An LLC Agreement with no Buy/Sell Provision Haunts the Performing Member

Mizrahi v. Cohen, decided January 15, 2013, is a perfect example of the difficulties Judges encounter under New York’s LLC law when one member repeatedly defaults and the other member can’t do anything about it despite the Judge’s desire to help. Here Justice Demarest tries hard to figure out how to help the majority member when the minority member refuses to contribute to the shortfall to pay the mortgage. To top it off, the defaulting member continues to use space in the building. After finding no coherent clause in the LLC agreement, the Judge orders an auction between the owners and if that fails, a public sale. Lesson – buy/sell agreements are your friend. How about a simple shotgun clause – “the value of the company is $x, I hereby offer to buy you at your share of that or you buy me at my share of that – your choice?”

Meanwhile, the Judge notes that the LLC agreement was a “cut and paste” job, had “confusing language” which was “summarily executed” without review “immediately prior  to the closing of the acquisition." Sounds like somebody didn’t want to pay legals for a quality agreement. The Appellate Division, Second Department reversed Justice Demarest. See my blog entry of May 22 ,2103.

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