When a closely-held business is profitable, self-interested owners naturally want a bigger slice of the pie, especially where the personal relationships among the owners are frayed.  Perhaps that’s why we often discuss the value of freeze-out mergers as a mechanism for those in control of a closely-held corporation or limited liability company to squeeze a minority owner out of the business’ future profits. 

Equity dilution is another common method by which those in control of a corporation or LLC attempt to squeeze out a minority owner.  For one, stock dilution impairs the minority owner’s ability to influence company action by voting his shares, and it lessens the owner’s right to participate pari passu in the distributions or dividends of the company.  Perhaps more importantly, a minority owner can see his or her ownership interest diluted below certain critical thresholds—for instance, the 20% ownership required to petition for dissolution under BCL 1104-a.

Despite the potentially drastic consequences of stock dilution, many closely-held businesses we encounter fail to adequately address the issue of dilution in their governing documents.  And New York caselaw on the issue leaves plenty to be desired.  Let’s interpret those factors as an invitation to review the basics, key caselaw, and the current status of the improper dilution claim.Continue Reading Let’s Talk About Dilution

This week’s New York Business Divorce presents a retrospective assessment of the state of New York law concerning LLC business divorce, including summaries of the most significant court decisions, adapted from a recent presentation at the Eileen Bransten Institute on Complex Commercial Litigation.
Continue Reading New York LLC Caselaw’s Greatest Hits

In this week’s New York Business Divorce, read about a rare punitive damages award in a business divorce case after a majority owner misappropriated a 25% interest in a sushi restaurant, secretly transferred the entity’s assets to another he owned, then dissolved the original, all unbeknownst to the minority owner.
Continue Reading Bad Things Can Happen When You Steal a Business from a Minority Co-Owner

Most practitioners believe the summary judgment in lieu of complaint statute, CPLR 3213, applies just to contracts involving loans or other indebtedness. Not so. In a recent decision, a Manhattan Commercial Division Justice granted summary judgment in lieu of complaint, entering a money judgment for nearly $35 million, based upon a seldom litigated provision of the statute permitting accelerated treatment “upon any judgment” – in this case, a prior declaratory judgment. Read about the Court’s novel approach to summary judgment in lieu of complaint in this week New York Business Divorce.
Continue Reading Summary Judgment in Lieu of Complaint Meets Business Divorce

In this week’s New York Business Divorce, read about the outcomes of two pre-answer dismissal motions in parallel lawsuits commenced by the founding shareholder of a family-owned corporation challenging a cash-out merger initiated against him by the second-generation owners, including his cousins and nephew.
Continue Reading Questions Abound in Parallel Cash-Out Merger Rescission / Fair Value Appraisal Lawsuits

This week’s New York Business Divorce is a follow-up to last week’s article, a piece about the enormously important appellate decision in the Farro case, the first to carefully consider the correct meaning and interpretation of New York’s LLC merger statute and its relation to the analogous corporation merger statute. In this week’s article, learn about the rest of the story in the Farro litigation, addressed in two companion appellate decisions issued the same day.
Continue Reading The Farro Litigation: The Rest of the Story

In a long-awaited decision handed down last week by the Appellate Division, Second Department, the court construed two sections of New York’s LLC Law in a significant boost to the ability of members with voting control to remove minority members by means of a cash-out merger. Learn more in this week’s New York Business Divorce.
Continue Reading Groundbreaking Appellate Ruling Boosts LLC Cash-Out Mergers

“Rank pretext will not do.” With those words, a Manhattan judge preliminarily enjoined a freeze-out merger in the absence of credible evidence that the merger advanced a general corporate purpose. Get the full story in this week’s New York Business Divorce.
Continue Reading “Rank Pretext Will Not Do”: Court Enjoins Freeze-Out Merger With No Corporate Benefit