Involuntary Dissolution of LLC Denied Where Petitioner Alleged No More Than A Dispute Between Members And The Articles Of Organization Did Not Support A Risk of Deadlock

On May 15, 2024, Justice Andrew Borrok denied a petition for dissolution of a LLC by one of its two members after the relationship between the two 50-50 members had allegedly broken down. In Petition for Dissolution v. Gad Ruham, Index No. 656166/2023, the petitioner filed a special proceeding to dissolve Hoham 932 Grand Street LLC, a limited liability company formed to hold a single property located in Brooklyn, New York. The Court noted allegations in the petition suggesting the relationship between the two members had “broken down.” But it held that none of the allegations met the statutory standard for the “drastic remedy” of dissolution under Limited Liability Company Law § 702. The Court explained:

As discussed above, the Articles do not require majority vote to effectuate the purpose of the LLC. They expressly provide otherwise. As such, there is no risk of deadlock. . . . [N]or does the Petition set forth another statutory basis for dissolution - the dispute at present between the members is not inimicable to achieving the purpose of the LLC and there is no threatened foreclosure or other financial malady that threatens the viability of the LLC or its purpose. . . . Thus, to the extent the Petition seeks dissolution, an injunction, and a receiver in support of such dissolution, it must be denied and dismissed without prejudice.

The attorneys at Schlam Stone & Dolan frequently litigate cases involving disputes among members of an LLC or other business entities. Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning such issues.