Klein v 599 Eleventh Ave. Co. LLC
Annotate this CaseDecided on November 27, 2006
Supreme Court, New York County
Alice Klein, Plaintiff,
against
599 Eleventh Avenue Co. LLC, Winter Equities Company L.P., and Rose Tenzer, Defendants.
604397/05
Herman Cahn, J.
Defendants 599 Eleventh Avenue Co. LLC (599 LLC), Winter Equities Company L.P. (Winter Equities) and Rose Tenzer move for an order to dismiss the complaint pursuant to CPLR 3211 (a) (1) and (7) on the grounds of a defense founded upon documentary evidence and failure to state a cause of action.
The following allegations are taken from the complaint. 599 LLC was originally formed as a general partnership in May 1992, under the name 125 Fifth Avenue Company (125 Fifth Ave.). On September 29, 1997, the partners of 125 Fifth Avenue converted the general partnership into a limited liability company by executing an agreement entitled, "599 Eleventh Avenue Co., LLC Agreement of Conversion and Operating Agreement" (the Operating Agreement). 599 LLC has three members with the following ownership interests: plaintiff Alice Klein, 22.22%, defendant Winter Equities, 66.67%, and defendant Rose Tenzer, 11.11%.
On October 6, 1999, 599 LLC filed a certificate of conversion (Certificate of Conversion) with the Secretary of State. After filing the Certificate of Conversion, the members executed another agreement entitled, "Ratification, Reaffirmation and Confirmation" (the Ratification Agreement). As set forth in the complaint, the Ratification Agreement provides in part that:
said filing of the Certificate of Conversion, intended to be made with the Secretary of State, did not, in fact occur until October 6, 1999 due solely to ministerial and inadvertent factors of which [Winter Equities Company] and [Winter Equities Company, L.P.] and the Members were not aware, and the parties nevertheless intended themselves to conduct, and did conduct and desire to continue to conduct themselves, inter se and with others, as a limited liability company from the date of and effective with the execution of each
of the Agreement of Conversion, the Certificate of Conversion and the Certificate of Conversion and the Certificate of Dissolution, with the same force and effect as if the Certificate of Conversion had been appropriately filed contemporaneously with the execution of the Agreement of Conversion and the discontinuance of the Partnership and to evidence same by the execution of this Ratification, Reaffirmation and Confirmation
[*2]
(emphasis added). The Ratification Agreement further provides that the members agree that the Company be "declared effective with the execution of the Agreement of Conversion irrespective of the actual date of filing of the Certificate of Conversion with the said Secretary of State."
The Operating Agreement provides that non-party Marvin Winter, a principal of Winter Equities, was to be the sole manager of 599 LLC.
On March 15, 2005, Klein sent a letter to Winter Equities demanding its consent to her withdrawal as a member of 599 LLC. The letter further advised that should Winter Equities fail to consent to the withdrawal, the letter would serve as six months notice of withdrawal. On April 12, 2005, Klein sent an additional letter advising Winter Equities that the March 15th letter should serve as six months' notice of withdrawal. Winter Equities declined to consent to Klein's withdrawal, nor did it remit to Klein the fair value of her membership interest under the Operating Agreement. As a result, plaintiff commenced this action asserting claims for: (1) breach of contract, (2) a declaratory judgment declaring that she has properly withdrawn as a member of 599 LLC, and (3) judicial dissolution. Plaintiff seeks recovery of $1,000,000 in damages together with the costs and disbursements of this action.
Defendants argue that the complaint fails to state a cause of action for: (1) a statutory right to withdrawal under § 606 of the Limited Liability Company Law, (2) breach of contract, and (3) judicial dissolution. Defendants further argue that they are entitled to dismissal because documentary evidence, consisting of the Operating Agreement and the Certificate of Conversion, refute plaintiff's allegation that she is entitled to withdrawal under Section 606 (b), Limited Liability Company Law, and conclusively establish a defense as a matter of law.
Breach of Contract
Defendant moves to dismiss the breach of contract claim exclusively on the basis of the claimed failure to state a cause of action. This branch of the motion is denied, as Plaintiff has pled a cause of action for breach of contract sufficient to survive dismissal under CPLR 3211 (a) (7).
It is well settled that in determining a motion to dismiss pursuant to CPLR 3211 (a) (7), the sole criterion is whether the pleading states a cause of action and if, from its four corners, factual allegations are discerned which taken together manifest any cause of action cognizable at law (Matter of Loukoumi, Inc., 285 AD2d 595, 596 [2d Dept 2001]). In order to sustain a claim for breach of contract, plaintiff must clearly plead: the existence of a contract, plaintiff's performance, and the basis of the alleged breach (Furia v Furia, 116 AD2d 694, 695 [2d Dept 1986]).
The complaint asserts:
That on September 29, 1997, the members of 599 LLC executed an Agreement of Conversion and Operating Agreement converting their partnership to a limited liability company (Winter Aff. Exh. D, ¶¶ 8-21). In error, the Certificate of Conversion was not filed with the Secretary of State until two years later in October 1999 (id.). To correct the error, the members executed a Ratification Agreement which provided that 599 LLC became "effective with the execution of the Agreement of Conversion irrespective of the actual date of filing of the Certificate of Conversion with the said Secretary of State" thereby expressing the intent of the parties to be governed by the Limited Liability Company Law as stated in 1997 (id.).
