THE BASEMENT STORE FRANCHISE CORP v. DOMINICK NATOLI

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-0

THE BASEMENT STORE

FRANCHISE CORP.,

Plaintiff-Appellant,

v.

DOMINICK NATOLI, individually,

ROlAND CSENKER, individually,

THE BASIC BASEMENT CO., TOTALLY

BASEMENTS, and BASEMENT GUYS, LLC,

Defendants-Respondents.

and

PHILIP AGOGLIA and CHERYL AGOGLIA,

Third-Party Defendants.

__________________________________

September 3, 2014

Before Judges Simonelli and O'Connor.

On appeal from the Superior Court of New Jersey, Law Division, Monmouth County, Docket No. L-0328-11.

Marks & Klein, LLP, attorneys for appellant (Gerald A. Marks, of counsel and on the brief).

Stark & Stark, attorneys for respondents (Jeffrey S. Posta, of counsel and on the brief).

PER CURIAM

Plaintiff The Basement Store Franchise Corp., a foreign corporation transacting business in New Jersey, appeals from three orders, the last of which denied its motion to reconsider the dismissal of its complaint with prejudice and to reinstate the complaint. We affirm in part, reverse in part, and remand for further proceedings.

I.

Plaintiff, a franchisor business specializing in renovating basements, was incorporated in Nevada, but its principal office was located in Long Branch, New Jersey, and it derived income from licensing fees generated here. Third-party defendants Philip Agoglia and Cheryl Agoglia were plaintiff's principals and sole employees. There was no dispute that prior to instituting this action, plaintiff had no certificate of authority to transact business in New Jersey and had not paid taxes to the Department of the Treasury (Department).

Plaintiff entered into two franchise agreements with defendants Dominick Natoli and Roland Csenker (defendants). Defendant executed promissory notes to acquire the franchises, and later defaulted on the notes and abandoned the franchises. Defendants then established two new businesses utilizing plaintiff's unique pricing model, which allegedly violated a non-competition covenant contained in each franchise agreement.

Plaintiff filed a verified complaint against defendants in the Chancery Division, Monmouth County, alleging breach of contract. Plaintiff also filed an order to show cause to enforce the non-competition covenants. Plaintiff's attorney certified to the court that "[t]he Order to Show Cause was resolved via a Consent Order" entered on January 11, 2011 (the January 11, 2011 order). The January 11, 2011 order required defendants to relocate their new businesses, dismissed plaintiff's request to enforce the non-competition covenants with prejudice, declared the covenants null and void, preserved plaintiff's monetary damages claim not relating to the non-competition covenants, and transferred the matter to the Law Division.

On appeal, plaintiff contends in Point I of its merits brief that the January 11, 2011 order was not a consent order, but rather, an order the judge erroneously entered without making the requisite factual findings or legal conclusions. This contention lacks merit.

Plaintiff's attorney conceded that the January 11, 2011 order was a consent order that resolved the order to show cause. There is nothing in the record indicating that plaintiff objected to entry of the order as a consent order or did not consent to its form and entry. Concessions by counsel before the trial court forecloses a contrary argument on appeal. Ji. v. Palmer, 333 N.J. Super. 451, 459 (App. Div. 2000). Accordingly, plaintiff cannot now claim that the January 11, 2011 order was not a consent order. A party cannot appeal from an order entered by consent. Infante v. Gottesman, 233 N.J. Super. 310, 318 (App. Div. 1989).

II.

After the matter was transferred to the Law Division, defendants filed a motion for summary judgment and to dismiss the complaint with prejudice, arguing that plaintiff lacked standing because it had no certificate of authority to transact business in New Jersey. In an April 27, 2012 order, the motion judge dismissed the complaint without prejudice for failure to comply with N.J.S.A. 14A:13-4,1 and afforded plaintiff the opportunity to cure by May 25, 2012 by filing an application for a certificate of authority, paying back taxes for the years in which plaintiff did business in New Jersey, and filing a motion to reinstate the complaint (the April 27, 2012 order). The judge permitted defendants to file a motion to dismiss with prejudice if plaintiff failed to comply. The judge also indicated that if the matter was reinstated, defendants could file a motion regarding discovery issues.

