Dissociation | Explusion Category Archives — Page 2 of 3 — The Business Divorce Law Report Published by Business Lawyer

January 27, 2017

Fight Over Transfer of Interests is Grounds to Expel Member of LLC and Partnership

An Illinois appellate court affirmed a finding of breach of fiduciary duty and the expulsion of a limited liability company member under a version of the Uniform Limited Liability Company Act. The case is of interest for the way it construes the model partnership and limited liability company acts.

Explusion of LLC Member After Transfer of Interests

The court in Kenny v. Fulton Assocs., LLC, 2016 IL App (1st) 152536 (Ill. App., 2016) holds first that under Illinois’ LLC statute the actual activities of the parties determined their fiduciary duties, not the agreements. The management of the entities were vested in one side as manager, but the day-to-day operations actually handled by the other side. The management of the business creates a fiduciary duty under Illinois law. The other significant holding is that refusing to honor a valid transfer of an interest is not just a breach of contract, but a breach of fiduciary duty. Finally, the court affirms the holding that when one of the principals is a lawyer that represents the firm, his breach of duty as an attorney is also a breach of fiduciary duty as a member or partner.

December 14, 2016

Seven Business Litigation Best Practices that Address the Lack of Civil Trials

by Jay R. McDaniel, Esq.

Here is the hard reality. The chances that your case, or any case, will get to a real trial on the merits is way less than one in 10. The truth is that only between two and five cases out of 100 will be resolved with a trial.

What does that mean for a party drawn into civil litigation? The statistics point to a group of “best practices” that effective litigation counsel should employ. It is a blend of efficient trial preparation, motion practice, management of discovery and, perhaps most of all, advanced negotiation skills. We review some of those here as a starting point for developing a case strategy.

Civil Trials in Business Litigation is a Rare Event

November 9, 2016

Consent to Amended LLC Certificate is Dissociation

by Jay R. McDaniel, Esq.

We often think of the dissociation of a member from a limited liability company as a matter of expulsion. The majority typically wants to expel a problematic minority member from the LLC.

But one can also dissociate themselves by resigning as member, or, under the Revised Uniform Limited Liability Company Act (RULLC), by giving notice of their express will to withdraw as a member. This lawsuit tells us that there are no specific words required; the intent to quit if expressed to the LLC, will be sufficient.

Dissociation by Express Will of Member

October 10, 2016

An Apology at the Bargaining Table

by Jay R. McDaniel, Esq.

One of the hardest things about being an effective negotiator is the ability to leave your ego at the door. We need to listen, not impress.

Seasoned Negotiators, Effective Apologies

As negotiation trainer Jim Camp warns, an effective negotiator learns how to let the other side be “ok,” even when you’re not. The fact is that no matter how well we listen, no matter how well we employ our negotiator’s tool kit to learn the real interests of the other side, we’re going to make mistakes.

October 4, 2016

Business Divorce New York Style

by Jay R. McDaniel, Esq.

Reading through a recent court opinion out of the New York Supreme Court, I am struck by the way the law has diverged in corporate governance litigation. There are two distinctly different approaches to the business divorce. Crossing the Hudson can make a world of difference in operating a closely held business.

Business Divorce State by State

Understanding the different approaches taken by the courts of different states is something that should be considered by business owners not just when they form the business, but as they work through the inevitable conflicts that are part of running a business.

September 22, 2016

Lockout of a Minority Member from the Closely Held Business

by Jay R. McDaniel, Esq.

Oh, the fine art of the lockout. For a business divorce litigator, a lockout or expulsion of a minority member is a relatively common occurrence. Managing the lockout, from either the majority or the minority’s perspective, is a key issue that will set the tone of the litigation.

WHY LOCKOUTS MATTER

The minority who is locked out of a business has a very clear disadvantage. In a closely held business, whether it is a limited liability company, a corporation or a partnership, most principals participate in the day-to-day management of the business. A lockout separates the minority from management.

September 13, 2016

Supreme Court Sets Standard to Expel Member from Limited Liability Company

by Jay R. McDaniel, Esq.

