“Doing Business” Requires More than an Employee and an Office

In Doing Business in CA? Be Sure to Register, I wrote that an out-of-state corporation that “enter[s] into repeated and successive transactions of its business in [California] other than interstate or foreign commerce” must register with the Secretary of State as a foreign corporation, and that a penalty for failing to do so is being precluded from maintaining actions in California courts. A recent case in the US District Court for the Northern District of California (Jarzab v. KM Enterprises) provides an example of what does not constitute “repeated and successive transactions”.

Plaintiffs J.T. Jarzab and J.R. Jarzab sued their former employer, KM Enterprises, Inc. (“KME”), an Illinois corporation, alleging breach of contract and wage-and-hour violations. KME filed counterclaims for conversion, breach of fiduciary duty, constructive fraud, and unfair competition.

Plaintiffs sought dismissal of the counterclaims, stating that (a) KME failed to register as a foreign corporation, thus (b) it cannot maintain claims against the plaintiffs.

The court disagreed, because plaintiffs alleged merely that KME had leased an office and had employed J.T. Jarzab, but provided no evidence of Jarzab’s duties. Thus the court could not conclude that KME had entered into repeated and successive transactions within California. (The court noted it is possible that KME had entered into repeated and successive transactions, but there was no evidence to that effect based on the case record so far.)

Bottom line for out-of-state corporations: If you have an employee and a leased office in California, you may not need to register as a foreign corporation – but you should seek legal counsel to provide appropriate guidance.

Dana H. Shultz, Attorney at Law  +1 510 547-0545  dana [at] danashultz [dot] com
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