You are here: / Limited Liability Company Law
,

DEFENDANT LIMITED LIABILITY COMPANY’S FAILURE TO UPDATE ITS ADDRESS FOR SERVICE OF PROCESS ON FILE WITH THE SECRETARY OF STATE FOR TEN YEARS WAS NOT A REASONABLE EXCUSE SUFFICIENT TO SUPPORT DENIAL OF PLAINTIFF’S MOTION FOR LEAVE TO ENTER A DEFAULT JUDGMENT (SECOND DEPT).

The Second Department, reversing Supreme Court, determined defendant limited liability company’s (FAC’s) failure to update its address for service of process on file with the Secretary of State was not a reasonable excuse sufficient to defeat a motion for leave to enter a default judgment:

Generally, a corporation’s failure to receive copies of process served upon the Secretary of State due to a breach of its own obligation to keep a current address on file with the Secretary of State does not constitute a reasonable excuse for its delay in appearing or answering the complaint, although “there is no per se rule” … . In determining whether a reasonable excuse was demonstrated, “a court should consider, among other factors, the length of time for which the address had not been kept current” … .  * * *

… FAC failed to meet its burden of establishing a reasonable excuse … . FAC’s failure to file with the Secretary of State the current address of the agent designated to receive service of process on its behalf for a period of at least 10 years, without providing any explanation of its failure, does not constitute a reasonable excuse … . Bachvarov v Khaimov, 2024 NY Slip Op 00753, Second Dept 2-14-24

Practice Point: Failure to update an LLC’s address for service of process on file with the Secretary of State is not a reasonable excuse for a default.

 

, , ,

PLAINTIFF CONTRACTOR DID NOT POSSESS THE REQUIRED NYC HOME IMPROVEMENT CONTRACTOR’S LICENSE; THE CONTRACTOR’S BREACH OF CONTRACT ACTION SEEKING PAYMENT FOR THE RENOVATION WORK PLAINTIFF COMPLETED WAS PROPERLY DISMISSED (FIRST DEPT). ​

The First Department, in a full-fledged opinion by Justice Higgitt, determined the plaintiff contractor was required to have a home improvement contractor’s license by the New York City Administrative Code. Therefore plaintiff’s breach of contract, unjust enrichment, account stated and quantum meruit causes action against the owner of the property plaintiff worked on was correctly dismissed. The First Department determined the LLC which owned the property was an “owner” within the meaning of the Administrative Code, and the contract was a home improvement contract within the meaning of the meaning of the code:

Obtaining a home improvement contractor’s license is neither a ministerial act nor a mere technicality … . Rather, “strict compliance with the licensing statute [i.e. Administrative Code § 20-387] is required, with the failure to comply barring recovery regardless of whether the work performed was satisfactory, whether the failure to obtain the license was willful or, even, whether the homeowner knew of the lack of a license and planned to take advantage of its absence” … .

There is no dispute that plaintiff is a “contractor” for licensing purposes (see Administrative Code § 20-386[5]), and that plaintiff did not have a valid license. The controversy here essentially distills to whether defendant owners are “owners” within the meaning of Administrative Code § 20-387(a), and, if so, whether the agreement between the parties was a “home improvement contract” (Administrative Code § 20-386[6]). If the answer to both of those questions is yes, then plaintiff was required to have a home improvement contractor’s license to recover for the work; if the answer to either question is no, then plaintiff did not need a license. KSP Constr., LLC v LV Prop. Two, LLC, 2024 NY Slip Op 00356, First Dept 1-25-24

Practice Point: A contractor who does renovation work in New York City without a NYC Home Improvement Contractor’s license cannot sue for payment for the work.

 

, , ,

THE DIRECT BENEFITS THEORY OF ESTOPPEL WAS NOT APPLICABLE TO PLAINTIFF, A NONSIGNATORY TO THE AGREEMENT WITH THE ARBITRATION CLAUSE; THE PLAINTIFF, THERFORE, COULD NOT BE COMPELLED TO ARBITRATE (FIRST DEPT).

