December 14, 2016

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

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

October 27, 2016

LLC Member Enjoined from Competition

by Jay R. McDaniel, Esq.

An LLC member breached his fiduciary duty by competing with his own company, a trial court in New York City holds in issuing an injunction against one of the principals of a successful company that makes automated parking systems.

The case involves the company that makes Parkmatic parking systems, mechanical stickers and carousels for parking cars in limited spaces. The complaint in Zacharias v. Wassef alleges that the defendant Max Wassef responded to complaints of misconduct by his partner Zacharias by forming a new company to siphon off business using the Parkmatic name.

Limited Liability Company Member Claims Unfair Competition by Manager

October 26, 2016

Claims for Judicial Dissolution Not Easily Withdrawn

by Jay R. McDaniel, Esq.

New York’s oppressed shareholder statute has a unique provision that was initially intended to prevent the oppressed shareholder from destroying a viable business. That is because the New York statute otherwise gives the court only two options: send the oppressed shareholder away or force the dissolution of the business.

Other states give court’s more discretion, and a judge also has the ability to force a sale of an interest. New York’s statutory scheme, however, takes a different approach. (See our discussion here of some of the quirks of New York’s oppressed shareholder statute: Business Divorce New York Style.) One of the wrinkles in the statute, however, is that once a litigant invokes the oppressed shareholder provision in Business Corporations Law § 1104-a, it’s very difficult to stop the process.

Peter Mahler’s New York Business Divorce blog reports on an decision by a trial judge in Nassau County’s commercial part who declines to allow the plaintiff to withdraw a claim under BCL 1104-a. In that case, the plaintiff tried to get out of the substantive and procedural limitations that flow from the conclusory assertion of a claim under 1104-a.

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 8, 2016

Partnership Dissolution Cannot Be Inferred

by Jay R. McDaniel, Esq.

When is a partnership dissolution not a dissolution? When the partnership is not subjected to the formal dissolution procedures, even if it appears that the Court may have intended otherwise.

Express Finding of Dissolution of Partnership Required

That was the result of a split decision of the Fifth Circuit Court of Appeals, coming some 14 years into the business divorce litigation between the partners to an oil well drilling venture, in Akuna Matata Investments Ltd. v. Texas No Limited Partnership. The Court affirmed a trial court decision terminating the partnership and awarding one of the partners a share of unpaid partnership profits.

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 6, 2016

Partnership Dissolution Presents Factual Issues

by Jay R. McDaniel, Esq.

In a case turning on an unusual provision in West Virginia partnership law, the state Supreme Court sent a partnership dissolution action back to the trial judge to determine whether the plaintiffs were actually partners of the partnership that they were trying to dissolve.

The opinion in Sugar Rock, Inc. v. Washburn (Supreme Ct. Appeals June 3, 2016) turned on a specific, and unusual, provision in West Virginia law that requires that an interest in “mining partnerships” to be in writing. The existence of a statute of frauds, however, doesn’t mean that this is not a question that arises with some frequency.

Formation of General Partnership Under RUPA

August 12, 2016

Trial Judges Have Discretion to Dissolve an LLC or Dissociate a Member

by Jay R. McDaniel, Esq.

Limited Liability Company Attorneys Petitioning members and managers of limited liability companies need to choose carefully between dissolution and dissociation of a member when they initiate litigation to expel a “bothersome” member. If the petitioning member includes grounds for both, they will not be able to choose the preferred remedy. Rather, the trial judge has discretion to choose between the two remedies without consideration of the preferences of any of the parties. The District Court of Appeals has held that the D.C. Code “substantially mirror[s]” language in the Revised Uniform Limited Liability Company Act (RULLCA), which grants discretion to trial judges to decide between dissolution and dissociation when grounds for both causes of action are present.

‘Shall Be Disassociated’ Does Not Compel Remedy

The D.C. court’s decision in Reese v. Newman, 131 A.3d 880 (D.C., 2016) disagreed with the appellant’s interpretation that the statue’s language compelled trial judges to disassociate a member of an LLC when one of the enumerated grounds for expulsion has been established. C. Allison Defoe Reese, the appellant, argued that the language “a person shall be disassociated” was a command to the trial judge to disassociate the appropriate member and removed the judge’s discretion to choose between the remedies.

June 27, 2016

Partner Who Wrongfully Dissolved Partnership Hit With Whopping 66% Minority Discount

by Jay R. McDaniel, Esq.

Talk about playing your cards wrong.

A partner with a 3.08% interest worth $4.85 million in a partnership that owns a major shopping mall likely will walk away with only a few hundred thousand dollars after a court decision finding that he wrongfully dissolved the partnership and deducting from the value of his interest the other partners’ damages including legal fees, a 15% discount for goodwill, a 35% marketability discount, and a whopping 66% minority discount.

Last week’s decision by the Brooklyn-based Appellate Division, Second Department, in Congel v Malfitano, 2016 NY Slip Op 03845 [2d Dept May 18, 2016], rejected the partner’s appeal from the trial court’s determination of wrongful dissolution and also upheld its valuation determination with one major exception: the appellate court held that the trial court erred by failing to apply a minority discount and that it should have applied a 66% minority discount based on the “credible” expert testimony “supported by the record.”

May 26, 2015

Limited Liability Company Breakup: Crossing the Hudson Makes a Difference

by Jay R. McDaniel, Esq.

LLC Divorce: Till Death Do Us Part, or Just Irreconcilable Differences

Should a business divorce be hard or easy? In the world of human divorces, it’s the difference between no-fault divorce and divorce only after a showing of cause. In the world of businesses, it turns on the
concept of court-ordered purchases and sales of minority interests. And in the area of law governing limited liability companies, it is the concept of “involuntary dissociation” – expulsion, if you will, of one of the members.

Involuntary Dissolution of LLC

Two recent cases in the past month demonstrate this concept. East of the Hudson River, we have the First Department of the Appellate Division in New York opinion in Barone v. Sowers, , 2015 NY slip OP 04195 (1st Dept May 14, 2015), in which the court held that allegations of oppressive conduct simply don’t make out a claim for relief under New York’s limited liability statute.

Compare this Empire State decision with one from the Garden State captioned IE Test, LLC v. Carroll, docket No. A-6159 (N.J. Super. App. Div., March 17, 2015)(Opinion Below). Here, the appellate court affirmed the expulsion of a member because it was clear that the parties personal animus prevented them from maintaining a working relationship.