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.

Neville, Rodie and Shaw, Inc. v LeGard

This time last year, Peter Sluka wrote about an interesting case featuring a “creative” (read: unsuccessful) attempt to evade a book value buy-sell provision triggered by the death of a shareholder (see here).  On March 4, 2025, the Second Circuit unanimously affirmed the district court’s decision granting judgment on the pleadings in favor of the company to repurchase the decedent’s shares at book value per the plain language of the shareholders agreement.

A quick refresher: Neville, Rodie and Shaw Inc. is a Manhattan-based investment advisory firm, whose shareholders are all employees of the firm. The dispute arose upon the passing of Edwin F. LeGard, an investment manager with the firm for 20 years, who owned 20 common shares when he died. The company demanded that the Estate tender LeGard’s shares in exchange for payment of book value at approx. $15,000 per share. The Estate refused to sell.

It is undisputed that the shareholders agreement contains transfer restrictions and a post-mortem buyback provision at book value. The Estate’s refusal to sell, however, was largely based on the following paragraph found in Section 2 of the shareholders agreement:

If a deceased shareholder’s shares are not purchased by the Corporation (or the other Shareholders) within one year from the date of death, the legal representatives and/or beneficiaries or heirs shall have the right to sell such shares, but the Corporation’s obligation to purchase such shares shall continue in effect until such shares are sold.

The Estate argued this language contemplated a scenario where, despite obligating the company to repurchase a deceased shareholder’s shares, a circumstance may exist where the shares are not repurchased. Therefore, according to the Estate, while the company is obligated to purchase the shares, there is no corresponding requirement that the Estate must sell them.

The district court disagreed.

The Second Circuit, in reviewing de novo, unanimously affirmed the district court’s decision and likewise held that “the plain meaning of Section 2, considered in the context of the whole Agreement, compels the Estate to tender its Shares to NRS for Book Value.”

Section 2, titled “Restrictions on Ownership and Transferability of Common Stock,” addresses three scenarios—the death of a shareholder, the termination of a shareholder’s employment, and a shareholder’s pledge or assignment of shares—triggering the buy-sell. The Section permits the shareholder to retain or to assign these shares only if the company (or other shareholders) fail to purchase:

No Shareholder (or legal representative) in restricted categories A, B or C below shall be permitted to continue to own or to assign, sell or pledge his shares of Common Stock unless with respect thereto the Corporation or other Shareholders fail to purchase such shares of Common Stock pursuant to this Agreement.

The court held, “This language expressly forbids a decedent’s estate from owning shares; the only exception contemplates a ‘fail[ure]’ on NRS’s part to purchase, not an election by the restricted shareholder not to sell.”

Rejecting what the court clearly seemed to consider an artificial loophole raised by the Estate, the Second Circuit concluded that when the entire Section was read together: “Section 2’s plain language thus forecloses the Estate’s suggestion that it can elect to sell to third parties by simply refusing to sell to NRS or the surviving shareholders and then running out the clock.”

Billings v Billings Properties, Inc.

As I’m sure the readers of this blog can attest to, sometimes, the issues that matter the most to a client are not the precedent-setting, scholarly and complex, meaty legal issues that consume any good business divorce lawyer worth his or her salt. The biggest fights between the parties can arise out of the simplest questions, like: Who is paying for this lawsuit?

That is the question that the parties in our next case saw fit to take up to the Second Department.

In Billings v Billings Properties, Inc. (not a ChatGPT hallucinated, but somehow fitting, case caption), Charles Billings (son of company founder, George Billings) commenced an action against defendant Patricia Billings (George’s third wife) asserting direct and derivative claims for breach of fiduciary duty and unjust enrichment, among other things. Patricia is a minority shareholder of Billings Properties Inc, but controls the votes of 50.666% of the company, and is BPI’s allegedly self-appointed president.

Two years into the lawsuit, at Patricia’s deposition, Charles discovered that Patricia had been using BPI to fund her legal defense.  Upon this discovery, he moved for leave to amend the complaint to add claims concerning Patricia’s alleged improper use of BPI funds, and for an order directing Patricia to immediately return to BPI all funds BPI expended on her legal fees and restrain her from using BPI funds going forward in this action, particularly in light of the fact that Patricia had withheld distributions during this period.

Though the trial court granted Charles leave to amend, it denied that part of the motion restraining BPI’s advancement of funds for Patricia’s defense. Charles moved to reargue, and on reargument, the trial court adhered to its prior denial.

