HERE AN ATTORNEY AND A CONTRACTOR WERE BUSINESS PARTNERS FOR YEARS AND RELIED ON EACH OTHER’S UNIQUE EXPERTISE; THERE WAS A QUESTION OF FACT WHETHER THE ATTORNEY BREACHED A FIDUCIARY DUTY BY TRANSFORMING THE PARTNERSHIP TO AN LLC WITHOUT INFORMING HIS FORMER PARTNER HE COULD NOT UNILATERALLY WITHDRAW FROM THE LLC; HERE THE CRITERIA FOR A STATUTORY DISSOLUTION OF THE LLC WERE MET (THIRD DEPT).
The Third Department, reversing (modifying) Supreme Court, determined there were questions of fact whether defendant attorney, Mazza, breached his fiduciary duty owned to plaintiff when forming a Limited Liability Company (LLC), and further determined that the cause of action seeking a statutory dissolution of the LLC should have been granted. Defendant Mazza and plaintiff were partners in a successful business for many years. It was alleged that when the partnership was transformed to an LLC by Mazza, Mazza did not inform plaintiff he could not unilaterally withdraw from of dissolve the LLC:
There is no dispute that a fiduciary relationship existed between plaintiff and Mazza before the LLC was formed. The record indeed reflects that plaintiff trusted Mazza, an attorney, to act on his behalf in executive matters related to the partners’ real estate business, and that Mazza resultingly acquired influence over plaintiff … . The close relationship between the two men, which spanned more than three decades and included Mazza’s prior representation of plaintiff, supports this conclusion. And although plaintiff was a skilled and seemingly successful contractor, he admittedly had no knowledge of the legal (and practical) implications of converting a partnership to an LLC and accordingly relied on Mazza’s expertise in that area. * * *
Limited Liability Company Law § 702 provides that “the supreme court . . . may decree dissolution of a limited liability company whenever it is not reasonably practicable to carry on the business in conformity with the articles of organization or operating agreement.” Although an alleged “deadlock” between the members of a limited liability company will not necessarily render it impracticable for the company to carry on its business … , upon careful review of the record we find that it does in the case at bar. Amici v Mazza, 2025 NY Slip Op 00259, Third Dept 1-16-25
Practice Point: Consult this decision for a detailed discussion the criteria for a fiduciary duty owed by one party to another in a business relationship.
Practice Point: Consult this decision for a discussion of the criteria for a statutory dissolution of an LLC.