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Posted: November 11, 2014

LLC Law § 407(a) Permits Freeze-Out Mergers to be Approved on Written Consent

On October 30, 2014, Justice Kornreich of the New York County Commercial Division issued a decision in Slayton v. Highline Stages, LLC, 2014 NY Slip Op. 24333, granting a partial motion to dismiss.

In the underlying special proceeding, the petitioner was (upon this decision) a 13.33% member of Highline Stages, LLC, a New York LLC. In August 2013, she was informed by written notice that every other member of Highline Stages had approved a freeze-out merger by written consent, whereby Highline Stages would be merged into a new entity, HS Merger Partner, LLC, and Slayton would be tendered fair value for her equity in Highline Stages. She was offered $50,000, which she refused.

Petitioner commenced a special proceeding, bringing causes of action for declaratory judgment and money damages on the basis that the merger was void because no members’ meeting was held to approve the merger as required by section 1002(c) of the New York LLC Law. (Highline Stages had no LLC agreement.) Alternatively, the petition also sought a judicial determination of fair value, and attorneys’ fees.

The respondents moved to dismiss the first two causes of action, arguing that LLCL § 407(a) allows mergers on written consent. The court agreed:

LLCL § 407(a) provides:

Whenever under this chapter members of a limited liability company are required or permitted to take any action by vote, except as provided in the operating agreement, such action may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken shall be signed by the members who hold the voting interests having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all of the members entitled to vote therein were present and voted.

(Emphasis added by the court.)

Although no appellate court has construed LLCL § 407(a), the court rejected the petitioner’s policy argument that mergers were “extraordinary and required a meeting before a member can be frozen out,” finding that the LLCL provisions were unambiguous on their face, and that a meeting required to approve a merger does not come “with greater attendant rights than any other meeting required by the LLCL.”

Accordingly, because the necessary written consents were obtained, and the “prompt notice” required by LLCL § 407(c) was provided to the petitioner, the freeze-out merger was valid. The first two causes of action were dismissed, and further proceedings were scheduled to resolve the fair value dispute.

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