LLC members often enter into an operating agreement containing certain formality requirements, then exercise substantially less formality in their dealings. In those cases, the argument that a member waived his or her right to insist upon the formality requirements of the operating agreement is a familiar one. In a recent case, New York County Justice Borrok considers a party’s claim that text messages establish his 9.9% membership interest in an immensely valuable cryptocurrency business, despite admitted non-compliance with the member-admission requirements of the operating agreement.
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A New Stile: First Department Shakes Up the Shareholder Oppression Claim
A recent First Department decision recognizing a cause of action for shareholder oppression raises big questions in the area of minority shareholders’ rights.
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But What of the Equitable Accounting?
In what he described as “the aftermath of what had been an amicable business divorce,” New York County Commercial Division Justice Joel Cohen discusses several interesting and novel limitations on New York’s cause of action for an equitable accounting.
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The Operating Agreement Controls, Unless Public Policy Says Otherwise
This week’s post considers a duo of recent decisions concerning disputes between LLC members over the terms of their operating agreement. In the first case, the court considered whether to enforce an operating agreement as written despite evidence that the parties actually intended a different deal. In the second, the court considered whether to enforce an operating agreement where its buyout terms were grossly unfair. The cases’ different outcomes highlight the outer limits of the parties’ freedom of contract in LLC operating agreements.
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A Two-Act Play of LLC Default Rules and Manager Removal
The interplay between the default rules of the LLC law and the members’ agreement sometimes gets complicated. In a duo of recent decisions from Justice Cohen, that interplay took center-stage when a majority of members invoked the default rules in an attempt to oust the managing member from authority.
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Justice Platkin’s Primer on Shareholders’ Inspection Rights
Shareholders considering exercising their right to inspect the corporation’s books and records–particularly in the context of a valuation proceeding under BCL 1118 or 623–would be wise to consider Justice Platkin’s recent primer on different inspection rights and their correspondingly different scopes, conditions precedent, and required justifications.
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Look Before You Leap: Buy-Sell Agreements Triggered by a Petition for Dissolution
In a case featuring your authors as counsel for the prevailing parties, NY County Commercial Division Justice Robert Reed enforces the buy-sell provision of a corporation’s shareholders agreement triggered by the shareholders’ petition for dissolution.
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Too Little, Too Late: Court Sides with Ousted Member, but Denies Preliminary Injunction Undoing Termination
Preliminary injunctions are a powerful tool in the business divorce litigator’s toolbox, and they often involve a race to the courthouse. This week’s post offers a reminder that sometimes, that race is critical; courts will be more inclined to preserve the status quo with a preliminary injunction than to undo action with one.
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Stay Away Settlement Between Closely-Held Corporation and Dissident Shareholder Goes Away Upon Shareholder’s Death
A corporation and a dissident shareholder enter into agreement where the dissident shareholder agrees to receive regular payments in exchange for staying away from the Company’s business. What happens when the outspoken shareholder dies? In Stile v C-Air Customhouse Brokers-Forwards, Inc., Index No. 656575/2020 [Sup Ct, New York County 2021], the New York County Supreme Court declined to dismiss a suit by the estate of a shareholder subject to a stay away settlement agreement on the grounds that the stay away obligations did not expressly apply to the shareholder’s successors.
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Fueling the DLOM Debate: Control Transfer Restrictions and the Discount for Lack of Marketability
When valuing an owner’s interest in a closely-held company, the calculation and applicability of a discount for lack of marketability is among the most fertile grounds for sharp disagreement. One open question: should the DLOM account for any contractual restrictions on a controlling owner’s ability to transfer his or her control?
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