This week marks the tenth anniversary of the launch of this blog. Every Monday morning since, come hell, high water, or in the middle of a trial, I’ve posted a new article — 534 articles, to be exact. I joke that if you don’t see a new post come Monday morning, check the obituaries.

I had no idea what to expect when I started the blog. Would anyone read it? Would I have enough material to write about every week? Would I have the time to write every week? How could I add value for the reader, beyond mere descriptions of recent court decisions in business divorce cases? Would the blog generate new clients and new relationships with other professionals in the field?

With ten years behind me, I can safely say my expectations have been exceeded more than I ever could have imagined. Here are some of the most important lessons blogging has taught me:

  1. Blogging Brings Relationships. The blog has fostered many new and lasting relationships with other lawyers, judges, academics, and business appraisers from across the country. We share ideas, cases and articles of interest, and use each other as sounding boards. We invite each other to speak at bar association meetings and legal education conferences. The growing network of relationships goes hand-in-hand with the growing recognition of business divorce as a distinct sub-genre of commercial litigation and legal theory in which clients are best served by lawyers and other professionals with specialized knowledge in the field. Ten years ago, I was one of very few lawyers who called themselves business divorce lawyers. Today, there are many lawyers across the country who identify themselves as specialists in business divorce, a handful of whom also have started blogging.
  2. Blogging Brings Clients. The biggest and most pleasant surprise from blogging has been its ability to attract new clients. Very early on, the blog became and has remained the primary generator of new clients big and small for my business divorce practice. Prior to the blog, for years I’d been writing about business divorce in traditional legal publications. The idea of putting my writing online came to me in the mid aughts, inspired by a couple of pioneering law blogs and by some prospective client inquiries from business owners who somehow found my law journal writings online. I was attracted to the blogging format and figured it would make my writing more accessible to business owners, who, like the rest of civilization, increasingly looked to the internet to educate themselves and get answers to legal problems before calling a professional. Blogging allows lawyers to demonstrate their expertise, personality, and passion for the subject matter to consumers of digital media like nothing else. Google does the rest, at least when it comes to bringing potential new clients to your door.
  3. Blogging Enhances Expertise. Regular blogging keeps a lawyer at the top of their game. I’m constantly on the prowl for new court decisions, legislative developments, and articles of interest to share with my readers. The blog’s ravenous maw demands no less. The educational value of the research and writing, driven by the imperative to achieve mastery of the subject matter for my readers, is priceless when it comes to representing clients in my own business divorce practice.
  4. Numbers Don’t Matter. The success of a law blog is not measured by the numbers of visitors and page views. In the early days I obsessively tracked those numbers. It took me a while to realize they don’t matter, especially for a blog that focuses on a micro-niche, non-volume practice area like business divorce. The most popular posts I ever wrote for this blog, generating hundreds of thousands of views, were about a business divorce between the father and son stars of the reality TV show, American Chopper. The numbers were gratifying but the viewers responsible for those numbers — fans of the TV show with no personal interest in business divorce — were not my intended audience.
  5. Long Posts Can Work. When I started the blog I deliberately kept the posts short — less than 500 words — under the commonly-held view that the attention span of online readers is too short for long-form blogging. Within a half year, however, I found myself consistently writing posts over 1,000 words and sometimes well in excess of that figure — a habit I’ve rarely departed from ever since. Of course the longer pieces take more time to write; typically I’ll devote 4 or 5 hours every weekend to the task. The longer posts also place a premium on adopting a more journalistic and less legalistic writing style, which is no small challenge when writing principally about court decisions. I don’t imagine that all those who encounter my posts get past the first paragraph, much less read the entire thing. But as I said above, law blogging is not about reaching the widest possible audience, it’s about reaching the right audience. For me, a distressed business co-owner or his or her consultant is the right audience — an audience that, I’ve become convinced over the last 10 years, finds value in the more nuanced analysis and value-added commentary that long-form blogging enables.

Some thanks are in order, firstly to my regular readers these past ten years, whose kind words of appreciation and encouragement make it all worthwhile. Special thanks to Kevin O’Keefe and his fantastic Lexblog team for designing and hosting the blog these many years, and to my firm’s Marketing Director Lorraine Sullivan and her dedicated staff for their support. Finally, thanks to the many fine judges of the great State of New York, whose labors, interpreting and applying the law in some of the toughest business divorce cases anywhere, provide the oxygen for this blog.

Onward to the next ten years of blogging!

