Supreme Court, Albany County, January 6, 2022

E. Stewart Jones Hacker Murphy, LLP, Troy (Thomas J. Higgs of counsel), for plaintiff.

Allen W. Potts, defendant pro se.

Dale B. Stuhlmiller, defendant pro se.

Plaintiff Contractors Compensation Trust (Trust) is a group self-insured trust organized pursuant to the Workers' Compensation Law and attendant regulations. Defendants are alleged to be former members of the Trust or individuals associated with former Trust members.

The Trust commenced this commercial collection action on December 3, 2019, through the electronic filing of a summons and verified complaint naming 1,411 defendants. The Trust alleges that defendants failed to pay the deficit assessment issued to them on December 12, 2013 (see NY St Cts Elec Filing [NYSCEF] Doc No. 1 [complaint]).

On December 2, 2020, the Trust moved for entry of a default judgment against many of the named defendants based on their failure to answer the complaint or otherwise appear in this action (see NYSCEF Doc Nos. 442-443). By decision and order dated August 11, 2021 (see 72 Misc 3d 1217[A], 2021 NY Slip Op 50787[U] [Sup Ct, Albany County 2021]; NYSCEF Doc No. 765 [prior decision]), the court denied the motion.

The court first concluded that the corporations and other business entities against whom the motion was directed (corporate defendants) had not been properly served under Business Corporation Law § 306 and Limited Liability Company Law § 303 by the Trust's delivery to the New York Secretary of State of a flash drive containing an electronic copy of the 809-page complaint and 242-page "Schedule A" (see 2021{**74 Misc 3d at 388} NY Slip Op 50787[U], *1, *3). And given the lack of clarity in the record as to whether the "Individual Defendants" also were served via a flash drive, the court denied the Trust's motion as to them, but did so "without prejudice to renewal upon papers showing proper service of process" (id. at *3).

The Trust now moves for leave to reargue/renew its motion for entry of a default judgment or, alternatively, for an extension of time to re-serve the corporate defendants and individual defendants (collectively, subject defendants). Defendants Allen W. Potts and Dale B. Stuhlmiller have filed papers in opposition to the motion.

A. Reargument/Renewal

A motion for reargument "is addressed to the sound discretion of the court and is properly granted upon a showing that the court overlooked or misapprehended the facts and/or the law or mistakenly arrived at its earlier decision" (Loris v S & W Realty Corp., 16 AD3d 729, 730 [3d Dept 2005] [internal quotation marks and citation omitted]; see CPLR 2221 [d] [2]; Cascade Bldrs. Corp. v Rugar, 154 AD3d 1152, 1154 [3d Dept 2017]). Such a motion "is not designed to provide an unsuccessful party with successive opportunities to reargue issues previously decided, or to present arguments different from those originally presented" (Degraw Constr. Group, Inc. v McGowan Bldrs., Inc., 178 AD3d 772, 773 [2d Dept 2019] [internal quotation marks and citation omitted]; see Matter of Mayer v National Arts Club, 192 AD2d 863, 865 [3d Dept 1993]).

Initially, the court observes that it raised the manner of service on its own initiative, based on the requirement that a movant for a default judgment demonstrate that the defaulting parties were properly served (see 2021 NY Slip Op 50787[U], *1, *3; CPLR 3215 [f]; 306 [a]; Daniels v King Chicken & Stuff, Inc., 35 AD3d 345, 345 [2d Dept 2006]; Nemetsky v Banque Dev. De La Republique Du Niger, 59 AD2d 527, 527 [2d Dept 1977], affd 48 NY2d 962 [1979]).^[FN1] As the [*3]Trust did not have an opportunity to address the specific statutes and regulations relied upon by the court in denying the motion (see 2021 NY Slip Op 50787[U], *2-3), it is proper to grant reargument.{**74 Misc 3d at 389}

1. Corporate Defendants

In contending that the corporate defendants properly were served, the Trust relies on the Uniform Rules for Trial Courts (Uniform Rules), which permit service of initiating papers "by electronic means if the party served agrees to accept such service" (22 NYCRR 202.5-b [f] [1]; accord 22 NYCRR 202.5-bb [b] [3]). The Trust asserts that the Secretary of State is the corporate defendants' statutory agent for service of process (see Business Corporation Law § 304 [a]; Limited Liability Company Law § 301 [a]) and argues that the agent's acceptance of "service of the Complaint by flash drive," together with "the statutory fee paid by Plaintiff [for] said service," constitutes an agreement to accept service by electronic means that is binding on the corporate defendants (Higgs aff ¶¶ 22-26).

