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A recent Delaware Chancery Court decision teaches an important lesson for drafters of buy-out agreements involving pass-through entities and taxes on “phantom” income allocated to a former owner. Learn more in this week’s New York Business Divorce.
Continue Reading Delaware Case Provides Drafting Lesson for “Phantom” Income Provision in Buy-Out Agreement

Last week the Delaware Supreme Court ruled in the Auriga Capital v. Gatz case, previously covered in this blog, affirming on contract grounds Chancellor Leo Strine’s finding of fiduciary breach by an LLC manager but dismissing as dicta his analysis that Delaware LLC managers owe traditional default duties of loyalty and care unless eliminated or modified in the operating agreement. It’s important, and it’s in this week’s New York Business Divorce.
Continue Reading Delaware Supreme Court Reboots Question of LLC Manager’s Fiduciary Duties

The New York Court of Appeals heard oral argument this month of an appeal from the Appellate Division, First Department’s split decision in Pappas v. Tzolis pitting fiduciary duty against contractual waiver in the context of an intra-member buy-out of LLC membership interests. This week’s New York Business Divorce provides highlights of the oral argument and links to the argument’s webcast, the parties’ briefs, and other background materials. …
Continue Reading Does Waiver Trump Fiduciary Duty? Court of Appeals Hears Argument in Pappas v. Tzolis

Compared to its Business Corporation Law, New York’s LLC Law provides greater latitude to LLC members when it comes to making management decisions without necessity of holding a formal meeting. A recent Delaware Chancery Court decision construing that state’s similar LLC statute sheds light on the interplay between the statutory default rule and operating agreement provisions that set forth voting procedures without mention of the members’ right to take action without a meeting. It’s in this week’s New York Business Divorce.
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Continue Reading When Can LLC Members Act Without Holding a Meeting?

Derivative claims seeking recovery on behalf of the business entity frequently are brought in liitgation among the business’s co-owners. Often they are combined with direct claims seeking individual redress. A decision last week by a Manhattan appellate panel in Yudell v. Gilbert, featuring a signed opinion by Justice Karla Moskowitz, adopts Delaware’s approach to distinguish direct from derivative claims, which is crucial in determining whether the plaintiff must satisfy the requirement of pre-suit demand upon the entity’s controlling body. This week’s New York Business Divorce has the story.
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Continue Reading Appellate Decision in Partnership Dispute Clarifies Distinction Between Direct and Derivative Claims

Delaware decisional law holds that members of a Delaware LLC may eliminate the LLC manager’s default fiduciary duties by explicit disclaimer in the LLC agreement. In its decision last month in Kagan v. HMC-New York, Inc., a divided panel of the Appellate Division, First Department, disagreed whether the wording of a fiduciary disclaimer in an LLC agreement was sufficiently precise to warrant summary dismissal of fiduciary breach claims. Learn more about this important topic in this week’s New York Business Divorce.
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Continue Reading Elimination of LLC Manager’s Fiduciary Duties Divides Appellate Panel

In the first of a two-part series, this week’s New York Business Divorce looks at the Delaware Chancery Court’s important decision last month in Auriga Capital v. Gatz in which Chancellor Leo Strine, Jr. sets forth an analytic framework for imposition of fiduciary duties on managers of Delaware LLCs. Next week’s post will compare the law governing fiduciary duties of New York LLC managers.
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Continue Reading What Does Chancellor Strine’s Auriga Capital Decision Teach Us About Fiduciary Duties of New York LLC Managers? (Part One)

This week’s New York Business Divorce features a pair of recent decisions by New York and Delaware courts addressing disputes between accounting firms and departing partners over entitlement to buy-out payments. Both are highly interesting decisions, especially for anyone involved in drafting agreements for professional firms.
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Continue Reading New York and Delaware Courts Decide Disputes Over Accounting Firm Buyouts