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THE LIMITED RELIEF AVAILABLE TO A DISSENTING MEMBER AFTER THE MERGER OF TWO LIMITED LIABILITY COMPANIES (SECOND DEPT).

The Second Department, reversing (modifying) Supreme Court, addressed the relief available to a dissenting member after the merger of two limited liability companies:

Limited Liability Company Law § 1002(f) provides that, subsequent to a merger, a dissenting member possesses no interest in the surviving or resulting business entity, but is instead entitled only to a cash payment of the fair value of his or her membership as of the close of the business day prior to the merger. Moreover, Limited Liability Company Law § 1005 provides for the payment of the value of that interest or, in the event of a dispute, sets forth the procedure for determining the value of that interest.

… Farro’s [plaintiff’s] membership in the subject businesses was terminated by the merger, and he subsequently sought appraisal of the value of his interest in order to be fairly compensated therefor. Under these circumstances, his exclusive remedy was appraisal and payment, and he was precluded from maintaining any derivative claims on behalf of the subject businesses … .

… [A] member of a merged company who has a right to demand payment for his membership interest “shall not have any right at law or in equity . . . to attack the validity of the merger . . . or to have the merger . . . set aside or rescinded.” Moreover, the language of the statute makes clear that an appraisal proceeding is the member’s “sole remedy,” and no exception exists for alleged fraud or illegality in the procurement of the merger … . Farro v Schochet, 2021 NY Slip Op 00150, Second Dept 1-13-21

 

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