In 2001 a grantor conveyed real property in Brooklyn to a Limited Liability Company (LLC). Prior to the date of the deed the LLC had prepared its Articles of Organization and its Operating Agreement in accordance with New York's Limited Liability Company Act. It did not, however, file the Articles of Organization with the Secretary of State until 14 days after the date of the deed.
After the death of the grantor, some of her heirs asserted that the conveyance to the LLC was void because the LLC did not exist on the date of the deed inasmuch as it did not file with the Secretary of State until 14 days later. The Surrogate's Court, Kings County, concluded that the conveyance was valid because the grantee was a de facto LLC on the date of the deed. The Appellate Division, Second Department, reversed and concluded the grantee was not a de facto LLC on the date of the deed.
Since the 19th century the Court of Appeals has recognized the de facto corporation doctrine: a corporation will be deemed to exist although it has not completed all the organizational steps to be deemed de jure. The situation arises most commonly when the corporation is organized and is conducting business, but has not filed its certificate of incorporation with the Secretary of State.
In Matter of Hausman the Court will address whether the de facto corporation doctrine applies to a LLC, and if so, whether the LLC here had a de facto existence on the date of deed. The Court of Appeals has not addressed the de facto corporation doctrine in over 50 years.
I was not involved in any of the proceedings in the lower courts. After the attorneys maintaining that there was a de facto LLC lost in the Appellate Division, I was brought in to seek leave to appeal to the Court of Appeals. My motion for leave was granted.
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