In addition to blooming trees and longer days, spring in New York has ushered in a fresh crop of noteworthy decisions on intra-LLC disputes.  Headliners include a boost to members’ rights to compel an accounting courtesy of the First Department, a procedural refresher on LLC dissolution and the applicable standard, and a winding dispute over membership bequests in the Surrogate’s Court. Members and their counsel take note.

First Department Officially Grafts “Demand Futility” Onto the Accounting Claim.

We have previously discussed the resurgence—particularly in the First Department—of the accounting claim in business divorce litigation.  Different from a books and records demand, the accounting claim requires the individuals to whom funds are entrusted to produce records, “demonstrate how money was expended[,] and return pilfered funds in his or her possession.” (Sigalit v Kahlon, 21-cv-08921 [SDNY Aug. 30, 2023]).

Even through that resurgence, courts generally hold that prior to bringing a claim for an accounting, the would-be plaintiff must make a pre-suit demand for one (Mawere v Landau, 130 AD3d 986 [2d Dept 2015]).   

I have at times been tempted to try pleading around that pre-suit demand requirement.  In shareholder derivative actions, which also require a pre-suit demand, a party can satisfy the demand requirement by pleading facts showing that a demand would be futile.  Could the same be done to satisfy the pre-suit demand requirement for an accounting? 

Continue Reading Demand Futility, Dissolution, and Transfer Restrictions: Spring Blooms Fresh Developments in LLC Litigation

Over the years I’ve become less enamored with arbitration as an alternative to litigating complex business cases in court, mostly because the traditional trade-off between abundant due process protections (court) versus expediency and cost savings (arbitration) has eroded as motion practice and generous discovery including depositions have become more common in arbitration.

But if there’s one important advantage that arbitration still has over litigating in court, it’s the fact that everything that happens in arbitration is kept under wraps, whereas just about everything that happens in court is publicly available online thanks to almost universal e-filing, at least in the business courts.

Last month, Manhattan Commercial Division Justice Joel M. Cohen issued a decision in a case centering on the plaintiff’s single fraud claim arising from the involuntary redemption and appraisal of his membership interest in an LLC after his employment was terminated. Read on and see if you agree, the case would have been a good candidate for a confidential arbitration.

Continue Reading LLC Minority Member Gets Caught in His Own “Wolverine Trap”
crossed knives

It is not uncommon in the restaurant business for a restauranteur to partner with a silent-partner investor, i.e. the money guy. It’s not uncommon for the restaurant partners to fight over the control of the restaurant (see here, here, and here).

It is uncommon for the money guy to attempt to oust the restauranteur from the successful business he developed from the ground up, and replace him as manager. It’s even less common to attempt to achieve this on a preliminary injunction motion at the very start of a lawsuit.

Throw in nearly a dozen back-to-back motions and five related lawsuits, and you have today’s case, Revka LLC v Levy, et al., Index No. 655547/2023 (Supreme Court, New York County, April 21, 2025), before Justice Shahabuddeen Ally in New York County Supreme Court, the latest in a sprawling, bitter dispute between Cobi Levy, a New York City restauranteur, and Salim Assa, a real estate investor that Levy partnered with.

Continue Reading Bless This Mess: New York Court Shuts Down Attempted Early Ouster of Restauranteur From Managing His Own Restaurant

We’ve written about accountant liability. We’ve written about bookkeeper liability. A carefully crafted complaint can state viable claims for either. But business appraiser liability? Until a couple of weeks ago, one might have snickered at the idea. But creative business divorce lawyers being who they are, perhaps it was inevitable.

Apparently for the first time in New York, a recent case before Westchester County Commercial Division Justice Linda S. Jamieson raised the novel issue of whether a business valuation firm hired by a limited liability company to value a minority owner’s equity interest for a mandatory buyout under the operating agreement can face liability to the minority owner for alleged participation with the majority owners in a “scheme” to “artificially depress” the value of the minority’s interest for an unfairly low buyout.

Sometimes a loss can be a win. Such was the case for the aggrieved minority member in Segal v Rethink Capital Partners, Inc. (2025 NY Slip Op 50566(U) [Sup Ct, Westchester County Apr. 10, 2025]), a decision ostensibly ending the litigation, but leaving many unresolved questions in its wake.

Continue Reading Business Appraiser Liability? That’s a New One.
dissolution

It’s been 15 years since the Second Department’s decision in Matter of 1545 Ocean Avenue, LLC, 72 AD3d 121, 2010 NY Slip Op 00688 (2d Dept Jan. 26, 2010), which established the standard for judicial dissolution of limited liability companies.  Under that standard, a New York LLC should be judicially dissolved when the management of the company is unable or unwilling to permit or promote the stated purpose of the entity, or continuing the entity is financially unfeasible.

That standard has proved both enduring and highly fact-specific, producing over the last decade and a half a landscape of judicial decisions finding that specific conduct and circumstances do—or do not—warrant dissolution. 

I’ve also seen at least some disconnect between that standard and the real interests of many LLC members.  On the one hand, the standard focuses on two things: (i) the stated purpose of the LLC as set forth in the operating agreement, and (ii) the financial feasibility of the LLC.  On the other hand, in many cases, the “stated purpose” as set forth in the operating agreement is boilerplate that the owners never considered.  And the financial feasibility of the LLC usually is a given; people tend not to litigate over failing businesses. Most owners who resort to judicial dissolution do so for other reasons. 

Many LLC members seek judicial dissolution as a means to resolve distrust of or perceived misconduct by their co-owners.  And while there is room for consideration of those things in the “unable or unwilling” language of the dissolution standard, a court faithfully applying the 1545 Ocean Avenue standard and a party seeking his day in court about allegations of member misconduct might feel like they’re speaking different languages.

