New York Business Divorce

Commentary on Dissolution and Other Disputes Among Co-Owners of Closely Held Business Entities

Latest from New York Business Divorce

Raise your hand if you think that a lawsuit for an accounting by the managers of an LLC simply means they have to turn over financial records. If you raised your hand, read on. If not, you can skip this post. Soon it will be ten years since the Appellate Division, First Department, in the Gottlieb v Northriver Trading case, recognized the common-law right of an LLC member to seek an equitable accounting by the LLC’s managers. In my post about Gottlieb
After two years, 300+ docket entries, and 12 motions, a lawsuit among members of a Delaware LLC that owned a 5-story apartment building on Manhattan’s Upper East Side (the “UES Building”) acquired to provide short-term rentals for international leisure and corporate travelers, and whose business was decimated by anti-Airbnb legislation, is barely past the pleadings stage and likely can look forward to years more litigation. Manhattan Commercial Division Justice Jennifer G. Schechter’s recent decision in Favourite Ltd. v Cico,
Last month gave us three noteworthy post-trial decisions in three different cases from three different states, all centering on disputes among business co-owners over the ownership and exploitation of the businesses’s core intellectual property. While each case stems from a unique set of facts, they all have in common failures to allocate IP ownership by means of clear contractual undertakings ex ante and/or failures to exercise due diligence at inception or during the life of the business. The first highlighted case hails…
A basic and well-known principle of partnership law is that, absent an agreement to the contrary, general partners have authority to unilaterally bind the partnership to contracts with third parties. In New York, the rule is codified in Section 20 (1) of the Partnership Law, which states: Every partner is an agent of the partnership for the purpose of its business, and the act of every partner, including the execution in the partnership name of any instrument,…
Let me say up front, I don’t claim to know the answer to the question posed in this post’s title, or pretend there’s a simple yes-or-no answer. It very well may be that the answer depends on the unique facts and circumstances in any given case, including the one discussed below. Having said that, take a look at a Schedule K-1 in the tax return of a limited liability company. I’ll make it easy; click here for the 2017…
It’s no surprise that the quorum requirements found in close corporation by-laws and LLC operating agreements rarely step into the limelight in business divorce disputes. After all, the typical quorum provision for meetings of shareholders, directors, and LLC members and managers requires attendance by a bare majority of voting shares or membership interests or, at the board or managerial level, a bare majority of the board of directors or managers. In other words, it’s usually not the holding…
When a minority shareholder petitions for judicial dissolution under § 1104-a of the Business Corporation Law based on the majority’s alleged oppressive conduct, looting, waste, or diversion of corporate assets, BCL § 1118 kicks in, granting the corporation and the other shareholders the right to halt the dissolution proceeding and to convert it to a stock appraisal proceeding, by electing to purchase the petitioner’s shares for “fair value” determined as of the day before the date on which the petition was filed. New York’s highest…
Let’s face it. In business divorce, the accounting cause of action doesn’t get a lot of love. It’s not as sexy as the torts (conversion, breach of fiduciary duty, waste, etc). It lacks the oomph of judicial dissolution. Nonetheless, accounting claims are ubiquitous in business divorce litigation, pleaded practically as a matter of course. Sometimes the claim is tacked on as if by rote, perhaps simply to beef up a petition, complaint, or counter complaint. But other times, like the books
Consider the following hypothetical: The operating agreement of an LLC vests management authority in its two members. In practice, and by informal mutual consent, only one of the members actively manages the LLC’s business and financial affairs. (Not an altogether unusual arrangement, by the way.) When things go awry between the two members, and the active member accuses the inactive member of engaging in misconduct violating fiduciary duties owed to the LLC and to the…
Over the last several years, the books-and-records proceeding and its corresponding shareholder rights of inspection seem to have entered a bit of renaissance period in the courts. We here at New York Business Divorce have reported on at least nine decisions primarily addressing the topic since September 2014, going on record to proclaim the phenomenon as a “boost” for the summary proceeding, by which minority owners in closely-held businesses can get a window…