shorts

It’s late August, when the lure of the seashore and vacation plans push aside all but the most serious work-related endeavors, and when I share with my readers a few short summaries of recent decisions of interest in business divorce cases.

First, we’ll look at a decision in a dispute among former law firm partners in which the court upheld a partnership agreement amendment by the defendant majority partners, reducing the plaintiff’s percentage interest after he announced his intention to withdraw but before the actual withdrawal became effective. Next up is a relatively rare decision in an LLC dissolution case granting a motion to disqualify defense counsel under the advocate-witness rule of professional conduct. In the third case highlighted below, the Delaware Chancery Court dismissed a books-and-records action for lack of standing where the shares issued to the plaintiff never existed.

Court Enforces Eve-of-Withdrawal Reduction of Partnership Interest

Zohar v LaRock, Short Form Order, Index No. 14826/10 [Sup Ct Nassau County July 25, 2016]Article 8-B of New York’s Partnership Law authorizes regulated professional practices to organize as registered limited liability partnerships. The LLP form is highly popular with law firms because it offers the same limited liability protection afforded corporation shareholders and LLC members, except for their own professional negligence or malpractice. The LLP otherwise is subject to the same statutes and common-law rules governing general partnerships, which give partners great leeway in ordering their own affairs in their partnership agreement. Continue Reading Summer Shorts: Partnership Interest Reduction and Other Recent Decisions of Interest

shortsTraditions are good. This blog has two annual traditions. First, at the end of each year I write a post listing the year’s top ten business divorce decisions. Second, each August I offer readers who are (or ought to be) on summer vacation some light reading in the form of three, relatively short case summaries.

So here we are in what’s been a particularly felicitous August weather-wise (at least here in the Northeast U.S.), with another edition of Summer Shorts. This edition’s summaries feature two out-of-state cases — one from Florida involving expulsion of an LLC member and one from Delaware involving the valuation upon redemption of an LLC member’s interest — and a New York appellate court decision involving the removal of a limited partnership’s general partner.

The Anti-Chiu: Florida Court Upholds LLC Member’s Expulsion

Froonjian v Ultimate Combatant, LLC, No. 4D14-662 [Fla. Dist. Ct. App. May 27, 2015].  The Florida intermediate appellate court’s ruling in Froonjian makes for a fascinating contrast with New York case law represented most prominently by the Second Department’s 2010 decision in Chiu v Chiu holding that, absent express authorization in the LLC’s operating agreement, a member’s involuntary expulsion is not permitted. Going 180° in the other direction, the Froonjian court upheld the majority members’ expulsion of a minority member from a Florida LLC that had no operating agreement, reasoning that the Florida default statute vesting all decision-making authority in the members acting by majority vote encompasses the authority to expel a member. Continue Reading Summer Shorts: Member Expulsion and Other Recent Decisions of Interest

They say this summer has been unusually cool in the Northeast, but it’s been a hot one for business divorce litigation, judging from the number of recent court decisions involving various and sundry disputes among co-owners of closely held businesses. So, once again, it’s time for my annual summertime post featuring a few, short summaries of recent decisions of interest in business divorce cases.

First, we’ll look at a decision by Justice Melvin Schweitzer in a battle between 50/50 ownership factions over control of an international translation services company with over 3,000 employees. Next up is Justice Carolyn Demarest’s ruling denying a change of venue in a corporate dissolution case. Last is a decision by Justice Marcy Friedman in which she addressed an interesting statute of limitations defense in a drawn-out dissolution case.

Shareholder of Parent Corporation Has Standing to Sue Derivatively to Remove Subsidiary’s Director But Not for Dissolution

Elting v Shawe, 2014 NY Slip Op 32126(U) [Sup Ct, NY County July 24, 2014]. It’s not everyday you encounter business divorce litigation on the scale of this case, involving a firm with over 3,000 employees and revenues over $350 million. The subject company is a closely held Delaware holding corporation owned 50/50 by two individuals who also comprise its two-director board, and its wholly owned New York subsidiary providing international translation services. One owner-director sued the other for alleged financial and management abuses, asserting direct and derivative claims seeking the defendant’s removal as an officer and director of the subsidiary under BCL §§ 706 (d) and 716 (c), and also seeking deadlock dissolution of the subsidiary under BCL § 1104 (a). Continue Reading Summer Shorts: Director Removal and Other Recent Decisions of Interest

It’s that time of year again, when languid summer days and vacation plans push aside all but the most serious work-related endeavors, and when I share with my readers a few short summaries of recent decisions of interest in business divorce cases.

