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Current Developments in the Commercial Divisions of the
New York State Courts
Posted: July 16, 2014

Court Lacks Power to Remove LLC Member

On July 9, 2014, Justice Schweitzer of the New York County Commercial Division issued a decision in Austin v. Gould, 2014 NY Slip Op. 31814(U), dismissing a cause of action seeking the removal of a member of a New York LLC.

In Austin, the plaintiff asserted a host of direct and derivative claims relating to a series of real estate investments. The defendants moved to dismiss. This post focuses on the plaintiff’s claim seeking to remove the individual defendant as a member of an LLC and to deny him indemnification, which the court dismissed. The court explained:

Unless there is a vote Of a majority in interest of the members (LLC Law § 414 ), this court is unaware of a legal basis for directing, ordering or adjudging that an LLC member be removed from a management position. Similarly, plaintiffs have not provided any authority, nor has the court found any, to support the existence of a cause of action seeking denial of indemnification without a contractual basis for doing so.

(Internal quotations and citations omitted).

This decision reinforces tha point that limited liability companies are governed by statute and member agreement. Whether it is the removal of a member or cutting off a member’s right to indemnification, courts are reluctant to supplant the law and the parties’ agreements.

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