SushiThe Japanese word “omakase” translates as “I’ll Ieave it up to you” and is used by patrons of sushi restaurants to leave the selection to the chef rather than ordering à la carte.

The minority member of an LLC that operates a high-end Japanese restaurant in Brooklyn featuring omakase service, and who sued for judicial dissolution, recently learned a different meaning of omakase, as in, don’t leave it up to the court to protect you from being frozen out by the majority member when you don’t have a written operating agreement, much less a written operating agreement containing minority-interest safeguards.

The hard lesson learned by the petitioner in Matter of Norvell v Guchi’s Idea LLC, 2016 NY Slip Op 32307(U) [Sup Ct Kings County Nov. 18, 2016], has been taught before, starting most prominently with the First Department’s 2013 decision in Doyle v Icon, LLC and reinforced by that court two years later in Barone v Sowers, holding that minority member claims of oppressive majority conduct including systematic exclusion from the LLC’s operations and profits, in the absence of a showing that the LLC is financially unfeasible or not carrying on its business in conformity with its operating agreement, do not constitute grounds for judicial dissolution under LLC Law § 702. Continue Reading Another Frozen-Out Minority LLC Member’s Petition for Dissolution Bites the . . . Sushi?

Over 100 years ago, in Lord v Hull, 178 NY 9 [1904], the New York Court of Appeals — the state’s highest court — drew upon English common law to establish what has become a bedrock principle of American partnership law, that courts generally will not entertain lawsuits between partners except in the setting of a dissolution or final accounting. As the court wrote:

If the members of a firm cannot agree as to the method of conducting their business, the courts will not attempt to conduct it for them. Aside from the inconvenience of constant interference, as litigation is apt to breed hard feelings, easy appeals to the courts to settle the differences of a going concern would tend to do away with mutual forbearance, foment discord and lead to dissolution. It is to the interest of the law of partnership that frequent resort to the courts by copartners should not be encouraged and they should realize that, as a rule, they must settle their own differences or go out of business. [Emphasis added.]   

Many decades later, in another partnership case called Gramercy Equities Corp. v Dumont, 72 NY2d 560 [1988], the same court expressed the same sentiment thusly:

[C]ourts are generally loath to intercede in squabbles between partners that result in piecemeal adjudications, preferring that partners either settle their own differences amicably or dissolve and finally conclude their affairs by a full accounting.

In the modern era, partnerships have been eclipsed by other forms of business associations including close corporations and, more recently, limited liability companies. Each form has fundamentally different characteristics and is governed by a fundamentally different statutory scheme. Yet, if we focus on the internal dynamics and turmoil that can afflict shareholders of a close corporation or members of an LLC — especially the smaller, owner-operated firms — the above-quoted partnership rationale, expressed so long ago in Lord v Hull and more recently in Gramercy Equities, seems equally apropos of these modern forms.

One judge who both has made that connection and put it into practice is Nassau County Commercial Division Justice Stephen A. Bucaria (pictured). Over the years this blog has featured many decisions by Justice Bucaria demonstrating, as described here, his willingness to think outside the box when it comes to devising practical and sometimes novel solutions to intractable problems in business divorce cases.     Continue Reading Squabbling Partners with Piecemeal Adjudications Need Not Apply

When not tightly drafted, expulsion provisions in shareholder or LLC operating agreements can cause a lot more trouble than they’re worth. Case in point: Harker v Guyther, 2014 NY Slip Op 07403 [3d Dept Oct. 30, 2014], decided last month by the Appellate Division, Third Department, in which the court resorted to dictionary definitions of the term “misappropriation” in denying summary judgment to a 50% LLC member who sought to expel the other 50% member in a fight ostensibly over health insurance coverage, of all things.

The case involves a Delaware limited liability company known as 3H Corporate Services, LLC based in Saratoga Springs, New York. The company, formed in 2003, bills itself as specializing in the provision of corporate and insurance licensing services to the insurance community. 3H’s two members, each holding a 50% interest, are Gary Harker and Joan Guyther.

In 2008, Harker and Guyther agreed to have 3H pay for their health insurance as an employment benefit. They later disagreed over various business issues, including Guyther’s contention that she deserved extra compensation for the disparity between the higher cost of Harker’s family health insurance plan and her individual coverage. The lid blew off after Guyther withdrew over $3,000 from the company’s operating account to true up the discrepant insurance premiums over the prior six months, and announced to Harker her intention to continue doing so. Continue Reading Court Construes Member Expulsion Provision in LLC Agreement

The prosecution or defense of a business divorce case, like any other civil litigation, is subject to a mind boggling set of procedural rules which, in the event of noncompliance, can deal either side a significant setback or even dismissal. Adding to the complexity are the rules specific to business divorce cases, which are contained in the statutes governing judicial dissolution cases.

