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
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“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
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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

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