Superior Court Reminds Attorneys About The Dangers Of A Lack Of Due Diligence

On Friday, the Superior Court issued a decision that should serve both as a cautionary tale to attorneys as well as and a reminder that foreign corporations must register to do business in Pennsylvania to bring an action in its courts. See Drake Manufacturing Company, Inc. v. Polyflow, Inc., No. 959 WDA 2014 (Pa. Super. Ct., Jan. 23, 2015).

Drake Manufacturing is a Delaware Corporation with operations in Pennsylvania. Polyflow is a manufacturer of tubing products located in Oaks, Pennsylvania. Over a period of 8 months in 2008 and 2009, Polyflow entered into multiple contracts with Drake for the purchase of couplings used in Polyflow's manufacturing process. In 2009, Drake sued Polyflow in the Warren County Court of Common Pleas alleging a failure to pay for good in accordance with the parties' contracts.

Polyflow raised the issue of standing in its answer to Drake's complaint, asserting that Drake failed to obtain a certificate of authority to do business in Pennsylvania. Section 4121 of the Business Corporation Law provides that "a foreign business corporation, before doing business in this Commonwealth, shall procure a certificate of authority to do so from the Department of State..." 15 Pa.C.S. § 4121(a). The penalty for failing to do so is set forth in Section 4141 (titled "Penalty For Doing Business Without Certificate Of Authority"), which states that "a nonqualified foreign business corporation doing business in this Commonwealth within the meaning of Subchapter B shall not be permitted to maintain any action or proceeding in any court of this Commonwealth until the corporation has obtained a certificate of authority." 15 Pa.C.S. §4141(a).

Despite having received notice of the lack of standing issue, Drake failed to obtain a certificate of authority from the Department of State prior to or during trial. Polyflow moved for compulsory nonsuit at the close of Drake's case-in-chief. The trial court denied Polyflow's motion and entered a verdict in favor of Drake in the amount of $291,766.61. Polyflow filed timely post-trial motions seeing judgment n.o.v. raising, among other things, the standing issue. In response, Drake submitted a certificate of authority more than two months after the verdict. The trial court denied the post-trial motions and Polyflow appealed.

The Superior Court reversed...