In the recent case of Drake Manufacturing v. Polyflow, Inc., No. 959 WDA 2014 (Pa. Super. Ct. 2015), the Superior Court held that foreign business corporations who fail to register in Pennsylvania lack the capacity to sue.
Drake, a Delaware corporation, agreed to ship parts and machinery to Polyflow, which had a facility in Oaks, Pennsylvania. Two years into the relationship, things took a turn for the worse. Polyflow stopped paying for parts received and Drake filed suit. In its answer, Polyflow alleged that Drake was “not registered and authorized to maintain suit in Pennsylvania.”
During the short non-jury trial, Polyflow took an unorthodox approach to its own defense; it did not dispute its failure to pay for the parts. Rather, Polyflow maintained that Drake had not obtained a certificate of authority from the Department of State authorizing Drake to do business in Pennsylvania and, therefore, lacked the capacity to sue.
Hoping for a quick fix, Drake applied for the certificate of authority on the day of trial. Steadfast in its trial strategy, Polyflow moved for nonsuit, but the court denied it and announced a verdict of nearly $300,000 for Drake. Polyflow timely filed post-trial motions seeking judgment n.o.v. In its response, Drake attached its newly obtained certificate of authority. The court again denied Polyflow’s motions.
On appeal, the Superior Court reversed, holding that Drake lacked standing to file a suit, and that Drake continued to exhibit a lack of reasonable diligence by failing to obtain a certificate of authority during the pendency of litigation. In reaching this conclusion, the Court relied on Pennsylvania Supreme Court precedent forbidding the use of post-trial evidentiary hearings to remedy a deficiency that a party could have cured pre-trial. Since Drake had no valid excuse for failing to submit the certificate of authority before or during trial, it “could not use post-trial proceedings to correct its own error.” Despite the perceived inequity of its decision, the Superior Court was duty-bound to rule in favor of Polyflow.
The decision serves as a stern reminder for lawyers and businesses alike. Attorneys should always review and re-review defenses raised in new matter prior to trial, and be mindful of Section 4121, which is often overlooked by foreign corporations seeking to litigate disputes in Pennsylvania’s courts. Due diligence pays dividends! Thanks to Hilary Hladov for her contribution. Please email Brian Gibbons with any questions.