Tuesday, February 26, 2013

Matter of 1545 Ocean Ave., LLC case brief

Matter of 1545 Ocean Ave., LLC case brief summary
72 A.D.3d 121

-Respondent petitioning member brought a proceeding against appellant responding member, seeking dissolution of a limited liability company (LLC) pursuant to Limited Liability Company Law § 702. The Supreme Court, Suffolk County (New York), granted the petition for dissolution. The responding member appealed.

-1545 Ocean Avenue, LLC was an LLC with two members: Crown Royal Ventures, LLC (plaintiff) and Ocean Suffolk Properties, LLC (defendant).
-Crown Royal and Ocean Suffolk held an equal stake in 1545 LLC, which they formed for the purpose of rehabilitating one structure and building another.
-The LLC was run by two managers, one from each member: Walter Van Houten was a member of Ocean Suffolk, and John King was a member of Crown Royal.
-Van Houten also owned and operated a construction company, Van Houten Construction. -Disagreements soon arose between the two.
-Though the two managers agreed to solicit third-party bids for construction work, VHC began performing work on the property.
-Ocean Suffolk claimed that King consented to VHC’s work, while King said Van Houten acted unilaterally.
-King claimed VHC had overbilled for this and other work and that Van Houten refused to meet regularly with him.
-King did, however, concede that VHC did good work.
-Nonetheless, due to these disagreements, King sought to have Ocean Suffolk buy out Crown Royal’s interest in 1545 LLC.
-When this was unsuccessful, Crown Royal petitioned the court for dissolution, citing deadlock.
-The LLC’s operating agreement did not specifically address dissolution, and also stated that any individual manager may unilaterally take any action not prohibited by the agreement, unless the agreement or the LLC law specifically requires the approval of more than one manager.
-The sole ground for dissolution cited was deadlock between the two managers arising from alleged violations of the operating agreement.
-There was no allegation of fraud or frustration of the LLC's purpose.

-The appellate court found that the operating agreement did not require regular meetings or quorums and contained no provisions relating to dissolution.

-The record showed that the managers communicated with each other on a regular basis without the formality of a noticed meeting.
-There was no showing that the LLC was unable to function as intended or that it was failing financially.
-On the contrary, the LLC's purpose was feasibly and reasonably being met. The operating agreement was silent as to the issue of manager conflicts.
-The dispute between the managers was not shown to be inimicable to achieving the LLC's purpose. -There was no objection to the quality of construction work being done by one manager's company on the LLC's property, but only to its expense.
-The work was all but complete when this suit was brought. Beyond complaining about the cost of the work and seeking to withdraw, the petitioning member ratified the manager's unilateral efforts.

OUTCOME: The order was reversed, the petition was denied, and the proceeding was dismissed.

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