The proverb “All for the want of a horseshoe nail” aptly describes the possibly mortal blow dealt by the Appellate Division’s recent decision in Favourite Ltd. v Cico, 2020 NY Slip Op 01463 [1st Dept Mar. 3, 2020], to a lawsuit initiated by non-managing members of a manager-managed Delaware LLC whose certificate of formation was cancelled for the ministerial failure to designate a new registered agent within 30 days after its old one resigned.
Favourite involves the alleged mismanagement of a Delaware LLC by its former managing members in connection with the financing, operation, and sale of a Manhattan residential apartment building acquired by the LLC to provide short-term rentals for international leisure and corporate travelers. The business was decimated in 2012 by anti-Airbnb legislation, leading to a mortgage default, foreclosure action, and distress sale. The managers used the net sale proceeds as a down payment made by a newly formed LLC to purchase another building, but the purchase never materialized.
In 2015, non-managing members holding more than 50% of the membership interests, as permitted by the operating agreement, voted to remove the managers and then brought suit against them. The suit initially named the LLC (along with some of the non-managing members) as plaintiff but it was dropped in the first amended complaint after losing its legal representation. Continue Reading Unauthorized Certificate of Revival Dooms Delaware LLC’s Claims Against Former Managing Members