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Court Enjoins Dilution of Brewing Company LLC Membership Interest | Farrell Fritz, P C
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Common-Law and Equitable LLC Dissolution: Going, Going, | Farrell Fritz, P C
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The Money s There But Out of Reach for the Minority LLC Member | Farrell Fritz, P C
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In
Farro v. Schochet, the Second Department recently held that §1002 of the NY LLC Law restricted a dissenting member’s remedy to an appraisal for the fair value of his interest in the business after a freeze-out merger.[1] Thus, the Court reduced the legal remedies for a minority LLC member that lacked protections in the operating agreement against the merger.
Background on Freeze-out Mergers and Appraisal Remedy
A freeze-out merger typically involves controlling member(s) forcing minority member(s) out of a business by (1) creating a new business where the minority member(s) do not have a stake and then (2) using their controlling stake in the original business to merge it into the new business to freeze-out the minority member(s).
“[A]ll assets . . . [shall] be sold at auction at the earliest commercially reasonable date”;
“[F]ollowing the sale . . . further proceedings and claims remain to determine each member’s contribution and membership interests”; and
“[I]n light of the above-referenced additional proceedings, all funds from the sale . . . shall be held in escrow and release and distributed only pursuant to a settlement agreement executed by both parties . . .”
The Post-Stipulation Litigation
After signing the stipulation, Yehle refused to sign documents permitting the auctioneer to proceed with the asset sale, claiming that Rich’s refusal to respond to his demands for discovery concerning Rich’s capital contributions relieved Yehle of compliance with the stipulation. Rich countered by asking the court to