Top 10 Business Divorce Cases of 2017
January 02, 2018
I’m delighted to present my 10th annual list of this past year’s ten most significant business divorce cases.
This year’s list includes seven noteworthy appellate decisions, two of which — Mace v Tunick and Shapiro v Ettenson — are poised to have major impact on future operating agreements and business divorce cases involving LLCs.
The growing dominance of the LLC as the preferred choice of business entity also is reflected in this year’s list, all but three of which resolve disputes among members of LLCs.
Rounding out the list are two decisions, in the Kassab and Levine cases, involving interesting and important issues in fair value contests.
All ten decisions were featured on this blog previously; click on the case name to read the full treatment. And the winners are:
- Mace v Tunick, 153 AD3d 689, 2017 NY Slip Op 06170 [2d Dept Aug. 16, 2017], in which the appellate court construed an LLC operating agreement’s “any lawful business” purpose clause as stating no purpose, reversed the lower court’s dismissal of the minority member’s dissolution claim, and remanded the case for an evidentiary hearing as to the LLC’s purpose.
- Shapiro v Ettenson, 146 AD3d 650, 2017 NY Slip Op 00442 [1st Dept Jan. 24, 2017], in which the appellate court construed LLC Law § 402 (c) (3) as permitting a majority of the LLC’s members to adopt an enforceable operating agreement almost two years after the LLC’s formation without the consent or signature of the minority member.
- Jacobs v Cartalemi, __ AD3d __, 2017 NY Slip Op 08521 [2d Dept Dec. 6, 2017], in which the appellate court held that a minority member who voluntarily withdrew from the LLC was not entitled to a fair-value buyout under LLC Law § 509 based on the operating agreement’s superseding right-of-first-refusal provisions.
- LNYC Loft, LLC v Hudson Opportunity Fund I, LLC, 154 AD3d 109, 2017 NY Slip Op 06147 [1st Dept Aug. 15, 2017], in which the appellate court held that the controller defendants of the LLC could not appoint an outside person as the Special Litigation Committee to examine the merits of the plaintiff’s claims, absent authorization in the operating agreement.
- Matter of Levine v Seven Pines Associates L.P., __ AD3d __, 2017 NY Slip Op 08740 [1st Dept Dec. 14, 2017], in which the appellate court struck a minority discount but upheld a 16% discount for lack of marketability in a proceeding to determine the statutory fair value of a 4% interest in a realty-owning limited partnership.
- Estate of Calderwood v ACE Group International LLC, __ AD3d __, 2017 NY Slip Op 08750 [1st Dept Dec. 14, 2017], involving a Delaware LLC in which the court held that the operating agreement’s provisions limiting the rights of the deceased member’s estate precluded the estate’s claim to full membership rights under Delaware statutory law.
- Matter of Twin Bay Village, Inc., 153 AD3d 998, 2017 NY Slip Op 06024 [3d Dept Aug. 3, 2017], in which the appellate court affirmed an order dissolving a family-owned corporation that operated a lakeside resort based on a series of flagrantly oppressive actions by the controlling faction, as found by the court-appointed referee in his exhaustive post-hearing report.
- Kassab v Kassab, 56 Misc 3d 1213(A), 2017 NY Slip Op 50986(U) [Sup Ct Queens County Aug. 3, 2017], in which the trial court conditionally granted a minority shareholder’s petition to dissolve a realty-owning corporation co-owned by his brother based largely on post-petition oppressive conduct, and ordered a buyout based on the court’s fair-value determination that excluded any discount for lack of marketability.
- Tungsten Partners LLC v Ace Group International LLC, 2017 NY Slip Op 32025(U) [Sup Ct NY County Sept. 20, 2017], involving the same Delaware LLC at issue in the Estate of Calderwood case (#6 above), in which the trial court held that the holder of a 4% non-voting profits interest, nonetheless identified in the operating agreement as a “Management Member,” was entitled to inspect the LLC’s books and records.
- Matter of Felzen v PEI Mussel Kitchen, LLC, 2017 NY Slip Op 31831(U) [Sup Ct NY County Sept. 1, 2017], in which the trial court summarily dismissed a minority member’s bid to dissolve an LLC that operates a pair of restaurants, holding that the plaintiff’s allegations did not suffice to show that the LLC was financially infeasible or was not being operated in conformity with its stated purpose in the operating agreement.