Dissolution Basics

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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

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This week’s New York Business Divorce post examines a recent appellate court decision in which the Third Department searches the record to find deadlocked 50/50 members unable to carry on a realty LLC’s business, warranting dissolution.
Continue Reading Help Comes From an Unexpected Place in LLC Deadlock Dissolution: The Third Department

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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

Fall NYC Roundup

November was a whirlwind month for New York LLC litigation.  It featured disputes over how to wind up a judicially dissolved LLC, a bitter intra-family emergency indemnification/advancement injunction, and the finale of a decade-long battle over the enforceability of a partially baked operating agreement.  Some of these recent cases add clarity to the growing body of New York LLC caselaw. Others add confusion.  But all add precedential footholds for future arguments in disputes between members of New York LLCs. Members and their counsel take note.Continue Reading A Leaf Through a Busy November in New York LLC Litigation

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The shareholder oppression claim under BCL 1104-a has a unique relationship with claims for money damages.

A minority shareholder petitioning for dissolution under BCL 1104-a must establish that the majority shareholders have engaged in “illegal, fraudulent or oppressive actions,” or that the “property or assets of the corporation are being looted, wasted, or diverted for non-corporate purposes by its directors, officers or those in control of the corporation.”

Based on that standard, it’s easy to imagine conduct by the majority that both meets the criteria for dissolution and constitutes a separate tort compensable with money damages (for instance, a claim for the majority’s breach of fiduciary duty).  For that reason, it’s very common to see a dissolution petition coupled with money damages claims, all arising out of the same conduct. 

But where the money damages claims are filed before the dissolution petition, a plaintiff might be forced to litigate those to completion prior to pursuing their dissolution petition.  That’s the tough lesson learned by the petitioner of a dissolution proceeding brought under BCL 1104-a, in Ramirez v Issa, 2024 N.Y. Slip Op. 33488[U] [NY County 2024], the subject of this week’s post.Continue Reading Corporate Dissolution Petition Hits Back Burner in Favor of Earlier Filed Claims for Money Damages

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Just a few weeks ago, I commented on a recent uptick in disputes centered on the breakup of professional services firms.  In those disputes, we expect that the demands of the legal, accounting, and medical professions draw individuals with keen attention to detail, focused on documentation, and prepared for all contingencies.  Less expected is the irony that many attorneys, accountants, and medical professionals fail to bring those attributes to the table when organizing their business relationships. 

The result of that failure is a tinderbox—poorly defined “partnership” relationships, mixed with high profit margins, difficult to value businesses, and type A owners willing to litigate their disputes.  The right spark triggers bitter and hotly contested litigation.  That part-legal, part-psychological phenomenon explains why business divorces of professional services corporations—especially law firms—can get complicated fast. 

Motivated by that uptick, Becky Baek and I were pleased to recently present a CLE on the complexities that arise in the dissolution or breakup of law firms.  Here are the highlights.Continue Reading Special Considerations for Law Firm Breakups

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There are plenty of advantages to practicing business divorce litigation in New York.  The diversity of businesses and clients, complexity of agreements and transactions, and excellence of judges and attorneys make New York, in my view, the place to be for commercial litigators of all stripes.

One downside is the reality that crowded dockets and busy judges sometimes results in too terse decisions from the trial and appellate courts.  At the appellate level, hundreds of pages of evidence, and nuanced, extensively briefed legal theories are sometimes reduced to a one-line decision.  Not only do those one-liners inevitably leave the parties dissatisfied, but they also miss an opportunity to lend reasoned, precedential analysis to complex and unsettled questions of law.

But in some sense, that’s where the lawyers come in.  New cases can be won or lost in the grey areas created by brief appellate authority, and the sharpest lawyers will find the precedential value in even the shortest appellate decisions.

These few paragraphs are already much longer than the Fourth Department’s recent decision affirming dismissal of a shareholder’s claim for dissolution pursuant to BCL 1104-a in Kavanaugh v Consumers Beverages, Inc., 205 NYS3d 637 (4th Dept 2024).  But in a few words, the Fourth Department packs a punch in corporate dissolution jurisprudence.Continue Reading Termination, Adequate Alternative Remedies Sends Dissolution Proceeding Packing

On the menu for this week’s New York Business Divorce: five noteworthy business divorce cases from five different states. …
Continue Reading Crossing the Hudson: Recent Business Divorce Decisions from Yonder States