978-1285770178 Case Printout Case CPC-03-05

N.Y.A.D. 2 Dept.,2010.

In re 1545 Ocean Ave., LLC

72 A.D.3d 121, 893 N.Y.S.2d 590, 2010 N.Y. Slip Op. 00688

241Ek49 k. Conversion, merger, and dissolution. Most Cited Cases

STEVEN W. FISHER, J.P., MARK C. DILLON, HOWARD MILLER, CHERYL E. CHAMBERS, and LEON-

ARD B. AUSTIN, JJ.

AUSTIN, J.

On November 15, 2006, two membership certificates for 50 units each were issued respectively to Crown Royal and

the appellant, Ocean Suffolk Properties, LLC (hereinafter Ocean Suffolk).

On the same date that the membership certificates were issued, an operating agreement was executed by Ocean Suf-

folk and Crown Royal. The operating agreement provided for two managers; Walter T. Van Houten (hereinafter Van

It was agreed by Van Houten and King that they would solicit bids from third parties to perform the necessary dem-

olition and construction work to complete the project. Van Houten, who owns his own construction company, Van

managers.

started without the necessary building permits. In addition, King claimed that VHC did not have the proper equip-

ment to efficiently do the excavation and demolition work, causing the billing to be greater than necessary. VHC

billed 1545 LLC the sum of $97,322.27 for this work. King claims that he agreed 1545 LLC would pay VHC’s in-

voice on the condition that it would no longer unilaterally do work on the site. Notwithstanding King’s demand,

VHC continued working on the site. Despite his earlier protests, King did nothing to stop it.

that the only significant dissension among the members arose from the inability of the parties to agree on a buy-out

of each other’s interest in 1545 LLC. Significantly, Van Houten alleged, without dispute, that the renovation of

Building A was within three to four weeks of completion when this proceeding was commenced.

Van Houten also contended that, as a result of King’s resignation as a managing member, Crown Royal could not

reasonably claim that a deadlock existed. Moreover, there is no evidence that King complied with article 4.8 of the

operating agreement by submitting a written resignation. Nevertheless, by May 10, 2007, in anticipation of a buy–

out of the Crown Royal interest in the venture, the parties were operating as if Van Houten was the sole managing

member of 1545 LLC. Indeed, throughout the negotiations for the buy-out, the renovation work on Building A con-

tinued.

practicable to carry on the business in conformity with the articles of organization or operating agreement” (em-

phasis added).

The LLCL came into being in 1994. Many of its provisions were amended in 1999 (L. 1999, ch. 420) to track

changes in federal tax code treatment of such entities (see Mahler, When Limited Liability Companies Seek Judicial

remain the sole basis for judicial dissolution of a limited liability company (see McKinney’s Statutes §§ 74, 153,

191). Phrased differently, since the Legislature, in determining the criteria for dissolution of various business entities

in New York, did not cross-reference such grounds from one type of entity to another, it would be inappropriate for

this Court to import dissolution grounds from the Business Corporation Law or Partnership Law to the LLCL.

Such standard, however, is not to be confused with the standard for the judicial dissolution of corporations (see

Business Corporation Law §§ 1104, 1104-a) or partnerships (see Partnership Law § 62) (see Widewaters Herkimer

Co., LLC v. Aiello, 28 A.D.3d 1107, 1108, 817 N.Y.S.2d 790 [Appellate Division, Fourth Department, held that the

defendants did not plead the requisite grounds for dissolution of a limited liability company in pleading the corpo-

rate dissolution standard of “oppressive conduct”]; see also Matter of Horning v. Horning Constr., LLC, 12 Misc.3d

103[a]; emphasis added). The grounds for judicial dissolution of a corporation are set forth in article 11 of the Busi-

ness Corporation Law.

The language of LLCL 702 appears to be borrowed from Revised Limited Partnership Act (Partnership Law) § 121–

802 (dissolution is authorized when it is “not reasonably practicable to carry on the business in conformity with the

partnership agreement”) and Partnership Law § 63(1)(d), in which dissolution is permitted, inter alia, where a part-

ner’s conduct of the partnership business makes it “not reasonably practicable to carry on the business in partnership

or more persons having limited liability … other than a partnership or trust” (LLCL 102[m] ). Thus, the existence

and character of these various entities are statutorily dissimilar as are the laws relating to their dissolution (compare

Business Corporation Law art. 11; Partnership Law §§ 62, 63; LLCL 702). Indeed, it was found to be improper to

apply partnership dissolution standards to a cause for dissolution of a limited liability company (see Matter of Spires

v. Lighthouse Solutions, 4 Misc.3d at 431, 778 N.Y.S.2d 259).

es presented, whether it is or is not “reasonably practicable” for the limited liability company to continue to carry on

its business in conformity with the operating agreement (id. at 433, 778 N.Y.S.2d 259). Thus, the dissolution of a

limited liability company under LLCL 702 is initially a contract-based analysis.

[2] Section 102(u) of the LLCL defines “operating agreement” as “any written agreement of the members concern-

[3] The operating agreement of 1545 LLC does not contain any specific provisions relating to dissolution. It pro-

vides only in article 1.5 that “(t)he Company’s term is perpetual from the date of filing of the Articles of Organiza-

tion … unless the Company is dissolved.”

Houten, communicated with each other on a regular basis without the formality of a noticed meeting which appears

to conform with the spirit and letter of the operating agreement and the continued ability of 1545 LLC to function in

that context.

King and Van Houten did not always agree as to the construction work to be performed on the 1545 LLC property.

ited liability company is unable to function as intended or that it is failing financially (see Schindler v. Niche Media

Holdings, 1 Misc.3d 713, 716, 772 N.Y.S.2d 781). Neither circumstance is demonstrated by the petitioner here. On

the contrary, the purpose of 1545 LLC was feasibly and reasonably being met.

The “not reasonably practicable” standard for dissolution of limited liability companies and partnerships has been

the economic purpose of the limited liability company is not met, dissolution is appropriate (see Kirksey v.

Grohmann, 754 N.W.2d 825 [S.D. 2008] ). Several courts take the view that the “not reasonably practicable” stand-

ard should be read as “capable of being done logically and in a reasonable, feasible manner” (Taki v. Hami, 2001

WL 672399, *6 [Mich.App. 2001] [dissolution granted where the two partners had not spoken in years and there

were allegations of violence and expulsion] ), or as “one of reasonable practicability, not impossibility” ( PC Tower

Agreement, unless the approval of more than one of the Managers is expressly required pursuant to the Agreement

or the Act” (emphasis added).

This provision does not require that the managers conduct the business of 1545 LLC by majority vote. It empowers

each manager to act autonomously and to unilaterally bind the entity in furtherance of the business of the entity. The

or because events have not turned out exactly as the LLC’s owners originally envisioned; such events are, of

course, common in the risk-laden process of birthing new entities in the hope that they will become mature, prof-

itable ventures. In part because a hair-trigger dissolution standard would ignore this market reality and thwart the

expectations of reasonable investors that entities will not be judicially terminated simply because of some market

turbulence, dissolution is reserved for situations in which the LLC’s management has become so dysfunctional or