Doing One Transaction in New York Not Doing Business for Purposes of BCL 1312 Registration Requirement

On January 6, 2023, Justice Reed of the New York County Commercial Division issued a decision in Dragons 516 Ltd. v. Knights Genesis Inv. Ltd., 2023 NY Slip Op. 50020(U), holding that doing one transaction in New York does not constitute doing business in New York for the purposes of BCL 1312’s registration requirement, explaining:

The SMI Defendants contend that this action must be dismissed, pursuant to BCL § 1312 (a), because Dragons is a foreign corporation doing business in New York, but is not registered with the Department of State. They argue that Dragons’ $30 million dollar loan in connection with a real estate development in New York constitutes doing business in New York. Dragons responds that a single transaction does not meet the definition of doing business in the state. To this, the SMI Defendants reply that, by its own admission, Dragons is a special purpose vehicle that was created solely to pursue the transaction at the heart of this litigation. Therefore, they argue, the entirety of Dragons’ business consists of the transaction in New York. They also point out that, under Cayman Island law, Dragons must carry out most of its business outside of the Cayman Islands and, as such, cannot benefit from the presumption that it is doing business in the jurisdiction of its incorporation. Lastly, the SMI Defendants argue that, should Dragons’ argument prevail, foreign corporations will be free to circumvent BCL’s registration requirement simply by creating a special purpose vehicle for every transaction.

BCL § 1312 (a) states that “[a] foreign corporation doing business in this state without authority shall not maintain any action or special proceeding in this state . . . .” The party relying on this statutory barrier must rebut the presumption that the corporation does business in its state of incorporation rather than New York by proving that the foreign corporation’s activity in New York is systematic and regular. Evidence of a single business transaction will not sustain the movant’s burden. The burden of showing doing business is a heavy one since a lesser showing might infringe on Congress’s constitutional power to regulate interstate commerce.

Here, the SMI Defendants have failed to meet their burden of demonstrating that Dragons does business in New York within the meaning of BCL § 1312 (a). While it is undisputed that Dragons was formed for the sole purpose of providing financing in connection with the Project, this does not change the fact that the SMI Defendants have only presented evidence of a single transaction, which does not constitute doing business within the meaning of the statute.

The SMI Defendants’ attempt to meet their burden by negating the presumption that the corporation does business in its state of incorporation rather than New York also fails. Cayman Islands Companies Law § 163 requires that the objects of a company seeking to register as an exempted company under this law be carried out mainly outside the Islands. Assuming this law applies to Dragons, which claims to be an incorporated entity, organized under the laws of the Cayman Islands, this still does not demonstrate that Dragons is doing business in this state withing the meaning of BCL § 1312 (a).

(Internal quotations and citations omitted) (emphasis added).

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