Not long ago, we wrote about the vital need for strict compliance with contractual options to buy or sell closely-held business equity interests. As we noted then, failure to strictly comply with any contractual conditions precedent to the exercise of a buy-sell option may result in the option’s total failure.

The requirement of strict compliance with contractual conditions precedent applies to other areas of business divorce, a lesson the limited partners of a Cayman Islands limited partnership learned the hard way in Molberg v Phoenix Cayman Ltd., ___ AD3d ___, 2025 NY Slip Op 01048 [1st Dept Feb. 20, 2025]).

In Molberg, the limited partners tried – but failed – to exercise a 30-day notice of default and cure provision in the limited partnership agreement for removal of the general partner “for cause.”

Molberg was a truly stunning reversal of fortune for the limited partners, and a valuable lesson for our readers: for those hoping to remove the manager of a closely-held business “for cause” upon written notice and an opportunity to cure, strict compliance with the language of the contract is mandatory. Even if well-intentioned, anything less than strict compliance may prove costly.

Continue Reading No Unforced Errors Please: “For Cause” Removal Provisions Mean What They Say and Say What They Mean

Opinions by the Court of Appeals, New York’s highest court, construing the state’s LLC Law enacted 30 years ago are almost but not quite as rare as hen’s teeth. The great majority of important rulings under the statute emanate from our intermediate appellate courts known as the Appellate Division.

So when a Court of Appeals opinion in a dispute between LLC members comes along, LLC aficionados like me pay maximum attention — even if the dispute involves a Delaware LLC as occurred last month in Behler v Tao.

By a 4-3 vote accompanied by a vigorous dissenting opinion, the Court of Appeals affirmed a ruling by a similarly divided Appellate Division affirming the Motion Court’s decision dismissing the plaintiff minority LLC member’s complaint. At issue was the plaintiff’s ultimately unsuccessful bid to enforce an oral “exit opportunity agreement” with the controlling member.

Both appellate majority opinions held that a merger provision in a subsequently amended LLC agreement, unilaterally adopted by the controller, barred enforcement of the alleged oral agreement.

Why such sharp division among successive appellate panels? When I posted last year about the Appellate Division’s 3-2 decision, I called it a clash between the majority’s elevation of Delaware’s “harsh contractarianism” over the minority’s appeal to “fundamental fairness.” The same clash more or less is manifest in the Court of Appeals’ majority and dissenting opinions.

Continue Reading New York Top Court’s Advice to Prospective Investors in Delaware LLCs: Pay Close Attention to Controller’s Power to Amend LLC Agreement
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I am increasingly encountering businesses that straddle across several different entities, especially LLCs. The popularity of LLCs, their relatively low cost of organization, and business owners’ apparent desire to compartmentalize their businesses means that, these days, there are good odds that even the simplest businesses are actually a combination of two or more affiliated entities with the same management and ownership.

While I’m all for compartmentalization, transactions between affiliated entities with the same or similar ownership beget a broad array of potential issues, especially when relationships among the owners begin to fray. 

Consider an inter-affiliate transaction between two entities with the exact same ownership and management: for example, the entity that owns the property leases it to the entity that runs the deli. Managers or directors who authorize that transaction are conflicted, in the traditional sense, because they stand on both sides of the deal.  But so too does an owner who seeks to challenge the transaction; business owners who object to a pocket-to-pocket transaction are often left wondering whether they have grounds to complain.

A recent case from New York County, Pokoik v Realties, 2025 NY Slip Op 30463[U] (Sup Ct, New York County 2025) considers such a transaction, caps a decade-long litigation saga, and offers helpful guidance on when the business judgment rule applies to pocket-to-pocket transactions with common ownership on both sides. 

Continue Reading Affiliated Entities, Conflicting Duties, and the Business Judgment Rule

New York’s appellate courts are breaking new ground in 2025.

Until a month ago, I would have said that “deadlock” most certainly is not enough on its own to dissolve a New York LLC. But as Becky Baek reported two blogs ago, in mid-January, the Appellate Division – Third Department became the first among the four Departments of the Appellate Division to hold that “deadlock” – at least under the right set of facts – not only justifies, but may require, a court to judicially dissolve a New York limited liability company.

In Amici v Mazza (___ AD3d ___, 2025 NY Slip Op 00259 [3d Dept Jan. 16, 2025]), an Albany appeals court “modified, on the law,” the grant of summary judgment dismissal of a petition for LLC dissolution, and, “upon searching the record,” dissolved the LLC, holding that the existence of “deadlock” between two 50/50 members of an LLC requiring majority vote for any action made it “not reasonably practicable for the LLC to carry on its business” under Section 702 of the Limited Liability Company Law.

