THE DE FACTO CORPORATION

Ocean Park Acquisition L.P. v. R All Mgmt. Svcs. Inc., Date filed: 2022-05-26, Court: Supreme Court, Queens, Judge: Justice Sally Unger, Case Number: 715695/20:

"Management seems to believe it can escape liability in this action because of the corporate dissolution in 2003. However, generally, where a corporation’s term of existence has expired but the corporation carries on its business affairs and exercises its corporate powers as it did prior to the dissolution, it is a de facto corporation (see, Garzo v. Maid of Mist Steamboat Co., 303 N.Y. 516, 104 N.E.2d 882 (1952). "A corporation continues to exist as a legal entity after dissolution, at least for purposes of actions and proceedings." Independent Investor Protective League v. Time, Inc., 50 NY2d 259, 428 NYS2d 671 (1980). To allow the corporate defendant to be shielded from responsibility based upon its own underlying malfeasance, i.e., failure to pay franchise taxes, would make a mockery of our system of justice.

In the case at bar, Management continued to operate and held itself out as a viable corporate entity despite its corporate dissolution, by entering into the Lease approximately seven years thereafter. “A corporation may be held liable on a cause of action that accrues after dissolution if the corporation continued its operations, operated its premises, and held itself out as a de facto corporation, notwithstanding its dissolution.” (Emphasis added) Bruce Supply Corp. v. New Wave Mechanical, Inc., 4 AD3d 444 (2nd Dept 2004), citing Ludlum Corp. Pension Plan Trust v. Matty's Superservice, Inc., 156 AD3d 339, 548 NYS2d 292 (2nd Dept 1989). Therefore, Management is most certainly liable to the plaintiff for rent at least until its surrender of the subject premises."

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)."