For law bloggers, if there’s one thing more satisfying than writing about an important new court decision, it’s writing about an important new court decision that you won for your client.
Last week, the Brooklyn-based Appellate Division, Second Department, unanimously ruled in favor of my clients, construing for the first time at the appellate level two sections of New York’s LLC Law with profound effect on the ability of controlling members of LLCs to oust minority members by means of a cash-out merger.
First, reversing in part the lower court’s order, the appellate panel held that under § 1002 (g) of New York’s LLC Law, an appraisal proceeding is the cashed-out, dissenting member’s sole remedy and that, in contradistinction to the analogous statute applicable to dissenting shareholders under the Business Corporation Law (BCL), no exception exists for alleged fraud or illegality in the procurement of the merger.
Second, affirming in part the lower court’s order, the appellate panel held that LLC Law § 1002 (c), which requires member approval of the proposed merger agreement at a meeting called on at least 20-days notice, is trumped by LLC Law § 407 (a)’s default rule providing generally for member action by written consent in lieu of meeting.
Based on those unanimous rulings, the court in Farro v Schochet, __ AD3d __, 2021 NY Slip Op 00150 [2d Dept Jan. 13, 2021], granted my clients’ request to dismiss an action brought against them by a cashed-out minority member who sought to rescind the merger on grounds of alleged fraud and breach of fiduciary, and who also argued for rescission on the ground that he was not permitted to vote on the merger at a meeting of the members called on 20-days notice. Continue Reading Groundbreaking Appellate Ruling Boosts LLC Cash-Out Mergers