The court begins its analysis with Business Corporation Law § 304 (a),^[FN2] by which the Secretary of State is designated as the "agent of every domestic corporation and every authorized foreign corporation upon whom process against the corporation may be served." "In addition to such designation of the secretary of state, every domestic corporation or authorized foreign corporation may designate a registered agent in this state upon whom process against such corporation may be served" (id. § 305 [a]). The term "process" is defined in this context to mean "judicial process and all orders, demands, notices or other papers required or permitted by law to be personally served on a domestic or foreign corporation, for the purpose of acquiring jurisdiction of such corporation" (id. § 102 [a] [11] [emphasis added]).

The method of service upon a corporate agent is prescribed by Business Corporation Law § 306. "Service of process on a registered agent may be made in the manner provided by law for the service of a summons, as if the registered agent was a defendant" (id. § 306 [a]). In contrast, "[s]ervice of process on the secretary of state as agent of a domestic or authorized foreign corporation" must be made "by personally delivering to and leaving with the secretary of state . . . duplicate copies of [the] process together with the statutory fee" (id. § 306 [b]). "Service of process on [a] corporation shall be complete when the secretary of state is so served" (id.). {**74 Misc 3d at 390}

[1] Thus, the Business Corporation Law contemplates the service of "papers" (Business Corporation Law § 102 [a] [11]) and provides that service on the Secretary of State, as the statutory agent for a corporation, shall be "complete" when "duplicate copies" of the initiatory papers have been personally delivered (id. § 306 [b]). There simply is nothing within this framework that allows the Secretary of State to relax the statutory requirements for service of process or to accept service on behalf of a corporation by a method other than the one established in Business Corporation Law § 306 (b) (see Cedar Run Homeowners' Assn., Inc. v Adirondack Dev. Group, LLC, 173 AD3d 1330, 1330-1331 [3d Dept 2019] [requiring strict compliance with the statutory requirements for service of process on an LLC]).^[FN3]

Against this backdrop, it is apparent that the Trust's reliance on the Uniform Rules is misplaced. The rule allowing electronic service where "the party served agrees to accept such service" (22 NYCRR 202.5-b [f] [1]) cannot be read to apply to the Secretary of State acting as a statutory agent for a corporation. In such cases, the Secretary of State is limited to accepting process served via the method prescribed by Business Corporation Law § 306 (b), and service is not complete until made in accordance with such method. Indeed, a contrary interpretation of the Uniform Rules would place them in an impermissible conflict with the statutes governing service of process on corporations and other business entities (see generally Travis v New York State Dept. of Envtl. Conservation, 185 AD2d 714, 715 [4th Dept 1992]; Framan Mech., Inc. v Dormitory Auth. of the State of N.Y., 63 Misc 3d 1218[A], 2019 NY Slip Op 50583[U], *5 [Sup Ct, Albany County 2019]).

Further support for this conclusion is found in the state legislature's recent enactment of an optional program for electronic service of process on corporations and other business entities. Effective January 1, 2023, business entities may, at their option, "make[ ] an affirmative choice to receive service of process through electronic means" (L 2021, ch 56, § 1, part KK, §§ 1, 1-b). Such service shall be made by "[e]lectronically {**74 Misc 3d at 391}submitting a copy of the process to the department of state together with the statutory fee . . . through an electronic system operated by the department of state" (id. § 2). Even if this new legislation had been in effect at pertinent times, however, service on the corporate defendants still would be improper because (i) the corporate defendants did not affirmatively elect to receive service by electronic means, and (ii) the complaint was delivered on a flash drive, rather than through a secure portal operated by the Department of State (see 2021 NY Slip Op 50787[U], *3 [highlighting security concerns associated with flash drives of uncertain provenance]).

Accordingly, the Trust has failed to demonstrate that the court overlooked or misapprehended the facts and/or the law or otherwise erred in concluding that the corporate defendants had not been properly served under Business Corporation Law § 306 and Limited Liability Company Law § 303.

2. Individual Defendants

The Trust argues that, because "[n]one of the Individual Defendants objected to service of the Complaint on the flash drive, ipso facto, the Individual Defendants accepted service by electronic means" and waived any objection thereto (Higgs aff ¶¶ 37-44). The Trust also invokes CPLR 2101 (f) (see id. ¶ 40), which allows for the correction of defects "in the form of a paper," and CPLR 3211 (e), which requires any objection to service to be made in a pre-answer motion or within 60 days of the filing of an answer asserting the affirmative defense of improper service.

