain and carry on business with some continuity of act and purpose."
Based upon this standard New York courts have consistently held that in order for the activity of a foreign corporation to constitute doing business in the state, it must be continuous, ongoing, and regular.
Under this test, the single transaction referred to above clearly does not constitute business activity by Azuma within the State of New York on a continuous, ongoing or regular basis. The fact that it has a New York bank account or that one of the partners of the law firm representing Azuma is an officer of the foreign corporation which serves as managing director of Azuma is a New York resident do not require a different result.
Accordingly this branch of defendants' motion is denied.
(3) The Motion for Abstention or a Stay
The defendants next move for dismissal of Azuma's action, or alternatively that the Court either abstain from hearing its claims or that it stay this action. The basis for this requested relief is a Chapter 11 reorganization petition in bankruptcy filed by HME on November 8, 1985 in the Bankruptcy Court for the Middle District of Tennessee. An action was commenced ten days thereafter in the United States District Court, Middle District of Tennessee by HME, Sinks, and Barbella. Sinks and Barbella argue that all issues in this action against them are involved in the Chapter 11 proceedings and in the action pending in the Tennessee Court.
The Tennessee action was instituted four days after Azuma had notified Sinks and Barbella of its intention to commence an action against them to recover on their guarantees. The Tennessee action seeks a declaratory judgment that the promissory note executed by HME and the guarantees of payment by Sinks and Barbella do not reflect the intent of the parties--a contention also advanced in this action referred to hereinafter--that Azuma made the $150,000.00 payment as the initial installment of a promised $2,000,000.00 capital contribution; that notwithstanding the note and the ...