Large Fines Serve As Reminder To Out-Of-State Companies: Register To Do Business In Connecticut

Secretary of State, Susan Bysiewicz, has fined an affiliate of Deloitte Touche Tohmatsu approximately $22,000 in the past year for failing to register to do business in Connecticut.  The fines were reported on by Lynn Doan of The Hartford Courant and also picked up  by Alexander Soule in the Fairfield County Business Journal.  Deloitte’s unit is one of the larger employers in Fairfield County, but as an out-of-state company it apparently failed to register to do business in Connecticut for more than 10 years.  The fine to Deloitte’s unit was the biggest this year.

The State’s authority to issue the fines arise from Connecticut General Statutes section 33-921concerning foreign corporations. Attorney General Blumenthal issued a press announcement that the State collected more than 1.2 million in fines during fiscal year 2009 pursuant to this statute.  The statute provides for penalties if a foreign corporation fails to register to do business in Connecticut.  The statute provides that the foreign corporation must pay:

(1) all fees and taxes which would have been imposed . . .had it . . . received such certificate of authority to transact business . . . and (2) all interest and penalties . . .. A foreign corporation is further liable to this state, for each month or part thereof during which it transacted business without a certificate of authority, in an amount equal to one hundred sixty-five dollars . . . Such fees and penalties may be levied by the Secretary of the State.

Although the fines might seem significant enough to act as a deterrent, and are set to increase this October, the statute also prohibits a foreign company from "maintain[ing] a proceeding in any court" in the state until it obtains a certificate of authority.  This means that a foreign company cannot successfully maintain a lawsuit if it fails to obtain a certificate of authority.  

The lack of a certificate will give a foreign corporation’s opponent a special defense to a lawsuit.  However, there is some authority that suggests the company may cure the defect.  Additionally, the defense is waivable if not raised in a timely manner.   

As a practical matter, the requirement to register is helpful to business litigants.  When a foreign company registers, an agent in state is appointed to accept service of legal papers for a lawsuit.   The requirement to register also places the same burdens on out-of-state businesses as in-state businesses.

The fines further serves as a reminder to both plaintiffs and defendants in business litigation in Connecticut.  If you are a foreign corporation, you must register to do business in Connecticut before bringing a lawsuit.  If you are a defendant in business litigation, you must check to see if your opponent has obtained a certificate and raise it as a special defense or risk waiving it.