[2] The court finds the Trust's arguments to be unpersuasive. The individual defendants' failure to appear in this action does not constitute their affirmative "agree[ment] to accept" service by electronic means within the meaning of 22 NYCRR 202.5-b (f) (1). And insofar as the Trust relies on CPLR 2101 (f), it is well established that the statute is limited to the correction of "defect[s] in the form of . . . paper[s]," such as irregularities in the caption, the omission of an index number and the like (see e.g. Gau v Kramer, 289 AD2d 804, 805 [3d Dept 2001]; Matter of Connolly v Chenot, 275 AD2d 583, 583 n [3d Dept 2000]). CPLR 2101 (f) is [*4]inapplicable where personal jurisdiction over the defendants has not been obtained through service of process in accordance with a statutorily-prescribed method (see Matter of RECYCLE v Lacatena, 163 AD2d 693, 694 [3d Dept 1990]).

Finally, the Trust's argument that the individual defendants waived any objection to the method of service disregards CPLR{**74 Misc 3d at 392}3215 (f), which obliges the movant for a default judgment based on a defendant's nonappearance to establish that the defaulting defendant properly was served (see U.S. Bank N.A. v Gilchrist, 172 AD3d 1425, 1427 [2d Dept 2019]; Daniels, 35 AD3d at 345; Nemetsky, 59 AD2d at 527; see also Diaz v Perez, 113 AD3d 421, 421 [1st Dept 2014]).

Accordingly, the Trust has failed to demonstrate that the court overlooked or misapprehended the facts and/or the law or otherwise erred in concluding that personal jurisdiction had not be acquired over the individual defendants served by electronic means.

3. Renewal

"Given that many of the Individual Defendants were improperly served by electronic means without their consent and the Court [could not] ascertain the particular manner of service employed as to other Individual Defendants," the Trust was granted leave to renew its motion for entry of default judgment "upon papers showing proper service of process upon the subject defendants" (2021 NY Slip Op 50787[U], *3).

The Trust now states that it "cannot make a good faith representation to the Court as to exactly what medium of the Complaint each [Individual] Defendant received" (Higgs aff ¶ 33). In light of the foregoing, the branch of the Trust's motion seeking leave to renew its prior motion must be denied.

4. Conclusion

Upon reargument, the court adheres to its prior determination that the Trust failed to demonstrate that service on the corporate and individual defendants was "made . . . in an authorized manner" (CPLR 306 [a]; see 3215 [f]).

B. Alternative Relief

Alternatively, the Trust moves pursuant to CPLR 306-b for additional time to re-serve the subject defendants for "good cause shown" and/or "in the interest of justice" (Higgs aff ¶¶ 46-47).^[FN4]

"Good cause and interest of justice are two separate and independent statutory standards" (Wells Fargo Bank, NA v Barrella, 166 AD3d 711, 713 [2d Dept 2018] [internal quotation{**74 Misc 3d at 393} marks and citations omitted], lv denied 33 NY3d 908 [2019]; see Leader v Maroney, Ponzini & Spencer, 97 NY2d 95, 104 [2001]). "To establish good cause, a plaintiff must demonstrate reasonable diligence in attempting service" (Barrella, 166 AD3d at 713 [internal quotation marks and citations omitted]).

"If good cause for an extension is not established, courts must consider the interest of justice standard of CPLR 306-b, which requires a careful judicial analysis of the factual setting of the case and a balancing of the competing interests presented by the parties" (id. [internal quotation marks and citation omitted]).

"Unlike an extension request premised on good cause, a plaintiff [seeking an extension in [*5]the interest of justice] need not establish reasonably diligent efforts at service as a threshold matter. However, the court may consider diligence, or lack thereof, along with any other relevant factor in making its determination, including expiration of the Statute of Limitations, the [potentially] meritorious nature of the cause of action, the length of delay in service, the promptness of a plaintiff's request for the extension of time, and prejudice to defendant" (id. [internal quotation marks and citation omitted]; see Leader, 97 NY2d at 105-106).

"Whether to grant [an interest-of-justice] extension rests within the trial court's discretion" (Pierce v Village of Horseheads Police Dept., 107 AD3d 1354, 1356-1357 [3d Dept 2013] [citations omitted]; see Matter of Delaware Operations Assoc. LLC v New York State Dept. of Health, 187 AD3d 1560, 1561 [4th Dept 2020]).