First, we’ll look at a decision in an LLC dissolution case in which the court dismissed the petition brought by an excluded LLC member for failure to allege adequate grounds. Next up is a case in which the court denied a preliminary injunction to compel certain distributions pending the trial of a corporate dissolution and companion plenary action. In the third case highlighted below, the court summarily dismissed a complaint seeking to recover a share of company profits for the period preceding revocation of an LLC membership purchase agreement.

Minority Member’s Alleged Exclusion From LLC’s Business Operation Does Not Establish Grounds for Judicial Dissolution

Matter of Nunziata (Dinunzlu Group, LLC), Short Form Order, Index No. 4577/13 (Sup Ct Queens County July 25, 2013). The case involves a three-member LLC that owns real property leased to a funeral home operated by a separate corporation owned by the same three individuals. One of the members filed two separate proceedings for dissolution of the LLC and the corporation, alleging that the funeral home was not paying rent to the LLC; that he has been excluded from all aspects and control of the business, and that it is not reasonably practicable for the LLC to carry on its business if the court directs dissolution of the corporation in the other proceeding. Continue Reading Summer Shorts: The Excluded LLC Member and Other Decisions of Interest

Here we are again, in the doldrums of the last week of August. Offices are semi-deserted. The phones are quiet. Even the email traffic is down. Last chance to recharge the batteries before the post-Labor Day onslaught begins. A perfect time to offer vacationing readers summaries of a few recent decisions of interest involving disputes between business co-owners.

First, we’ll look at what appears to be a decision of first impression, holding that a liquidating receiver may consider the tax advantages of a shareholder bid for the dissolved corporation’s assets structured as a stock redemption. Then we’ll look at a pair of decisions addressing derivative versus direct claims, in one finding that the plaintiff’s claims were properly brought as direct claims, and in the other finding that the plaintiff failed to plead justification for failing to make a pre-suit demand.

Liquidating Receiver Authorized to Accept Shareholder Bid for Corporation’s Real Property Structured as Stock Redemption

Matter of Gohil (Bayside Mini Grocery, Inc.), 2012 NY Slip Op 30320(U) (Sup Ct Nassau County Jan. 23, 2012). The case was brought by the controlling shareholders of two corporations, one operating a bodega and the other owning the building housing the bodega, under §1103 of the Business Corporation Law for judicial dissolution of the corporations pursuant to majority shareholders’ resolution. In April 2011, the court appointed a receiver to liquidate the business and the real property. In July 2011, the court authorized the receiver to hire a real estate broker to market and sell the property at an initial listing price of $2.6 million. The court’s order also permitted the shareholders to put in topping bids to any outside offer. In August 2011, the broker obtained a $2.4 million all-cash outside offer. In September 2011, the petitioners put in a $2.5 million topping bid structured as a stock redemption agreement pursuant to which the respondents would sell to the realty corporation their 30% interest and petitioners would then own 100%. The proposed redemption also was designed to avoid approximately $75,000 in realty transfer taxes. The respondents did not at that time put in a topping bid, and the receiver determined that the petitioners’ bid was the highest offer.

Continue Reading Summer Shorts: Liquidating Receiver’s Authority to Compel Share Redemption and Other Recent Decisions of Interest

Temperatures in the 90’s.  Manhattan sidewalks sizzling.  Judges on vacation.  Lawyers under beach umbrellas squinting at their iPads.  A perfect time to offer over-heated readers some short summaries of a few recent decisions of interest involving disputes between business co-owners.

First, we’ll look at two trial court decisions in which the parties dispute the complainant’s ownership interest in the subject business entities.  In one, the court finds that the complainant sold his shares under duress but limited his remedy to damages.  In the other, the court held that a prior Beth Din ruling governed ownership claims in subsequent civil litigation brought by one of the ex-spouses.  The last case we’ll look at is a split decision by an appellate panel concerning the authority to defend litigation brought against a deadlocked limited partnership.

Court Orders Money Damages in Lieu of Dissolution for Sale of Shares Under Duress

Ma v. J.C. Sake, Inc., 2011 NY Slip Op 50999(U) (Sup Ct Kings County June 3, 2011).  The case involves a small restaurant in Coney Island that opened in 2007.  The plaintiff, Ma, invested about $47,000 for what he thought was a one-third interest.  Ma also was the cook and primary manager.  About a year later Ma had a falling out with the other owners who threatened to kick him out if he didn’t accede to their demands.  The parties then agreed that Ma would leave upon a calculation of what was owed to him.  After Ma rejected an offer of $47,000, the other owners locked Ma out of the restaurant, made a new offer of $35,000, and threatened to close the restaurant permanently and pay Ma nothing if he didn’t accept the new offer.  Shortly afterward  Ma was paid $38,000 and signed a simple agreement acknowledging his sale of “all equity” in the corporation and stating that he would have no further involvement with the restaurant.

Continue Reading Summer Shorts: Stock Sale Under Duress and Other Recent Decisions of Interest