Summary
affirming dismissal of breach of fiduciary duty claim where conflicted transaction was fair and reasonable
Summary of this case from Beatrice Invs., LLC v. 940 Realty LLCOpinion
No. 2147 2147A 603034/05.
November 20, 2007.
Judgment, Supreme Court, New York County (Ira Gammerman, J.H.O.), entered January 22, 2007, dismissing the complaint in its entirety, unanimously affirmed, with costs. Appeal from order, same court and J.H.O., entered December 18, 2006, which granted defendants' motion and cross motion to dismiss the complaint, unanimously dismissed, without costs, as subsumed in the appeal from the judgment.
onnenschein Sherman Deutsch LLP, New York (Robert N. Fass of counsel), for appellants.
Ruskin Moscou Faltischek, P.C., Uniondale (Joseph R. Harbeson of counsel), for Donald MacLeod and John Marshman, respondents.
Thomas P. Malone, New York, for Commerce Bank, N.A., respondent.
Before: Andrias, J.P., Nardelli, Gonzalez, Sweeny and Malone, JJ.
While the vote of the interested managers (who together owned 40.9% of the membership interests) was necessary for the approval of the transaction, making it incumbent upon the interested parties to establish affirmatively that the transaction was fair and reasonable to the limited liability company at the time it was approved ( see Limited Liability Company Law § 411 [b]), the record evidence demonstrates that the transaction was indeed fair and reasonable. Independent appraisers valued the property at $4.4 and $4.8 million. These appraisers had access to relevant, objective information concerning the property (such as rent rolls), assumed a marketing period of nine months, and employed both a sales comparison and an income capitalization approach. Plaintiffs assert that the appraisals cannot be relied upon because they were obtained by the company's managers, citing Beck v Manufacturers Hanover Trust Co. ( 218 AD2d 1). This case differs from Beck, however, insofar as there was independent verification of the information relied upon, and no record evidence of the undervaluation of the property. Plaintiffs assert that a much higher value for the property could have been obtained had it been sold to a developer for conversion to condominiums. The Manzari affidavit, upon which plaintiffs rely, was, as the J.H.O. found, devoid of any factual support. In any event, the Miller Cicero appraisal did assume that the highest and best use for the property was condominium conversion.
The values of the bids submitted by plaintiffs, who themselves participated in the bidding process, confirmed that the sale price to Seaport was fair and reasonable. To the extent plaintiffs contend there was an implied duty imposed by the operating agreement that the property would not be sold except for fair market value, the evidence established that the price paid by Seaport was fair and reasonable, and equal to or greater than the appraised value.
In Tzolis v Wolff ( 39 AD3d 138, lv granted 2007 NY Slip Op 70472[U] [2007]), this Court recognized that members of limited liability companies have standing to bring a derivative action. Thus, the court erred to the extent it held that members of a limited liability company have no standing to bring a derivative action on behalf of the company. Nevertheless, the first and second causes of action necessarily fail since defendants did not breach either the operating agreement or their fiduciary duties.
Finally, as the judicial hearing officer noted with respect to the fourth cause of action, the dissolution of Voyager was properly authorized at the July 25, 2005 special meeting. In any event, plaintiffs have a remedy in case the liquidation process goes awry. The court dismissed plaintiffs' claim that they had not been paid the proceeds from the sale, without prejudice to a new action if plaintiffs failed to receive the appropriate distributions.