Business Divorce Cases of 2021

February 25, 2022

Selecting the most noteworthy decisions from a year’s worth of business divorce cases normally is a daunting challenge given the volume and diversity of such cases involving corporations, partnerships, and the new, reigning champion among closely held business entities—the LLC. But not for 2021, a year in which a series of important rulings by the Commercial Division and the Appellate Division, First, Second, and Fourth Departments, unquestionably led the pack in clarifying both substantive and procedural rules governing disputes among business co-owners.

Cases of the procedural ilk highlighted in this year’s review include a decision declining subject matter jurisdiction in a dissolution case involving a foreign LLC despite a forum selection clause placing jurisdiction exclusively in New York courts, and a decision granting judicial dissolution in a summary proceeding where the respondents failed to proffer evidentiary support for their position or to request an evidentiary hearing.

On the substantive side, this year’s review features decisions holding that common law dissolution is not an available remedy for LLCs; that allegations of oppression and squeeze-out typically found adequate in dissolution cases involving close corporations generally do not have traction in LLC cases; that noncompliance with notice provisions in an operating agreement will invalidate dilutive capital calls; and, in what likely is last year’s most consequential decision, that the fraud/illegality exception to the exclusive appraisal remedy following a cash-out merger involving a close corporation does not apply to cash-out mergers involving LLCs.

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