Last week, the Manhattan-based Appellate Division, First Department, handed down one of the more intriguing decisions by a New York court I’ve seen in a long time involving a dispute between LLC members.
The central issue in the case, brought by an investor in a Delaware LLC against the LLC’s controller, is whether an oral agreement between two sophisticated entrepreneurs, in which the controller allegedly induced the investment by guaranteeing to cash out the plaintiff’s position under either of two scenarios, is barred by the generic merger clause in a subsequent amended operating agreement that the investor never signed.
The lower court granted the defendant’s pre-answer dismissal motion following which the plaintiff appealed. The Appellate Division last week in Behler v Tao (read here) affirmed the order below in a 3-2 decision featuring a majority opinion authored by Presiding Justice Sallie Manzanet-Daniels, applying what she labels “explicitly contractarian” Delaware LLC law “sometimes leading to harsh results,” and a dissenting opinion authored by Justice Ellen Gesmer exalting “basic principles of contract law and fundamental fairness.”
Background
The case was decided on a pre-answer dismissal motion, hence most of the facts you’ll read in the court’s decision and here are the plaintiff Behler’s version of the events as laid out in his complaint which you can read here.
Continue Reading New York Appellate Court’s Split Decision Involving Delaware LLC Pits “Harsh” Contractarianism Against “Fundamental Fairness”