In Jacobs v Cartalemi, now the leading case on the subject of LLC member withdrawal (which our firm had the pleasure of litigating), the Appellate Division – Second Department repeated a well-established principle of law: “The right to an accounting is premised upon the existence of a confidential or fiduciary relationship and a breach of the duty imposed by that relationship respecting property in which the party seeking the accounting has an interest.”
The Cartalemi Case
In Cartalemi, the Court applied this rule of law to reverse the denial and grant dismissal of an accounting claim of a withdrawn LLC member. The Court held, “Here, the plaintiff’s right to an accounting was based on his ability to prove that [his co-member] breached his fiduciary duty to [the LLC], a claim that is entirely derivative and which the plaintiff, having withdrawn as a member from [the LLC], no longer had standing to maintain.” Under Cartalemi, a withdrawn LLC member lacks standing to bring a derivative claim for an accounting post-withdrawal from the LLC.
Is the rule the same for partnerships? If not, why is there a difference? A recent decision from the same appeals court that issued Cartalemi highlights important some distinctions between the accounting rights of withdrawn owners of LLCs and partnerships. Continue Reading Two Entities, Two Outcomes: Withdrawal and the Right to an Accounting