A recent decision from New York County, Otsuka v Shimura, No. 159202/2020 (Sup Ct, New York County 2025), serves as a fine springboard to highlight that disconnect, discuss the timing of an LLC dissolution claim, and take stock of the current LLC dissolution landscape.

Continue Reading Stated Purpose vs. Stated Problem: Court Sticks to the Script for LLC Dissolution

In a post I wrote about a dozen years ago, I quoted Ken Adams, blogger and author of A Manual of Style for Contract Drafting, who, commenting on the oft-used contract clause, “Notwithstanding anything to the contrary in this Agreement,” wrote, “[t]o reduce the chance of a drafting error, and to make life easier for the reader, it would be best to determine whether the provision in question in fact needs to trump another provision and, if it does, to specify which provision” (my italics).

Ken’s post in turn quoted from a report prepared by Professor John C. Coates on the use of the “‘terms of art’ customarily relied upon” by M&A lawyers “such as ‘subject to’ and ‘notwithstanding,'” in which the Professor explained,

These phrases allow the parties to specify that one phrase or provision will take precedence over others, and thus avoid the need to attempt to synthesize every provision of every related agreement that is or may be partly or wholly in conflict with the provision in question.

Ken’s and the Professor’s observations highlight the tension between, on the one hand, the utility achieved by use of a “notwithstanding” clause and, on the other, the greater the risk of future, knotty contract disputes the more complex and lengthier an agreement containing numerous “notwithstanding” clauses that fail to specify which provisions they supersede.

Continue Reading Court’s Decision in High Stakes Case Cuts Through the “Fog of Dueling ‘Notwithstanding’ Clauses”

Under ancient (some would argue vestigial) common-law rules of general partnerships, partners can find themselves stuck between a rock and a hard place deciding when to pull the trigger on a lawsuit.

Sue too early, run the risk of having one’s complaint dismissed as premature. Sue too late, run the risk of having the complaint dismissed as untimely. The problem gets trickier when some defendants are partners, but others are not.

A recent appellate decision, Fernandez v Fernandez (235 AD3d 726 [2d Dept 2025]), highlights problems general partners face when choosing the right time and way to sue co-partners and non-partners together in a single lawsuit.

Continue Reading Premature or Untimely? Both at the Same Time? When to Sue as a General Partner
301a

“There is only going to be one winner here, and it’s not going to be you—give in while there is something still left in it for you,” said one LLC member to the other. With co-owners like that, who needs enemies?

In addition to cinematic threats, the subject of this week’s post, In re 305 E. 61st St. Group LLC, 130 F4th 272, 277 (2d Cir 2025), has it all: emergency court orders, changed locks, an intentional foreclosure, a tactical bankruptcy filing, and a trip to the Second Circuit Court of Appeals.  The resulting opinion is equally satisfying: the Second Circuit delivers new guidance on the thorny direct vs. derivative distinction and offers a potential boost to implied contractual claims in intra-company disputes. 

Let’s dive in.

Continue Reading LLC Member States Direct Claims Arising from Machiavellian Manager’s Tactical Bankruptcy Petition

I’ve noticed over the many years since this blog’s launch a disproportionate number of posts concerning disputes among restaurant co-owners. The only explanation I’ve come up with is that first-time, start-up restaurant entrepreneurs often are longtime friends or relatives who don’t feel the need, or don’t have the financial resources, or both, to invest in hiring experienced legal counsel to tailor a well-considered, forward-looking, shareholders or operating agreement.

In one such post a year ago involving a downtown Manhattan restaurant named Tangy Noodle operating as an LLC, a well-known chef who was the minority member and after whom the restaurant was named, petitioned for judicial dissolution based on the managing member’s “substantial menu alterations.” The LLC had an operating agreement with what I like to call a purposeless purpose clause, stating that the LLC’s purpose is to engage in “any legal act or activity.” The lower court granted the petition, finding that the restaurant’s business was contingent upon the chef’s goodwill and therefore the menu alterations rendered the purpose of the business “no longer reasonably practicable” as required by the express terms of the dissolution statute, LLC Law Section 702.

The Expat Case

About a month after the lower court’s grant of the dissolution petition in the Tangy Noodle case, a remarkably similar LLC dissolution case captioned Ding v Frank was filed involving an Upper Manhattan restaurant call The Expat. The petition of the 50% member of the member-managed LLC claimed that, amidst faltering negotiations and increasing turmoil over the other 50% member’s proposed buyout of the petitioner, the other member made major menu changes that, along with allegations of “freeze-out” and “oppression” made it not reasonably practicable to carry on the business of the LLC.

Continue Reading I’ll Have a Bacon Cheeseburger, Hold the Pickle and LLC Dissolution
snowglobe.jpg

Spring is soon upon us. March Madness is at our doorstep. The Formula 1 season is underway. Baseball season will be in full swing shortly. And my allergies are already in bloom.

But, before we pack away our winter coats, I bring you one final frosty treat: this year’s annual Winter Case Notes, where we provide a snapshot of a few interesting recent cases from the world of New York business divorce.

This year, I offer:

  • A Second Circuit affirmation of a book value buyout per the terms of the shareholders agreement;
  • A Second Department reversal holding that, no, the company was not permitted to advance funds to pay for the defendant-officer’s legal fees in a shareholders derivative action; and
  • A pair of back-to-back decisions out of the courtroom of Kings County Commercial Division Justice Reginald A. Boddie, first enjoining defendants from removing plaintiff as co-manager, but then shipping the parties off to arbitration per enforceable arbitration clauses in the governing operating agreements.
Continue Reading Winter Case Notes: Nice Try, But the Agreements Say What They Say