Charles appealed.

The Second Department sided with Charles. It is uncontested that BPI’s bylaws did not provide for indemnification of officers or directors, and it does not appear BPI had a shareholders agreement. So, we look to the BCL.

While the trial court relied on the availability of indemnification under BCL 722, the appellate court was laser-focused on the procedures outlined in BCL 723(c), which permits a corporation to advance legal defense funds of a director or officer in a civil action, “upon receipt of an undertaking by or on behalf of such director of officer to repay such amounts as, and to the extent, required by paragraph (a) of section 725.”

Patricia did not secure an undertaking prior to BPI advancing her legal defense expenses, which the appellate court found fatal to her arguments. The court further underscored that, “where a corporation has no statutory authority to act,” the court will not consider the “balance of factors enumerated under the standard test for injunctive relief.”

The Second Department, thus, reversed the trial court’s denial of Charles’ motion, and granted relief directing Patricia to return the funds and restrain her from using BPI money to pay her legal fees going forward.

The case is set for trial later this year, but I wonder if, in light of the Second Department decision, settlement discussions will suddenly become more palatable to the parties. We’ll keep an eye out for this one.

Winrich v Makes

Last but not least, are a pair of decisions arising from a hotly-litigated music beef (no, not that one) between Kelly Winrich, a touring musician (and son of a wealthy California-based investment fund manager), and Anthony Makes, a live music promoter, concerning a purportedly failed investment by Winrich into music venues in Bushwick, Brooklyn. Brooklyn Commercial Division Justice Boddie recently issued the pair of decisions resolving most of the 7 rapid-fire motions filed in the short 1.5 years this case has been active.

Winrich and Makes co-own WMP Brooklyn LLC and BK Made LLC, the two operating companies, as well as 2 single-asset real estate holding companies formed to hold the leases to the subject music venues.

Makes, painted together with his wife Ashley as “grifters, scammers and collaborators in an ongoing scheme to bilk millions of dollars from Plaintiff Kelly Winrich to support their lavish lifestyle and ‘dream’ of being big-time,” is accused of fraudulently inducing Winrich into investing over $75 million into the project by misrepresenting the prospects of strategic partnerships including an investment by Spotify.  Winrich, for his part, is portrayed as bullying his way out of the venture, led from behind the scenes by the whims of his billionaire father, a “mercurial financial titan,” with accompanying comparisons (and YouTube links) to the HBO series, Succession. No love lost, there.

On January 31, 2025, in light of allegations that Makes attempted to remove Winrich as a co-manager of WMP Brooklyn, Justice Boddie granted Winrich’s motion preliminarily enjoining Makes, “from engaging in or effectuating any ‘Major Decisions’ or other material decisions with respect to WMP Brooklyn LLC,” including attempts to restrict Winrich’s managerial and operational authority.

The court went through the standard tripartite injunction standard considering the likelihood of success on the merits, irreparable harm, and balance of equities, to determine that, as alleged, Winrich sufficiently demonstrated that the WMP Brooklyn operating agreement requires unanimous consent to make “Major Decisions” and that the injunction would preserve the status quo.  

Score one for Winrich.

Two weeks later, on February 14, 2025, Justice Boddie granted Makes’ Article 75 motion to compel arbitration, notwithstanding his participation in the court action (including motions to dismiss) as well as his participation in parallel Yellowstone injunction actions by the entities seeking relief against the landlord.  The Court held that the WMP Brooklyn and BK Made operating agreements contain broad arbitration clauses covering, “any action, proceeding, or counterclaim arising under or relating to” these agreements.

The Court declined to set aside the enforceable agreements to arbitrate, rejecting Winrich’s contention that the parties were actually 50/50 partners in a de facto partnership called Brooklyn Made Presents, governing the project to develop and run music venues in Brooklyn. Nor did the Court find persuasive the argument that the alleged fraud otherwise “permeated” the operating agreements such that the arbitration clauses should be set aside.

The Court also found that Winrich’s claims against the two holding companies, and the aiding and abetting breach of fiduciary duty and unjust enrichment claims against Makes’ wife, Ashley, are not arbitrable, but that the state court action must be stayed pending arbitration.  

Score one for the Makeses.

Tied at 1-1, and facing the long road of arbitration followed by post-arbitration state court clean-up of the non-arbitrable claims, the parties appear to have gotten together to work toward a global settlement.

Good luck and Godspeed to all.