Here we go again.

Last month, in Matter of Bianchi (Fragrance Systems International, Inc.), Short Form Order, Index No. 29627-2013 [Sup Ct, Suffolk County Apr. 22, 2014], Suffolk County Commercial Division Justice Emily Pines issued a decision dismissing a petition for judicial dissolution of a New York-based, Delaware corporation on the ground the court lacked subject matter jurisdiction.

The decision is short. Here’s the pertinent excerpt:

Although there is conflicting case law as to whether New York courts lack subject matter jurisdiction over a claim for dissolution of a foreign corporation, absent a decision from the Court of Appeals, this Court is bound to follow the decisions of the Appellate Division, Second Department (see 28 NYJur2d Court and Judges § 221). There is no decision from the Court of Appeals on this issue. The law in the Second Department is that New York courts lack subject matter jurisdiction over proceedings to dissolve foreign corporations (see Matter of Warde-McCann v Commex, Ltd., 135 AD2d 541, 542 [2d Dept 1987]; Matter of Porciello v Sound Moves, 253 AD2d 467 [2d Dept 1998]) and foreign limited liability companies (see Matter of MHS Venture Mgt. Corp. v Utilisave, LLC, 63 AD3d 840 [2d Dept 2009]). The Petitioners fail to address, or even acknowledge, the Second Department decisions on this issue in their opposition papers. Although this Court has read significant First Department decisions permitting New York Courts to hear these cases, it is constrained to follow the current rulings of the Second Department. Accordingly, the respondents’ motion is granted and the Verified Petition is dismissed.

Justice Pines is right; there is conflicting case authority on the issue of subject matter jurisdiction to hear petitions to dissolve foreign corporations but, as a trial judge within the Second Department, she is bound to follow Second Department precedent. However, as I’ve written before, those precedents contain no analysis of the issue. It gets even murkier: the words “subject matter jurisdiction” don’t even appear in the Second Department’s seminal 1987 Warde-McCann ruling, which instead used language and cited older cases invoking interstate comity and the internal affairs doctrine. The Second Department’s 1998 Porciello ruling likewise made no mention of subject matter jurisdiction; it simply parroted Warde-McCann.

It wasn’t until the Second Department’s 2009 ruling in the MHS Venture case, involving a Delaware LLC, that the court explicitly stated: “A claim for dissolution of a foreign limited liability company is one over which the New York courts lack subject matter jurisdiction.” What authority did it cite? Warde-McCann and Porciello, along with the Third Department’s 2007 ruling in Rimawi v Atkins, also involving a Delaware LLC, which in turn relied on — you guessed it — Warde-McCann and Porciello in dismissing a dissolution petition for lack of subject matter jurisdiction.

In the Bianchi excerpt quoted above, Justice Pines noted that she “has read significant First Department decisions permitting New York courts to hear these cases [but] is constrained to follow the current rulings of the Second Department.” Undoubtedly she’s referring to the Appellate Division, First Department’s 1994 decision in Matter of Hospital Diagnostic Equipment Corp. where that court rejected the New York Attorney General’s position that New York courts lack subject matter jurisdiction over petitions to dissolve foreign corporations. The First Department in that case affirmed an order dismissing a petition to dissolve a Delaware corporation based on the discretionary doctrine of forum non conveniens due to the corporation’s lack of substantial contacts with New York.

Justice Pines also may have been referring to a decision last year by a First Department trial court in the Holdrum Investments case, which I wrote about here, in which that judge felt equally compelled to follow the First Department’s Hospital Diagnostic ruling in refusing to dismiss for lack of jurisdiction a petition to dissolve a Delaware limited partnership.

The Pressing Need for Appellate Clarity

The ability or not to seek judicial dissolution in New York courts is no small matter for the owners of the thousands of closely held, New York-based foreign business entities that have no connection to their states of formation — mostly Delaware — other than their formation there and periodic payment of franchise fees.

As the case law now stands, if the foreign entity’s certificate of authorization to do business in New York lists as its office location either of the two counties comprising the First Department (Manhattan and the Bronx), a dissolution petition will be heard in the courts of those counties. If it lists any of the many counties comprising the Second Department (generally, the other three boroughs of New York City, Long Island, and the lower Hudson Valley) or the Third Department (generally, Albany and the eastern part of upstate New York), a dissolution petition will be barred. It remains an open question in the Fourth Department (generally, Rochester, Buffalo and the western part of upstate New York) which has not yet weighed in on the controversy.

The very structure of New York’s multi-department judicial system allows for disagreements among the intermediate appellate courts, the ultimate resolution of which is up to the New York Court of Appeals sitting alone at the top. As Justice Pines noted, there’s been no Court of Appeals decision addressing the jurisdictional issue in proceedings to dissolve foreign entities in the 20 years since the departmental split arose in 1994 when the First Department decided Hospital Diagnostic.

Of course, the Court of Appeals can’t reach out and decide the issue on its own; it’s up to the litigants to pursue an appeal all the way. I hope that won’t take another 20 years. I also hope that the next time one of our Appellate Divisions is presented with the issue, the judges of that court, with the benefit of thorough briefing by the appellate lawyers, will undertake meaningful analysis and provide principled guidance for the lower courts, whether they decide for or against subject matter jurisdiction. I also hope, if they decide in favor of subject matter jurisdiction, that they address the other doctrines that likely will be raised as alternative barriers to dissolution petitions involving foreign entities, including interstate comity and abstention doctrines.