THE "DE FACTO CORPORATION" DOCTRINE

Torto Note Member, LLC v Babad, 2021 NY Slip Op 01438, Decided on March 10, 2021, Appellate Division, Second Department:

"....The appellants also failed to raise a triable issue of fact as to whether the assignment of the note to the plaintiff was a nullity on the ground that the plaintiff, a limited liability company, was not yet formed or in existence on the date of the assignment. New York has recognized that an unincorporated entity can take title or acquire rights by contract if it is a de facto corporation (see Lehlev Betar, LLC v Soto Dev. Group, Inc., 131 AD3d 513, 514). "Under very limited circumstances, courts may invoke the de facto corporation doctrine where there exists (1) a law under which the corporation might be organized, (2) an attempt to organize the corporation and (3) an exercise of corporate powers thereafter" (Matter of Hausman, 13 NY3d 408, 412; see Lehlev Betar, LLC v Soto Dev. Group, Inc., 131 AD3d at 514). The de facto corporation doctrine is equally applicable to LLCs (see Matter of Hausman, 13 NY3d 408, 412; Lehlev Betar, LLC v Soto Dev. Group, Inc., 131 AD3d at 514). Here, the plaintiff submitted affidavits that demonstrated the applicability of the de facto corporation doctrine (see Lehlev Betar, LLC v Soto Dev. Group, Inc., 131 AD3d at 514). Specifically, the plaintiff demonstrated that there was a law under which the LLC might be organized (see Limited Liability Company Law §§ 203, 209), that the plaintiff made a "colorable attempt" to comply with the statutes governing the formation of an LLC, including the filing requirement, and that the plaintiff exercised its powers as an LLC thereafter (see Lehlev Betar, LLC v Soto Dev. Group, Inc., 131 AD3d at 514-515)."