It’s been a rough couple of months for Joseph Sullivan.
First, in May the New York Court of Appeals (the state’s highest court) threw out Sullivan’s claim for wrongful termination of his employment as compliance officer of a hedge fund known as Peconic Partners. The court ruled that Sullivan’s alleged retaliatory firing, for objecting to improper trading by Peconic’s majority owner, William Harnisch, did not fall within any exception to New York’s at-will employment doctrine (read decision here).
Then, last month, an intermediate appellate court threw out Sullivan’s claim that, after Harnisch forced him out of Peconic, he was wrongfully deprived of millions of dollars of profit sharing due him as a minority member of the limited liability company. The decision by the Appellate Division, First Department, which is the focus of this article, disagreed with the trial court’s interpretation of the governing operating agreement and held that the agreement gave the majority member unbridled discretion to allocate certain profit and loss between the members even after the close of the LLC’s fiscal year. Sullivan v. Harnisch, 2012 NY Slip Op 05238 (1st Dept June 28, 2012).
The case involves two New York LLCs, originally known as FLA Asset Management, LLC and FLA Advisors, LLC, that were registered investment advisors and subsidiaries of Forstmann-Leff. From 1999 through 2004, Sullivan served as Chief Financial Officer of the companies in the hedge fund business. Harnisch was Chief Executive Officer and Chief Investment Officer. In late 2004, the companies split off from Forstmann-Leff and were renamed Peconic Partners LLC and Peconic Asset Managers, LLC, with Harnisch and Sullivan as 85% and 15% members, respectively.