First Department Declines To Dismiss Cause of Action For Specific Performance of LLC Voting Agreement

In a Decision, dated January 24, 2023, in Tsai v. Lo, 212 A.D.3d 547 (1st Dept 2023), the First Department reversed the Motion Court’s dismissal of counterclaims for breach of contract and specific performance based on an alleged oral agreement by plaintiff to consent to both the future sale of the real property purchased by the LLC and/or the future sale of defendants’ interest in the LLC. The First Department explained:

Supreme Court should not have dismissed defendants’ counterclaims for breach of contract and specific performance, which it properly construed as a single claim for breach of contract seeking specific performance and monetary relief. The alleged agreement at issue was not an unenforceable oral contract for the sale of real property, as it did not provide for the sale or transfer of real property or any party's interest in real property (see General Obligations Law § 5–703[2]). Instead, giving defendants’ allegations every favorable inference, defendants sufficiently pled that the oral agreement was effectively an LLC voting agreement under which plaintiff agreed to vote her membership interest in favor of defendants’ sale of their membership interests or a sale of the property. Furthermore, we reject plaintiff's argument that defendants’ counterclaims are barred by General Obligations Law § 15–301(1) and the “no oral modification” clauses set forth in the notes between the parties, because defendants allege that the voting agreement was made before the notes were executed. Plaintiff also failed to establish as a matter of law that the alleged contract was an unenforceable agreement to agree (see Joseph Martin, Jr., Delicatessen, Inc. v. Schumacher, 52 N.Y.2d 105, 109, 436 N.Y.S.2d 247, 417 N.E.2d 541 [1981]).

Accordingly, LLC members should be wary of even orally agreeing to vote a certain way, and may want to ensure that any LLC operating agreements require voting agreements be in writing.

The attorneys at Schlam Stone & Dolan frequently litigate disputes concerning LLC’s and disputes among their members. Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning such issues.