A recent Second Department decision confronts the rigid requirements of the BCL and considers whether equity can rescue shareholders who attempt to issue shares beyond those authorized by the certificate of incorporation.
Continue Reading Over the Limit: Can Equity Trump the Certificate of Incorporation’s Share Cap?
What must a shareholder show to maintain a derivative action on behalf of a foreign corporation doing business in New York? This week’s post unpacks the Court of Appeals’ emphatic reaffirmation of the internal affairs doctrine.
This week’s post unpacks a novel estoppel defense that put the brakes on the manager’s right to make a mandatory capital call.
Continue Reading Capital Call Cancelled: A Fairness Defense to the Majority’s Mandatory Capital Call
Section 417 of New York’s LLC Law permits the members to eliminate their fiduciary duties, but only in very narrow circumstances. This week’s post shows how the seemingly toothless provision can carry the day.
Continue Reading The Humble LLC Exculpation Clause Wins Big: Member/CEO Escapes $8M Fiduciary Claims
Two recent cases, one from the Second Department and one from Suffolk County Justice Garguilo, shed light on some of the more nuanced issues in shareholder oppression litigation: the “equitable” prejudgment interest rate to be applied to a buyout under BCL 1118, and the relationship between a claim for dissolution and one for money damages.
Continue Reading Beyond Fair Value: When Shareholder Oppression Demands Interest and Damages
Spring in New York has ushered in a fresh crop of noteworthy decisions on intra-LLC disputes. Headliners include a boost to members’ rights to compel an accounting courtesy of the First Department, a procedural refresher on LLC dissolution and the applicable standard, and a winding dispute over membership bequests in the Surrogate’s Court.
It’s been 15 years since the Second Department’s decision in Matter of 1545 Ocean Avenue, LLC, 72 AD3d 121, 2010 NY Slip Op 00688 (2d Dept Jan. 26, 2010), which established the standard for judicial dissolution of limited liability companies. Under that standard, a New York LLC should be judicially dissolved when the management of the company is unable or unwilling to permit or promote the stated purpose of the entity, or continuing the entity is financially unfeasible.
That standard has proved both enduring and highly fact-specific, producing over the last decade and a half a landscape of judicial decisions finding that specific conduct and circumstances do—or do not—warrant dissolution.
I’ve also seen at least some disconnect between that standard and the real interests of many LLC members. On the one hand, the standard focuses on two things: (i) the stated purpose of the LLC as set forth in the operating agreement, and (ii) the financial feasibility of the LLC. On the other hand, in many cases, the “stated purpose” as set forth in the operating agreement is boilerplate that the owners never considered. And the financial feasibility of the LLC usually is a given; people tend not to litigate over failing businesses. Most owners who resort to judicial dissolution do so for other reasons.
Many LLC members seek judicial dissolution as a means to resolve distrust of or perceived misconduct by their co-owners. And while there is room for consideration of those things in the “unable or unwilling” language of the dissolution standard, a court faithfully applying the 1545 Ocean Avenue standard and a party seeking his day in court about allegations of member misconduct might feel like they’re speaking different languages.
A recent decision from New York County, Otsuka v Shimura, No. 159202/2020 (Sup Ct, New York County 2025), serves as a fine springboard to highlight that disconnect, discuss the timing of an LLC dissolution claim, and take stock of the current LLC dissolution landscape.
Continue Reading Stated Purpose vs. Stated Problem: Court Sticks to the Script for LLC Dissolution
The subject of this week’s post has it all: cinematic threats, emergency court orders, changed locks, an intentional foreclosure, a tactical bankruptcy filing, and a trip to the Second Circuit Court of Appeals. The resulting opinion is equally satisfying.
Continue Reading LLC Member States Direct Claims Arising from Machiavellian Manager’s Tactical Bankruptcy Petition
A recent case from New York County caps a decade-long litigation saga and offers helpful guidance on when the business judgment rule applies to pocket-to-pocket transactions with common ownership on both sides.
Continue Reading Affiliated Entities, Conflicting Duties, and the Business Judgment Rule
The key question in shareholder oppression claims is often whether the complaining shareholder’s expectations were reasonable under the circumstances. A recent decision from Albany County and a recently published article highlight two sides of a debate about how “contractual” the reasonable expectations inquiry should be.
Continue Reading Can a Shareholder Be Oppressed After Ceding Control? Oppression, Reasonable Expectations, and Contractual Formalism