
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