The Business Divorce Law Report

November 9, 2016

Consent to Amended LLC Certificate is Dissociation

We often think of the dissociation of a member from a limited liability company as a matter of expulsion. The majority typically wants to expel a problematic minority member from the LLC.

But one can also dissociate themselves by resigning as member, or, under the Revised Uniform Limited Liability Company Act (RULLC), by giving notice of their express will to withdraw as a member. This lawsuit tells us that there are no specific words required; the intent to quit if expressed to the LLC, will be sufficient.

Dissociation by Express Will of Member

November 1, 2016

LLC Distribution Needs Definition

by Jay R. McDaniel, Esq.

The Appellate Division sent a case back to the trial judge to figure out exactly what the owners of an LLC meant in a settlement agreement when it referred to when it linked a contingent payment to a “distribution.”

The case, which involves a relatively modest amount in dispute, is a cautionary tale arising from the use of a statutorily defined term in a context in which it just wasn’t clear what the parties were referring to. One of the parties pointed to the dictionary and the other the text of the statute.

Be Careful with that Word

October 27, 2016

LLC Member Enjoined from Competition

by Jay R. McDaniel, Esq.

An LLC member breached his fiduciary duty by competing with his own company, a trial court in New York City holds in issuing an injunction against one of the principals of a successful company that makes automated parking systems.

The case involves the company that makes Parkmatic parking systems, mechanical stickers and carousels for parking cars in limited spaces. The complaint in Zacharias v. Wassef alleges that the defendant Max Wassef responded to complaints of misconduct by his partner Zacharias by forming a new company to siphon off business using the Parkmatic name.

Limited Liability Company Member Claims Unfair Competition by Manager

October 26, 2016

Plaintiff Alleges Wrong in Derivative Suit Against Managers

by Jay R. McDaniel, Esq.

New York has recognized the right of limited liability company members and managers to bring derivative claims – that is, claims belonging to the LLC – against other members or managers. But, the derivative plaintiff needs to beware of the demand requirement or face having their case dismissed.

Derivative Suit Seeks Recovery for LLC of Management Fees

In a derivative case, the plaintiff is actually asserting a claim that belongs to the company. If there is a recovery, it goes to the company and the derivative plaintiff only gets individually what may, or may not, be passed through to the equity members. The law even provides for an award of attorney’s fees in some derivative cases to encourage shareholders or members to police the business.

October 26, 2016

Claims for Judicial Dissolution Not Easily Withdrawn

by Jay R. McDaniel, Esq.

New York’s oppressed shareholder statute has a unique provision that was initially intended to prevent the oppressed shareholder from destroying a viable business. That is because the New York statute otherwise gives the court only two options: send the oppressed shareholder away or force the dissolution of the business.

Other states give court’s more discretion, and a judge also has the ability to force a sale of an interest. New York’s statutory scheme, however, takes a different approach. (See our discussion here of some of the quirks of New York’s oppressed shareholder statute: Business Divorce New York Style.) One of the wrinkles in the statute, however, is that once a litigant invokes the oppressed shareholder provision in Business Corporations Law § 1104-a, it’s very difficult to stop the process.

Peter Mahler’s New York Business Divorce blog reports on an decision by a trial judge in Nassau County’s commercial part who declines to allow the plaintiff to withdraw a claim under BCL 1104-a. In that case, the plaintiff tried to get out of the substantive and procedural limitations that flow from the conclusory assertion of a claim under 1104-a.

October 26, 2016

Court Appoints Receiver to Protect Partnership Assets

by Jay R. McDaniel, Esq.

See Court Appoints Receiver to Protect Partnership Assets

Courts loathe the appointment of receivers. First, it is often the death knell to any viable business. The appointment of a receiver is commonly good cause to default on virtually any well-drawn contract, and it send anyone otherwise interested in doing business running for cover.

However, when the dysfunction of the partnership puts the assets of the partnership at risk, a Court can and should appoint a receiver, holds the Appellate Court of Illinois in Schultz v. Halpin, 2016 IL App (3d) 160210-U (Ill. App., 2016) . Partnership Assets Must Be Protected in Dispute Says Court

October 25, 2016

Who’s the Agent Here? Partners’ Ability to Act for the Partnership

by Jay R. McDaniel, Esq.

It is not unusual that a dispute between the owners of a closely held business also involves a dispute about the authority of one of the owners to act as agent for the entity. We had a recent case, for example, in which a central issue was whether the manager of a limited liability company exercised his business discretion in a way that was in the best interests of the business.

Once that dispute was on the table, we had to look at whether the manager had express or implied authority to act — in this case to hire a third party — and whether that exercise of authority was within the scope of the generally delegated authority provided to the manager by the operating agreement, or required an affirmative vote of the owners.

Professor Douglas Moll, writing on the law professors blog, parses the issues nicely under the most recent iteration of the Uniform Partnership Act, which has been widely adopted by state legislatures. For Professor Moll, the question of authority turns on the extent to which an ordinary business transaction is involved.

October 25, 2016

Court Appoints Receiver to Protect Partnership Assets

by Jay R. McDaniel, Esq.

Court Appoints Receiver to Protect Partnership Assets Courts loathe the appointment of receivers. First, it is often the death knell to any viable business. The appointment of a receiver is commonly good cause to default on virtually any well-drawn contract, and it send anyone otherwise interested in doing business running for cover.

However, when the dysfunction of the partnership puts the assets of the partnership at risk, a Court can and should appoint a receiver, holds the Appellate Court of Illinois in Schultz v. Halpin, 2016 IL App (3d) 160210-U (Ill. App., 2016).

Partnership Assets Must Be Protected in Dispute Says Court

October 10, 2016

An Apology at the Bargaining Table

by Jay R. McDaniel, Esq.

One of the hardest things about being an effective negotiator is the ability to leave your ego at the door. We need to listen, not impress.

Seasoned Negotiators, Effective Apologies

As negotiation trainer Jim Camp warns, an effective negotiator learns how to let the other side be “ok,” even when you’re not. The fact is that no matter how well we listen, no matter how well we employ our negotiator’s tool kit to learn the real interests of the other side, we’re going to make mistakes.

October 8, 2016

Partnership Dissolution Cannot Be Inferred

by Jay R. McDaniel, Esq.

When is a partnership dissolution not a dissolution? When the partnership is not subjected to the formal dissolution procedures, even if it appears that the Court may have intended otherwise.

Express Finding of Dissolution of Partnership Required

That was the result of a split decision of the Fifth Circuit Court of Appeals, coming some 14 years into the business divorce litigation between the partners to an oil well drilling venture, in Akuna Matata Investments Ltd. v. Texas No Limited Partnership. The Court affirmed a trial court decision terminating the partnership and awarding one of the partners a share of unpaid partnership profits.