Certificate of Authority and Payment of State Taxes is Necessary for a Foreign Business Corporation to File a Complaint in the State of New Jersey But Can Be Remedied

In the business law and business/commercial litigation case of The Basement Store Franchise Corp. v. Natoli, 12-2-51-40, App. Div., the plaintiff, The Basement Store Franchise Corp., a foreign corporation transacting business in New Jersey, appeals from three orders, the last of which denied its motion to reconsider the dismissal of its complaint with prejudice and to reinstate the complaint. Plaintiff, a franchisor business, was incorporated in Nevada, but its principal office was located in New Jersey, and it derived income from licensing fees generated in New Jersey. Third-party defendants Philip Agoglia and Cheryl Agoglia were plaintiff’s principals and sole employees. Prior to instituting this action, plaintiff had no certificate of authority to transact business in New Jersey and had not paid taxes to the New Jersey Department of the Treasury. Plaintiff entered into two franchise agreements with defendants Dominick Natoli and Roland Csenker. Defendants executed promissory notes and later defaulted and abandoned the franchises. Defendants then established two new businesses using plaintiff’s unique pricing model, which allegedly violated a noncompetition covenant in each franchise agreement. Plaintiff filed a verified complaint against defendants in the Chancery Division, Monmouth County, alleging breach of contract. Plaintiff also filed an order to show cause to enforce the noncompetition covenants. The order to show cause was resolved via a consent order, which required defendants to relocate their new business, dismissed plaintiff’s request to enforce the noncompetition covenants with prejudice, declared the covenants null and void and preserved plaintiff’s monetary damages claim not relating to the noncompetition covenants, and transferred the matter to the Law Division. Defendants filed a motion for summary judgment and to dismiss the complaint, arguing that plaintiff lacked standing because it had no certificate of authority to transact business in New Jersey. Plaintiff contends that the judge erred in refusing to reinstate the complaint after plaintiff obtained a certificate of authority and paid back taxes, as required by court order. Plaintiff also contends that dismissal based on a discovery violation was improper. The appellate panel agrees and concludes that dismissal of the complaint with prejudice and denial of plaintiff’s motion for reconsideration and to reinstate the complaint was a mistaken use of discretion requiring reversal.

Reference: Case and Analysis, New Jersey Law Journal, 217 N.J.L.J. 791, (September 8, 2014)

Filed Under: Business Entities: Commercial Litigation; Business Litigation: Business Law; Certificate of Authority.

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