The First Department, reversing Supreme Court, determined a nonsignatory, the plaintiff Rosh, Inc., could not be compelled to arbitrate pursuant to the direct benefits theory of estoppel:

The court should have denied the motion to compel arbitration of Rosh’s claims because Rosh is a nonsignatory to the agreement that contains the arbitration clause and defendants failed to show that the direct benefits theory of estoppel applies …  Under that theory, a nonsignatory may be compelled to arbitrate where it “knowingly exploits the benefits of an agreement containing an arbitration clause, and receives benefits flowing directly from the agreement” … .

Here, the arbitration clause was contained in a partnership agreement. However, Rosh was not a party to that agreement nor a partner in the partnership. Rather, Rosh was a ten percent owner in a limited liability company that was the general partner of the partnership. This did not constitute a direct benefit to Rosh from the partnership agreement … .

Moreover, before Rosh could be compelled to arbitrate, it had to invoke or attempt to enforce the terms of the partnership agreement … . To the contrary, all of Rosh’s claims were asserted under the operating agreement of the limited liability company or based on its status as a member of that company. Gilat v Sutton, 2023 NY Slip Op 05363, First Dept 10-24-23

Practice Point: Plaintiff was a nonsignatory to the agreement with the arbitration clause. Because plaintiff did not directly benefit from or exploit the agreement, plaintiff could not be compelled to arbitrate pursuant to the direct benefits theory of estoppel.

 

, ,

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.

 

, , ,

THE CRITERIA FOR LONG-ARM JURISDICTION BASED UPON A TORT COMMITTED “WITHIN THE STATE” CLARIFIED; NEW YORK DID NOT HAVE LONG-ARM JURISDICTION OVER THE OUT-OF-STATE INDIVIDUAL DEFENDANTS, MEMBERS OF AN LLC WHICH SOLD N95 MASKS TO THE NEW YORK PLAINTIFF; IT WAS ALLEGED THE QUALITY OF THE MASKS WAS MISREPRESENTED IN AN EMAIL TO THE NEW YORK PLAINTIFF (FIRST DEPT).

The First Department, in a full-fledged opinion by Justice Pitt-Burke, determined New York did not have long-arm jurisdiction over out-of-state individual defendants based upon an alleged misrepresentation in an email sent by defendants as principals of defendant LLC (RPP)  to the New York plaintiff. RPP sold N95 masks to plaintiff. A picture of a mask sent in the email had the FDA-approval logo on the packaging. Plaintiff alleged the masks actually shipped were not FDA approved:

This appeal presents the opportunity to reaffirm this Court’s position on what constitutes a tort committed within the boundaries of this state for purposes of New York’s long-arm jurisdiction under CPLR 302(a)(2). … [W]e find that the language “within the state” in CPLR 302(a)(2), means that a nondomiciliary is only subject to New York’s long-arm jurisdiction under subsection (a)(2) when they have committed a tortious act, in person or through an agent, while physically present within the boundaries of this state. * * *

… [I]t is undisputed that the alleged fraudulent statements were made outside of New York and that the individual defendants communicated with plaintiff solely in their capacity as principals of RPP. Therefore, we find that plaintiff has failed to demonstrate a basis for imposing long-arm jurisdiction over the individual defendants pursuant to CPLR 302(a)(2), and the motion court should have granted the individual defendants’ motion to vacate the default judgment pursuant to CPLR 5015(a)(4) and dismissed the cause of action as against them pursuant to CPLR 3211(a)(8). In light of our determination, we need not reach the issue of whether the exercise of personal jurisdiction comports with due process or whether a discretionary vacatur was warranted as it relates to the individual defendants. SOS Capital v Recycling Paper Partners of PA, LLC, 2023 NY Slip Op 04480, First Dept 8-31-23

Practice Point: Here the criteria for long-arm jurisdiction based upon a tort committed in New York were clarified by the First Department.

 

, , ,

THE ALLEGATIONS WERE SUFFICIENT TO SUPPORT PIERCING THE CORPORATE VEIL TO REACH DEFENDANT LLC MEMBER PERSONALLY FOR BREACH OF THE HOUSING MERCHANT IMPLIED WARRANTY OBLIGATIONS; AND DEFENDANT COULD BE HELD PERSONALLY LIABLE FOR NEGLIGENT REPAIRS UNDER A HOME RENOVATION CONTRACT (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the plaintiffs in this home-renovation-contract dispute sufficiently alleged the corporate veil should be pierced to reach the defendant Assaf, member of the LLC, personally for failing to comply with the implied warrant requirements. Defendant could also be held personally liable for negligent repairs:

Among the plaintiffs’ allegations were that Assaf wound down the LLC’s business following the closing of title in an effort to keep the LLC undercapitalized and judgment proof and that, following the closing, he distributed sale proceeds without reserving sufficient assets needed to satisfy the LLC’s obligations under New York State’s housing merchant implied warranty and any contingent liability.