And until two weeks ago, I would have said that a total, or near-total prohibition on an owner’s right to seek judicial dissolution of a New York closely-held business most certainly is not enforceable.

Challenging conventional wisdom again, in TZ Vista, LLC v Helmer (___ AD3d ___, 2025 NY Slip Op 00694 [2d Dept Feb. 5, 2025]), a Brooklyn appeals court enforced an anti-dissolution provision in an operating agreement providing that each member “irrevocably waives” the right to sue for the LLC’s “dissolution.”

Continue Reading New Year, New Law – New Opacity – for LLC Owner Disputes

With apologies to the pseudonymous children’s book author Watty Piper, this is the story of a humble buy-sell provision in a family-owned LLC’s operating agreement that temporarily ran out of steam in the lower court, only to climb the steep appellate tracks arguing “I think I can, Your Honor!” and, in the end, win enforcement by unanimous decision.

Not exactly a heartwarming bedtime story for the young’uns but certainly one of interest to drafters of owner agreements and to business divorce lawyers.

The story involves a family-owned strip mall in the Bronx’s Kingsbridge neighborhood. The cast begins with the realty’s initial owners, brothers Dimitrios and Elias Katsikoumbas. Elias died in 2003. In 2006, the property’s ownership was placed in a limited liability company named Epiros LLC of which Dimitrios at least nominally was the sole member.

In 2010, Dimitrios as 51% managing member of Epiros and his late brothers’ daughter Maria and sons John and Stephanos as holders of an aggregate 49% membership interest — the parties disagree whether the latter interest was gifted by Dimitrios or inherited from Elias by some unstated means, but no matter — entered into a seven-page operating agreement. Dimitrios subsequently died after which his 51% interest passed to his wife, Christina.


Continue Reading The Little Buy-Sell That Could

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Join me if you know this refrain: In New York, deadlock is not an independent ground for LLC dissolution.

But…

Almost exactly two years ago from today, Peter Mahler published a post titled: “Has the Time Come for New York to Follow Delaware and Officially Pronounce Deadlock as Ground for LLC Dissolution?” where he explored the post-Matter of 1545 Ocean Avenue landscape of the role of deadlock as an independent ground for dissolution in New York (not allowed), as compared to Delaware (allowed). NY and DE take these differing approaches even though both statutes contain virtually the same language permitting court-ordered dissolution “whenever it is not reasonably practicable to carry on the business in conformity with” the LLC’s articles of organization or operating agreement (NY LLCL §702 and DE LLC Act §18-802).

Peter pointed out that lower court decisions in NY since 1545 Ocean Avenue in the 50/50 LLC dissolution context—including Advanced 23, LLC v Chamber House Partners, LLC and Goldstein v Pikus—continue to hold the line, rejecting deadlock as an independent ground for dissolution and considering it “only insofar as the deadlock impacted the LLC’s ability to function in the context of the operating agreement and its stated purpose.”

He closed by musing on a hypothetical scenario, “where arguably the two approaches could lead to different outcomes:”

Here I’m thinking mainly (but not exclusively) of cases involving 50/50 commercial realty holding LLCs which continue to operate the property, collect rent, pay bills, and remain financially feasible while the two owners engage in serious personal hostility and clash over management, maintenance, finance, distributions, and long-term objectives including holding or selling the realty.

But in so many instances involving two-member, 50/50 LLCs, we see companies with no operating agreement or with poorly crafted operating agreements that lack any deadlock-breaking mechanism. It’s in those cases where the equitable powers of New York courts in dissolution cases arguably are hobbled by 1545 Ocean Avenue’s restrictive reading of deadlock.

It’s a post worth revisiting in light of a recent Third Department decision, Amici v Mazza (2025 NY Slip Op 00259), concerning a fact pattern almost exactly as described above.

Continue Reading Help Comes From an Unexpected Place in LLC Deadlock Dissolution: The Third Department

In many, perhaps most New York business divorce lawsuits, tax documents play a key role.

Equity holder status is essential for standing to sue – including to dissolve, to sue derivatively on behalf of the entity, to sue directly as an owner, or to challenge a merger, consolidation, divestiture, or asset sale.

For entities whose principals decline to follow corporate formalities, like issue stock or membership interest certificates, or adopt written shareholder or operating agreements identifying the owners, Schedules K-1 from the entity’s tax returns identifying the entity’s pro rata owners and their proportionate share of taxable income or losses may be the most important evidence of equity status. Oral general partnerships, in particular, often have no indicia of ownership but Schedules K-1.

