Effect of Conversion
Rodrigue v. Lowe’s Home Centers, LLC, 20-CV-1127, decided February 17, 2023. The U.S. District Court, Eastern District of New York, granted the motion for summary judgment in favor of the defendant, a North Carolina LLC that was originally formed as a corporation but that converted to an LLC by filing Articles of Organization and Articles of Conversion with the North Carolina Secretary of State. While still a corporation, the defendant became authorized by the New York Department of Labor to pay manual laborers bi-weekly. The plaintiff filed a class action against the LLC alleging that it was violating the law by paying him and other members of the class bi-weekly because it was the North Carolina corporation that was authorized. The court pointed out that North Carolina law makes it clear that the corporation and LLC were not separate employers. A corporation’s conversion to an LLC does not constitute a termination of the converting entity. The North Carolina corporation still exists even though it changed its name and organizational form.
Worthy Lending LLC v. New Style Contractors, Inc., 2022 NY Slip Op 06631, decided November 22, 2022. The New York Court of Appeals held that UCC Sec. 9-607 does not prevent a secured creditor and its borrower from deciding that the secured creditor can enforce the borrower’s rights against the borrower’s account debtors. And furthermore, pursuant to Sec. 9-406, an assignee includes a holder of a presently exercisable security interest in an assignor’s receivables and thus, that holder can bring a suit pursuant to UCC Sec. 9-607. The court reversed the Appellate Division, which had affirmed the trial court’s dismissal of a suit brought by a secured creditor against its borrower’s account debtor to recover payments due the borrower, even though their security agreement gave the secured creditor the right to require the borrower’s account debtors to pay it directly. The Appellate Division had held that a secured creditor could not bring an action under UCC 9-607 because it was not an assignee.
What Constitutes Doing Business
Cleveland Marble Mosaic Co. v. Bette & Cring, LLC, 20-cv-01636 (N.D.N.Y. 2021), decided August 9, 2021. The U.S. District Court, Northern District of New York held that a foreign corporation was not doing business in New York and therefore could maintain its lawsuit even though it was not qualified to do business. The corporation was a subcontractor on a construction project in New York. It did not have an office in New York or advertise in New York, and it used materials constructed in Ohio and shipped to New York. In addition, in the last ten years it only participated in four projects in New York and spent a total of six months in New York. Thus, its intrastate activities were not permanent, continuous, or regular.
Doe v. Bloomberg, L.P., 2021 NY Slip Op 00898, decided February 11, 2021. The New York Court of Appeals held that where a plaintiff’s employer is a business entity, the shareholders, agents, limited partners and employees of that entity are not employers within the meaning of the New York City Human Rights Law. Therefore, the defendant in this case could not be held vicariously liable as an employer based on his status as an owner and officer of the company.
Trenton Business Assistance Corporation v. O’Connell, 2021 NY Slip Op 00892, decided February 10, 2021.The New York Supreme Court, Appellate Division, held that Sec. 1411(f) of the Not-for-Profit Corporation Law, which provides for a tax exemption for corporations incorporated or reincorporated under Sec. 1411, as applied to the plaintiff, a New Jersey not-for-profit corporation, did not violate the Equal Protection Clause or the Commerce Clause.
LLC – Appraisal Remedy
Farro v. Schochet, 2021 NY Slip Op 00150, decided January 13, 2021. The New York Supreme Court, Appellate Division, held that a former member of a New York LLC whose membership was terminated by a cash out merger, and who asserted his appraisal rights, could not bring an action alleging derivative and direct claims of breach of fiduciary duty in connection with the merger, or seek recission of the merger. Limited Liability Company Law Sec. 1002 provides that after a merger a dissenting member’s remedy is limited to seeking an appraisal of the fair value of his or her membership interest.
Fiduciary Duties in LBO
In re Nine West LBO Securities Litigation, CA 20-2941, decided December 4, 2020. The U.S. District Court, Southern District of New York, denied a motion to dismiss claims brought by a bankruptcy trustee of a Pennsylvania corporation against its directors for breach of fiduciary duties in approving a leveraged buyout. The complaint contained sufficient allegations that the directors recklessly failed to conduct a reasonable investigation into whether the LBO would render the corporation insolvent despite the existence of several red flags.
Not-For-Profit Corporation Whistleblowers
Ferris v. Lustgarten Foundation, 2020 NY Slip Op 07357, decided December 9, 2020. The New York Supreme Court, Appellate Division, held that Sec. 715-b of the Not-For-Profit Corporation Law creates an implied private right of action for employees who are retaliated against or subject to adverse employment consequences as a result of whistleblowing activities.
Board of Managers of the 28 Cliff Street Condominium v. Maguire, 2020 NY Slip Op 06844, decided November 19, 2020. The New York Supreme Court, Appellate Division, reversed the trial court’s ruling that the president of the board of managers of an unincorporated condominium association was entitled to indemnification of her expenses in defending herself against a dismissed derivative suit under the indemnification provisions of the Business Corporation Law. The court held that the trial court erred in finding that the BCL provisions applied because neither the Condominium Act nor bylaws addressed the issue. According to the court the BCL indemnification provisions do not apply to condominiums that choose not to incorporate.
Celauro v. 4C Foods Corporation, 2020 NY Slip Op 05716, decided October 14, 2020. The New York Court of Appeals, Appellate Division held that majority shareholders in a closely held corporation with feuding shareholders did not breach their fiduciary duty to the minority shareholder by declining to consent to a transfer of stock that would have given him enough stock to seek judicial dissolution of the corporation. The majority was acting to protect the corporation’s day to day operations.
Expulsion of Member
Garcia v. Garcia, 2020 NY Slip Op 05725, decided October 14, 2020. The New York Court of Appeals, Appellate Division held that the expulsion of a member by the vote of 2 of the LLC’s 3 members was proper where the LLC’s operating agreement established that members could be expelled and required a majority vote to take any action on behalf of the LLC.
LLC – Fiduciary Duty
McKinnon Doxsee Agency, Inc. v. Gallina, 2020 NY Slip Op 05499, decided October 7, 2020. The New York Supreme Court, Appellate Division held that the defendant, a member of an LLC’s board of directors, and employee of the LLC’s controlling member, owed a fiduciary duty to the LLC, which he breached by copying the controlling member’s customer files and soliciting their clients before resigning as a director and leaving his job.
Member’s Authority to Act
Favourite Limited v. Cico, 2020 NY Slip Op 01463, decided March 3, 2020. The New York Supreme Court, Appellate Division held that a Delaware LLC whose certificate of formation was cancelled lacked standing or capacity to commence a lawsuit. A member claimed to have obtained a certificate of revival. However, the operating agreement provided that no member had a right to bind the LLC and no member acting solely had authority to act on the LLC’s behalf. Therefore the certificate of revival was unauthorized.
Transfer of Membership Interest
Behrend v. New Windsor Group, LLC, 2020 NY Slip Op 00841, decided February 5, 2020. The New York Supreme Court, Appellate Division held that even if the plaintiff purchased the 50% interest in a New York LLC – which the defendant disputed – it would not make him a member because the other members did not consent to his becoming a member as required by the operating agreement.