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THE STRUCTURED ACQUISITION OF A LIMITED LIABILITY COMPANY DID NOT CONSTITUTE A DISSOLUTION OF THE COMPANY UNDER THE TERMS OF THE OPERATING AGREEMENT (SECOND DEPT).

The First Department, in a full-fledged opinion by Justice Friedman, reversing (modifying) Supreme Court, determined the operating agreement was not breached. The facts and issues are too complex to fairly summarize here:

The primary question on this appeal is whether an acquisition of a limited liability company, which transaction was structured as a sale of 100 percent of the membership interests in the target company, may be characterized as a dissolution of the company under the terms of its operating agreement. A former preferred shareholder of the target company, seeking to recover the preferred return to which it would be entitled upon a dissolution, argues that the sale of the company’s equity should qualify as a dissolution under the operating agreement because the transaction necessarily involved the transfer of control of all of the company’s assets and the operating agreement provides that dissolution must occur “upon the disposition by the Company of substantially all of its assets.” We are not persuaded by this argument, and therefore modify the order under review to grant defendants summary judgment dismissing the former preferred shareholder’s cause of action for breach of contract. Southern Advanced Materials, LLC v Abrams, 2023 NY Slip Op 04704, First Dept 9-20-23

Practice Point: This factually complex opinion in a breach-of-contract action grapples with what constitutes a dissolution of a company under the terms of the operating agreement.

 

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