UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF NEW YORK
January 14, 2008
NEW YORK STATE TEAMSTERS CONFERENCE PENSION AND RETIREMENT FUND, PLAINTIFF,
COMAC BUILDERS SUPPLY CORP., DEFENDANT.
The opinion of the court was delivered by: Scullin, Senior Judge
MEMORANDUM-DECISION AND ORDER
Currently before the Court is Magistrate Judge Lowe's October 3, 2007 Report-Recommendation to which the parties filed no objections. In his Report-Recommendation, Magistrate Judge Lowe recommended that, despite the fact that Defendant, a corporation, was not represented by counsel, the Court should grant the parties' joint request for judicial approval of their proposed Consent Judgment and Order.
Plaintiff filed its original complaint in this action on February 15, 2006, and filed an amended complaint on March 8, 2006. See Dkt. Nos. 1, 3. Both complaints contain similar allegations, all of which arise under the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001 et seq., and the Labor Management Relations Act, 29 U.S.C. § 141 et seq.
After the Court granted it several extensions, Defendant filed its answer to Plaintiff's amended complaint on October 9, 2006. See Dkt. No. 16. At that time, Defendant was represented by counsel. However, on June 7, 2007, defense counsel moved to withdraw, filing several exhibits under seal to support that application. See Dkt. Nos. 22-25. On June 19, 2007, Magistrate Judge Lowe conducted a telephone conference with defense counsel and Mr. Steven R. Bagnashi, the president and sole owner of Defendant, to address defense counsel's motion. At the close of that conference, Magistrate Judge Lowe granted the motion.
Thereafter, on June 25, 2007, Magistrate Judge Lowe conducted a telephone conference with Plaintiff's counsel and Mr. Bagnashi to discuss a schedule for proceeding with this litigation. Mr. Bagnashi stated that Defendant planned to continue to proceed pro se because it did not have the funds to retain another attorney. Plaintiff's counsel proposed that Plaintiff and Defendant enter into a stipulated settlement, with Mr. Bagnashi filing a confession of judgment. Mr. Bagnashi assented to that proposal.
On August 24, 2007, the parties jointly filed a proposed Consent Judgment and Order and requested that the Court approve that disposition of the action. See Dkt. No. 29. In reviewing the proposed Consent Judgment and Order, Magistrate Judge Lowe noted that "[t]he only issue presented by this rather routine request is . . . the fact that . . . Defendant, a corporation, is proceeding pro se." See Report-Recommendation at 1. He began his analysis of this issue by reiterating the well-established principle that "'[i]t has been the law for the better part of two centuries . . . that a corporation may appear in the federal courts only through licensed counsel.'" See id. at 4 (quoting Rowland v. California Men's Colony, 506 U.S. 194, 201-02 (1993)) (other citations omitted). However, he also explained that "courts have recognized certain limited exceptions to this general rule." See id. (citing cases). Specifically, Magistrate Judge Lowe noted that, "in a case factually analogous to [this one], the Eastern District of New York permitted a small and impecunious corporation to be represented by its sole shareholder in a federal bankruptcy proceeding." See id. at 4-5 (citing In the Matter of Holliday's Tax Servs., Inc., 417 F. Supp. 182 (E.D.N.Y. 1976), aff'd without opinion sub nom. Holliday's Tax Servs., Inc. v. Hauptman, 614 F.2d 1287 (2d Cir. 1979)). Relying on the reasoning in Holliday, Magistrate Judge Lowe found that the circumstances in this case "warrant granting an exception to the general rule that corporations must appear by counsel in federal court." See id. at 5.*fn1*fn2 Based upon this reasoning, Magistrate Judge Lowe recommended that this Court grant the parties' request for judicial approval of their proposed Consent Judgment and Order. See id. at 6.
Although the parties did not file any objections to Magistrate Judge Lowe's recommendation, the Court, after reviewing his reasoning and the cases upon which he based his decision, rejects that recommendation for the following reasons. First and foremost, the Court finds that the cases upon which Magistrate Judge Lowe relied are distinguishable and have not been followed by other courts that have addressed this issue.
