July 2008 — Issue 29

Fisk Ventures, LLC v. Segal

Civil Action No. 3017-CC, 2008 WL 1961156 (Del. Ch. May 7, 2008)

Disagreements between the members of two classes of membership interest in a Delaware LLC led to a deadlock, and one of the Class B members filed a petition for dissolution. Segal, a Class A member who was the LLC’s founding member, president, and sole officer, filed counterclaims and third-party claims against the Class B members. Johnson, a Class B member, filed a motion to dismiss Segal’s claims against him for lack of personal jurisdiction, and the other Class B members filed a motion to dismiss Segal’s counterclaims and third-party claims for failure to state a claim. Continue reading →

June 2008 — Issue 28

LLPs: Kuslansky v. Kuslansky, Robbins, Stechel and Cunningham, LLP

50 A.D.3d 1100, 858 N.Y.S.2d 213 (N.Y.A.D. 2 Dept. 2008)

A withdrawn partner sought to recover payment from the remaining partners for the value of his partnership interest under the partnership agreement. The defendant partners argued that they were shielded from liability by the New York LLP provisions, but the court pointed out that the New York Court of Appeals held in Ederer v. Gursky that the LLP liability shield only applies to a partner’s liability to third parties and does not shield a general partner in an LLP from breaches of the partnership’s or partner’s obligations to each other.
Continue reading →

May 2008 — Issue 27

K.C. Properties of N.W. Arkansas, Inc. v. Lowell Investment Partners, LLC

373 Ark. 14, __ S.W.3d __, 2008 WL 659825, No. 07-471 (Ark. 2008)

Ozark Mountain Water Park, LLC (“Water Park LLC”) was formed for the purpose of operating a water park on land owned by Pinnacle Hills Realty, LLC (“Realty LLC”). Pinnacle Management Services, LLC (“Management LLC”) was the manager of Water Park LLC, and the members of Realty LLC and Management LLC were three LLCs owned by the three individuals who were the managers of Management LLC. Realty LLC sold the land to another party, and the 49% member of Water Park LLC sued the 51% member Continue reading →

April 2008 — Issue 26

Venezia Amos, LLC v. Favret

No. 3:07cv146/MCR, 2008 WL 410163 (N.D. Fla. Feb. 12, 2008)

The plaintiff sued an LLC and its managing member for federal securities fraud in connection with the plaintiff’s purchase of a 40% interest in the LLC. The defendants argued that the court lacked personal jurisdiction over them, that the membership interest purchased by the plaintiff was not a security, and that the plaintiff’s allegations failed to meet the heightened pleading requirements of the Private Securities Litigation Reform Act. Continue reading →

March 2008 — Issue 25

EuroCapital Advisors, LLC v. Colburn

C.A. No. 3035-VCN, 2008 WL 401352 (Del. Ch. Feb. 14, 2008).

The court exercised its discretion to stay this action in Delaware brought by a Delaware LLC and an individual who claimed to be its sole member (Dyne) against an individual (Colburn) who claimed to be a member in the LLC by virtue of an oral agreement with Dyne. In the Delaware action, the LLC and Dyne sought a declaratory judgment that Colburn was not a member in Continue reading →

February 2008 — Issue 24

LLPs: Ederer v. Gursky

9 N.Y.3d 514, __ N.E.2d __, 2007 WL 4438937 (N.Y. 2007)

A withdrawn partner sued the partnership and its partners for breach of contract and an accounting of funds owed the withdrawn partner under a withdrawal agreement between the partner and the partnership. The partners claimed that they did not have personal liability because the partnership was an LLP, but the court concluded that the New York LLP liability shield only applies to debts and Continue reading →

January 2008 — Issue 23

Brown v. T-Ink, LLC, Civil Action No. 3190-VCP

2007 WL 4302594 (Del. Ch. Dec. 4, 2007)

This action was filed by an LLC member (“Brown”) to enjoin another member (T-Ink, LLC or “T-Ink”) from proceeding with an arbitration. T-Ink argued the court should dismiss the case on the grounds that the arbitrator should decide matters of substantive arbitrability (i.e., whether T-Ink’s claims are arbitrable) as well as procedural arbitrability (i.e., whether T-Ink complied with the terms of the arbitration clause). Continue reading →

December 2007 — Issue 22

In re Weiss

376 B.R. 867, No. 07 B 6781 (Bankr. N.D. Ill. 2007)

A debtor’s pledge of his membership and partnership interests in numerous LLCs and limited partnerships was unenforceable because the LLC and partnership agreements prohibited transfer or required prior written consent of the manager, members, or partners and such consent was not obtained prior to the debtor’s grant of a security interest in the interests. Continue reading →

November 2007 — Issue 21

United States v. Lu

No. 06-16438, 2007 WL 2753030 (9th Cir. (Ariz.) Sept. 20, 2007).

The court held that single member LLCs are not protected by the Fifth Amendment privilege against self-incrimination and that the district court properly denied a member’s motion to quash a subpoena ordering production of business records of her single member LLCs. Though the Fifth Amendment privilege is available to sole proprietorships, it is not available to collective entities because they are separate legal entities from their owners. Continue reading →

October 2007 — Issue 20

Thompson v. Deloitte & Touche LLP

__ F.Supp.3d __, 2007 WL 2409737, No. 4:07-cv-00067 (S.D. Iowa 2007).

The court held that an LLP’s citizenship is determined by the citizenship of all partners and that the presence of one “stateless” partner thus renders the partnership stateless and destroys diversity jurisdiction. Further, even if the stateless partner were excluded from consideration, partners who were not United States citizens destroyed diversity jurisdiction because diversity jurisdiction cannot be maintained where aliens are on opposite sides of an action, and there were alien plaintiffs present in the case.
Continue reading →

September 2007 — Issue 19

NAMA Holdings, LLC v. World Market Center Venture, LLC

C.A. No. 2756-VCL, 2007 WL 2088851 (Del. Ch. July 20, 2007).

NAMA Holdings, LLC (NAMA), an indirect owner of a Delaware LLC, brought an action to inspect the LLC’s books and records pursuant to provisions in the LLC’s operating agreement. NAMA argued that the operating agreement granted NAMA an unrestricted right of access to sensitive and proprietary information, but the LLC sought to limit the classes of documents available to NAMA and to require NAMA to execute a confidentiality agreement before granting access. Continue reading →

August 2007 — Issue 18

Stone v. Jetmar Properties, LLC

733 N.W.2d 480, No. A06-851 (Minn. App. 2007).

The court determined that neither the de facto corporation doctrine nor the corporation by estoppel doctrine applied to a conveyance of real property to an LLC that did not yet exist, and the deed was thus void. Although the promoter had drafted and signed articles of organization, he had made no attempt to file them; therefore, the court concluded that there had been no colorable attempt to organize the LLC under the statute, and the de facto Continue reading →