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Commercial Division Blog

Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: January 19, 2018

Court Declines to Order Accounting Given Burden and Absence of Other Claims

On January 11, 2018, Justice Kornreich of the New York County Commercial Division issued a decision in Madison Sullivan Partners LLC v. PMG Sullivan St. LLC, 2018 NY Slip Op. 30047(U), refusing to order an accounting, explaining:

Madison’s remaining cause of action is for an equitable accounting, which it seeks by virtue of the parties’ fiduciary relationship as members in the defendant-Delaware LLCs. Under settled Delaware law, a plaintiff may not maintain an independent cause of action for an accounting. Rather, if and when the plaintiff prevails on a claim for breach of fiduciary duty, it may seek an accounting as a remedy for such breach. That said, the First Department recently held that the law of the forum (here, New York) governs the remedy of an equitable accounting. New York law is somewhat more liberal than Delaware on the issue of when a fiduciary must account. Regardless, here, where the parties are extremely sophisticated and where the parties’ fiduciary relationship derives from their membership in LLCs, the First Department has held that it may be inequitable to compel an accounting in the absence of any real need and where doing so is burdensome. Here, Madison does not have any viable non-exculpated cause of action against defendants relating to the Project, which has been completed. There simply is no need for an accounting at this juncture that could justify the burden of providing one.

(Internal citations omitted).

An accounting is a common remedy in a business divorce (a break-up between the owners of a closely-held business). This is a big part of our practice. Indeed, Schlam Stone & Dolan partner Jeffrey M. Eilender and associate Lee J. Rubin were contributors to the recently-released 2017 Supplement to Litigating the Business Divorce by Kurt Heyman and Melissa Donimirski. Contact Jeffrey Eilender at jeilender@schlamstone.com or Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding a business divorce.

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