… “Although [c]orporate officers may not be held personally liable on contracts of their corporations, provided they did not purport to bind themselves individually under such contracts, corporate officers may be held personally liable for torts committed in the performance of their corporate duties” … . Here, the plaintiffs adequately alleged that Assaf personally engaged in acts of negligence in performing repairs at the home … . Gold v 22 St. Felix, LLC, 2023 NY Slip Op 04194, Second Dept 8-9-23

Practice Point: Here the allegation that defendant LLC member undercapitalized the LLC supported piercing the corporate veil for breach of the home merchant implied warranty obligations.

Practice Point: A member of an LLC may be personally liable for negligent repairs pursuant to a home-renovation contract.

 

, ,

THE SOLE MEMBER OF AN LLC WHICH OWNS THE PROPERTY HAS AN INSURABLE INTEREST IN THE PROPERTY; AN INSURER WHICH ACCEPTS PAYMENT ON A POLICY AFTER LEARNING OF THE INSURED’S ALLEGED MISREPRESENTATIONS WAIVES THE RIGHT TO RESCIND THE POLICY (SECOND DEPT).

The Second Department, reversing Supreme Court, determined: (1) plaintiff, as the sole member of an LLC which owned the property, had an insurable interest in the property; and (2) defendant’s accepting payment on the policy after defendant was aware of plaintiff’s alleged misrepresentations waived defendant’s right to rescind the policy:

… [A]s the sole owner of the LLC, the plaintiff had an insurable interest in the subject property, since destruction of the subject property would necessarily cause economic detriment to the plaintiff (see Insurance Law § 3401 …).

… “The continued acceptance of premiums by an insurance carrier after learning of sufficient facts which allow for the rescission of the policy, constitutes a waiver of the right to rescind” … . Here, the plaintiff established his prima facie entitlement to judgment as a matter of law by demonstrating that the defendant waived its right to assert the plaintiff’s misrepresentations as a basis for rescinding the policy, since the defendant renewed the policy and accepted a premium payment after it discovered the misrepresentations. Sabharwal v Hyundai Mar. & Fire Ins. Co., Ltd., 2023 NY Slip Op 02690, Second Dept 5-17-23

Practice Point: The sole member of an LLC which owns real property has an insurable interest in the property.

Practice Point: An insurer which accepts payment on a policy after learning of the insured’s alleged misrepresentations waives the right to rescind the policy.

 

,

BUYERS OF THE HOME HEALTHCARE AGENCY SEEK SPECIFIC PERFORMANCE OF THE PURCHASE AGREEMENT; THE SPECIFIC PERFORMANCE PROVISIONS SURVIVE THE TERMINATION OF THE AGREEMENT; BUT THE BUYER’S MOTION FOR SUMMARY JUDGMENT SEEKING SPECIFIC PERFORMANCE SHOULD NOT HAVE BEEN GRANTED (FIRST DEPT). ​

The First Department, reversing (modifying) Supreme Court, in a factually complex opinion by Justice Oing, determined (1) the specific performance provisions in the purchase agreement survived termination of the purchase agreement; and (2) the buyer’s summary judgment motion seeking specific performance should not have been granted. The facts of the case are far too detailed to summarize here.