Plaintiff thereafter filed an application for a certificate of authority, which the Department received on May 7, 2012. Plaintiff also filed a notice of business activities report and took steps to pay back taxes and fees. On May 17, 2012, plaintiff advised the judge of its efforts to comply with the April 27, 2012 order, and indicated it was awaiting the Department's determination. Plaintiff also advised that it planned to file a motion to reinstate even though it appeared unlikely that all back taxes would be paid by May 25, 2012.

On May 25, 2012, plaintiff filed a motion to reinstate the complaint. Defendants filed a cross-motion to dismiss with prejudice for plaintiff's failure to obtain a certificate of authority. In a July 19, 2012 order, the judge dismissed the complaint with prejudice. The judge found that plaintiff's May 7, 2012 application was insufficient to reinstate the complaint absent the filing of tax returns and payment of back taxes.

Plaintiff paid the required taxes and, on August 17, 2012, filed a motion for reconsideration and to reinstate the complaint, returnable on September 14, 2012. On September 11, 2012, prior to the return date, plaintiff obtained a certificate of authority.

For unknown reasons, the judge did not render a decision until June 18, 2013. Although neither the April 27, 2012 order nor the July 19, 2012 order premised dismissal on a discovery violation, the judge denied plaintiff's motion based, in part, on plaintiff's failure to provide discovery.2 The judge also determined that plaintiff's failure to obtain the certificate of authority until five months after entry the April 27, 2012 order "unduly delayed the matter." Without a factual basis, the judge also determined that "such delay clearly has prejudiced the [d]efendants."

Plaintiff contends in Point II that the judge erred in refusing to reinstate the complaint after plaintiff obtained a certificate of authority and paid back taxes. Plaintiff also contends that dismissal based on a discovery violation was improper. We agree with both contentions.

A party entitled to discovery may file a motion to dismiss for failure to make discovery. R. 4:23-5(a)(1). "Unless good cause for other relief is shown, the court shall enter an order of dismissal or suppression without prejudice." Ibid. If the order of dismissal has been entered and not vacated, the party entitled to discovery may, after the expiration of sixty days from the date of the order, file a motion for an order of dismissal, with prejudice. R. 4:23-5(a)(2). There is nothing in the record before us indicating that defendants filed a motion pursuant to Rule 4:23-5(a)(1) or (2), or that the court had entered an order compelling discovery. For these reasons, it was improper to dismiss the complaint with prejudice for failing to provide discovery.

It was also improper to dismiss with prejudice for failing to obtain a certificate of authority. The New Jersey Business Corporation Act, N.J.S.A. 14A:1-1 to 17-18, governs the authority of a foreign corporation to transact business in New Jersey. N.J.S.A. 14A:1-2.1(i). To transact business in this State, a foreign corporation must obtain a certificate of authority. N.J.S.A. 14A:13-3. Without a certificate of authority, a foreign corporation transacting business in New Jersey lacks standing to "maintain any action or proceeding in any court of this State, until such corporation shall have obtained a certificate of authority." N.J.S.A. 14A:13-11(1) (emphasis added).

N.J.S.A. 14A:13-20, which is part of the Corporation Business Activities Reporting Act, N.J.S.A. 14A:13-14 to -21, also governs a foreign corporation's standing to maintain an action or proceeding in a New Jersey court. N.J.S.A. 14A:13-20 provides as follows:

a. No foreign corporation carrying on any activity or owning or maintaining any property in this State which has not obtained a certificate of authority to do business in this State and disclaims liability for the corporation business tax and the corporation income tax shall maintain any action or proceeding in any State or Federal court in New Jersey, until such corporation shall have filed a timely notice of business activities report.