Besides the potential jeopardy to a client’s position on the merits, failure to comply can cost the client time and money. The client’s confidence in his or her attorney also can be compromised by needless errors that detract from achievement of the client’s litigation goals.

Recently, I was asked about the most common mistakes attorneys make when filing or defending dissolution cases. I figured others might benefit from the answer, so compiled below is a list of 10  snafus highlighted in cases that I’ve previously featured on this blog. Follow the links to read more about each one.

  1. File a bare-bones dissolution petition.  Judicial dissolution of a corporation must be brought by way of petition in a special proceeding, that is, not by ordinary summons and complaint where the rules essentially permit a bare-bones pleading that alleges the elements of a claim in conclusory fashion. The petition is different. It must provide detailed and, if necessary, documented facts establishing entitlement to dissolution. Failure to do so likely will result in a painful dismissal. Read more here. Continue Reading 10 Ways to Screw Up Your Business Divorce Case

A recent decision by Vice Chancellor Donald F. Parsons, Jr. of the Delaware Chancery Court in Duff v. Innovative Discovery LLC, C.A. No. 7599-VCP (Del Ch Dec. 7, 2012), garnered much attention primarily for its holding that Section 18-111 of the Delaware LLC Act (“Interpretation and Enforcement of Limited Liability Company Agreement”) gives Chancery Court, which generally functions as a court of equity jurisdiction, subject matter jurisdiction even over lawsuits essentially seeking money damages arising from the alleged breach of a Delaware LLC operating agreement.

But that’s not what I want to talk about. What caught my eye was the underlying dispute over a tax-related provision in a February 2012 redemption agreement under which two members of a Delaware LLC sold their membership interests back to the company. At issue was the former members’ personal income tax liability for that portion of the LLC’s 2011 net income allocated to the former members on their form K-1’s but not distributed to them.

This is not the first time I’ve written about how the issue of taxes on “phantom” income can bedevil owners of interests in pass-through entities who sell their interests without ascertaining and negotiating protection against subsequent net income allocation on their K-1 in excess of amounts actually received by them. In August 2011 I wrote about a New York case where the selling 25% shareholder under a buy-out agreement involving an S corporation unsuccessfully sued for reimbursement of his personal income taxes on $75,000 phantom income. The buy-out agreement included no provision for indemnification of such taxes and no buyer warranty that the seller’s future K-1 would exclude phantom income.

Unlike that case, in Duff the parties thought about the issue and included in the LLC membership redemption agreement a provision addressing the selling members’ future K-1’s. The problem — at least according to the sellers in their subsequent lawsuit — was that the provision as drafted did not jibe with the parties’ intent to protect the sellers against taxes on phantom income for the prior and current tax years. Continue Reading Delaware Case Provides Drafting Lesson for “Phantom” Income Provision in Buy-Out Agreement

The picturesque Village of Sag Harbor, New York, located on eastern Long Island, was a major whaling port through the mid 1800s, became a blue collar industrial town for the next 100 or so years, and eventually took on its current character as a summer resort and second-home favorite of the Hamptons crowd. Part of its architectural legacy is the Bulova watchcase factory that was built in 1881, vacated in 1981, and sat crumbling for the next 30 years in large part due to environmental contamination problems that led to its designation as a Superfund cleanup site.

Thanks to a court decision earlier this month, in Alf Naman Real Estate Advisors, LLC v. Capsag Harbor Management, LLC, 2012 NY Slip Op 32559(U) (Sup Ct NY County Oct. 3, 2012), the Bulova watchcase factory can also lay claim to a small legal legacy in the nascent field of limited liability company (LLC) mergers.

Background

The story picks up around 2006, when a Manhattan-based developer known as Cape Advisors acquired the watchcase factory site for development as condominiums. The project stalled for about two years while the developer wrangled with Village officials over various issues which were resolved just in time for the 2008 crash of Wall Street and the real estate market. At that point the developer put the project on hold, only to reappear three years later, in mid-2011, with new financing and plans that were quickly approved by the Village. The renovation of the factory building and new construction on the site are well underway. Continue Reading Too Late Gets Too Little: LLC Minority Member Fails to Block Merger, Must Accept $465 Buy-Out