“Except as provided in the operating agreement. . . ”
By my count, this phrase and its close relative, “unless otherwise provided in the operating agreement,” appear 59 times in New York’s LLC Law, most often to qualify a rule on LLC governance. This substantial deference to the members’ freedom of contract is a hallmark of LLCs, and it is often said that the LLC law contains default rules, or “gap fillers,” subject to the members’ rights to modify the rules as they see fit.
The interplay between the default rules and the members’ agreement sometimes gets complicated. For instance, when an operating agreement is completely silent on a right set forth in the LLC law, that silence can be ambiguous. Were the parties silent about that right in their operating agreement because they agreed to forgo it? Or does their silence in the operating agreement mean that the members wished to apply the default rules?
This difficult question took center-stage in a duo of recent decisions from Manhattan Commercial Division Justice Joel M. Cohen, in McCormack v Kuras, Index No. 656434/2021 [Sup Ct, New York County] and its related case, Triboss Brooklyn LLC v Kuras, Index No. 654282/2021 [Sup Ct, New York County]).
In these decisions, Justice Cohen rejects the majority members’ attempts to remove a managing member from management. In so doing, Justice Cohen recognizes the appeal of both sides’ arguments and takes the relatively rare step of expressly inviting appellate guidance on issues surrounding the applicability of the LLC law’s default rules.