Party May Add Declaratory Judgment Claim Seeking Ruling On Whether Entities Can Be Admitted As LLC Members

In a Decision and Order, dated December 9, 2022, in Bessemer Trust Co., N.A. v. Hart, Index No. 655830/2019, Justice Joel M. Cohen granted Plaintiff’s motion to amend to, inter alia, include a declaratory judgment claim to recognize certain entities’ rights with respect to two LLC’s. The Court explained:

Here, Plaintiff alleges that Hart and Steve Kaufman refuse to recognize the Estate's, Dispositive Trust's, or the Charitable Foundation's rights in Kaufman Wales and SIK (NYSCEF 405 ¶108 ["Pr. Am. Compl."). The Hart Defendants argue that there is no justiciable controversy regarding the Estate's current interests in SIK and Kaufman Wales, as Plaintiff failed to take the necessary action(s) pursuant to the applicable Operating Agreements to effectuate a transfer of George Kaufman's interests (NYSCEF No. 417 [Opp. Memo at 5-6]). In response, Plaintiff alleges that there are disputes over (a) whether the Estate, the Dispositive Trust, or the Charitable Foundation holds a full membership interest — as opposed to only an economic interest — in SIK and Kaufman Wales and (b) whether George bequeathed his full membership interests in the two entities through his estate-planning documents or if Bessemer Trust must effectuate those transfers. Plaintiff further alleges that "Defendants' unwillingness and refusal to acknowledge the Estate's ownership and designation rights in Kaufman Wales and SIK, and instead impose restrictions on such interests, significantly diminishes the value of the Estate's ownership and its ability to sell or transfer those interests for the benefit of the Charitable Foundation" ((NYSCEF 405 ¶63 ["Pr. Am. Compl.").

Plaintiff has sufficiently alleged that there is a justiciable controversy. If the Hart Defendants wish to eliminate the controversy by conceding the point in their Answer or otherwise, they are free to do so. At this stage, the Hart Defendant's arguments go to the merits of this claim, which on its face, has not been shown to be palpably insufficient or patently devoid of merit.

The attorneys at Schlam Stone & Dolan frequently litigate LLC membership dispute as well as declaratory judgment actions. Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning such issues.