ON DISSOLVING A LLC

CHERNOMORDIK v. OCEAN SAND DEV., LLC, 2022 NY Slip Op 33846 - Kings Co. Supreme Court 2022:

"Concerning the causes of action, the first counts seek dissolution. In Matter of 1545 Ocean Avenue LLC, 72 AD3d 121, 893 NYS2d 590 [2d Dept., 2010] the court held that the sole basis for dissolution of a limited liability company were the grounds outlined in Limited Liability Company Law § 702, namely judicial dissolution upon proof that it is "not reasonably practicable to carry on its business in conformity with the articles of organization or operating agreement" (id). This is a more stringent standard than the dissolution of an ordinary corporation (Kassab v. Kasab, 195 AD3d 830, 145 NYS3d 836 [2d Dept., 2021]). Thus, the plaintiff must establish that "(1) the management of the entity is unable or unwilling to reasonably permit or promote the stated purpose of the entity to be realized or achieved, or (2) continuing the entity is financially unfeasible" (Long Island Medical & Gastroenterology Associates P.C. v. Mocha Realty Associates LLC, 191 AD3d 857, 143 NYS2d 56 [2d Dept., 2021]). Concerning disagreements among the members "it is only whore discord and disputes by and among the members are shown to be inimical to achieving the purpose of the LLC will dissolution under the "not reasonably practicable" standard imposed by LLC § 702 be considered by the court to be an available remedy to the petitioner" (Kassab v. Kasab, 60 Misc3d 1204(A), 109 NYS2d 832 [Supreme Court Queens County 2018]).

The operating agreement of the entity provides that its purpose is to "own, lease, develop, manage, and operate the premises located at Caberette, Dominican Republic (the "Property")" (see, Operating Agreement, `Preliminary Statement' [NYSCEF Doc. No. 43]) and formed the defendant entity to "purchase, lease or otherwise acquire, and to hold, develop, use, lease, licenses, maintain, sell, and otherwise deal with the Property" (id at ¶2.5(a)). Thus, the entity was formed fifteen years ago and the government of the Dominican Republic has rejected plans to develop the property three times. Therefore, the property has remained undeveloped ever since. The defendants assert that considering the impasse that exists the best option going forward is to "continue to hold the Property with the reasonable expectation that its value will skyrocket if and when the regulatory environment changes, as it tends to do from time to time in the Dominican Republic" (see, Memorandum of Law in Support, page 3 [NYSCEF Doc. No. 55]). However, that option is so speculative, so abstract and so theoretical and its success is not dependent upon the efforts of any of the parties but upon policy changes in a foreign government. While arguments the entity cannot conduct its business might be premature since the property is still being held by the entity, there can be no question the goal of the entity was not to hold the undeveloped property for such a long period of tithe. The defendants argue "the Operating Agreement does not even require Ocean Sand to do any development at all" and that the entity "is now holding on to it, biding its time and lying `dormant' so to speak, until Changing market conditions permit a sale or the government finally permits development" (see, Memorandum of Law in Support, page 5 [NYSCEF Doc. No. 55]). There can really be no dispute the entity has been forced to maintain the property in its current undeveloped state due to conditions beyond its control. That does not mean the entity is legitimately pursuing the goals of the operating agreement. Rather, the entity is trying to cope with the best of a bad situation. Therefore, there are surely questions whether the entity can ever achieve the goal of developing the property. Thus, the plaintiff may be able to establish the stated goal of the entity will never be achieved.

The defendants stress that dissolution would destroy any chance of ever recovering initial investments and that really the only option is to wait and hope for the ability to develop the property in the future. While that may be true, as noted, that may never happen. Thus, further discovery and an eventual trial is necessary to evaluate the ability to sell the property, the advantages that may be gained from owning the adjoining properties and the harsh reality the property may never be developed. Therefore, the motion seeking, to dismiss the dissolution claim is denied."