In prior litigation with his ex-wife, Gary Rubio swore he sold his shares in the family business to his father. When he brought a subsequent shareholder derivative action against his brother, he swore he didn’t, and proffered a company tax return to prove it. What’s a judge to do? Find out in this week’s New York Business Divorce.
Continue Reading Court Dismisses Shareholder Derivative Action Due to Inconsistent Stock Ownership Claim in Prior Lawsuit
Pappas Saga Ends, Court of Appeals Upholds Fiduciary Waiver in LLC Buy-Out Agreement
Last week’s Court of Appeals decision in Pappas v. Tzolis completes a trilogy of recent decisions by that court dismissing fiduciary breach claims by disappointed sellers concerning buy-out agreements that contain releases or waivers of fiduciary duty. Learn more in this week’s New York Business Divorce.
Continue Reading Pappas Saga Ends, Court of Appeals Upholds Fiduciary Waiver in LLC Buy-Out Agreement
The Perils of Impromptu Buy-Out Settlement Agreements
In corporate dissolution cases, sometimes the pressure to get the deal done can lead to an impromptu buy-out settlement agreement being made in court and read into the record, without adequate consideration of the complexities and pitfalls involved in the transfer of shares and the consequences of default. A recent decision by Justice Darrell Gavrin in Matter of D’Angelo, highlighted in this week’s New York Business Divorce, provides a good example of the things that can go wrong.
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Dissolution Case Ensnares Buyer of Corporation’s Realty in Unauthorized Sale
Someday, if and when the facts come out in discovery, we’ll learn what really happened in the curious case of Matter of Hu (Lowbet Realty Corp.), 2012 NY Slip Op 22314 (Sup Ct Kings County Nov. 2, 2012), in which a slippery minority shareholder somehow managed to sell the corporation’s sole realty asset and abscond with $1.6 million sale proceeds in violation of court order in a pending liquidation proceeding brought by the majority shareholder. In the meantime, the buyer and the property manager now find themselves ensnared in the majority shareholder’s effort to rescind the sale and to recover damages.
The court’s decision in Lowbet, issued earlier this month by Brooklyn Commercial Division Justice Carolyn E. Demarest, tells a remarkable story of brazen disobedience of court order by one Margaret Liu, a 25% shareholder of Lowbet Realty Corp. The decision also sheds light on an interesting, rarely seen procedural question in corporate dissolution proceedings, namely, whether the court may adjudicate within such summary proceedings a shareholder’s claim for relief against a third party who is neither a shareholder nor officer/director of the corporation, rather than being forced to commence a separate, plenary action by ordinary summons and complaint.
Background
The petitioner, Shau Chung Hu, was the 100% owner of Lowbet when, in 1980, it purchased a 19-unit apartment building in Brooklyn. In 1985, Hu married Margaret Liu and gave her a 25% stock interest in Lowbet. Mr. Hu and Ms. Liu separated in 1995, at which time Mr. Hu went to China where he has resided ever since, leaving Ms. Liu in full control over Lowbet.
Continue Reading Dissolution Case Ensnares Buyer of Corporation’s Realty in Unauthorized Sale
Delaware Supreme Court Reboots Question of LLC Manager’s Fiduciary Duties
Last week the Delaware Supreme Court ruled in the Auriga Capital v. Gatz case, previously covered in this blog, affirming on contract grounds Chancellor Leo Strine’s finding of fiduciary breach by an LLC manager but dismissing as dicta his analysis that Delaware LLC managers owe traditional default duties of loyalty and care unless eliminated or modified in the operating agreement. It’s important, and it’s in this week’s New York Business Divorce.
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LLC Dissolution Case Tests Limits of Operating Agreement’s Purpose Clause
The purpose clause in an LLC’s operating agreement can be an important factor in judicial dissolution cases, as illustrated in Justice Denise Sher’s recent decision in Vella v. JP&F Realty Holdings, LLC. This week’s New York Business Divorce has the story.
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Revoking the Buy-Out Election: It Ain’t Easy
In 1986, the legislature amended the statutory buy-out provision in judicial dissolution proceedings to make it harder to revoke an election to purchase. This week’s New York Business Divorce highlights a recent decision by Justice Stephen Bucaria in Matter of Gold, where the court was asked to revoke an election to purchase after the petitioner’s stock interest was valued.
Continue Reading Revoking the Buy-Out Election: It Ain’t Easy
Does Waiver Trump Fiduciary Duty? Court of Appeals Hears Argument in Pappas v. Tzolis
The New York Court of Appeals heard oral argument this month of an appeal from the Appellate Division, First Department’s split decision in Pappas v. Tzolis pitting fiduciary duty against contractual waiver in the context of an intra-member buy-out of LLC membership interests. This week’s New York Business Divorce provides highlights of the oral argument and links to the argument’s webcast, the parties’ briefs, and other background materials.
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Too Late Gets Too Little: LLC Minority Member Fails to Block Merger, Must Accept $465 Buy-Out
The historic Bulova watchcase factory in picturesque Sag Harbor, NY, is the focus of a legal battle between co-developers that led to a decision earlier this month upholding a merger that left one of the developers in the cold, holding a check for $465.60 for its interest. Read more in this week’s New York Business Divorce.
Continue Reading Too Late Gets Too Little: LLC Minority Member Fails to Block Merger, Must Accept $465 Buy-Out
Case Illustrates Power of Constructive Trust to Establish Stock Ownership
The equitable remedy of constructive trust comes to the rescue of a minority shareholder in a family-owned business in Quadrozzi v. Estate of Quadrozzi, decided last week by the Appellate Division, Second Department. It’s in this week’s New York Business Divorce.
Continue Reading Case Illustrates Power of Constructive Trust to Establish Stock Ownership