In a September 7, 2011, decision by Justice Fried, the court granted in part defendant-LLC members’ motion to dismiss and denied their motion to compel arbitration. The court also denied plaintiff-investors’ cross-motion for injunctive relief under CPLR 6301, as well as for an order under LLCL 414, removing the defendants from a real estate investment company. In the action, plaintiffs alleged that defendants misled them into forming the company by, among other things, grossly misrepresenting the costs of the development project for which the company was formed. The court rejected defendants’ argument 1) that plaintiffs’ action was barred by an exculpation clause in the operating agreement because it depended on the resolution of fact issues regarding whether defendants’ alleged conduct was “objectionable” – an express exception to the exculpatory clause in the agreement; 2) that plaintiffs’ waived their status as fiduciaries in the operating agreement because such a clause “does not bar a claim based on LLC Law § 409” regarding the duties of managing members; and 3) that plaintiffs’ consented to arbitration of disputes among the members of the company in the operating agreement because the conduct alleged constituted “material decisions” – an express exception to the arbitration clause in the agreement. The court also rejected defendants’ argument that plaintiffs failed to state a derivative claim because the complaint alleged sufficient harm to the company and reasons supporting the futility of a demand but nonetheless dismissed plaintiffs’ derivative claims (without prejudice) because, as with corporations and partnerships, such claims cannot be intermingled with individual claims. The court otherwise 1) granted defendants’ motion to dismiss plaintiffs’ unjust enrichment claim on the basis of the existence of an enforceable written contract because “plaintiffs d[id] not contest this claim in their opposition papers”; and 2) denied plaintiffs’ cross-motion for injunctive relief because of issues of fact as to their success on the merits and because LLCL 414 “does not authorize a court to remove an LLC manager.”

Waxman Real Estate LLC v Sacks, Sup Ct, New York County, September 27, 2011, Fried, J., Index No. 652057/2010