Douglas K. Moll, Professor of Law at the University of Houston Law Center, is well known to business divorce aficionados for his many scholarly articles examining minority oppression and fiduciary duty in close corporations and LLCs, and as co-author with Robert Ragazzo of one of the leading treatises on closely held business organizations. He’s also familiar to regular readers of this blog, having been featured previously in an online interview and in Episode #8 of the Business Divorce Roundtable podcast.

Professor Moll recently published yet another, terrific article entitled Judicial Dissolution of the Limited Liability Company: A Statutory Analysis (19 Tennessee Journal of Business Law 81 [2017]) in which he brings some much-needed perspective to the statutory landscape of the diverse grounds for judicial dissolution of LLCs found among the fifty states, the District of Columbia, and the several uniform and model acts promulgated since the 1990s. From the article’s abstract:

This article, prepared for the Business Law Prof Blog 2017 Symposium, examines the statutory grounds available to members who seek judicial dissolution of an LLC in all fifty states plus the District of Columbia. I also examined the judicial dissolution grounds in five model statutes: the 1992 Prototype LLC Act, the 2011 Revised Prototype LLC Act, the 1996 Uniform LLC Act, the 2006 Revised Uniform LLC Act, and the 2013 Revised Uniform LLC Act. Two charts are provided – one that provides the judicial dissolution grounds for each statute, and one that tabulates the different approaches.

Part I summarizes the methodology used and highlights the frequency of various statutory provisions. Part II analyzes two particular provisions—dissolution if it is not reasonably practicable to carry on the LLC’s business in conformity with its governing documents, and dissolution as a result of oppressive conduct by those in control. With respect to the “not reasonably practicable” language, the article argues that the impracticability of carrying on the business in conformity with either the certificate or the operating agreement should result in dissolution, but there is confusion over which statutory articulation is consistent with this result. With respect to the oppressive conduct ground, this article provides some possible explanations for why oppression-related dissolution statutes are less common in the LLC setting than in the corporation context.

Happily, Professor Moll accepted my return invitation to the podcast to discuss his findings. In the interview, a link to which appears below, Professor Moll highlights some surprising variations among the statutory expression of the prevailing not-reasonably-practicable dissolution standard. He also discusses some of the reasons for the relative scarcity — compared to close corporation statutes — of minority oppression as ground for judicial dissolution of LLCs, and the competing forces of freedom of contract and judicial paternalism that continue to shape the evolving statutory and common-law jurisprudence governing internal relations among LLC members.

Give it a listen. I guarantee you’ll be glad you did.

 

Business valuation contests in court, including those arising out of shareholder and partnership disputes, inevitably boil down to a battle of the appraisal experts, among whom Chris Mercer of Memphis-based Mercer Capital is one of the best known and most accomplished.

A listing of Chris’s professional accreditations, publications, speaking engagements, and expert witness engagements could fill a small book. To those who follow statutory fair value appraisal cases in New York, you know that Chris has played an outsized role as testifying expert in some of the most important and precedent-setting cases, including the Ferolito (AriZona Iced Tea) case, the Giaimo case, the Chiu case, and the recent Kassab case. Chris and some of his many publications also have been featured on this blog (here and here) and as the first guest on my Business Divorce Roundtable podcast doing a deep dive into the divisive discount for lack of marketability.

I recently invited Chris back onto the podcast to talk about a blog post of his entitled “A Reluctant Expert Witness Confesses” which in turn is based on a talk he gave last Fall at a business valuation conference. I assure you Chris’s “confessions” are not of a criminal nature although, as you’ll hear Chris describe, when he testified as an expert for the very first time in an imposing courtroom setting, as he was given the oath the thought involuntarily flashed through his mind, “I’m guilty!”

Rather, in our conversation Chris shares a series of interesting and often colorful insights he’s gained over many years of testifying as an expert business appraiser about the do’s and don’ts of testifying, his likes and dislikes about being an expert witness, what engagements he’ll take and which ones he won’t, and a number of other observations about his experiences as an expert on and off the witness stand.

It’s up close. It’s personal. It’s fun. I invite you to listen by clicking on the link at the bottom of this post.

By the way, if you’re a business divorce lawyer or business appraisal expert who’d like to share with podcast listeners a real-life experience from one of your cases for a Business Divorce Stories episode (no need to use real client, company or case names), please get in touch with me by phone or email and I’ll be happy to set up a recording session in person or via Skype.

If you haven’t yet listened to prior episodes of the Business Divorce Roundtable (a) it’s time you did and (b) absolutely you won’t want to miss the latest episode (click on the link at the bottom of this post) featuring first-hand, real-life, business divorce stories told by business appraiser Tony Cotrupe of Melioria Advisors (photo left) and attorney Jeffrey Eilender of Schlam Stone & Dolan (photo right).

Tony’s and Jeff’s stories have a common element: both involve the contentious break-up of a poisonous business relationship between two brothers. The similarity ends there. In my interview of Tony, he puts us inside a fast-paced and ultimately successful effort by the feuding second-generation owners of a propane distributorship, guided by their respective lawyers working in collaboration, to avoid litigation by engineering a buy-out of one brother by the other based on Tony’s business appraisal as the jointly retained, independent evaluator. It’s a happy ending to what otherwIse could have turned into a drawn-out courtroom slugfest.

