Non-Party Lacked Standing to Challenge Contract’s Validity

On August 26, 2021, the First Department issued a decision in FGP 1, LLC v. Dubrovsky, 2021 NY Slip Op. 04789, holding that a non-party to a contract lacked standing to challenge its validity, explaining:

Defendants/counterclaim plaintiffs M Investment Capital LLC and Mark Shvartsburd (the M Parties) seek, in their first counterclaim, a declaration that two contracts between FGP 1, LLC and Luiza Dubrovsky (the FGP Assignment and the Operating Agreement of 172 Madison NP Holding LLC 172 Holding) are unenforceable or invalid. The M Parties lack standing to assert this challenge, since they do not claim to be third-party beneficiaries of the above-mentioned contracts, and they did not suffer direct harm flowing therefrom. Rather, M Investment and Shvartsburd were harmed because Dubrovsky sold the same interest in 172 Holding twice — once to FGP and later to M Investment.

M Parties unpersuasively distinguish Decolator on the basis that Decolator did not address the standing of a party in the position of the M Parties to bring a declaration that they own a piece of property whose ownership is in dispute, and to quiet title to that property by obtaining a declaration that a competing claimant did not enter into a contract to buy it and does not own it.

M Parties mischaracterize their claim as one for a declaration to quiet title. RPAPL 1501(1) contains broad standing rules authorizing a person who claims an estate or interest in real property to maintain any action against any other person to compel the determination of any claim adverse to that of the plaintiff. The statute is not subject to the same standing principles that are applicable to contract law. M Parties have not asserted a claim under RPAPL 1501, presumably because this dispute involves ownership of a Delaware limited liability company. Accordingly, M Parties are subject to the standing principles that are applicable to contract law and lack standing to invalidate the FGP Assignment.

(Internal quotations and citations omitted) (emphasis added).

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