The Revised Uniform Limited Liability Company Act adopted in New Jersey permits a court to expel a member of a limited liability company when it is not reasonably practicable for the company to continue with that individual as a member.
Expulsion, known as involuntary dissociation, based on the not reasonably practicable standard requires a showing that there is a structural impediment to the members continuing in business together, such as deadlock.
When the company is able to make decisions and pursue its business purpose, the not reasonably practicable standard does not exist, whatever the level of animosity among the members.

July 18, 2016

Parties to Arbitrate MD Expulsion

by Jay R. McDaniel, Esq.

070116_1250_PartiestoAr1 The subject of the Appellate Division’s recent decision in Ames v. Premier Surgical, LLC, Docket No. A-1278-15T1 (June 29, 2026) is who decides whether a dispute is subject to mandatory arbitration. But the nature of dispute here suggests a cautionary tale about withdrawal and valuation, and what happens when the exit rules from a business don’t have clear valuation provision accepted by all as fair.

Limited Liability Company Valuation Dispute Triggered by Member Departure

The direction that you’re headed at the time certainly determines the parties’ perspective in business divorce and succession cases. Here the office to buy a retired surgeon’s shares was just 2.5 percent of his demand, and only about 13 percent of what the membership units cost 15 years earlier.

January 26, 2016

Supreme Court Will Decide LLC Expulsion Dispute

by Jay R. McDaniel, Esq.

The New Jersey Supreme Court will consider the standards for expulsion of a member from a limited liability company. The Court granted certification in IE Test, LLC v. Carroll, Docket NO. A-6159-12T4 (N.J. Super. App. Div., March 17, 2015)(see our discussion here.) The opinion construes N.J.S.A. 42:2B-24(b)(3)(a) of the now repealed Limited Liability Company Act.

The language, however, is nearly identical to that found in New Jersey’s current LLC law, the Revised Uniform Limited Liability Company Act (RULLCA) N.J.S.A. 42:2C-46(e)(3), which governs the involuntary dissociation of members. Here the court affirmed the expulsion of the defendant based on the impracticability of the business continuing with him as member. the now-repealed Limited Liability Company Act.

Seven-Factor Test Applied to Expulsion

February 25, 2013

Expelled LLC Members: No Right to Force Purchase

by Jay R. McDaniel, Esq.

Removal of LLC Member May Be ‘Prospective’ Conduct

In what is probably the most significant appellate decision involving New Jersey limited liability companies in a decade, the Appellate Division held that wrongful conduct is not required to expel a member from the LLC, nor is the member entitled to be paid for the value of the interests.

On the contrary, the opinion in All Saints University of Medicine Aruba v. Chilana, Docket No. A-2628-09T1, App. Div Dec. 24, 2012, makes clear the standard can be much lower: conduct that makes it not reasonably practicable to continue the business with the member. The former member, moreover, cannot compel purchase of their interests. They are relegated to the status of assignee, forfeiting all of their management rights but still retaining their financial interest in the business.

Removal of Members in Business Divorce Cases

Expelling a member from a New Jersey limited liability company requires a judicial order, unless the LLC’s operating agreement contains specific provisions that permit for the expulsion of members. Litigation over the expulsion of members, referred to in the New Jersey Limited Liability Company Act as involuntary dissociation, typically focuses on wrongful conduct by the member whose ouster is sought.

Explusion of LLC Member After Transfer of Interests

Civil Trials in Business Litigation is a Rare Event

Dissociation by Express Will of Member

Seasoned Negotiators, Effective Apologies

Business Divorce State by State

The Revised Uniform Limited Liability Company Act adopted in New Jersey permits a court to expel a member of a limited liability company when it is not reasonably practicable for the company to continue with that individual as a member.

Expulsion, known as involuntary dissociation, based on the not reasonably practicable standard requires a showing that there is a structural impediment to the members continuing in business together, such as deadlock.

When the company is able to make decisions and pursue its business purpose, the not reasonably practicable standard does not exist, whatever the level of animosity among the members.

Limited Liability Company Valuation Dispute Triggered by Member Departure

Seven-Factor Test Applied to Expulsion

Removal of LLC Member May Be ‘Prospective’ Conduct

Removal of Members in Business Divorce Cases