Tiller Construction Corp. v. Nadler

I “Foreign Corporation” means a corporation, association, or joint-stock company organized under the laws of the United States, another state of the United States, a territory, possession, or district of the United States, or a foreign country. Maryland Code (1975, 1993 Repl.Vol.) § 1 — 101(l) of the Corporations and Associations Article. 1 Before doing any intrastate business in this State, a foreign corporation shall qualify with the [State] Department [of Assessments and Taxation]. ³ Section 7-203(a). Subsection (b) spells out the manner of qualification. Section 7-101(a) concerns who may register in this state.

A corporation which is registered or qualified under this subtitle [7, “Foreign Corporations”] may obtain a certificate of registration or qualification from the Department. The certificate shall show the address of any principal office in this State which is certified to the Department. Section 7-204. Certain activities of a foreign corporation that do not constitute doing intrastate business in this State, “[i]n addition to any other activities which may not constitute doing intrastate business in this State,” are designated in § 7-103.

One of them is [conducting an isolated transaction not in the course of a number of similar transactions. Id., subsection (7). See also § 7-104. By doing intrastate, interstate, or foreign business in this State, a foreign corporation assents to the laws of this State. § 7-105.

The failure of any foreign corporation to comply with any of the requirements of Subtitle 2 of this title [“Registration and Qualification of Corporation”] does not affect the validity of any contract to which the corporation is a party. § 7-305. But: If a foreign corporation is doing or has done any intrastate, interstate, or foreign business in this State without complying with the requirements of Subtitle 2 of this title, neither the corporation nor any person claiming under it may maintain a suit in any court of this State unless it shows to the satisfaction of the court that: (1) The foreign corporation or the person claiming under it has paid the penalty specified in § 7-302 of this subtitle; and (2) Either: ⁴ (i) The foreign corporation or a foreign corporation successor to it has complied with the requirements of Subtitle 2 of this title; or (ii) The foreign corporation and any foreign corporation successor to it are no longer doing intrastate, interstate, or foreign business in this State. § 7-301. Section 7-302 prescribes sanctions by way of fines. See also §§ 7-303 and 7-304.

II A In an ex contractu action brought in the Circuit Court for Montgomery County, Tiller Construction Corporation sued Ronald Nadler, individually, and Glenmar Cinestate, Inc., a Maryland corporation. 2 The case was called for trial on 20 April 1993. On the morning of trial Tiller filed an Amended Bill of Complaint. It alleged that Tiller was a New York corporation, registered and doing business in the State of New York. Ronald Nadler was a resident of the State of Maryland and the chief executive officer of Glenmar, as well as its principal, if not only, stockholder.

To the best of Tiller’s information and belief Glenmar leased certain space in the Westridge Square Shopping Center, located in Frederick, Maryland, and in Cranberry Mall, located in Westminster, Maryland. Tiller and Nadler entered into two contracts, one calling for Tiller to do “the work” for. Nadler at Westridge for $637,000, and the other for Tiller to do “the work” for Nadler at Cranberry for $688,800. Ronald Nadler requested that Tiller send all bills to Glenmar, the lessee at both shopping malls.

Ronald Nadler agreed to be personally liable to Tiller for the payment of both contracts. At the time of the suit, due to change orders and credits, there was a net balance due for the Cranberry project in the amount of $229,799.46, and on the Westridge project the sum of $264,273.85, which Nadler ⁵ refused to pay, although it had approved all work, including change orders and their cost, and even though the work had been performed in a timely, good and workmanlike manner. The Amended Bill of Complaint contained two counts alleging breach of contract. Count I sought damages in the amount due under the Cranberry contract, and Count II sought damages in the amount due under the Westridge contract.

Tiller demanded judgment against Ronald Nadler and Glen-mar plus interest, costs, and attorney’s fees. B Also on the morning of trial, Nadler handed to the court and to opposing counsel a Motion to Dismiss based on § 7-301. In his Motion Nadler asserted that Tiller was a New York Corporation “which has never qualified to transact business in the State of Maryland.” Appended to the Motion was a certification by the custodian of records of the Maryland Department of Assessments and Taxation that there is no record of a foreign or domestic corporation by the name of Tiller Construction Corp. Also appended to the Motion were excerpts from depositions of Mr. Tiller and his daughter. She was President and Treasurer of Tiller Construction Corporation.

Both Mr. Tiller and his daughter said that they did not remember any documents being executed registering or qualifying the company to do business in Maryland. Tiller’s counsel conceded that the corporation had not qualified to do business in this State. 3 His point, however, was that Tiller was not obliged to qualify because its activities did not mount up to doing business in Maryland in the contemplation of the statute. Tiller’s counsel claimed that Tiller “just had occasional business” in Maryland. Nadler’s counsel countered by asserting that there were two separate contracts to ⁶ build movie theaters, each “in excess of one-half million dollars.” The contracts involved the employment of a substantial number of subcontractors, most of whom were Maryland subcontractors, involved maintaining a supervisor on each job, as well as they opened Maryland bank accounts....

He claimed that “all of this is really uncontested.” After discussion about the timeliness of the motion and other preliminary matters, the court reserved ruling and called for the trial to begin on the merits. The first witness was Bruce Tiller, Vice President and stockholder of Tiller Construction Corporation, who was called to testify on behalf of his company. Mr. Tiller told the court that he first met Nadler in 1986 at Frederick, Maryland when a Mr. Manus, for whom he had done a considerable amount of work in other states, asked him to give a projected cost on the construction of two cinemaplexes. Nadler called Mr. Tiller in the spring of 1987 and asked if he would build the theaters for him on the same basis as given Manus.

