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Legislative updates

Assembly Bill 3006, effective January 1, 2023, amends the entity laws regarding service of process. See Part KK.s


Senate Bill 2508, effective April 7, 2021, amends the Executive Law by permanently authorizing the Department of State to provide multiple levels of expedited service. See Part N.


Senate Bill 3917, effective April 6, 2021, amends the business corporation law regarding electronic consents to action by directors and amends the business corporation and not-for-profit corporation laws regarding remotely held shareholder and member meetings, respectively.


Assembly Bill 969, effective as indicated in the Bill, amends the Not-for-Profit Corporation Law regarding public cemetery corporations.


Assembly Bill 9089, effective December 23, 2020, amends the Not-for-Profit Corporation Law regarding the mergers of public cemetery corporations.


Senate Bill 4278/Assembly Bill 6330, enacted the “Women on Corporate Boards Study” law. This law, which is effective June 27, 2020, requires the New York Department of State and the Department of Taxation and Finance to conduct a study on the number of women directors who serve on each board of directors of domestic corporations and foreign corporations authorized to do business in New York.


Senate Bill 8412, effective June 17, 2020 and for the time periods specified therein, amends the business corporation law regarding director consents to action without a meeting; and amends the business corporation and nonprofit corporation laws regarding shareholder and member meetings, respectively.


Executive Order 202.18 suspends a provision in the Not-for-Profit Corporation Law to allow annual meetings of members to be conducted remotely.


Senate Bill 7508 (See Part R), effective April 3, 2020 and deemed to be in effect on and after March 31, 2020, amends the Executive Law by extending authorization for the Department of State to provide multiple levels of expedited service.


Executive Order No. 202.8, effective March 20, 2020 until April 19, 2020, suspends Section 602(a) and Section 605(a) and (b) of Section 605 of the Business Corporation Law to the extent they require meetings of shareholders to be noticed and held at a physical location.


Executive Order 10 2020 (No. 202.5), issued and effective March 18, 2020 through April 17, 2020, suspends the effectiveness of section 708(b) of the Business Corporation Law to the extent necessary to permit business corporations to take any action otherwise permitted under that section with the electronic consent of the members of the board of directors or committee thereof under conditions prescribed in the Order.


Case summaries

Personal Liability
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.


Not-For-Profit Corporation
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.


Indemnification
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.


Fiduciary Duty
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.


Other notices

There are no new notices at this time.