September 2010 — Issue 55

LLP Cases: Roe v. Ladymon

318 S.W.3d 502 (Tex. App. 2010)

(limited liability of partner in LLP; effect of conversion from LLP to limited partnership; arbitration clause not binding on partner who signed contract as representative of partnership)

LLC Cases: Colborne Corporation v. Weinstein

__ P.3d __, 2010 WL 185416 (Colo. App. 2010, pet. granted)

The plaintiff, a creditor of a Colorado LLC, sought to hold the managers and members of an LLC liable for an unlawful distribution. The creditor argued that the managers were liable for breach of a common law fiduciary duty owed to the creditor and that the members were liable under the Colorado LLC statute, which provides for liability of the members to the LLC in the event the members knowingly receive an impermissible distribution. Continue reading

August 2010 — Issue 54

LLP Cases: Largo Realty, Inc. v. Purcell

928 N.E.2d 999 (Mass. App. 2010).

The plaintiff sued for breach of contract and other claims arising out of alleged overbilling by BDO Seidman, LLP (“BDO”) for services provided the plaintiff under a written contract between the plaintiff and BDO. The plaintiff’s complaint named an employee of the partnership who rendered services to the plaintiff and the employee’s supervising partner, Russo, individually and as a partner in BDO. The defendants filed a motion to dismiss, which the trial court granted. The plaintiff argued that it made BDO a party by suing Russo in his capacity as a partner. The court discussed “three forms of partnerships” in Massachusetts: Continue reading

July 2010 — Issue 53

Ross Holding and Management Company v. Advance Realty Group, LLC

C.A. No. 4113-VCN, 2010 WL 3448227 (Del. Ch. Sept. 2, 2010)

The plaintiffs, members of a Delaware LLC, sought the immediate appointment of a receiver for the LLC based on the LLC’s insolvency resulting from gross mismanagement and self-dealing by the defendant board. The defendants objected because neither the LLC agreement nor the Delaware LLC statute provided for the appointment of a receiver in the event of insolvency and because plaintiffs failed to plead behavior sufficiently egregious to merit the appointment of a receiver in accordance with the court’s equity powers. Both parties acknowledged that the Delaware LLC statute is silent on the issue of the appointment of a receiver except as provided in the case of the cancellation of the certificate of formation. Continue reading

June 2010 — Issue 52

LLP Cases: Edlinger v. United States

No. 3:10-cv-148, 2010 WL 1485951 (N.D.N.Y. April 14, 2010)

(limited liability of LLP partner absent partner’s own wrongful conduct, partner’s direct supervision of someone who engaged in wrongful conduct, or limitation of scope of liability protection by partnership agreement).

LLC Cases: Spurlock v. Begley

308 S.W.3d 657 (Ky. 2010)

An LLC member, Griffin, orally announced his intention to give another individual, Begley, a 25% interest in the LLC in order to pay off a $75,000 note from the LLC to Begley. Continue reading

May 2010 — Issue 51

Kuroda v. SPJS Holdings, L.L.C.

Civil Action No. 4030-CC, 2010 WL 925853 (Del. Ch. March 16, 2010)

Kuroda became involved with several individuals whose relationship was governed by a series of agreements and contracts that formed a complex web of interrelated companies and partnerships, the purpose of which was to establish an efficient structure to manage and provide investment advice to certain funds. Kuroda was a non-managing member of an LLC that was created to serve as the general partner of the funds. As such, Kuroda had no decision-making authority in connection with the funds or the LLC. Continue reading

April 2010 — Issue 50

LLC Cases: PT China LLC v. PT Korea LLC

C.A. No. 4456-VCN, 2010 WL 761145 (Del. Ch. Feb. 26, 2010)

Wang, a Singapore resident, sought dismissal of breach of fiduciary duty and breach of contract claims against him on the basis that he was not subject to personal jurisdiction in Delaware. Wang was the sole member and manager of a Delaware LLC which was one of two members of another Delaware LLC, Pine Tree Holdings I LLC (“PT Holdings”). Wang was a member of the management committee of PT Holdings, which was the managing member and minority interest holder of yet another Delaware LLC, Pine Tree Equity LLC (“PT Equity”). The agreements governing these entities included a master joint venture agreement to which Wang was a party. The claims in issue against Wang were various Continue reading

March 2010 — Issue 49

LLC Cases: Whittington v. Dragon Group, L.L.C.

