New York’s business-entity statutes, like those across the nation, provide minority owners with the right to dissent from a merger and to be paid the fair value of the dissenter’s ownership interest. Now assume the dissenter also has an employment agreement with the pre-merger entity containing a non-compete provision. Can the post-merger surviving entity enforce the non-compete against an owner who exercises the statutory right to dissent? Does the answer depend solely on the terms of the employment agreement, or does the statutory protection of minority rights embedded in the merger statutes require a different analysis?

Those questions are especially important to certain professional organizations such as medical and accounting practices which traditionally bind their shareholders — or members, in the case of professional LLCs — to employment agreements containing non-compete and/or non-solicitation provisions, and which, due to accelerating market forces, experience significant merger activity.

In a recent first-impression decision by an intermediate appellate court in Colorado, the court denied enforcement of non-compete and liquidated damages provisions in an anesthesiologist’s shareholder employment agreement following his dissent from a merger. While the decision explicitly refused to construe the agreement’s enforceability without consideration of the dissenter’s statutory rights, implicitly it left undecided whether a firm can contract around those rights to enforce restrictive covenants against a dissenter who exits the practice and competes post-merger. Continue Reading You Dissented From a Merger. Are You Bound by Your Non-Compete?

P'shipIn the early 1990’s New York enacted its version of the Revised Uniform Limited Partnership Act (NYRULPA), codified in Article 8-A of the New York Partnership Law §§ 121-101 et seq. The law’s modernized features include in §§ 121-1101 through 1105 provisions for the merger and consolidation of limited partnerships along with the right of dissenting limited partners to be paid “fair value” for their partnership interests as determined in an appraisal proceeding.

You can count on one hand the number of published New York court decisions over the last 25 years dealing with dissenting limited partners. In fact, until this year, it’s possible you could count the number on one finger, that being the Court of Appeals’ 2008 ruling in the Appleton Acquisition case which I wrote about here. Appleton held that a limited partner may not bring an action seeking damages or rescission based on allegations of fraud by the general partner in connection with a merger transaction, and that the statutory appraisal proceeding is the exclusive remedy for such claims. Appleton never reached the issue of appraisal.

It therefore appears that last month’s decision by Manhattan Supreme Court Justice Geoffrey D. Wright in Levine v Seven Pines Associates L.P., 2015 NY Slip Op 30138(U) [Sup Ct NY County Jan. 28, 2015], may be the first published ruling that addresses issues attendant to a fair value determination in a dissenting limited partner case under NYRULPA.

Now, if you’re hoping for a meaty decision that delves into the fine points of appraisal methodology, Levine is not your case. Rather, Levine was decided on pre-trial motions to fix a date for an appraisal hearing and to compel the respondent limited partnership to provide certain pre-trial disclosure. In addition, the procedural aspects of the dissenting limited partner provisions in § 121-1105 expressly piggyback on the well-established procedures set forth in § 623 of the Business Corporation Law dealing with dissenting shareholders. Still, the issues decided in Levine serve up some useful pointers for practitioners. Continue Reading Decision in Dissenting Limited Partner Case Directs Fair Value Hearing, Grants Discovery

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