Section 606 LLCL provides in part that:
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(a) A member may withdraw as a member of a limited liability company only at the time or upon the happening of events specified in the operating agreement and in accordance with the operating agreement. Notwithstanding anything to the contrary under applicable law, unless an operating agreement provides otherwise, a member may not withdraw from a limited liability company prior to the dissolution and winding up of the limited liability company.
Thus, under the statute, a member may withdraw from a limited liability company only as provided in its operating agreement. If the operating agreement is silent, a member may not withdraw prior to the dissolution of the company (Matter of Horning v Horning Constr., LLC, 12 Misc 3d 402, 408 [Sup Ct, Monroe County 2006]; Spires v Casterline, 4 Misc 3d at 437). Here, the Operating Agreement is silent on the issue of withdrawal (Winter Aff. Exh A). Further, the record reveals that 599 LLC has not effected its dissolution. Thus, under the applicable statute, plaintiff would not be entitled to withdraw unless there is some other agreement or consent (which consent is not present here).
Section 606 (b) LLCL provides that:
A limited liability company whose original article of organization were filed with the secretary of state and effective prior to the effective date of this subdivision shall continue to be governed by this section as in effect on such date and shall not be governed by this section, unless otherwise provided in the operating agreement.
The effective date of the section was August 31, 1999.
The section prior to August 31, 1999 provided that a member might withdraw, without the consent of the other members, upon the giving of six months prior notice. Thus, if 599 Eleventh Avenue Co. were governed by the prior section, plaintiff could withdraw on the giving of six months notice. 599 Eleventh Avenue Co. was originally formed as a general partnership in 1992 and subsequently sought to convert that partnership to a limited liability company.
Under Section 1006 (g) LLCL, a conversion of a general partnership to a limited liability company takes effect "when the certificate of conversion is filed with the department of state . . . ." Here, defendants submitted documentary evidence that 599 LLC's Certificate of Conversion was filed on October 6, 1999; the publication requirement was fulfilled in December 1999, and its Affidavits of Publication were filed on December 28, 1999 (Winter Aff. Exhs 1-3). They argue that it is therefore governed by present section 606 (a), and no withdrawal is permitted.
Plaintiff argues that she is entitled to withdraw under Section 606 (b) because, although 599 LLC's Certificate of Conversion was filed in October 1999, the parties' executed a Ratification Agreement by which they agreed that the company's conversion was effective as of 1997. Thus the pre-1999 Limited Liability Company Law governs her rights as a member. Although the LLCL permits a certificate of conversion to specify a later date for the effectiveness of a company's conversion, it makes no provision for a retroactive effective date (see Section 1006 [g] LLC). Plaintiff seems to argue that the Operating Agreement and Ratification Agreement constitute contracts by which all the members of the LLC agreed to be bound by the previous section 606 (a). However, the complaint is not clear on this issue. Thus, the second cause of action, for breach of contract, is dismissed, with leave however to plaintiff to serve an amended verified complaint for this relief.
Declaratory Judgment[*4]
Defendants move to dismiss the first cause of action for a declaratory judgment on the grounds of failure to state a cause of action and a defense founded upon documentary evidence. The court's analysis of the breach of the contract cause of action is also relevant here. However, the complaint does state a valid cause of action for a declaratory judgment, and the motion is denied as to this cause of action.
Judicial Dissolution
Defendants move to dismiss the third cause of action for judicial dissolution solely on the ground of failure to state a cause of action. Plaintiff has not demonstrated a viable cause of action for judicial dissolution. The court may decree dissolution of 599 LLC if it determines that it is not reasonably practicable to carry on the business in conformity with its operating agreement (Section 702 LLCL). Defendants argue that plaintiff merely parrots the statute by pleading that it is not reasonably practicable for 599 LLC to carry on the business of the company in conformity with its articles of organization and Operating Agreement. Defendants further argue that in the absence of the pleading of facts reflecting the inability of 599 LLC to carry on its business in accordance with its articles of organization, Certificate of Conversion or Operating Agreement, there is no basis for judicial dissolution.
The appropriateness of an order of dissolution of a limited liability company is vested in the sound discretion of the court hearing the petition (Matter of Extreme Wireless, LLC, 299 AD2d 549 [2d Dept 2002]).
Plaintiff has failed to articulate facts establishing why it is not reasonably practicable for 599 LLC to continue to carry on its business. Moreover, plaintiff has failed to demonstrate that 599 LLC is failing financially (Schindler v Niche Media Holdings, LLC, 1 Misc 3d 713, 716 [Sup Ct, NY County 2003]). In light thereof, the court declines to exercise its discretion to grant plaintiff's petition for dissolution (Spires v Casterline, 4 Misc 3d at 432-434).
The third cause of action is dismissed.
Accordingly, it is
ORDERED that the motion to dismiss is granted and the second and third causes of action of the complaint are dismissed, with leave to the plaintiff to serve an amended verified complaint repleading the second cause of action, within 10 days of service of a copy of this decision; and it is further
ORDERED that defendant is directed to serve an answer to the complaint within 20 days after service of a copy of this order with notice of entry or plaintiff's amended verified complaint.
Dated:November 27, 2006
ENTER:
__________________/s/____________________________
J.S.C.
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