In Holliday, which Magistrate Judge Lowe found "factually analogous," the court, although acknowledging the "virtually unbroken line of state and federal cases . . . approv[ing] the rule that a corporation can appear in court only by an attorney," nevertheless, concluded that, at least in the bankruptcy setting, "[t]o require this corporation to appear by a lawyer is effectively to exclude it and its sole shareholder from the courts." Holliday, 417 F. Supp. at 183 (citations omitted). The court also acknowledged, however, that, "[s]ince Mr. Holliday 'chose to accept the advantages of incorporation,' such as limited liability, it would be neither shocking nor a violation of due process to require him to now 'bear the burden of that incorporation,' such as increased costs of court appearances." Id. at 184 (citation omitted). Nonetheless, despite these well-established legal principles, the court determined that "[m]odifying the absolute rule of corporate representation in bankruptcy cases . . . rests on the inherent power of a court to supervise the proper administration of justice." Id. (citation omitted).
It is clear that the court in Holliday relied upon policy considerations rather than legal principles to conclude that an exception to the well-established and long-standing rule that an attorney must represent a corporation was warranted in that case. Moreover, it appears that the Holliday court may have found it significant that the case involved a bankruptcy proceeding and, therefore, may have intended to limit its holding to that type of situation. Finally, the Court concludes that, in light of the long line of well-reasoned opinions to the contrary, Holliday provides an insufficient basis upon which to find that an exception is warranted in this case.
In particular, the Court finds that the Supreme Court's decision in Rowland v. California Men's Colony Unit II Men's Advisory Council, 506 U.S. 194 (1993), supports its decision not to rely upon Holliday. In that case, the Supreme Court noted that
[t]wo federal cases cited by respondent are the only two, of which we are aware, to hold that artificial entities may be represented by persons who are not licensed attorneys: United States v. Reeves, 431 F.2d 1187 (CA9 1970) (per curiam) (partner can appear on behalf of a partnership), and In re Holliday's Tax Services, Inc., 417 F. Supp. 182 (EDNY 1976) (sole shareholder can appear for a closely held corporation), affirmance order sub nom. Holliday's Tax Services, Inc. v. Hauptman, 614 F.2d 1287 (Table (CA2 1979). These cases neither follow federal precedent, nor have themselves been followed. See, e.g., Eagle Associates v. Bank of Montreal, 926 F.2d 1305, 1309-1310 (CA2 1991) (criticizing and refusing to follow Reeves); Jones v. Niagara Frontier Transportation Authority, 772 F.2d 20, 22 n.3 (CA2 1983) (distinguishing and narrowing Holliday's Tax Services). Id. at 202 n.5 (emphasis added).
The Court also referred to Holliday and Reeves as "aberrant cases." Id. at 202. This Court recognizes that the issue in Rowland is different than the issue in this case. However, in determining whether the term "person" in 28 U.S.C. § 1915, providing for appearances in forma pauperis, applied to artificial entities, the Court relied on the well-established principle that a corporation may only appear in federal court through licensed counsel.
In addition, shortly after the Supreme Court's decision in Rowland, the Ninth Circuit recognized that, "to the extent that [its decision in] Reeves stood for the proposition that non-attorney members of a partnership could appear on behalf of the partnership, the Supreme Court in California Men's Colony has overruled that holding." Licht v. America West Airlines, 40 F.3d 1058, 1059 (9th Cir. 1994) (citation omitted). Thus, to the extent that Magistrate Judge Lowe relied upon Reeves for the proposition that some courts have recognized limited exceptions to the general rule that corporations may appear in federal court only through counsel, this reliance appears to be misplaced.