[3] As an initial matter, "an attempt at service that later proves defective cannot be the basis for a 'good cause' extension of time to serve process pursuant to CPLR 306-b" (Estate of Fernandez v Wyckoff Hgts. Med. Ctr., 162 AD3d 742, 743 [2d Dept 2018] [citations omitted]). The court therefore must apply the "more flexible 'interest of justice' standard," which "accommodates late service that might be due to mistake, confusion, or oversight" (id. at 744). Here, application of the relevant factors weighs heavily in favor of granting the Trust an extension of time to complete service.

As to the length of the delay, the Trust promptly requested an extension of time to re-serve the subject defendants once the court determined that service of the complaint via a flash drive was improper. To be sure, one defendant previously had{**74 Misc 3d at 394} moved for dismissal on this ground, but that motion was made following the completion of service and was withdrawn prior to the court ruling on the issue.

Relatedly, the court emphasizes the novelty of the service issue, the Trust's good faith, and the legitimate concerns that animated the Trust's decision to serve the 809-page complaint and 242-page "Schedule A" by electronic means (see 2021 NY Slip Op 50787[U], *2-3).

Next, the six-year statute of limitations for the Trust's contractual claim to collect upon the March 3, 2014 deficit assessment has expired (see id. at *3). "[W]here the Statute of Limitations had otherwise run on a claim, 'extensions of time should be liberally granted whenever plaintiffs have been reasonably diligent in attempting service' " (Hafkin v North Shore Univ. Hosp., 279 AD2d 86, 89 [2d Dept 2000], quoting Mem of Off of Ct Admin No. 97-67R, 1997 NY Legis Ann at 319, affd sub nom. Leader v Maroney, Ponzini & Spencer, 97 NY2d 95 [2001]).

Moreover, the Trust is "in wind-down mode and trying to meet its obligations under the Workers' Compensation Law," and its inability to recommence this action would potentially shift the cost of workers' compensation coverage to other self-insured employers and, ultimately, to the State of New York (Higgs aff ¶ 56). Thus, the denial of CPLR 306-b relief would prejudice the Trust and potentially other self-insured employers in New York State.

The court further observes that the Trust's causes of action for breach of contract and account stated, which are based on the defendant members' agreement to be jointly and severally liable for the Trust's deficit, have the appearance of merit (see e.g. New York State Workers' Compensation Bd. v Any-Time Home Care Inc., 156 AD3d 1043, 1045-1046 [3d Dept 2017]; New York State Workers' Compensation Bd. v 21st Century Constr. Corp., 58 Misc 3d 1211[A], 2018 NY Slip Op 50050[U], *6 [Sup Ct, Albany County 2018]).

Finally, the subject defendants will suffer little or no prejudice from an extension of time, given that all but a handful failed to appear in this matter or oppose the Trust's motion.

Accordingly, the court finds, in the exercise of discretion and the interest of justice, that plaintiff should be afforded an extension of time to re-serve the subject defendants (see Estate of Fernandez, 162 AD3d at 744; Wishni v Taylor, 75 AD3d 747,{**74 Misc 3d at 395}749 [3d Dept 2010]; Dujany v Gould, 63 AD3d 1496, 1498 [3d Dept 2009]).^[FN5]

The Trust also requests that the court permit the subject defendants to be re-served "by summons with notice or in another manner deemed appropriate by the Court" (Higgs aff ¶¶ 8, Wherefore). However, the Trust cites no authority for the novel proposition that a plaintiff who has commenced an action through the filing of a summons and complaint may re-serve the defendants with an entirely different type of initiatory paper: a summons with notice (cf. 2021 NY Slip Op 50787[U], *3). Further, to the extent that the Trust seeks to employ an alternate method of service, it did not move for such relief and, in any event, does not make any arguments that service by statutorily-prescribed means is impracticable (see CPLR 308 [5]; 311 [b]; 311-a [b]; JPMorgan Chase Bank, N.A. v Kothary, 178 AD3d 791, 794 [2d Dept 2019]).^[FN6]

Accordingly, it is ordered that the branch of plaintiff's motion seeking reargument is granted; and it is further ordered that, upon reargument, the court adheres to its prior decision denying plaintiff's motion for a default judgment based on plaintiff's failure to demonstrate proper service of process on the subject defendants; and it is further ordered that the branch of plaintiff's motion seeking leave to renew its motion for a default judgment is denied; and it is further ordered that the branch of plaintiff's motion seeking an extension of time to re-serve the subject defendants is granted; and it is further ordered that plaintiff shall have 60 days from the date of this decision and order to re-serve the subject defendants with the initiatory papers by a statutorily-authorized method; and finally it is ordered that the Trust shall provide the court with a written status update no later than March 18, 2022.