Don’t Miss the 2020 LLC Institute Virtual Meeting!
It’s that time of year again, when leading experts and practitioners in the field of closely held business entities gather for the LLC Institute’s spectacular CLE program. It’ll be a virtual meeting this year, which unfortunately means there won’t be the usual opportunities to talk shop and socialize outside the meeting room. The good news is, the virtual program with sessions on November 6, 9, 11, and 13 is more accessible, affordable, and easier to fit into busy schedules. This year’s agenda includes several programs of special interest to business divorce aficionados, with a focus on LLCs. For more information about the program and registration, click here.
Unlike states that have enacted the Uniform Revised LLC Act with its provisions for judicial expulsion of an LLC member, New York’s LLC Law contains no such provision. Instead, in New York, only non-judicial expulsion is recognized and only if authorized by the operating agreement.
Until now, New York judicial precedents addressing the expulsion of an LLC member generally fall into one of two categories. First, there are those in which the operating agreement is completely silent on member expulsion, in which event the courts disallow attempts to expel a member. Chiu v Chiu is the leading appellate case for that proposition. Here’s another.
Second, there are cases in which the operating agreement expressly authorizes member expulsion for defined causes involving breach of duty and other misconduct, in which event the disputes center on whether the expelled member’s conduct falls within the defined causes. Harker v Guyther is one of the better examples in this category. Here’s another.
Thanks to a ruling this month by the Brooklyn-based Appellate Division, Second Department, in Garcia v Garcia, we can now welcome a third category of expulsion case, which we’ll dub cases involving a “naked” expulsion clause. Why naked? The LLC agreement includes the single word “expulsion” as an event of member dissociation but contains no provisions expressly addressing the grounds or procedure for expulsion.
In Garcia, the appellate panel affirmed the lower court’s ruling enforcing the majority members’ vote to expel a minority member accused of diverting company funds. The court also affirmed the lower court’s determination of the value of the expelled member’s interest in two LLCs. Continue Reading Court Enforces LLC Agreement’s “Naked” Expulsion Clause