Background
853 Lexington, LLC owned Brooklyn real estate until its managing director, Yechezkel Strulovitch, sold the property to JB Lexington, LLC for $3.85 million in 2019. The seller later characterized the transfer as a sham arranged through collusion and sued under RPAPL article 15 to quiet title and impose a constructive trust. It relied on a 2013 operating agreement showing that two other limited-liability companies owned 54% and 46% of the seller.
JB Lexington sought summary judgment as a bona fide purchaser for value under Real Property Law § 266. The buyer had paid consideration to the seller and to third parties at the seller’s direction. At closing, Strulovitch presented a 2012 operating agreement identifying himself as the sole member and swore that the company’s ownership had not changed. The public articles of organization listed him as the only organizer and did not identify managers or members.
The seller argued that the later operating agreement deprived Strulovitch of authority and that litigation elsewhere should have placed the buyer on inquiry notice. Supreme Court dismissed the claims against JB Lexington and canceled the notice of pendency. The appeal tested what facts require a purchaser to investigate internal LLC authority before relying on a manager who appears empowered to convey property.
Bona-fide-purchaser analysis allocates risk between an innocent buyer and parties claiming that their own representative exceeded internal authority. The buyer must investigate visible defects and cannot ignore facts suggesting fraud, but it is not charged with discovering a secret governance document absent a reason to look further. The seller’s own closing representations strengthened the statutory protection.
LLCs should align public records, operative agreements, resolutions, and actual signing authority before a property transaction becomes possible. Buyers should still demand current organizational documents and member approvals where the deal or title report raises inconsistencies. This ruling protects reasonable reliance; it does not excuse deliberate blindness to contradictory information.
The Court’s Holding
The Second Department affirmed. JB Lexington established valuable consideration and the absence of actual or constructive notice of the alleged internal restriction. Strulovitch was clothed with apparent authority through the public filing, the operating agreement supplied to the buyer, and his sworn seller’s affidavit. In those circumstances, reliance on his authority was reasonable.
The unrecorded 2013 operating agreement did not change the result because the seller offered no evidence that it had been filed with the state or delivered to JB Lexington before closing. Real Property Law § 266 protects a purchaser unless it knew facts that would lead a reasonably prudent buyer to inquire into the grantor’s fraud or defective title. An undisclosed internal ownership document supplied no such notice.
The seller’s reference to a federal lawsuit also failed to create a factual issue. It produced no evidence that a notice of pendency concerning that action had been filed before the sale. Without record notice or transaction-specific red flags showing Strulovitch lacked authority, the buyer took protected title and the seller could not maintain its constructive-trust and quiet-title theories against it.
Key Takeaways
- A purchaser may rely on apparent LLC authority supported by public filings, closing documents, and sworn ownership representations absent contrary warning signs.
- Unfiled operating agreements generally do not give a buyer constructive notice of internal limits that were never disclosed before closing.
- Parties relying on pending litigation to defeat bona-fide-purchaser status should establish timely record notice, including an effective notice of pendency.
Why It Matters
For New York real-estate operators, title counsel, and lenders, the decision reinforces the value of a disciplined authority file at closing. Articles of organization, operating agreements, incumbency materials, seller affidavits, payment records, and litigation searches collectively support reliance and can defeat a later ownership dispute.
The case is equally instructive for minority members and investors. Internal restrictions protect the entity only if governance controls prevent an unauthorized closing or put outsiders on notice. Keeping an operative agreement off the public record and outside the closing package can leave the entity pursuing the insider while an innocent buyer retains the property.
The decision also underscores a recurring New York appellate lesson: statutory text, the procedural posture, and a carefully developed record work together. Practitioners should preserve the facts that connect the governing rule to the requested remedy rather than rely on labels or broad policy assertions.