On Friday, the Superior Court issued a decision that should serve both as a cautionary tale to attorneys as well as a reminder that foreign corporations must register to do business in Pennsylvania to bring an action in its courts. See Drake Manufacturing Company, Inc. v. Polyflow, Inc., No. 959 WDA 2014 (Pa. Super. Ct., Jan. 23, 2015).
Drake Manufacturing is a Delaware Corporation with operations in Pennsylvania. Polyflow is a manufacturer of tubing products located in Oaks, Pennsylvania. Over a period of 8 months in 2008 and 2009, Polyflow entered into multiple contracts with Drake for the purchase of couplings used in Polyflow’s manufacturing process. In 2009, Drake sued Polyflow in the Warren County Court of Common Pleas alleging a failure to pay for good in accordance with the parties’ contracts.
Polyflow raised the issue of standing in its answer to Drake’s complaint, asserting that Drake failed to obtain a certificate of authority to do business in Pennsylvania. Section 4121 of the Business Corporation Law provides that “a foreign business corporation, before doing business in this Commonwealth, shall procure a certificate of authority to do so from the Department of State…” 15 Pa.C.S. § 4121(a). The penalty for failing to do so is set forth in Section 4141 (titled “Penalty For Doing Business Without Certificate Of Authority”), which states that “a nonqualified foreign business corporation doing business in this Commonwealth within the meaning of Subchapter B shall not be permitted to maintain any action or proceeding in any court of this Commonwealth until the corporation has obtained a certificate of authority.” 15 Pa.C.S. §4141(a).
Despite having received notice of the lack of standing issue, Drake failed to obtain a certificate of authority from the Department of State prior to or during trial. Polyflow moved for compulsory nonsuit at the close of Drake’s case-in-chief. The trial court denied Polyflow’s motion and entered a verdict in favor of Drake in the amount of $291,766.61. Polyflow filed timely post-trial motions seeing judgment n.o.v. raising, among other things, the standing issue. In response, Drake submitted a certificate of authority more than two months after the verdict. The trial court denied the post-trial motions and Polyflow appealed.
The Superior Court reversed, holding that Drake lacked standing to file a suit in the first instance, and that Drake continued to exhibit a lack of reasonable diligence by failing to obtain a certificate of authority during the pendency of litigation.
Further, although a foreign corporation may comply with Section 4121 by obtaining a certificate of authority “during the course of a lawsuit,” see, e.g., International Inventors Inc., East v. Berger, 363 A.2d 1262, 1264 (Pa. Super. Ct. 1976), Drake could not do so during the post-trial motion stage. The Superior Court held that Drake’s late presentation of a certificate of authority was barred by the Pennsylvania Supreme Court’s decision in Claudio v. Dean Machine Co., 831 A.2d 140 (Pa. 2003), which prohibits a party from submitting evidence in post-trial proceedings that the party failed to submit during trial due to a lack of reasonable diligence.
The Superior Court reduced its 27-page decision to one sentence:
Although we can understand the trial court’s reluctance to rule in Polyflow’s favor under these circumstances, the fact remains that (1) Polyflow timely raised the defense of Drake’s lack of capacity to sue, (2) Drake failed to cure its lack of a certificate of authority during the next 3½ years, (3) Drake failed to refute this defense at trial, and (4) this defense was fatal to Drake’s case.
Polyflow’s counsel raised the issue of lack of capacity and apparently kept it in his back pocket until conclusion of Drake’s case in chief. This decision should serve as a reminder to always review and re-review defenses raised in new matter prior to trial, and to be mindful of Section 4121, which is often overlooked by foreign corporations seeking to litigate disputes in Pennsylvania’s courts.