Magistrate Judge Lowe accurately noted that, although "the Second Circuit has explained that the holding of Holliday is limited to the case's facts (which involved "a lay sole shareholder . . . represent[ing] his small and impecunious corporation" in federal court), the Second Circuit has not overruled or abrogated Holliday." See Report-Recommendation at 5 (citations omitted). However, the Second Circuit has also not extended or relied upon that holding in any subsequent cases. See, e.g., Dial-A-Mattress Franchise Corp. v. Page, 880 F.2d 675 (2d Cir. 1989); Jones v. Niagara Frontier Transp. Auth., 722 F.2d 20, 22 n.3 (2d Cir. 1983); In re Bijan-Sara Corp., 203 B.R. 358 (2d Cir. 1996).*fn3 Finally, Magistrate Judge Lowe cites two district court cases in this circuit that followed Holliday. See Report-Recommendation at 5 (citing Pension Benefit Guar. Corp. v. Viking Food Serv., Inc., 93-CV-6837, 1994 WL 702042, at *1-2 (S.D.N.Y. Dec. 14, 1994); Phillips v. Amana Collection Servs., 89-CV-1152, 1992 WL 227839, at *3-4 (W.D.N.Y. Aug. 25, 1992)).*fn4
Further support for the conclusion that the Second Circuit has not embraced Holliday, and that this Court should not do so either, is found in a case that the Second Circuit decided shortly after Holliday, in which it held that a plaintiff, who was not an attorney, could not prosecute a derivative action on behalf of the corporation pro se. See Phillips v. Tobin, 548 F.2d 408 (2d Cir. 1976). Although the Phillips court did not mention Holliday, it followed the well-established principle that a corporation may not appear except through an attorney. See id. at 411. The court also cited Turner v. American Bar Ass'n, 407 F. Supp. 451 (N.D. Tex. 1975), with approval for the proposition that "[c]orporations and partnerships, both of which are fictional legal persons, obviously cannot appear for themselves personally. With regard to these two types of business associations, the long standing and consistent court interpretation of § 1654 is that they must be represented by licensed counsel." Phillips, 548 F.2d at 411 (quoting Turner v. American Bar Ass'n, 407 F. Supp. 451, 476 (N.D. Tex. 1975)) (other citations omitted).
The Second Circuit quoted this same language in Eagle Assocs. v. Bank of Montreal, 926 F.2d 1305, 1309 (2d Cir. 1991), to support its conclusion that "28 U.S.C. § 1654 prohibits a layperson from appearing on behalf of a partnership." Id. at 1310. The court in Eagle Associates also explicitly rejected the reasoning and conclusions in Reeves, noting that "its holding appears to conflict with other pronouncements in that circuit." Id. at 1309 (citations omitted). Finally, the Eagle Associates court held that, because "Eagle failed to comply with the district court's order directing it to appear with counsel, the district court did not abuse its discretion in entering a default judgment." Id. at 1310.
In sum, given the overwhelming caselaw that is contrary to the holding in Holliday, particularly the Supreme Court's statement in Rowland that Holliday is an aberrant case, the Court rejects Magistrate Judge Lowe's recommendation that the Court grant the parties' request for judicial approval of their proposed Consent Judgment and Order. Instead, the Court hereby notifies the parties that, unless Defendant provides written notice to the Court and opposing counsel that it is represented by counsel, within forty-five days of the date of this Order, Plaintiff may request that the Clerk of the Court enter a Notice of Default and that, once the Clerk of the Court enters that Notice, Plaintiff may move for a default judgment against Defendant.
Accordingly, after reviewing Magistrate Judge Lowe's Report-Recommendation, the entire file in this matter, and the applicable law, and for the reasons stated herein, the Court hereby
ORDERS that Magistrate Judge Lowe's October 3, 2007 Report-Recommendation is REJECTED; and the Court further
ORDERS that Defendant shall notify the Court and opposing counsel in writing, within forty-five days of the date of this Order, whether or not Defendant is represented by counsel; and the Court further
ORDERS that, if Defendant does not notify the Court and opposing counsel in writing, within forty-five days of the date of this Order, that it has retained counsel, Plaintiff may file a request that the Clerk of the Court enter a Notice of Default and serve a copy of its papers on Defendant; and the Court further
ORDERS that, after the Clerk of the Court enters a Notice of Default, Plaintiff shall file with the Court and serve on Defendant a motion for default judgment against Defendant within thirty days of the Clerk's entry of the Notice of Default; and the Court further
ORDERS that, if it has any objections to the motion for default judgment, Defendant must file with the Court and serve on opposing counsel its opposition papers within fifteen days of the date of service of the motion for entry of a default judgment; and the Court further
ORDERS that, after it has received all of the relevant papers, the Court shall determine the motion on the basis of the parties' submissions without oral argument.
IT IS SO ORDERED.