This dispute arises out of a failed sale of a home healthcare agency. The seller accuses the buyer of repudiating the contract; the buyer charges that seller thwarted its efforts to close the deal because of seller’s remorse. At stake: who owns the business. If the seller prevails, it retains the termination fee; if the buyer prevails, the contractual remedy of specific performance compels the seller to close and sell the company to the buyer. …

The parties entered into the Membership Interest Purchase Agreement, dated September 25, 2019, wherein the seller agreed to sell its interest in Extended Nursing to the buyer for $49 million. The Purchase Agreement required the buyer to make an initial escrow deposit of $1.47 million, which amount would be retained as a termination fee by the seller in the event that the buyer did not close. One of the critical components of the purchase, for which the seller specifically negotiated, was that closing should occur at the earliest practicable time. … The outside date was March 25, 2021 — 18 months after the date the parties executed the Purchase Agreement. The seller claims that the outside date was an essential term … . … § 14.17 of the Purchase Agreement provides the buyer with the remedy of specific performance, which, under Purchase Agreement § 12.2(c), survives termination of the Purchase Agreement. Extended CHHA Acquisition, LLC v Mahoney, 2023 NY Slip Op 01762, First Dept 4-4-23

Practice Point: Here the specific performance provisions of the purchase agreement survived the termination of the agreement, but the buyers’ motion for summary judgment seeking specific performance should not have been granted.

 

, ,

ALTHOUGH THE LIMITED LIABILITY COMPANY (LLC) VOTING AGREEMENT CONCERNED THE SALE OF REAL PROPERTY, IT WAS NOT SUBJECT TO THE STATUTE-OF-FRAUDS PROHIBITION OF ORAL AGREEMENTS (FIRST DEPT). ​

The First Department, reversing (modifying) Supreme Court, determined the counterclaim adequately alleged breach of contract. The contract was an LLC voting agreement which was not subject to the statute of frauds even though the agreement authorized the sale of real property:

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. Tsai v Lo, 2023 NY Slip Op 00291, First Dept 1-24-23

Practice Point: Although the voting agreement concerned the sale of real property by the limited liability company, it was not subject to the statute-of-frauds prohibition of oral agreements.

 

, ,

THE CRITERIA FOR PIERCING THE CORPORATE VEIL IN THIS PERSONAL INJURY ACTION AGAINST A BAR OWNED AND OPERATED BY A LIMITED LIABILITY COMPANY WERE NOT MET; THE OVER $2,000,000 JUDGMENT AGAINST THE SOLE MEMBER OF THE LLC REVERSED (SECOND DEPT).

The Second Department, reversing Supreme Court after a non-jury trial awarding plaintiff over $2,000,000, determined plaintiff was not entitled to pierce the corporate veil to hold defendant Traina, the sole member of defendant limited liability company (LLC), personally liable. Plaintiff brought a personal injury action against the bar owned and operated by the LLC and was awarded a default judgment:

Generally, a member of a limited liability company cannot personally be held liable for any debts, obligations or liabilities of the limited liability company, “whether arising in tort, contract or otherwise” (Limited Liability Company Law § 609[a]). The concept of piercing the corporate veil is an exception to this general rule, permitting, in certain circumstances, the imposition of personal liability on members for the obligations of the limited liability company … . ” … [G]enerally . . . piercing the corporate veil requires a showing that: (1) the owners exercised complete domination of the corporation [or LLC] in respect to the transaction attacked; and (2) that such domination was used to commit a fraud or wrong against the [party seeking to pierce the corporate veil] which resulted in [the party’s] injury” … . * * *

… [A]lthough Traina did not observe all corporate formalities, the evidence established that he ran a real business, with employees, customers, and vendors, and the petitioner presented no evidence that the LLC was undercapitalized or that Traina commingled the assets of the LLC with his own or used corporate funds for personal use … . … w[W]ile the petitioner demonstrated that Traina exercised complete domination and control over the LLC, he failed to show that Traina’s actions, including abandoning certain fixtures and equipment to his landlord, were for the purpose of leaving the LLC judgment proof or to perpetrate a wrong against the petitioner … .  … [P]etitioner did not meet his burden of proof to establish that there was a basis to pierce the corporate veil … . Matter of DePetris v Traina, 2022 NY Slip Op 07232, Second Dept 12-21-22

Practice Point: The criteria for piercing the corporate veil in this personal injury action against a bar owned and operated by a limited liability company were not met. The over $2,000,000 judgment against the sole member was reversed.

 

Categories

Sign Up for the Mailing List to Be Notified When the Site Is Updated.

  • This field is for validation purposes and should be left unchanged.

Copyright © 2026 New York Appellate Digest, Inc.
Site by CurlyHost | Privacy Policy