Category: Corporations, Partnerships, and LLCs
Justice Timothy J. Dufficy in the Queens County Commercial Division recently entered an order dissolving a limited liability company owned by two brothers whose disagreements regarding the management of the LLC culminated in a physical altercation. Matter of Dissolution of 47th Road LLC, No. 705060/16, 2017 BL 49187 (Sup. Ct. Feb. 16, 2017). The court applied an exception to the general rule that disputes between members are insufficient to warrant judicial dissolution, and found that the antagonism between the brothers made it impracticable for the business to carry on.
First Department Affirms the Validity of an LLC Operating Agreement Adopted by Majority Members without Minority Consent: Takeaways for New York LLCs
In Shapiro v. Ettenson, No. 2849, 2017 BL 19404 (App. Div. 1st Dep’t Jan. 24, 2017), the Appellate Division, First Department recently affirmed a decision by Supreme Court Justice Kelly O’Neill Levy upholding an LLC operating agreement that was adopted by two of the LLC’s three co-equal members without the consent of the third member. The Appellate Division rejected Shapiro’s argument that the operating agreement was unenforceable because it was not adopted unanimously. The panel affirmed the lower court’s decision that LLC Law § 402(c) “provides that the operating agreement may be adopted by ‘the vote of a majority in interest of the members entitled to vote thereon.’” Because the First Department agreed that the operating agreement was enforceable, the court further affirmed the lower court’s ruling upholding the majority members’ reliance on a provision of the agreement to issue a capital call and reduce the voting interest of any member who fails to make the requested capital contribution.
On January 6, 2017, Justice Charles E. Ramos of the Commercial Division issued an order enjoining two corporations from taking action in violation of a shareholders agreement of a third company. The case, Ciment v. SpanTran, Inc., involves a contentious shareholder dispute in which it was alleged that the shareholders agreement of one company covered governance issues concerning two other companies. Justice Ramos ruled that the third company’s shareholders agreement contemplated the acquisition of additional entities, and was thus likely to apply to the other two corporations—which had subsequently come under the ownership of the same shareholders.
On January 10, 2016, the New York Court of Appeals decided to hear a case that has significant consequence in the field of partnership dissolution. The case, Congel v. Malfitano, concerns the allegedly wrongful dissolution of a shopping mall partnership under Partnership Law § 69. In 2016, Justice Thomas A. Dickerson, writing for a unanimous Second Department panel, held that a former partner’s unilateral notice of dissolution was wrongful because under Partnership Law § 69(2)(1)(b) the partnership was not “at-will” given that the written agreement contained a “definite term.” The Second Department also ruled that it is appropriate to apply minority and goodwill discounts in determining the value of a defendant’s interest in a partnership. Finally, the Second Department concluded that an award of attorney’s fees was proper because the expenditures are only incurred because of the former partner’s wrongful conduct.
On October 24, 2016, Justice Charles E. Ramos of the New York Commercial Division denied a motion by minority members of a limited liability company (“LLC”) to enjoin a freeze-out merger that would cash out the minority members’ interests. Huang v. N. Star Mgmt. LLC, 652357/2016, 2016 NY Slip Op 32194(U), at *4 (N.Y. Sup. Ct. Oct. 24, 2016). The court rejected the minority members’ argument that the majority members had violated the LLC’s operating agreement by transferring their membership interests to another LLC to effect the merger.