Courtroom slugfest aptly sums up Jeff’s story as counsel for the brother owning the minority interest in Kassab v. Kasab, a case I’ve featured on this blog several times including last month’s post-trial decision giving the other brother the opportunity to buy out the minority interest upon pain of dissolution if he doesn’t (read here, here, and here). Jeff’s insider analysis of the case provides unique insights into a multi-faceted, roller-coaster-ride of a case involving novel issues under the statutes and case law governing business corporations and limited liability companies.

If you’re a lawyer, business appraiser or business owner with a business divorce story you’d like to share for a future podcast, drop me a line at pmahler@farrellfritz.com.

 

During her many years as Presiding Justice of the Brooklyn Commercial Division, New York Supreme Court Justice Carolyn E. Demarest (Ret.) decided numerous important and challenging business divorce cases. I should know, having featured on this blog in the last 10 years no less than 19 of her decisions.

Among them, and likely the one with the most lasting impact, is the Mizrahi case in which Justice Demarest issued two major post-trial decisions granting dissolution of an LLC based on financial infeasibility and ordering a closed auction between the two 50/50 members, before the Appellate Division on appeal by the petitioner made new law by ordering an “equitable buy-out” of the respondent member.

Another of my favorites is the Cortes case, also a post-trial decision, in which Justice Demarest granted common-law dissolution of a restaurant business conditioned on a buy-out of the minority shareholder reflecting his share of millions in cash “skimmed” by the controlling shareholders from a restaurant business as established by sophisticated forensic analysis.

I was among many lawyers saddened by Justice Demarest’s decision last year to hang up her robes. She truly was one of the best trial court judges around, not to mention losing one of my most prolific sources of blog fodder.

The good news is, soon after leaving the bench Justice Demarest joined the Manhattan office of JAMS where she serves as an arbitrator and mediator in complex commercial cases. With 34 years on the bench, a deep understanding of the substantive law governing relations among co-owners of closely held business entities, and equally extensive experience with business valuation, it’s hard to imagine a more qualified neutral in business divorce matters.

I recently had the pleasure of interviewing Justice Demarest for my Business Divorce Roundtable podcast. You can hear the interview by clicking on the link at the bottom of this post.

The interview features Justice Demarest’s thoughts on the many challenges presented by business divorce cases. Naturally I had to ask her about the Mizrahi case and a few others she decided. We also talk about the mediation of business divorce cases.

So give it a listen and if you like it, I’d be grateful if you post a good review on iTunes which will help spread the word.

jaime-dalmeidaForensics means different things to different people in different contexts. But what does it mean in the context of valuing equity interests in closely held business entities?

You’ll learn the answer – and a lot more – in the latest episode of the Business Divorce Roundtable podcast in which I interview Jaime d’Almeida, a Managing Director at industry leader Duff & Phelps in its Disputes & Investigations practice.

To hear the interview, click on the link at the bottom of this post.

Jaime’s valuation and forensic credentials include Senior Appraiser of the American Society of Appraisers and Certified Fraud Examiner. Based in Boston, Jaime has over 20 years of experience in economic and valuation analysis and consulting, and has provided both deposition and trial testimony on valuation and damages issues. Jaime also is a contributing author of Litigating the Business Divorce, the recently published, must-have treatise that I wrote about here.

My interview of Jaime covers a lot of interesting ground, including:

  • defining forensic analysis in valuation
  • the goal of forensic analysis in a valuation engagement
  • forensics methodology
  • the lawyer’s role in the forensic process
  • when to engage the analyst
  • the interplay of forensics and the different valuation approaches
  • forensics and valuation date
  • the types of company records typically sought by the forensic analyst

If you enjoy the podcast, and if you haven’t done so already, check out prior episodes of the Business Divorce Roundtable featuring interviews with leading experts in the field of business divorce and valuation. Please also consider subscribing to the podcast on iTunes, SoundCloud, or your other favorite podcatcher.

BarberYet another voice, that of Greg Barber, CFA, of Barber Analytics in San Francisco, has joined the growing debate in business valuation and legal circles over the controversial application of the discount for lack of marketability in New York statutory fair value proceedings involving dissenting shareholder appraisals and elective buy-outs of minority shareholders in dissolution cases.

Greg is a corporate valuation expert who focuses on valuations for statutory and mediated minority shareholder buyouts. Greg published a thought-provoking article in the October 2016 New York State Bar Association Journal entitled Marketability Discounts in New York Statutory Fair Value Determinations in which he critically analyzes the leading New York appellate decisions applying the marketability discount in fair value cases — namely, Blake, Seagroatt, and Beway — and highlights what he argues are the “misunderstandings, miscommunications, and inconsistences” entangling the discussion among appraisers, attorneys, and the courts. A copy of Greg’s article is available on his website here.

I followed up Greg’s article with an interview of him for my Business Divorce Roundtable podcast, a link to which appears at the bottom of this post.

