It’s simply in the nature of things that business divorce litigants tend to accuse one another of all manner of heinous, dastardly misdeeds. Phrases like “oppression,” “fraud,” “deceit,” “theft,” “siphoning” of assets, “diversion” of opportunities, etc., are the norm. As a litigant, if you make those kinds of allegations, and they turn out to be unsuccessful, or you withdraw them, can you be sued for defamation? Staten Island Supreme Court Justice Wayne M. Ozzi considered that question in Seneca v Cangro, 2018 NY Slip Op 33404(U) [Sup Ct Richmond County Nov. 27, 2018], a lawsuit pitting an uncle against his nephews over claims they defamed him while suing to dissolve three family-owned entities.

The Family Businesses

In 1962, ancestors of the current antagonists formed C. Seneca Construction, Inc. (the “Corporation”), a real property holding, management, and construction company. In 2004, the family expanded its business with the formation of two additional real property companies organized as LLCs (the “LLCs”). Pursuant to written operating agreements, one of which you can read here, Anthony Seneca was a 25% member of the LLCs, and his nephews, Emil and Carlo Cangro, collectively owned 25%. Anthony, Emil, and Carlo allegedly owned shares of stock in the Corporation in the same percentages. Continue Reading Sue for Dissolution – Get Sued for Defamation?

New York’s LLC judicial dissolution statute, Section 702 of the Limited Liability Company Law, provides far more limited grounds to dissolve a business than the Business Corporation Law – a harsh reality for allegedly mistreated minority members highlighted by a recent decision by Manhattan Supreme Court Justice David B. Cohen.

In Matter of Felzen v PEI Mussel Kitchen, LLC, 2017 NY Slip Op 31831(U) [Sup Ct, NY County Sept. 1, 2017], Felzen sued to dissolve the company that operates a pair of Manhattan seafood restaurants named Flex Mussels, based upon allegations of breach of fiduciary duty, looting and oppression – frequent grounds for dissolution under Section 1104-a of the Business Corporation Law.  In Matter of Zafar, an earlier decision written about on this blog, comparable allegations – i.e., “persistent self-dealing and dishonest conduct” – sufficed to dissolve an LLC.  Let’s see how things turned out here. Continue Reading LLC’s Purpose Being Achieved? Business Doing Fine? Good Luck Getting Judicial Dissolution

The Mizrahi v. Cohen case, about which I’ve posted twice before, took a surprising turn last week when an appellate court granted the plaintiff’s request to compel a buy-out of the defendant’s interest as an equitable remedy in an LLC dissolution fight between 50/50 members.

Last week’s ruling by the Brooklyn-based Appellate Division, Second Department, in Mizrahi v. Cohen, 2013 NY Slip Op 02056 (2d Dept Mar. 27, 2013), resolved an appeal and cross-appeal from a January 2012 post-trial order by Brooklyn Commercial Division Justice Carolyn E. Demarest. The trial court’s order granted the plaintiff’s request to dissolve the subject LLC which owns a mixed-use, four-story building that houses Mizrahi’s dental office and Cohen’s optometry office along with other tenants. (Read here my post about the January 2012 decision.)

The Appellate Division affirmed Justice Demarest’s determination that dissolution under LLC Law § 702 was warranted based on the LLC’s financial infeasibility caused largely by the defendant 50% member’s refusal to make additional capital contributions. It also affirmed Justice Demarest’s rulings allowing parol evidence of the parties’ course of dealings to assist the interpretation of the LLC agreement, and dismissing plaintiff’s contract and fiduciary breach claims.

The Appellate Division disagreed with Justice Demarest on one issue only, albeit one with potentially great precedential importance in LLC dissolution cases: Did the plaintiff establish a right to compel a buy-out of the defendant’s membership interest as an equitable remedy in lieu of winding up the LLC and liquidating its realty asset?

Continue Reading Appellate Court Orders Equitable Buy-Out in LLC Dissolution Case

A one-third owner of a company sues for dissolution, alleging he has been systematically excluded from the operations and affairs of the business, and that his co-owners have refused to account for or pay him his share of the profits, all of which they have taken for themselves.

If this were a suit by the minority shareholder of a close corporation, claiming that the majority owners were guilty of oppressive conduct warranting judicial dissolution under §1104-a of the Business Corporation Law, chances are the complaint would easily withstand a pretrial defense motion for dismissal on the grounds of legal insufficiency.

Now take the same allegations, but this time assume the business is organized as a limited liability company (LLC) instead of a corporation, and that dissolution is sought by a minority member under §702 of the LLC Law. Would the complaint similarly withstand a motion to dismiss at the pleading stage?

Unfortunately for the complaining LLC member in Doyle v. Icon, LLC, 2013 NY Slip Op 00797 (1st Dept Feb. 7, 2013), decided earlier this month by a Manhattan appellate panel, the answer is “no”. The fact that the appellate decision reversed a lower court ruling that upheld the complaint further highlights the crucial, conceptual distinction between the bases for judicial dissolution of corporations and LLCs. Continue Reading Is Exclusion from LLC Enough for Dissolution?

It’s been a year since the Appellate Division, Second Department, altered the LLC dissolution landscape in New York with its decision in the 1545 Ocean Avenue case.  Justice Leonard Austin’s scholarly opinion for the court in that case articulates, for the first time since New York adopted the LLC form in 1994, a cogent standard for involuntary dissolution of LLCs under section 702 of the LLC Law (LLCL) whereby courts must assess the company’s financial feasibility, and its ability to fulfill its stated purpose, “in the context of the terms of the operating agreement or articles of organization.”  Equally important, the court’s contract-based analysis carefully distinguishes itself from, and instructs courts in LLC cases not to mimic, the more nebulous, equity-infused standards applied by courts under Article 11 of the Business Corporation Law in dissolution cases involving close corporations.  (For a more detailed examination of 1545 Ocean, read here my February 2010 post.)

Over the last year I’ve been waiting to see how the lower courts apply the new standard.  My patience was rewarded with a trio of unpublished decisions issued last month by three different judges in three different counties within the Second Department.  The scorecard is an interesting one:  dissolution granted in one, denied in another, and a hearing ordered in the third.  While none of the three puts 1545 Ocean to a hard test, it seems clear that the appellate decision is already making a difference.  Let’s take a look at the three decisions:

Continue Reading The Emerging Influence of 1545 Ocean Avenue on Judicial Dissolution of LLCs