AirTran New York, LLC v. Midwest Air Group, Inc.

46 A.D.3d 208, 844 N.Y.S.2d 233
CourtAppellate Division of the Supreme Court of the State of New York
DecidedOctober 25, 2007
StatusPublished
Cited by5 cases

This text of 46 A.D.3d 208 (AirTran New York, LLC v. Midwest Air Group, Inc.) is published on Counsel Stack Legal Research, covering Appellate Division of the Supreme Court of the State of New York primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
AirTran New York, LLC v. Midwest Air Group, Inc., 46 A.D.3d 208, 844 N.Y.S.2d 233 (N.Y. Ct. App. 2007).

Opinion

OPINION OF THE COURT

Sullivan, J.

This appeal, from the denial of a New York shareholder’s motion to compel production of the shareholder lists of a foreign corporation pursuant to Business Corporation Law § 1315 (a), concerns the standard under that statute for “doing business” in this state, which, in turn, will determine whether the statutory relief sought is available. Plaintiff contends that section 1315 (a) should be construed to afford the broadest relief to New York residents, while defendant asserts that the section should be narrowly construed in favor of foreign corporations.

The issue arises in the context of the efforts of AirTran Holdings, Inc. (AirTran) to pursue a merger with defendant Midwest Air Group, Inc., a publicly traded foreign corporation, a subsidiary of which, Midwest Airlines (Airlines), is duly registered and authorized to do business in this state. Initially, AirTran made a private offer to purchase the company for $11.25 per share. Defendant refused the offer on December 7, 2006 and, on January [210]*21011, 2007, AirTran announced a tender offer for the outstanding shares.1 Plaintiff, AirTran New York, LLC, AirTran’s subsidiary, purchased 100 of defendant’s shares on January 12, and four days later, demanded defendant’s shareholder lists as of the close of business on January 19 pursuant to Business Corporation Law § 1315. Defendant did not produce the lists, responding on January 22 that it was not “a ‘foreign corporation doing business in’ New York within the meaning of Section 1315.”2

The day after defendant’s rejection, plaintiff filed the complaint in the instant action and, simultaneously, by order to show cause, sought to compel defendant to produce its shareholder lists so that Air Tran could contact the shareholders directly to inform them of its most recent offer. Plaintiff alleges that defendant, although not registered to do business in New York, is “directly doing business” in this state in that it has New York airport slots pledged as security to its noteholders, New York ground facilities and routes in New York that generate revenue. Plaintiff also maintains that defendant does business in New York through its wholly owned subsidiary, Airlines, which operates 15 flights daily out of LaGuardia Airport and is an agent or mere department of defendant.

Plaintiff claimed that defendant and Airlines are interconnected, interdependent and interchangeable:

(a) Defendant decides how many promotional flights (through its frequent flier program) are available on each flight.

(b) Defendant provides the insurance for all of Airlines’ flights.

(c) Airlines is not financially independent and has been provided with operating capital by defendant, which took on debt and pledged assets to raise $31,100,000.

(d) Defendant services all of Airlines’ debt.

(e) Defendant derives 70% of its annual revenue from the operations of Airlines and reports Airlines’ assets, liabilities and income on its consolidated financial statements.

Plaintiff supported its motion to compel production of the shareholder lists with an affidavit pursuant to Business [211]*211Corporation Law § 1315 (b), stating that the lists were not being sought for an improper purpose and that it had not sold or offered for sale any shareholder list within five years. A hearing on the order to show cause, authorized by section 1315 (c) to expedite relief during fast-moving tender offers, was scheduled for January 30, 2007.

In opposition to the motion, defendant insisted it was not doing business in New York within the “narrow” meaning of section 1315. Its chief financial officer denied that defendant owned any aircraft in New York or held any slots at New York State airports, and asserted that defendant had no offices, personnel, realty or bank accounts in New York. He argued that Airlines does not function as a department of defendant, noting that they maintain separate accounts and records.3

Plaintiff argued that the more easily satisfied CPLR 302 standard for doing business should ápply to Business Corporation Law § 1315 because the right to inspect shareholder lists should be liberally construed. It maintained that Commerce Clause concerns—the avoidance of any infringement on congressional power to regulate commerce—that underlie the imposition of a stricter standard for “doing business” under other provisions of Business Corporation Law article 13 do not apply to section 1315. Based on the broader standard, according to plaintiff, defendant is directly doing business in New York and indirectly doing so through Airlines. Defendant argued that “doing business” has the same meaning throughout article 13, a standard it does not meet. Defendant further maintained that the activities of its subsidiary cannot be imputed to it.

Supreme Court denied plaintiffs motion to compel production,4 relying on Hovey v De Long Hook & Eye Co. (211 NY 420 [1914]), which, interpreting section 1315’s predecessor, held that its phrase, “transaction of business,” must be interpreted in the context of the “entire system for the supervision, regulation and taxation of foreign corporations” because the language [212]*212should, be “construed harmoniously with that employed in other statutes which are part of this system” (id. at 424). Thus, Supreme Court found the meaning of “doing business” in section 1315 to be the same as in Business Corporation Law §§ 1301 (foreign corporations shall not “do business” in this state unless authorized) and 1312 (unauthorized foreign corporation “doing business” in this state may not maintain an action or special proceeding in this state), which both require a higher level of “doing business” than the general jurisdiction statute in CPLR 302, to avoid infringing on the power of Congress to regulate interstate commerce.

The court noted that not mere isolated or occasional activity, but “some continuity of act and purpose” that is “systematic and regular,” is required to constitute “doing business” under section 1312 (15 Misc 3d 467, 475 [2007]). In light of the presumption that a foreign corporation is doing business in the state of its incorporation, the court held that it is the burden of the party relying on section 1315 to establish such continuity and regularity. The court found that defendant’s receipt of revenue from the New York sales of flights and its pledges of property located in New York as security were insufficient to constitute directly “doing business” in New York. It also found Airlines’ New York activities to be insufficient to establish defendant’s “doing business” indirectly. Finally, the court noted that plaintiff may seek shareholder lists through the inspection statutes of Wisconsin, where defendant is incorporated, and continue its efforts to reach shareholders through press releases, Web sites and other available means. This appeal followed. We reverse.

In our view, Supreme Court incorrectly interpreted Business Corporation Law § 1315’s “doing business” as requiring the same heightened degree of continuous and regular activity as is required under section 1312. Supreme Court’s ruling would require a New York resident seeking to obtain a shareholder list to show that a foreign corporation is engaged in sufficient intrastate activities to be treated as a domestic corporation.

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Cite This Page — Counsel Stack

Bluebook (online)
46 A.D.3d 208, 844 N.Y.S.2d 233, Counsel Stack Legal Research, https://law.counselstack.com/opinion/airtran-new-york-llc-v-midwest-air-group-inc-nyappdiv-2007.