Last week, this blog wrote about a decision by Manhattan Commercial Division Justice Saliann Scarpulla in the burgeoning Yu family melee, in that case pitting one brother against the other and their sister over dissolution of two single-asset real estate holding LLCs. In her decision, Justice Scarpulla denied dissolution of the LLCs, despite the plaintiff’s allegations that his brother and sister had a personal “vendetta” against him, which they carried out by amending the operating agreement to remove the plaintiff as a manager, authorizing a mandatory capital, and, when he was unable to meet the capital call, foreclosing on his membership interest.

This week, we look at a companion decision by Justice Scarpulla, issued the same day as the first, expanding the intra-family brouhaha to include the three siblings’ parents. In Matter of Yu v Bong Yu, 2018 NY Slip Op 32009(U) [Sup Ct, NY County Aug. 15, 2018], the court considered the important but novel question of what impact, if any, does a shareholder’s assignment of voting rights under a stock pledge agreement have on his or her standing to sue for statutory dissolution of the business as well as under the common law. Continue Reading Stock Pledge Agreement Defeats Minority Shareholder’s Standing to Sue for Statutory But Not Common-Law Dissolution

When you want to sue to dissolve a business in New York on behalf of the estate of a deceased shareholder, to which court should you go: Supreme or Surrogate’s Court?

For many practitioners, the Commercial Division of the Supreme Court, a specialized court in New York focusing on complex business-related disputes, is the venue of choice. Most types of disputes have a minimum monetary threshold for eligibility in the Commercial Division. Manhattan’s threshold is the highest – $500,000.  The rules of eligibility for cases to be heard in the Commercial Division, which you can read here, have three exceptions to the monetary threshold – one of which lists “[d]issolution of corporations, partnerships, limited liability companies, limited liability partnerships and joint ventures — without consideration of the monetary threshold.” In part because there is no monetary threshold for dissolution proceedings, practitioners in the several New York counties that have a Commercial Division usually litigate business dissolution disputes in the Commercial Division.

But once in a blue moon a dissolution case will wind up in the Surrogate’s Court. Continue Reading Surrogate’s Court Declines to Order Demise of Fashion Business

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

DouglasMollThe combination of majority rule and lack of exit rights leaves minority members of LLCs vulnerable to freeze-out and other oppressive conduct by the majority, yet unlike in the large majority of states which provide statutory dissolution and buy-out remedies to oppressed minority shareholders in close corporations, most states (including New York) do not offer similar protection and remedies for minority LLC members.

Perhaps no one has studied and written about the problem of minority oppression in LLCs and other closely held business entities more and with greater insight than Professor Douglas K. Moll, who teaches at the University of Houston Law Center. Back in 2009 I posted here an online interview of Doug on the subject of shareholder oppression in closely held corporations, in which he also commented on minority oppression in LLCs.

Since then the LLC’s growing hegemony has continued full throttle, with that form of business entity in most if not all states far surpassing the traditional corporation as the preferred form for newly formed firms, making all the more pressing the problem of trapped-in minority LLC members. A few months ago, Doug posted at the Business Law Prof Blog a short piece called Minority Oppression in the LLC in which he echoed many of the themes more fully developed in his 2005 article in the Wake Forest Law Review called Minority Oppression & The Limited Liability Company: Learning (or Not) from Close Corporation History (available here on SSRN). Continue Reading Minority Oppression in LLCs: Interview With Professor Douglas Moll