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Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: August 18, 2018

Plaintiff Had Standing to Bring Proceeding to Dissolve LLC

On August 7, 2018, Justice Sherwood of the New York County Commercial Division issued a decision in Matter of Goyal v. Vintage India NYC, LLC, 2018 NY Slip Op. 31926(U), holding that a petitioner had standing to bring a proceeding to dissolve an LLC, explaining:

On a motion to dismiss a plaintiffs claim pursuant to CPLR § 3211(a)(7) for failure to state a cause of action, the court is not called upon to determine the truth of the allegations. Rather, the court is required to afford the pleadings a liberal construction, take the allegations of the complaint as true and provide plaintiff the benefit of every possible inference. Whether a plaintiff can ultimately establish its allegations is not part of the calculus in determining a motion to dismiss. The court’s role is limited to determining whether the pleading states a cause of action, not whether there is evidentiary support to establish a meritorious cause of action.

Vintage India argues the Petitioner has failed to state a claim because he is not a member of Vintage India NYC, LLC. Goyal was, according to respondent, removed for cause at the March 2017 meeting. Keller claims Goyal was removed as a member and expelled from the LLC, and that his interest in Vintage India, which was unvested at that time, was revoked at that meeting. Vintage India cites a handful of cases as part of this section of its memo, but fails to explain how the cases support its position. The Annotations to the Limited Liability Company Law, however, state that neither the LLC nor the other members have the statutory right to expel a member from the LLC. The right to expel a member must be expressly set forth in the operating agreement. Further, while the Limited Liability Company Law provides that a manager of an LLC may be removed, that requires a majority vote, which Keller lacks as Goyal owns half of the interest in Vintage India. Respondent provides no law to support its argument that Goyal’s shares had not vested. While there is a dispute as to whether Goyal paid money into the LLC and the amount, it is undisputed that he put in sweat equity and held a 50% interest in the firm. At most, there is a dispute as to whether his shares had vested. The defense that Goyal’ s interest is unvested is unexplained and is unsupported by citation to either caselaw or statute. Accordingly, the claim that Goyal lacks standing is REJECTED.

(Internal quotations and citations omitted).

This decision relates to a significant part of our practice: business divorce (a break-up between the owners of a closely-held business). 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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