This week’s New York Business Divorce proudly presents the 14th annual edition of Summer Shorts featuring brief commentary on three recent decisions of interest in business divorce cases in the New York courts.
Continue Reading Summer Shorts: An Unusual Application of LLC Law § 608 and Other Decisions of Interest
“Prevailing Party” Attorneys’ Fee Provisions
Contracts with “prevailing party” fee-shifting provisions offer the tantalizing, coveted prospect of the winner recovering attorneys’ fees from the loser in legal disputes over the contract’s breach. But when the parties bombard each other with legal claims, and neither recovers on much (or any) of them, the hard question of whether either side (or any side) “prevailed” can lead to years of litigation within litigation. Read more in this week’s New York Business Divorce.
Continue Reading “Prevailing Party” Attorneys’ Fee Provisions
When It Talks Like a Member, Walks Like a Member, Acts Like a Member… But Isn’t a Member: First Impression Chancery Decision Rules on Estate’s Exercise of Member Rights “For Proper Purpose”
This week’s New York Business Divorce post features a Delaware Chancery Court post-trial decision of first impression discussing the extent of an Estate’s exercise of member rights for a “proper purpose” in a case involving the Goldman real estate empire.
Continue Reading When It Talks Like a Member, Walks Like a Member, Acts Like a Member… But Isn’t a Member: First Impression Chancery Decision Rules on Estate’s Exercise of Member Rights “For Proper Purpose”
Did Chancery Court Just Crack Open the Door to Equitable Dissolution of LLCs?
Delaware Chancery Court’s contractarian approach to all things LLC, embedded statutorily in Section 18-1101(b) of the Delaware LLC Act (“It is the policy of this chapter to give the maximum effect to the principle of freedom of contract and to the enforceability of limited liability company agreements”), has been no less forceful in its rich body of caselaw tethering LLC members to the text of their operating agreement when addressing applications for judicial dissolution of LLCs under Section 18-802 of the Act.
Section 18-802, which closely resembles New York’s LLC Law Section 702, authorizes Chancery to decree dissolution of an LLC “whenever it is not reasonably practicable to carry on the business in conformity with a limited liability company agreement.” In a string of seminal decisions including Haley (2004), Silver Leaf (2005), Seneca (2008) Fisk Ventures (2009), and Arrow (2009), Chancery developed a two-prong standard for judicial dissolution either where there exists deadlock that prevents the LLC from operating with no mechanism in the operating agreement to break deadlock, or where the LLC’s purpose as defined in the operating agreement cannot be carried out.
In Vice Chancellor Laster’s 2015 Carlisle opinion, which I wrote about here, the court broke new, not-so-contractarian ground by holding that it could order the dissolution of an LLC under the court’s traditional equity jurisdiction at the behest of a non-member assignee of a membership interest who otherwise lacked standing to seek dissolution under Section 18-802.
But that’s not the sort of equitable dissolution I want to focus on. The sort I have in mind is where the court entertains and grants a statutory claim for judicial dissolution of an LLC where the facts don’t fit neatly or at all the articulated standard yet the equities as between the parties demand dissolution as a matter of good old-fashioned fairness. Delaware’s contractarian LLC jurisprudence does not welcome that definition of equitable dissolution, nor can I point to any examples of Chancery decisions that fit that bill.
Until now, at least arguably.
In a post-trial opinion handed down earlier this month by Vice Chancellor Will in Gibson v Konick, the court ordered dissolution of an LLC formed for the purpose of owning a vacation home. The LLC had two, formerly romantically involved, 50/50 members. The operating agreement named one of them sole manager, hence there was no deadlock as that term is normally used to refer to the contractual inability to exercise managerial authority. The operating agreement’s stated purpose was to acquire, develop, and own residential property. Those purposes either were achieved or remained attainable.
So how did the court conclude grounds for dissolution under Section 18-802? As I see it, in a word: fairness.Continue Reading Did Chancery Court Just Crack Open the Door to Equitable Dissolution of LLCs?
Dollars, Donuts, and Buy-Sell Options
This week’s New York Business Divorce touches on familiar themes. A bitter father-son dispute. A disagreement over whether to sell or keep the business. An expulsion and compelled buyout. Throw in a fistfight, criminal charges, and an alleged extortion in exchange for reduced criminal charges, and you’ve got one heck of a sordid story. There’s even a legal lesson about the importance of strict compliance with closing deadlines in buy-sell option agreements.
Continue Reading Dollars, Donuts, and Buy-Sell Options
Special Considerations for Law Firm Breakups
Just a few weeks ago, I commented on a recent uptick in disputes centered on the breakup of professional services firms. In those disputes, we expect that the demands of the legal, accounting, and medical professions draw individuals with keen attention to detail, focused on documentation, and prepared for all contingencies. Less expected is the irony that many attorneys, accountants, and medical professionals fail to bring those attributes to the table when organizing their business relationships.
The result of that failure is a tinderbox—poorly defined “partnership” relationships, mixed with high profit margins, difficult to value businesses, and type A owners willing to litigate their disputes. The right spark triggers bitter and hotly contested litigation. That part-legal, part-psychological phenomenon explains why business divorces of professional services corporations—especially law firms—can get complicated fast.
Motivated by that uptick, Becky Baek and I were pleased to recently present a CLE on the complexities that arise in the dissolution or breakup of law firms. Here are the highlights.Continue Reading Special Considerations for Law Firm Breakups
Dissolution Undone
Business divorce and non-judicial dissolution of a business entity rarely cross paths. This week’s New York Business Divorce highlights recent cases involving efforts to rescind improperly filed certificates of dissolution of LLCs.
Continue Reading Dissolution Undone
Fair Value Decision Caps Decade-Long Dispute Over Family-Owned Real Estate Holding Companies
This week’s New York Business Divorce post features a decision after valuation trial nine-years in the making, determining the fair value of a 50% interest in two family-owned real estate holding companies
Court of Appeals Bolsters the Internal Affairs Doctrine, Takes a Stroll Through Scottish Fiduciary Law
It’s not every day that New York’s highest court considers a question impacting the business divorce cases that we typically litigate. But a recent decision from the Court of Appeals requires careful consideration by any owner of a foreign-incorporated entity considering New York litigation.
Continue Reading Court of Appeals Bolsters the Internal Affairs Doctrine, Takes a Stroll Through Scottish Fiduciary Law
It Takes More Than a Litigation Tsunami Between Hostile Members to Obtain Judicial Dissolution of a Realty-Holding LLC
A recent Commercial Division decision illustrates anew the elevated challenge of suing for judicial dissolution of a viable realty-holding company — even when the estranged co-members are already immersed in multiple litigations. Read about it in this week’s New York Business Divorce.
Continue Reading It Takes More Than a Litigation Tsunami Between Hostile Members to Obtain Judicial Dissolution of a Realty-Holding LLC