Earlier this year, to honor the retirement of former Manhattan Commercial Division Justice Shirley Werner Kornreich, we published a special retrospective of some of her most notable business divorce decisions. This month, two of her former colleagues, Manhattan Commercial Division Justices Eileen Bransten and Charles E. Ramos, are themselves retiring. Justice Bransten concludes 25 years a jurist; Justice Ramos, 35 years on the bench.

With the departure of these two judicial titans, we here at New York Business Divorce thought it fitting to take another stroll down memory lane with a retrospective of some of their most significant contributions to New York’s business divorce jurisprudence. As Justice Ramos is senior career-wise, he will go first.

Three Memorable Decisions from Justice Ramos

For Justice Ramos, we focus on three LLC cases.

In the first, Roni LLC v Arfa, Mem. Decision, Index No. 601224/2007 [Sup Ct, NY County Apr. 14, 2009], Justice Ramos considered the important, first-impression question of whether LLC “promoters” or “organizers” (those who form the entity) owe fiduciary duties to investors / future LLC members. Continue Reading A Fond Adieu to Two Giants of the Manhattan Commercial Division Bench

New York’s statutory default rules governing transfer of LLC membership interests, codified in LLC Law §§ 603 and 604, authorize an “assignment” of the economic rights associated with the interest but condition the assignee’s attainment of full member status, inclusive of voting and management rights, on the consent of a majority of the LLC’s members other than the assignor.

The overwhelming majority of LLC agreements I’ve come across flip the default rule and prohibit all manner of assignment absent the other members’ or managers’ consent and/or is made subject to a right of first refusal. Most agreements take it a step further, also banning or heavily restricting a member’s right to pledge or grant a security interest in his or her interest.

Prohibitions and restrictions of this type promote a variety of interests, first and foremost among them the “pick your partner” principle. Another such interest is maintaining the balance of voting power and management control within multi-member LLCs. The latter interest was crucial in the Delaware Chancery Court’s 2011 ruling in the Achaian case, about which I wrote here, in which a 50/50 deadlock requiring dissolution ensued when the court construed disputed language in the LLC agreement to permit a 25% member to transfer full membership rights to another 25% member without the third, 50% member’s consent.

Shao v. Li, 2013 NY Slip Op 51079 (U) (Sup Ct NY County July 9, 2013), decided last week by Manhattan Commercial Division Justice Charles E. Ramos, offers another interesting look at the subject. Shao involved an effort to circumvent the LLC agreement’s membership interest transfer restrictions by fashioning an agreement between two of the LLC’s three members that characterized the conveyance of economic, management and voting rights from one to the other as a permitted “pledge” in the form of a collateral assignment and security interest. Justice Ramos agreed with the aggrieved third member that the transaction was an outright assignment (sale) of the membership interest rather than a collateral assignment, thereby resulting in a prohibited transfer of the membership interest. Continue Reading When is Permitted Collateral Assignment of LLC Membership Interest a Prohibited Sale?