While the general partnership form of business association is long past its prime, we still see the occasional partnership dispute make its way to court. This week’s New York Business Divorce looks at recent appellate decisions from Pennsylvania and New Jersey resolving novel issues in two such disputes.
Continue Reading Recent Appellate Rulings Address Novel Issues in General Partnership Disputes
Delaware Chancery Court’s contractarian approach to all things LLC, embedded statutorily in Section 18-1101(b) of the Delaware LLC Act (“It is the policy of this chapter to give the maximum effect to the principle of freedom of contract and to the enforceability of limited liability company agreements”), has been no less forceful in its rich body of caselaw tethering LLC members to the text of their operating agreement when addressing applications for judicial dissolution of LLCs under Section 18-802 of the Act.
Section 18-802, which closely resembles New York’s LLC Law Section 702, authorizes Chancery to decree dissolution of an LLC “whenever it is not reasonably practicable to carry on the business in conformity with a limited liability company agreement.” In a string of seminal decisions including Haley (2004), Silver Leaf (2005), Seneca (2008) Fisk Ventures (2009), and Arrow (2009), Chancery developed a two-prong standard for judicial dissolution either where there exists deadlock that prevents the LLC from operating with no mechanism in the operating agreement to break deadlock, or where the LLC’s purpose as defined in the operating agreement cannot be carried out.
In Vice Chancellor Laster’s 2015 Carlisle opinion, which I wrote about here, the court broke new, not-so-contractarian ground by holding that it could order the dissolution of an LLC under the court’s traditional equity jurisdiction at the behest of a non-member assignee of a membership interest who otherwise lacked standing to seek dissolution under Section 18-802.
But that’s not the sort of equitable dissolution I want to focus on. The sort I have in mind is where the court entertains and grants a statutory claim for judicial dissolution of an LLC where the facts don’t fit neatly or at all the articulated standard yet the equities as between the parties demand dissolution as a matter of good old-fashioned fairness. Delaware’s contractarian LLC jurisprudence does not welcome that definition of equitable dissolution, nor can I point to any examples of Chancery decisions that fit that bill.
Until now, at least arguably.
In a post-trial opinion handed down earlier this month by Vice Chancellor Will in Gibson v Konick, the court ordered dissolution of an LLC formed for the purpose of owning a vacation home. The LLC had two, formerly romantically involved, 50/50 members. The operating agreement named one of them sole manager, hence there was no deadlock as that term is normally used to refer to the contractual inability to exercise managerial authority. The operating agreement’s stated purpose was to acquire, develop, and own residential property. Those purposes either were achieved or remained attainable.
So how did the court conclude grounds for dissolution under Section 18-802? As I see it, in a word: fairness.Continue Reading Did Chancery Court Just Crack Open the Door to Equitable Dissolution of LLCs?
A recent Commercial Division decision illustrates anew the elevated challenge of suing for judicial dissolution of a viable realty-holding company — even when the estranged co-members are already immersed in multiple litigations. Read about it in this week’s New York Business Divorce.
Continue Reading It Takes More Than a Litigation Tsunami Between Hostile Members to Obtain Judicial Dissolution of a Realty-Holding LLC
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
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
This week’s New York Business Divorce revisits the Eastland Food v Mekhaya case, focusing on last month’s Maryland Supreme Court’s split decision on whether the minority shareholder has a direct claim for breach of fiduciary duty based on alleged disguised distributions taken by the controlling shareholders.
Continue Reading Eastland Redux: Do Close Corporation Shareholders Have a Direct Claim Against Directors For Taking Disguised Distributions?
This week’s New York Business Divorce undertakes a post-mortem of sorts on a case involving the judicial dissolution of a pathology medical practice with 50/50 shareholders.
Continue Reading The Pathology of Deadlock Dissolution
There’s surprisingly little case law addressing disguised dividends as a basis for finding oppression of minority shareholders. This week’s New York Business Divorce looks at a recent Maryland court decision that does exactly that.
Continue Reading When Do Disguised Dividends Add Up to Minority Shareholder Oppression?
In this week’s New York Business Divorce, read about a rare example of a judicial dissolution proceeding litigated in the Matrimonial Division of New York’s Supreme Court.
Continue Reading Business Divorce in the Divorce Courts