
Join me if you know this refrain: In New York, deadlock is not an independent ground for LLC dissolution.
But…
Almost exactly two years ago from today, Peter Mahler published a post titled: “Has the Time Come for New York to Follow Delaware and Officially Pronounce Deadlock as Ground for LLC Dissolution?” where he explored the post-Matter of 1545 Ocean Avenue landscape of the role of deadlock as an independent ground for dissolution in New York (not allowed), as compared to Delaware (allowed). NY and DE take these differing approaches even though both statutes contain virtually the same language permitting court-ordered dissolution “whenever it is not reasonably practicable to carry on the business in conformity with” the LLC’s articles of organization or operating agreement (NY LLCL §702 and DE LLC Act §18-802).
Peter pointed out that lower court decisions in NY since 1545 Ocean Avenue in the 50/50 LLC dissolution context—including Advanced 23, LLC v Chamber House Partners, LLC and Goldstein v Pikus—continue to hold the line, rejecting deadlock as an independent ground for dissolution and considering it “only insofar as the deadlock impacted the LLC’s ability to function in the context of the operating agreement and its stated purpose.”
He closed by musing on a hypothetical scenario, “where arguably the two approaches could lead to different outcomes:”
Here I’m thinking mainly (but not exclusively) of cases involving 50/50 commercial realty holding LLCs which continue to operate the property, collect rent, pay bills, and remain financially feasible while the two owners engage in serious personal hostility and clash over management, maintenance, finance, distributions, and long-term objectives including holding or selling the realty.
But in so many instances involving two-member, 50/50 LLCs, we see companies with no operating agreement or with poorly crafted operating agreements that lack any deadlock-breaking mechanism. It’s in those cases where the equitable powers of New York courts in dissolution cases arguably are hobbled by 1545 Ocean Avenue’s restrictive reading of deadlock.
It’s a post worth revisiting in light of a recent Third Department decision, Amici v Mazza (2025 NY Slip Op 00259), concerning a fact pattern almost exactly as described above.
A SUCCESSFUL REALTY PARTNERSHIP
The parties, Tom Amici and Ed Mazza, partnered together in 1986 to own and manage a portfolio of residential real property rentals in the Ithaca, NY area. As with any good (read: “good”) business divorce case, Amici and Mazza did not have a formal arrangement or a written partnership agreement.
For most of their relationship, the parties operated their business amicably. Amici, a high school educated professional contractor, handled the day-to-day operations including physical labor, maintenance, and inspection of the joint properties. Mazza, an attorney who practices “real estate, landlord-tenant, and business law,” handled the “executive” functions of the business including filing tax returns, handling leasing, and other legal and financial operations.
Over the years, they acquired 20 properties together, and, at all relevant times, ran a profitable enterprise.
CONVERSION OF THE PARTNERSHIP INTO AN LLC
In 2012, Amici asked Mazza whether the pair should convert their partnership into an LLC after noticing other property owners doing so. Later that year, Mazza went ahead and formed “Mazza and Amici, LLC” by filing the LLC’s Articles of Organization, signed by Mazza as “Sole Organizer.” As is relevant, the document indicated that the company is manager-managed, but did not expressly state the purpose of the company. The parties never executed an operating agreement.
All of the properties were subsequently transferred to the LLC, and Amici and Mazza agree they were, at all relevant times, 50-50 owners.
From here, the narrative diverges.
According to Amici, prior to conversion, Mazza generally explained to him the differences between a partnership and an LLC, but never informed him that in the absence of specific provisions in an operating agreement, his ability to withdraw from and/or dissolve the LLC would be extremely limited, as compared to a partnership.
Mazza, for his part, contended that it was Amici’s idea to convert the partnership into an LLC and that it was actually his father and law partner, Bruno, (not him) who prepared the LLC’s corporate governance documents, including a draft operating agreement that was delivered to Amici for review but was never otherwise discussed or signed.
THE DISPUTE
In 2021, the 73-year old Amici, in light of declining health leading to a pancreatic cancer diagnosis, approached Mazza to withdraw from the LLC and dissolve the business. Mazza opposed. It was then, according to Amici, that he learned of the withdrawal restrictions in the absence of an operating agreement.
Amici commenced suit for, among other things, breach of fiduciary duty and judicial dissolution under NY LLCL § 702.
Mazza filed a motion for summary dismissal of the entire action on the basis that he did not breach a fiduciary duty and that there has been no showing that it is not reasonably practicable to carry on the business of the profitable, functioning LLC. The trial court granted Mazza’s motion in its entirety, and dismissed the action.
Amici appealed.