Tax records can be important for many other reasons. An owner’s personal tax returns may be necessary to show whether he took funds from the business, distributed income or salary disproportionately, or diverted assets or opportunities to a competing business.

The entity’s income tax returns often contain a wealth of important information about the entity’s financial performance critical for appraisal and valuation.

The list goes on and on.

But to the dismay of many business divorce practitioners and their clients, tax records can be devilishly difficult to get in disclosure.

Continue Reading When Trying to Discover Tax Returns in Business Divorce Litigation, Bring Your A Game
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One of the first business divorce cases that I participated in as a young litigator was a lengthy arbitration over whether a minority shareholder was oppressed under BCL 1104-a.  With those fond memories, evolution of the shareholder oppression doctrine under New York law has won a special place in my heart.

The basics: A shareholder holding at least 20% of voting interests can petition for dissolution on the grounds that those in control of the corporation have engaged in “illegal, fraudulent or oppressive actions,” (BCL 1104-a[a][1]).  That right sits among the minority shareholders’ most valuable ones: it protects against the abuses that can arise in a strict, majority-rules regime.  And courts typically recognize its value, finding contractual attempts to vitiate that right void as against public policy (see Matter of Validation Review Assocs., Inc., 223 AD2d 134 [2d Dept 1996]).

The “reasonable expectations” standard: the New York Court of Appeals says that “oppression should be deemed to arise only when the majority conduct substantially defeats expectations that, objectively viewed, were both reasonable under the circumstances and were central to the petitioner’s decision to join the venture” (Matter of Kemp & Beatley, 64 NY2d 63, 73 [1984]).

With that kind of standard, the key question for litigation in oppression claims is often whether the complaining shareholder’s expectations were reasonable under the circumstances.  A recent decision from Albany County Justice Platkin, Darwish Auto Group, LLC et al. v TD Bank, N.A. et al., 2024 NY Slip Op 51779(U) [Sup Ct Dec. 30, 2024]), and a recently published article by Professors Benjamin Means and Douglas K. Moll, show two sides of a healthy debate about how “contractual” the reasonable expectations inquiry should be. 

Continue Reading Can a Shareholder Be Oppressed After Ceding Control? Oppression, Reasonable Expectations, and Contractual Formalism

Welcome to our 17th annual edition of the Top 10 business divorce cases featured on this blog over the past year.

This year’s selections buck the trend of previous years in which cases involving limited liability companies dominated by far. The cases highlighted this year include co-owner disputes involving five corporations, one general partnership, and only four LLCs. Meaningful? Probably not. This year’s crop also stands out as mostly (six out of ten) featuring decisions by New York appellate courts which, as all litigators know, carry more precedential clout.

All ten decisions were featured on this blog previously; click on the case name to read the full treatment. And the winners are:

Weinstein v Wallace Among this year’s Top 10, to this observer Weinstein is the case that packs the biggest punch. There, the Appellate Division, Second Department with little fanfare held that LLC Law Section 608 gives an executor or other representative of the estate of a deceased member “all of the rights of a member for the purpose of settling or managing its estate, which would include a member’s voting rights.” Without saying so the court effectively negated lower court precedent treating estate representatives as mere assignees or economic interest holders, i.e., without standing to assert derivative claims. Weinstein also removed lingering doubts about the jurisprudential basis for the Second Department’s 2023 enigmatic ruling in the Andris case where it revived a petition for judicial dissolution of an LLC brought by the estate representative of a deceased member. Petitions for judicial dissolution, petitions to inspect books and records, lawsuits asserting derivative claims — going forward we can expect to see those and other litigations brought on behalf of estates that previously were thought to be off limits for lack of standing.

Continue Reading Top 10 Business Divorce Cases of 2024

To prevail on a cause of action in a business divorce lawsuit, the plaintiff has many essential boxes to check. Pleading requirements vary from one claim to another, but all business divorce cases have one thing in common. The first box any pleader must check – and the one often challenged at the outset – is standing to sue.

Standing is well-suited for pre-answer dismissal motions, so courts often resolve standing disputes early. But sometimes, a lawsuit will go all the way, including though trial and judgment, only for the plaintiff to get the rug pulled out from underneath at the appellate level. Such was the painful outcome of Talking Capital Windup LLC v Omanoff (___ AD3d ___, 2024 NY Slip Op 06283 [1st Dept Dec. 12, 2024]).

Continue Reading Check Your Footing: $36 Million Money Judgment Eviscerated in Brutal Appellate Standing Loss