Mr. Tiller checked ■with Manus, was informed that Manus was not going through with the project and had no objection to Tiller building the cinemaplexes for Nadler. Mr. Tiller told Nadler that he would build the theaters on the same basis as proposed to Manus. At Nadler’s request, Mr. Tiller came to Maryland to confer with an architect. The plans for the Westridge project were completed and a contract was executed by Nadler and Tiller on that project at a base bid of $687,000.

A contract was also executed on the Cranberry Mall project calling for a cost of $688,800. The contracts were standard A.I.A. contracts. The Westridge project was about 98% complete late in December 1987. The Cranberry project was about 98% complete when Tiller received a letter from Nadler’s attorney dated 26 January 1988.

It expressed dissatisfaction with Tiller and how the projects were being handled. In the letter, Nadler’s attorney also complained about Mr. Tiller’s “personal conduct” in handling the work and contended that the “construction and management of the projects has been most deficient.” The attorney advised: ⁷ I have met with Ron Nadler over the past several days and it is his decision that Glenmar must terminate you from the two jobs in Frederick and Cranberry [as of 22 January 1988]. It was elicited from Mr. Tiller that on the Westridge and Cranberry projects Tiller and its superintendents “interacted not only with Mr. Nadler ... but also interacted at times with the architect.” The meetings were held on the job sites in Maryland. All but one of the dozen or so subcontractors on each job were from Maryland.

Tiller opened a bank account in the Sovran Bank of Maryland and the Maryland subcontractors were paid by checks drawn on that account. Each project had a telephone for the duration of the jobs, listed with information in the name of Tiller Construction Corporation. Tiller billed the subcontractors for the work they did. The superintendent on the Cranberry project was an employee of Tiller and the superintendent on the Westridge job was an independent contractor hired by Tiller.

Later in the day, the court asked Nadler’s counsel how much more time he expected to spend cross-examining Mr. Tiller: “Do you figure another two hours with this witness?” The response was, “A lot more, Your Honor.” THE COURT: Is that two days or two hours? I really need a range. NADLER’S COUNSEL: I would say at least another four hours, Your Honor, because we have got all these change orders. The court announced that it “would like to finish the plaintiffs case tomorrow” and then consider whether Tiller had been doing business in such a way as to fall under the requirements of Title 7 of the Corporations and Associations Article.

Depending on the result, he told the parties, the case might end without further ado. Then the court suggested an alternative route. It told Tiller’s counsel: It may well be that the way to approach this is ... to let you develop any further evidence that you want to develop on the issue of presence or non-presence in the State for ⁸ purposes of qualification, let [Nadler’s attorney] do the same, and limit our inquiry to those issues, and then go • directly to a motion to dismiss to see where we are before we spend four hours on the change orders. After both sides agreed to the suggestion, the court announced a 10-minute break after which “I would like you [Nadler’s lawyer] to confine your cross-examination ... to ... any further questions that you have got on the issue of qualification.” Turning to the lawyer for Tiller, the court continued: You may redirect on that issue, and we will reserve.

I have some questions that I want to ask on the issue of qualification. If I feel that our record is complete by the end of today, we will argue first thing tomorrow morning on the issue of qualification. Then, depending on the ruling, we will either go forward with all the supplemental matters or the case will be over. After the recess, attention returned to Bruce Tiller, who was still on the witness stand.

Now, however, the trial had transmogrified into a hearing on Nadler’s motion to dismiss. In addition to his former testimony — ostensibly on the merits, but, particularly on cross-examination, reaching deeply into the question of “doing business” in Maryland — Mr. Tiller testified that the supervisors on the construction jobs lived in a motel and their rooms were paid by Tiller as a business expense. Painters and clean-up men were brought in from New York and stayed in Maryland until the jobs were completed. Tiller did the “oversight. [It] saw how things got done.” Liability insurance and workers’ compensation insurance were obtained, covering each project in the name of Glenmar as the insured.

There was a sign at each project advertising Tiller as the contractor. A local construction permit was obtained. Subcontractors supplied all their own equipment from Maryland. Four or five months were spent on the projects.

As for Tiller’s other business activities during the time it was engaged in construction work for Nadler, Mr. Tiller ⁹ testified that the company was building a small hostel for the State of New York at a cost of $400,000 or $500,000 and a $300,000 project for AMC Theaters in Michigan. He added that Tiller might have been involved in a hospital project at that time, but he was not sure. C When court reconvened the next day, the judge announced: We are here this morning to consider the defendant’s motion to dismiss based on failure of the plaintiff corporation to qualify under the laws of Maryland. I am prepared to hear argument on that now.

Nadler reiterated his contention that Tiller was required to qualify as a foreign corporation to do business in Maryland. Tiller had “pervasive activity in the State of Maryland,” he argued. He said that he was relying on Snavely, Inc. v. Wheeler, 74 Md.App. 428 , 538 A.2d 324 (1988) to support his Motion to Dismiss. Tiller countered that it was not engaged in so much business in Maryland as to bring it within the requirements of the foreign corporations statute.

Suavely, it added, involved far more pervasive intrastate business than was represented by the Westridge and Cranberry construction projects. III In Snavely, Inc. v. Wheeler, the Court of Special Appeals was called upon to determine under what circumstances an unqualified foreign corporation was doing business in Maryland in the contemplation of § 7-203 (qualification of a foreign corporation to do intrastate business), in the light of § 7-103 (activities not considered intrastate business), so that § 7-301 (failure to qualify — maintenance of suit) would preclude access to the Maryland courts. Robert M. Bell, then a judge of the Court of Special Appeals and now a judge of this Court, writing for a panel of the intermediate appellate court, made a thorough analysis of the principles that have been applied to ¹⁰ determine when a foreign corporation is doing intrastate business in Maryland. Judge Bell concluded: The appellate decisions of this State make clear that “a foreign corporation is doing business