THIRD DEPARTMENT REVERSES TRIAL COURT’S SUMMARY DISMISSAL
Breach of Fiduciary Duty:
The Appellate Court acknowledged that a fiduciary relationship existed between Amici and Mazza, given their decades-long business relationship and Mazza’s role as both an attorney and business partner. The Court found that Amici presented sufficient evidence to raise triable issues of fact regarding Mazza’s alleged breach of fiduciary duty, and held that the trial court improperly resolved those issues in favor of Mazza seeking summary dismissal. Accordingly, the Court reversed and remanded the trial court’s summary dismissal of this claim.
Dissolution of the LLC:
Although an alleged ‘deadlock’ between the members of a limited liability company will not necessarily render it impracticable for the company to carry on its business [citing Matter of 1545 Ocean Avenue], upon careful review of the record we find that it does in the case at bar.
The Appellate Court zeroed in on the fact that “no operating agreement was ever executed and no manager has ever been appointed by the members.” That, the Court found, was critical in light of the fact that the Articles of Organization provided that “[m]anagement of the Company shall be vested in one or more managers” and that “[n]o member shall have authority to act for the Company solely by virtue of being a member.”
“Certainly, plaintiff and Mazza are deadlocked, with plaintiff wanting to dissolve the LLC and Mazza wanting it to operate.” But, the Court found that “neither of them [Amici or Mazza] has legal authority to act on behalf of the LLC.” Therefore, the deadlock between the parties on the issue of dissolution resulted in it being “not reasonably practicable for the LLC to carry on its business.”
The Appellate Court, “upon searching the record,” directed the entry of summary judgment in favor of Amici for dissolution of the LLC.
MY TWO CENTS
Based on my reading of the appellate briefs (here, here, and here) and the record on appeal, I’d be willing to bet that both sides were just as surprised as I was with this outcome, specifically that portion of the Decision granting summary judgment dissolving the LLC.
Remember, Amici never filed a cross-motion for summary judgment. Instead of remanding the issue back to the trial court along with the now-revived breach of fiduciary duty claim, the Appellate Court, sua sponte, granted summary judgment in favor of Amici, directing the dissolution of an undeniably profitable, functioning company.
Even more remarkable is how the Third Department did so, “searching the record” (again, sua sponte) to unearth a technicality that neither side raised on appeal or in the case below, nor was even hinted at in the trial court’s decision. De novo, indeed.
The trial court granted summary dismissal of the dissolution claim on the grounds that the standards under 1545 Ocean Avenue— granting dissolution only where, “(1) the management of the entity is unable or unwilling to reasonably permit or promote the stated purpose of the entity to be realized or achieved, or (2) continuing the entity is financially unfeasible”—were not met, “as the LLC’s business is not only continuing, but thriving, even after the present dispute arose.”
While, on appeal, Amici argued that, “simply because the business was continuing to make a profit after the conversion to an LLC” did not automatically mean it was “reasonably practicable” to carry on the business “as a matter of law,” he did not take it a step further to argue that neither of the members (Amici or Mazza) had legal authority to act on behalf of the LLC.
And while Amici raised the fact that there was no operating agreement and that the only governance document was a bare-boned Articles of Organization, his argument was focused on the lack of a purpose clause, not a failure to designate a manager.
The Third Department’s reliance on the manager designation issue was deftly and carefully done—acknowledging that, yes, the company is operating and is profitable, but ultimately finding that the company is technically without “legal authority” to act. That said, had the Articles of Organization omitted that one teeny tiny provision designating the company as manager-managed, the default rule (LLCL §401) would have kicked in with the company operating as a member-managed company, and side-stepping this entire line of reasoning.
“For want of a nail” comes to mind.
A PENNY FOR YOUR THOUGHTS
At the end of the day, frankly, I’m not sure where this Decision takes us.
To my knowledge, this is the first appellate decision post-1545 Ocean Avenue taking on the 50/50 LLC deadlock issue. Could this Decision be viewed as making inroads into deadlock as grounds for dissolution (in admittedly limited circumstances) that New York courts have heretofore rejected, including just 6 months ago in Matter of Ruham where Manhattan Commercial Division Justice Andrew Borrok dismissed a petition for judicial dissolution of a functioning, viable, single-asset real estate holding company organized as a New York LLC governed by boilerplate articles of organization and without a written operating agreement (sound familiar?) under much more litigious and acrimonious circumstances.
Or, might this case be limited to its facts. Although not expressly stated, the Appellate Court was clearly moved by the equities of the situation. The imbalance between the parties in terms of legal knowledge of the impact of the conversion to an LLC, as well as (I strongly suspect) the fact that Amici’s withdrawal was prompted by the diagnosis of a terminal illness, left the court in a tough spot between the dissolution of a successful, operational realty company, or keeping a dying man trapped in a company he believed he could (and previously actually could) exit at will.
I’ll end with a thought, courtesy of the DE Chancery Court’s decision last year in Gibson v Konik: “Equity provides a means to exit.” Maybe here, it did.