991 A.2d 1 (Del. 2009)

The Delaware Supreme Court decided, as a matter of first impression, that the typed word “seal” next to an individual signatory’s name was sufficient to create a “specialty contract,” i.e., a contract under seal, which is subject to a twenty-year statute of limitations under Delaware law rather than the three-year statute of limitations applicable to regular contracts. The dispute in this case involved the rights of family members with respect to a Delaware LLC. The plaintiff brought this action against the LLC, the plaintiff’s siblings, and other family members to enforce his rights as an alleged member of the LLC, and the chancery court concluded that the plaintiff’s rights were ultimately predicated on a global settlement agreement entitled “Agreement in Principle” (“AIP”) entered into by the plaintiff and his siblings in 2001 during prior litigation between the parties. Continue reading

February 2010 — Issue 48

LLP Cases: Evanston Ins. Co. v. Dillard Dep’t Stores, Inc.,

602 F.3d 610 (5th Cir. 2010)

Dillard Department Stores, Inc. (“Dillard’s”) sued a law firm, Chargois & Ernster, L.L.P., in 2003 for federal and state trademark infringement, cyberpiracy, and various business torts based on the law firm’s use of the Dillard’s name and logo on a website developed by the law firm to solicit clients with claims against Dillard’s. The law firm was registered as a Texas limited liability partnership. Early in 2004, while the litigation with Dillard’s was ongoing, the partners executed a separation agreement providing for dissolution of the partnership, and they did not renew the firm’s LLP registration when it expired in July, 2004. In November, 2004, the court entered a final judgment against “Chargois & Ernster, L.L.P.” Continue reading

January 2010 — Issue 47

LLC Cases: Vichi v. Koninklijke Philips Electronics N.V.

2578-Vcp, 2009 WL 4345724 (Del. Ch. Dec. 1, 2009)

Vichi made a loan to a Delaware LLC which was a subsidiary of a joint venture between two foreign companies. The LLC went bankrupt and defaulted on the loan to Vichi. Vichi then sued various parties. Among other claims, Vichi brought breach of fiduciary duty claims against an individual citizen of Singapore who resided in China and was an officer of the joint venture and employed by a subsidiary of the joint venture that was the sole member and manager of the LLC. The individual successfully moved for dismissal of the claims against him for lack of personal jurisdiction because neither the Delaware long-arm statute nor the implied consent provision of the LLC statute provided a basis to exercise jurisdiction over him. Continue reading

December 2009 — Issue 46

LLP Cases: In re Promedicus Health Group, LLP (Wallach v. Douglas)

416 B.R. 389 (Bankr. W.D.N.Y. 2009)

In this dispute over what definition of “insolvent” applies to a New York LLP under the Bankruptcy Code, the court determined that there are no “general partners” in a New York LLP so that the provision requiring “the sum of the excess of the value of each general partner’s non-partnership property” to be added to the assets of the LLP did not apply. The trustee argued that the definition of a corporation in Section 101(9)(A)(ii) applied to the LLP because the term includes a “partnership association organized under a law that makes only the capital subscribed responsible for the debts of such association.” Continue reading

November 2009 — Issue 45

Julian v. Julian

Civil Action No. 4137-VCP, 2009 WL 2937121 (Del. Ch. Sept. 9, 2009)

Three brothers owned and operated several LLCs together, and the plaintiff (“Gene”) sued his brothers (“Francis” and “Richard”) after he resigned as a member of several of the LLCs. The case involved two different versions of Section 18-603 of the Delaware Limited Liability Company Act. For LLC agreements entered into before July 31, 1996, the statute permitted a member to resign with six months’ notice. For LLC agreements entered into after July 31, 1996, the statute prohibits resignation before dissolution and winding up unless the LLC agreement states otherwise. Continue reading

October 2009 — Issue 44

Pierre v. Commissioner of Internal Revenue

133 T.C. No. 2 (U.S. Tax. Ct. 2009)

The court decided that transfers of interests in a single member LLC should be valued for gift tax purposes as transfers of interests in the LLC (and thus subject to valuation discounts for lack of marketability and control) rather than transfers of the assets of the LLC. The IRS argued that the transfers should be treated as transfers of cash and marketable securities, i.e., proportionate shares of the LLC’s assets, for federal gift tax purposes because the LLC was disregarded Continue reading