Section 417 of New York’s LLC Law permits the members to eliminate their fiduciary duties, but only in very narrow circumstances. This week’s post shows how the seemingly toothless provision can carry the day.
Continue Reading The Humble LLC Exculpation Clause Wins Big: Member/CEO Escapes $8M Fiduciary Claims
This week’s New York Business Divorce takes us to the Garden State for a delightfully-written, post-trial decision by retired, recalled Appellate Division Judge Clarkson S. Fisher, Jr.
Cheshun v Sikand, Opinion [NJ Super Ct, Monmouth County May 7, 2025]), was a dissolution proceeding under New Jersey’s version of the Revised Uniform Limited Liability Company Law (“RULLCA”) between two 50/50 LLC member-managers who founded and operated an entity they hoped would perform clinical drug trials, but which never really got off the ground.
A couple of lessons emerge from Cheshun.
First, it seems obligatory for close entity owners and their litigation counsel to throw stones, cast aspersions, and lay blame for the business’s demise. But like marriages, sometimes business relationships fail because of good faith disagreements and reasonable, dashed expectations. Sometimes nobody is to blame. And that is ok.
Second, business owners may agree to part ways, but the decision to do so does not sever the existence of one’s ongoing fiduciary duties. Fiduciary duties continue through the conclusion of the wind up process. In the words of Judge Fisher, where a business entity is in a “state of un-woundedness,” failure to heed one’s fiduciary duties – even after an agreement to separate – can prove costly.Continue Reading A Message of Acceptance from the Garden State
Spring in New York has ushered in a fresh crop of noteworthy decisions on intra-LLC disputes. Headliners include a boost to members’ rights to compel an accounting courtesy of the First Department, a procedural refresher on LLC dissolution and the applicable standard, and a winding dispute over membership bequests in the Surrogate’s Court.
This week’s New York Business Divorce discusses a case involving an LLC member dispute in which the plaintiff was hoisted on his own petard or, to paraphrase an email that came to light in discovery, stepped into his own “wolverine trap.”
Continue Reading LLC Minority Member Gets Caught in His Own “Wolverine Trap”
Business appraiser liability? A minority owner of an LLC recently took a run at it, alleging that a valuation firm conspired with the majority owners to undervalue his interest for a compelled buyout under the operating agreement. Learn how the court handled this novel issue in this week’s New York Business Divorce.
Continue Reading Business Appraiser Liability? That’s a New One.
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
The subject of this week’s post has it all: cinematic threats, emergency court orders, changed locks, an intentional foreclosure, a tactical bankruptcy filing, and a trip to the Second Circuit Court of Appeals. The resulting opinion is equally satisfying.
Continue Reading LLC Member States Direct Claims Arising from Machiavellian Manager’s Tactical Bankruptcy Petition
On the menu in this week’s New York Business Divorce is a case about a restaurant menu, literally, and the disputed changes to it made by a 50% member of the operating LLC.
Continue Reading I’ll Have a Bacon Cheeseburger, Hold the Pickle and LLC Dissolution
This week’s New York Business Divorce presents the 2025 Winter Case Notes, where we highlight a few recent decisions of interest featuring strict adherence to statutory language and the parties’ governing agreements.
Continue Reading Winter Case Notes: Nice Try, But the Agreements Say What They Say
This week’s New York Business Divorce features the highly anticipated ruling by the New York Court of Appeals, in a 4-3 decision in Behler v Tao, affirming dismissal of a complaint seeking to enforce an oral “exit opportunity agreement” involving a Delaware LLC.
Continue Reading New York Top Court’s Advice to Prospective Investors in Delaware LLCs: Pay Close Attention to Controller’s Power to Amend LLC Agreement