b. The failure of a foreign corporation to file a timely [notice of business activities] report shall prevent the use of the courts in this State for all contracts executed and all causes of action that arose at any time prior to the end of the last accounting period for which the corporation failed to file a required timely report.

c. The court in which the issues arise shall be granted the power to excuse the corporation for failure to file a report when due, and restore the right of access to the courts in this State. Such failure to file a report shall be excusable where the court finds the corporation has sustained the burden of establishing that

(1) the failure to file a timely report was done in ignorance of the requirement to file, such ignorance was reasonable in all circumstances; and

(2) all taxes, interest and civil penalties due the State for all periods have been paid, or provided for by adequate security or bond approved by the director, before the suit may proceed.

[N.J.S.A. 14A:13-20 (emphasis added).]

There are two exceptions to the requirement to file a notice of business activities report: (1) the foreign corporation received a certificate of authority by the end of the accounting period for which it was otherwise required to file a notice of business activities report; or (2) the foreign corporation filed a timely return under the Corporation Business Tax Act, N.J.S.A. 54:10A-1 to -41, or the Corporation Income Tax Act, N.J.S.A. 54:10E-1 to -24.3 N.J.S.A. 14A:13-16.

In comparing the certificate of authority requirement of N.J.S.A. 14A:13-11, and the notice of business activities report requirement of N.J.S.A. 14A:13-20, our Supreme Court has held that foreign corporations transacting business in New Jersey must meet the requirements of both statutes. See Am. Bank & Trust Co. v. Lott, 99 N.J. 32, 37-41 (1985) (holding that a foreign bank that merely made loans to New Jersey borrowers was not "transacting business" as a "foreign corporation" and therefore need not obtain a certificate of authority). Accordingly, because plaintiff was transacting business in New Jersey, it was required to comply with both N.J.S.A. 14A:13-11 and N.J.S.A. 14A:13-20 or one of the exceptions in N.J.S.A. 14A:13-16. Plaintiff does not dispute this.

The judge dismissed the complaint with prejudice and declined to reinstate it for plaintiff's failure to comply with the April 27, 2012 order. Generally, a dismissal on the merits is with prejudice, but a dismissal based on the court's procedural inability to consider a case is without prejudice. Pressler & Verniero, Current N.J. Court Rules, comment 4 to R. 4:37-2 (2014) (citing Watkins v. Resorts Int'l Hotel & Casino, Inc., 124 N.J. 398, 415-16 (1991)). For a violation of a court order, however, the decision whether to dismiss with or without prejudice is within the court's discretion. Alan J. Cornblatt, P.A. v. Barrow, 153 N.J. 218, 244 (1998) (citing R. 4:37-2(a)). Typically, dismissals for violating an order are without prejudice unless "the court determines that the non-delinquent party has suffered irremediable prejudice." Ibid. (citing Crispin v. Volkswagenwerk, A.G., 96 N.J. 336, 345 (1984)).

Here, plaintiff acted within days of entry of the April 27, 2012 order to comply. By May 7, 2012, plaintiff filed an application for a certificate of authority, as the order required. Plaintiff also filed the requisite notice of business activities report and took steps to pay the back taxes and fees. Although plaintiff was not in full compliance by May 25, 2012 or July 19, 2012, it was attempting to fully comply. More importantly, plaintiff was in full compliance prior to the return date of the motion for reconsideration and to reinstate the complaint, and there was no evidence whatsoever of irremediable prejudice to defendant. Accordingly, dismissal of the complaint with prejudice and denial of plaintiff's motion for reconsideration and to reinstate the complaint was a mistaken use of discretion requiring reversal.

Affirmed in part, reversed in part, and remanded for further proceedings.

1 N.J.S.A. 14A:13-4 requires a foreign corporation transacting business in New Jersey to file an application to procure a certificate of authority.

2 The judge found that plaintiff violated an April 27, 2012 order compelling discovery; however, there is no such order, or any other order compelling discovery, in the record on appeal.

3 Repealed by L. 2002, c. 40, 33; L. 1992, c. 175, 41.