As I’ve written before, the question where a corporate dissolution case can be brought, or “venue” as we lawyers call it, has nothing to do necessarily with the physical location of the company’s offices. Rather, the governing provision in § 1112 of the Business Corporation Law, as interpreted by the courts, fixes venue based on the county designated in the company’s certificate of incorporation filed with the secretary of state, regardless where the company’s offices actually are located.
I would wager that in the great majority of instances, a company’s principal place of business coincides with the certificate’s designated county. But businesses move, sometimes without updating the certificate. Or the company may be consist of transient investments with no business office apart from the owners’ residences which also may change without updating the certificate.
For any number of tactical reasons — including the convenience of the petitioner’s counsel and the inconvenience to the adverse party — a shareholder bringing a corporate dissolution proceeding may prefer to bring it in County X even though County Y is designated in the corporation’s certificate. Can the shareholder simply file an amended certificate of incorporation designating County X as the company’s new office location for purposes of filing for judicial dissolution in that county, or will the court reject it as a “sham” designation?
The Dyckman Case
There’s very little case law on the subject. In the one and only appellate decision I’ve come across, Matter of Dyckman, 169 AD2d391 (1st Dept 1991), a divided panel affirmed a lower court’s order denying the respondents’ motion to change venue in a corporate dissolution proceeding brought in New York County. The respondent directors argued that the case belonged in Nassau County because they had filed an amended certificate of incorporation designating Nassau County as the office location 12 days before the proceeding was filed. A majority of the appellate court agreed with the lower court’s finding that “the shift of respondent’s corporate offices was a ‘sham . . . to secure some undisclosed advantage to [the corporation’s] directors'”.
The Yahudaii Case
Another venue contest in a dissolution case involving an amended certificate of incorporation was decided recently by Nassau County Commercial Division Justice Timothy S. Driscoll in Matter of Yahudaii (True Gate Holding, Ltd.), Short Form Order, Index No. 003558-13 (Sup Ct Nassau County June 5, 2013). The particulars in Yahudaii differed significantly from those in Dyckman — in Yahudaii, the petitioner resisted a change of venue motion based on an amended certificate he filed after he commenced the dissolution proceeding — but the outcome was the same, that is, for venue purposes the court did not give effect to the amended certificate.
Yahudaii’s Initial Petition
In November 2012, Joseph Yahudaii as 50% shareholder of True Gate Holding, Ltd. filed a petition in Supreme Court, New York County, to dissolve True Gate under BCL §§ 1104 and 1104-a. The petition (read here) alleges that True Gate was formed in 1997; that its office is located in Nassau County; that its sole asset is a defaulted mortgage on a Manhattan property; and that the other 50% shareholder, Mehry Noghrei, is the mother-in-law of the mortgagor in default.
The petition also alleges that, before filing for dissolution, Mr. Yahudaii filed an unsuccessful foreclosure action in New York County Supreme Court against the Manhattan property in his own name as the assignee of the mortgage, which had been dismissed after trial by Justice Marcy Friedman on the ground that the assignment was invalid and that any right to foreclose belonged to True Gate.
The foreclosure backstory explains the facts that (1) just before filing for dissolution, Mr. Yahudaii restored True Gate to active status after it had been administratively dissolved some years before; (2) only a week after starting the dissolution case, Mr. Yahudaii asked Justice Friedman for authority to bring a foreclosure action in True Gate’s name notwithstanding Ms. Noghrei’s non-consent; and (3) Mr. Yahudaii likely filed for dissolution in New York County so that the case would be assigned to Justice Friedman due to her handling of the prior foreclosure case.
The Respondent’s Demand to Change Venue
It also likely explains Ms. Noghrei’s next move, in January 2013, which was to serve a demand to change venue to Nassau County based on that county’s designation in True Gate’s certificate of incorporation. Ms. Noghrei also filed opposition to Mr. Yahudaii’s dissolution petition for failure to comply with BCL § 1106’s requirements for commencing a dissolution proceeding, including failure to file an order to show cause providing for publication notice and service upon the tax commissioner.
Yahudaii Amends the Certificate of Incorporation
But Mr. Yahudaii was determined to stick it out in New York County. In early February, 2013, he filed with the secretary of state an amended certificate of incorporation designating New York County as True Gate’s place of business. Soon afterward, he filed an order to show cause compliant with BCL § 1106 to which he attached an amended petition reciting that True Gate’s office is located in New York County.
Respondent’s Motion to Change Venue
The next move belonged to Ms. Noghrei who, in March, 2013, filed an application in Nassau County Supreme Court to change venue to that court. That in turn prompted Justice Friedman to stay the proceedings in the New York County case while the venue issue was being determined by Justice Driscoll to whom Ms. Noghrei’s application had been assigned.
Justice Driscoll’s Decision
Justice Driscoll’s decision, after brushing away Mr. Yahudaii’s argument that the motion to change venue was untimely, agreed with Ms. Noghrei that “New York County is not a proper county” for the dissolution proceeding under BCL § 1112, which provides:
An action or special proceeding under this article shall be brought in the supreme court in the judicial district in which the office of the corporation is located at the time of the service on the corporation of a summons in such action or of the presentation to the court of the petition in such special proceeding.
At the time Mr. Yahudaii commenced the proceeding in New York County, in November 2012, there was no dispute that, pursuant to its 1997 certficate of incorporation, True Gate’s office was deemed to be located in Nassau County. Accordingly, Justice Driscoll concluded,
venue is proper in Nassau County pursuant to BCL § 1112, because the Corporation’s office was located in Nassau County when Petitioner moved for dissolution of the Corporation, and dissolution is the gravamen of the relief that Petitioner seeks.
And what of Mr. Yahudaii’s amended certificate in February 2013, changing the corporation’s office location to Nassau County? Mr. Yahudaii apparently argued that, because his initial filing of the dissolution proceeding was defective for failure to comply with BCL § 1106’s mandates, there was no “presentation” of his dissolution petition to the court within the meaning of BCL § 1112 until he filed his amended petition by show cause order in February 2013, i.e., after he filed the amended certificate of incorporation changing the office location to New York County. Justice Driscoll disagreed:
The fact that Petitioner commenced the action in a procedurally improper manner, and subsequently filed an Order to Show Cause and supporting papers that complied with the statutory requirements for a dissolution action, does not alter the fact that the action was commenced by the filing of the initial Petition.
Unlike in Dyckman, Justice Driscoll did not characterize Mr. Yahudaii’s belated amendment of the certificate of incorporation as “sham” although, query whether as a 50% shareholder Mr. Yahudaii had the authority to amend the certificate. In any event, Justice Driscoll had no need to characterize the bona fides of Mr. Yahudaii’s tactic since, under the circumstances of the case, the amendment made months after the filing of the original dissolution petition made no difference under the statute’s plain language keyed to the corporation’s office location as of when the petition is filed.