Continue Reading Marketability Discount Revisited: Interview With Greg Barber

Hirsch 2015 bio picture“What’s a marital business divorce?” you ask. Just what it sounds like: a business divorce wrapped inside the marital divorce of spouses who hold joint ownership interests in a closely held business entity.

Fighting over kids, money, the house, and the business? Sounds messier and possibly more destructive of business value than an ordinary, non-marital business divorce. But it needn’t be, says attorney Ladd Hirsch in a recent interview for the Business Divorce Roundtable podcast, a link to which appears at the bottom of this post.

Ladd is a partner at the Dallas office of Diamond McCarthy LLP where he focuses his practice on complex business litigation including business divorce, which is how our paths crossed some years ago. Ladd has carved out a niche within a niche, working with family law practitioners in marital divorce cases to optimize value for the soon-to-be-exes who either legally co-own a business or, in community property states, are deemed to co-own a business whose shares are held by one spouse but nonetheless included in the marital estate and subject to division or sale by the family court. Continue Reading Optimizing Value in a Marital Business Divorce

DouglasMollThe combination of majority rule and lack of exit rights leaves minority members of LLCs vulnerable to freeze-out and other oppressive conduct by the majority, yet unlike in the large majority of states which provide statutory dissolution and buy-out remedies to oppressed minority shareholders in close corporations, most states (including New York) do not offer similar protection and remedies for minority LLC members.

Perhaps no one has studied and written about the problem of minority oppression in LLCs and other closely held business entities more and with greater insight than Professor Douglas K. Moll, who teaches at the University of Houston Law Center. Back in 2009 I posted here an online interview of Doug on the subject of shareholder oppression in closely held corporations, in which he also commented on minority oppression in LLCs.

Since then the LLC’s growing hegemony has continued full throttle, with that form of business entity in most if not all states far surpassing the traditional corporation as the preferred form for newly formed firms, making all the more pressing the problem of trapped-in minority LLC members. A few months ago, Doug posted at the Business Law Prof Blog a short piece called Minority Oppression in the LLC in which he echoed many of the themes more fully developed in his 2005 article in the Wake Forest Law Review called Minority Oppression & The Limited Liability Company: Learning (or Not) from Close Corporation History (available here on SSRN). Continue Reading Minority Oppression in LLCs: Interview With Professor Douglas Moll

Ben Means

Business divorce on steroids. That’s how I describe the tenor of litigation that can erupt when members of a family-owned business have a falling out.

No one has devoted more scholarship to the challenging intersection of law and conflict in the family-owned business than Benjamin Means, Associate Professor of Law at the University of South Carolina School of Law.

Longtime readers of this blog may recall a two-part online interview of Ben that I posted a few years ago (read here and here), in which he answered a series of questions about his groundbreaking law review article entitled Non-Market Values in the Family Business. The article uses social science and expansive notions of contractual relations in advocating for courts to give greater weight to what he calls “family values” in adjudicating corporate dissolution and other disputes among shareholder-members of the same family. Continue Reading Conflict in the Family-Owned Business: Interview With Professor Benjamin Means

RutledgeThe business community’s growing preference for the LLC entity form over the traditional corporation and partnership forms has introduced a whole new set of planning issues for lawyers who counsel clients at the formation stage in preparing the new LLC’s constitutional documents, including most importantly the operating agreement.

Tom Rutledge (photo right), one of the nation’s leading experts on LLCs and a principal drafter of his home state of Kentucky’s LLC Act among his many other accomplishments and leadership roles in the field of business organizations, recently published an article in the Journal of Passthrough Entities on the hot-button topic of LLC member expulsion with the provocative thesis that counsel need to actively consider and draft operating agreements that authorize forced expulsion of a member under specified circumstances in order to protect the venture’s ongoing activities and viability. The article is entitled “It’s Not Me, It’s You: Planning for Expulsion of LLC Members” and you owe it to yourself to read it here.

The article addresses the statutory backdrop for member expulsion; the grounds for expulsion to consider including in the operating agreement; the voting prerequisites and procedure for effectuating expulsion; the effect of expulsion including buy-out; and judicial review of expulsion decisions.

After reading the article, I asked Tom if he would discuss LLC member expulsion on my Business Divorce Roundtable podcast. I’m happy to report that Tom obliged, and you can hear my interview of Tom by clicking on the link at the bottom of this post.

The interview covers not only LLC member expulsion pursuant to the operating agreement which is the subject of Tom’s article, but also judicial expulsion of LLC members, a topic that recently generated headlines (and a post on this blog) when the New Jersey Supreme Court earlier this month issued its decision in IE Test v Carroll reversing an order of judicial expulsion under that state’s LLC Act. Judicial expulsion is destined to take on greater importance and controversy as more states adopt the Revised Uniform LLC Act which authorizes courts to expel an LLC member at the behest of the company or the other members on grounds involving breach of the operating agreement or other misconduct, or because it’s not reasonably practicable to carry on the business of the LLC with the member whose expulsion is sought.

There’s much more food for thought in Tom’s article and the podcast interview. I urge you to read and listen to both.