In the latest issue of The Wright Toolbox:
- Out of State Companies Doing Business In Maryland –read now
- Buy American Revamp – New Executive Order – read now
Out of State Companies Doing Business In Maryland
By Jason Potter
Recently, I’ve come across several cases where claims were being asserted by companies that did work on projects located in Maryland. However, the companies asserting the claims were not registered or qualified to do business in Maryland. Rather, they were Pennsylvania and West Virginia companies. While these companies were providing materials, equipment, and labor on a Maryland project, they were not registered or qualified to do business in Maryland. Under Maryland law, however, before conducting business in Maryland, a foreign corporation must register or qualify with the Maryland State Department of Assessments and Taxation (“SDAT”). Ann. Code Md., Corporations Article §§ 7-202 – 7-203. The Maryland Code provides that if a foreign corporation is doing or has done any intrastate, interstate, or foreign business in this state without qualifying or registering with the SDAT, neither the corporation nor any person claiming under it may maintain a suit in any court of this state unless it has paid a penalty and any back taxes and registers/qualifies with SDAT. Id. § 7-301.
Maryland’s courts have held that a foreign corporation is doing business within the State when it does “a substantial amount of localized business in this State.” Snavely, Inc. v. Wheeler, 74 Md. App. 428, 434 (1988). Thus, if an out of state company is not registered to do business in Maryland, it can be barred from filing suit in Maryland to collect for the work it performed if it supplied labor, materials, and/or equipment on a Maryland-based project. The question of whether an out of state company is doing a sufficient amount of business in the state to be subject to the statutory prohibition is a factual issue that will depend on a case by case analysis. Courts will look for continued or repeated business, the performance of management functions in the state, and the maintenance of a physical presence in the state (such as an office, rental space, job site trailer, or the like). Courts will also look at the amount of money made in the state and compare that to the company’s overall revenue. Another aspect that courts will consider is whether the out of state company advertises and/or solicits business in the state. The Snavely court observed that solicitation of business in state “accompanied by the shipment of goods and an extensive set of activities or management functions in the state” is sufficient to fall within the statute’s definition of “doing business.” Id. at 435.
The takeaways: First, if you are an out of state company doing business in Maryland, you need to register or qualify to do business in the state or you may be at risk of having no Maryland remedy for getting paid. Second, if you are a Maryland company that has contracted with an out of state partner, you may have a defense to a claim from that partner if it is not registered or qualified to do business in Maryland. Third, other states have similar laws, so if you are a Maryland company doing business in other states, you should check your registration in those states.
Buy American Revamp – New Executive Order
On January 31, 2019, the President issued an Executive Order intended to strengthen the Buy-American principles in Federal financial assistance programs. The Order states that it is the policy of the executive branch to maximize the use of goods, products, and materials produced in the United States, in Federal procurements and through the terms and conditions of Federal financial assistance awards. The Order provides that within 90 days the head of each executive department and agency administering a “covered program” shall encourage recipients of new “Federal financial assistance” awards to use, to the greatest extent practicable, iron and aluminum as well as steel, cement, and “other manufactured products” produced in the United States in every contract, subcontract, purchase order, or sub award that is chargeable against such Federal financial assistance award. The executive departments and agencies must also provide a report with a detailed explanation of the strategy, plan, or program developed to satisfy the requirements of the Order.
As used in the Order a “covered program” means any program for which a focus of the statutory authorities under which it is administered is the award of Federal financial assistance for the alteration, construction, conversion, demolition, extension, improvement, maintenance, reconstruction, rehabilitation, or repair of an “infrastructure project” in the United States. “Federal financial assistance” is defined as assistance that non–Federal entities receive or administer in the form of: (1) Grants; (2) Cooperative agreements; (3) Non-cash contributions or donations of property (including donated surplus property); (4) Direct appropriations; (5) Food commodities; and (6) Other financial assistance, but does not include Loans; Loan Guarantees; Interest subsidies; or Insurance. In addition, the Order defines “manufactured products” as items and construction materials composed in whole or in part of non-ferrous metals such as aluminum; plastics and polymer-based products such as polyvinyl chloride pipe; aggregates such as concrete; glass, including optical fiber; and lumber.
As noted, the Order is intended to cover “infrastructure projects,” however, that term is provided a new expansive definition. Infrastructure projects in the Order includes surface transportation, including roadways, bridges, railroads, and transit; aviation; ports, including navigational channels; water resources projects; energy production, generation, and storage, including from fossil-fuels, renewable, nuclear, and hydroelectric sources; electricity transmission; gas, oil, and propane storage and transmission; electric, oil, natural gas, and propane distribution systems; pipelines; stormwater and sewer infrastructure; drinking water infrastructure; broadband internet and cybersecurity.
In addition to the 90 day report required, the Order also requires the executive departments and agencies within 120 days to identify any trade and manufacturing policy, any tools, techniques, terms, or conditions that have been used or could be used, in furtherance of the policy set forth in the Order, to maximize the use of iron and aluminum as well as steel, cement, and other manufactured products produced in the United States in contracts, sub-contracts, purchase orders, or sub-awards that are chargeable against Federal financial assistance awards for infrastructure projects.
If you are providing work, goods, services, supplies or equipment on federal or federally funded infrastructure projects, now is the time to review your supply chain and make sure that you are compliant with the new dictates of this Executive Order under the expanded definitions. In addition, such contractors need to monitor the reports being issued by the executive departments and agencies subject to this Order to see what new plans and policies will be proposed.
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