New York Courts May Grant a Buyout of One 50/50 Member by the Other Despite the Lack of an Express Clause in the LLC Agreement

In my post of February 20, 2013, I talked about the sympathy Justice Demarest had for the performing member but she felt she was constrained by the lack of a buyout clause and had to rule that the LLC had to have an auction between the owners and if that failed, a public sale.

Both parties appealed and the Appellate Division Second Department ruled that plaintiff could buy out the defaulting member despite the lack of a buyout clause in the LLC agreement and lack of express statutory authority. The best way to summarize is to quote the key paragraph of the decision: 

"The Supreme Court should have granted, in effect, the plaintiff's application for an order authorizing him to purchase the defendant's interest in the LLC upon its dissolution.  The Limited Liability Company Law "does not expressly authorize a buyout in a dissolution proceeding" (Matter of Superior Vending, LLC [Tal-Plotkin], 71 AD3D 1153, 1154).  Nonetheless, in certain circumstances, a buyout may be an appropriate equitable remedy upon the dissolution of an LLC (see id.).  Under the facts of this case, the remedy of a buyout by the plaintiff is appropriate (see id.).  Contrary to the defendant's contention, the provisions of the LLC agreement regarding dissolution of the LLC do not preclude an order authorizing a buyout upon the judicial dissolution of the LLC pursuant to Limited Liability Company Law § 702 (see Limited Liability Company Law § 702; see also Matter of Superior Vending, LLC [Tal-Plotkin], 71 AD3d at 1154).  Accordingly, the matter must be remitted to the Supreme Court, Kings County, for further proceedings and for a determination thereafter as to the value of the defendant's interest in the LLC."

The practical advice remains to expressly provide in your LLC agreement for remedies in the event of a deadlock between two 50/50 partners but if you didn't, New York Courts may grant an equitable remedy in the face of egregious conduct. 

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