I’m very pleased to present my 13th annual list of the past year’s ten most significant business divorce cases.

This year’s list includes important appellate and trial court decisions in New York and Delaware on a smorgasbord of interesting issues in lawsuits among co-owners of closely held business entities concerning contested buyouts, LLC member expulsion, LLC and limited partnership dissolution, freeze-out merger, the exercise of buy-sell agreements, and federal court abstention in a case seeking common-law judicial dissolution.

All ten decisions were featured on this blog previously; click on the case name to read the full treatment. And the winners are:

Busher v Barry  This S.D.N.Y. federal court decision was handed down in late December 2019 but I’m dragging it across the 2020 line not only because I wrote about it in 2020 but because of its first-impression ruling, applying the Burford abstention doctrine to dismiss a claim for common-law dissolution of a closely held corporation that owns the realty leased to a golf club with overlapping ownership. Citing the Second Circuit’s seminal decision in Friedman v Revenue Management, Inc., the District Court saw no distinction in the application of Burford to common-law dissolution versus statutory dissolution in its impingement upon New York’s strong interest in the uniform development and interpretation of its comprehensive system of corporate governance including the creation and dissolution of its corporations.

PFT Technology, LLC v Wieser  This decision by the Appellate Division, Second Department, capped an eight-year litigation between LLC members culminating with a fair-value appraisal of a 25% membership interest in which the lower court addressed a number of interesting valuation issues. The one that caught my attention and merits top-ten treatment was the Second Department’s affirmance of the lower court’s ruling denying the 25% member’s claim for a pro rata share of member distributions made subsequent to the valuation date. Granting such distributions would result in “double dipping,” the lower court held and the Second Department agreed.

Magarik v Kraus USA, Inc.  This decision by the Nassau County Commercial Division stems from a BCL § 1118 statutory appraisal proceeding valuing the 24% interest in a wholesale distributor of imported plumbing fixtures. The petitioner/seller and his expert appraiser relied heavily on company income projections and personal financial statements of the three owners valuing the company at $30 million that were submitted to their lender shortly before the valuation date in support of the company’s successful application for a revolving credit line with a maximum borrowing base of $10 million. The court rejected the expert’s “overstated” and “unrealistic” income projections and instead adopted the drastically smaller $6 million valuation of the company by its expert appraiser which was “supported by credible evidence which demonstrated a successful and growing business that was not especially liquid.”

Walsh v White House Post Productions, LLC  In this case the Delaware Chancery Court considered whether an LLC could withdraw its exercise of buyout rights under the LLC agreement’s  buy-sell provision, triggered by the termination of employment of two minority members, prior to the completion of the multiple-appraisal process set forth in the agreement. Siding with the two minority members who sought to enforce the buyout, the court’s first-impression ruling held that the buyout provision was a call option, the initial exercise of which irrevocably bound the parties to the “pre-negotiated buyout terms.”

Yakuel v Gluck  The Manhattan Commercial Division in this novel case considered whether to enforce a single-appraiser buy-sell agreement between 65% and 35% LLC members styled as a repurchase option included in an amendment to the operating agreement of a successful digital marketing agency. After the 65% member exercised the option and engaged the appraiser, the 35% member sued to rescind the amendment on fraud and other grounds, basically accusing the 65% member of conducting a “rigged” appraisal process that barred participation by the 35% member resulting in a drastically undervalued appraisal. The court’s decision denied the 65% and 35% members’ respective applications to confirm and to vacate the appraisal, finding that each side’s argument has “some support” and that the record was “not sufficiently clear at this stage to permit a decision on this question one way or the other.”

Van Horne v Ben-Dov  The Manhattan Commercial Division in this case preliminarily enjoined a freeze-out merger of a single-asset realty corporation that holds the 99-year ground lease on a property developed as a residential apartment building in Manhattan. The court held that the merger proposed by the 95% shareholder as a means of expelling the plaintiff 5% shareholder had no valid business purpose and that the reasons for the merger proffered in the litigation by the majority shareholder were “rank pretext.”

Lazar v Attena LLC  This case involved several member-managed, realty-holding LLCs that had fully disposed of their realty assets and distributed all of the net proceeds, yet found themselves the subject of a dissolution petition by one of the three members claiming that the other two had wiped off the books debt owed by them to the LLCs. In a decision by the Manhattan Commercial Division, the court rejected the petitioner’s contention that the LLCs no longer served their intended purpose of owning and operating the realty assets, citing the operating agreements’ provision that the purpose of the LLCs is “any lawful business purpose.”

Garcia v Garcia  This case involving a family-owned business presented the question whether the LLC agreement’s single mention of the word “expulsion” in its provision specifying events of member “dissociation,” without any provision specifying grounds or a process for expulsion, validated the two majority members’ vote to expel the third member after he was accused of diverting company funds. The Appellate Division, Second Department, in its decision affirming the lower court’s order, upheld the expulsion based on the combined effect of the agreement’s reference to expulsion as an event of dissociation and its provision for member action by majority vote.

Weinstein v RAS Property Management, LLC  This case involving a realty-holding limited partnership led to first-impression holdings in which the Manhattan Commercial Division applied sections 121-402 and 121-801 of New York’s Revised Limited Partnership Act to grant dissolution at the behest of the estate of a limited partner based on the pendency both of the estate’s dissolution proceeding for more than 120 days and the appointment of a receiver for the property not vacated or stayed within 90 days. The court rejected the general partner’s argument that statutory grounds for dissolution were displaced by the limited partnership agreement’s provision setting forth events of dissolution.

Lard-PT, LLC v Seokoh, Inc.  The convoluted fact pattern in this unusual case boiled down to whether the 49% shareholder that pulled the trigger on a “shotgun” buy-sell agreement following deadlock breached the terms of the agreement by including in its offer certain terms and conditions nowhere mentioned in the agreement. The Manhattan Commercial Division’s decision found that the additional terms were “commercially unreasonable terms not required or anticipated by the Operating Agreement” and on that basis denied the 49% shareholder’s motion for summary judgment enforcing the buyout.