Lengyel-Fushimi v Bellis
Attorneys and Parties
Brief Summary
Governance of a member-managed limited liability company (LLC) operating a brewery and taproom—whether a majority of Class A members could remove another Class A member from managerial authority without unanimous amendment to the operating agreement.
Upon reargument, the trial court enjoined removal of the plaintiff as a Class A member but denied a preliminary injunction preventing his removal from managerial authority.
The denial of a preliminary injunction restraining the defendants from removing the plaintiff as a manager was reversed, and the earlier grant of that injunction was reinstated; the subsequent appeal from the October 26, 2021 order was dismissed as academic.
The operating agreement vested management in the Class A members and contained no clear authorization to remove a Class A member from management by majority vote; Limited Liability Company Law § 414 [allows majority of members to remove or replace managers unless the operating agreement provides otherwise] did not apply because the LLC was member-managed, not manager-managed. Any change would require a unanimous written amendment under Article 10.1, which did not occur. The plaintiff also showed irreparable harm and that equities favored maintaining the status quo.
Background
In 2014, three founders—Anthony Bellis, Zachary Kinney, and plaintiff Peter Lengyel-Fushimi—formed Kings County Brewers Collective, LLC (KCBC), a brewery with a taproom. The operating agreement created Class A, B, and C membership units and designated the founders as equal Class A members. Article 4.1 provided KCBC shall be managed by the Class A members; Article 6.1 gave Class A members sole voting rights on day-to-day operations and permitted majority-vote dispute resolution; Article 10.1 required unanimous written consent to amend the agreement. In April 2021, Bellis and Kinney purported to terminate the plaintiff as an employee and as a Class A managing member by majority vote and attempted to reclassify his equity to a new 'Class D.' The plaintiff sued for declaratory and injunctive relief and moved for a preliminary injunction to prevent removal of his Class A status and his managerial role.
Lower Court Decision
On July 15, 2021, the Supreme Court, Kings County, granted a preliminary injunction restraining removal of the plaintiff both as a Class A member and as a manager. On August 25, 2021, upon reargument, the court adhered to the injunction preserving his Class A membership but denied the injunction preventing his removal from managerial authority. On October 26, 2021, upon reargument, the court adhered to its August 25 denial of the managerial injunction.
Appellate Division Reversal
The Appellate Division reversed the August 25, 2021 order insofar as it denied the preliminary injunction against removing the plaintiff as a manager, reinstating the July 15, 2021 grant of that injunction, and vacated the October 26, 2021 order to the extent it adhered to the denial; the appeal from the October 26 order was dismissed as academic. The court held that, because the operating agreement vested management in the Class A members without a clear removal mechanism, Limited Liability Company Law § 414 [allows majority of members to remove or replace managers unless the operating agreement provides otherwise] was inapplicable to this member-managed structure. Removal would require a unanimous written amendment under Article 10.1, which did not occur. The plaintiff established likelihood of success, irreparable harm, and favorable equities.
Legal Significance
The decision reinforces that in a member-managed LLC, the operating agreement controls, and absent clear, unambiguous authorization to remove a member from management, a majority vote on 'day-to-day operations' cannot be used to strip managerial rights. Limited Liability Company Law § 401[a] [management is vested in members unless the articles provide for manager management] and § 401[b] [members exercising management are deemed managers for statutory purposes], and § 408[a] [if the articles provide for manager management, managers hold management authority], frame the distinction between member-managed and manager-managed structures. Limited Liability Company Law § 414 [allows majority of members to remove or replace managers unless the operating agreement provides otherwise] does not supply a removal mechanism where the operating agreement vests management in the members and lacks clear expulsion language. The court distinguished Ross v Nelson and followed Garcia v Garcia and Man Choi Chiu v Chiu in requiring clear contract authority or unanimous amendment for such removal.
For a member-managed LLC, majority voting provisions on operations do not authorize removing a member from managerial authority. Without a clear removal mechanism in the operating agreement, such a change requires a unanimous written amendment; attempts to remove a member-manager without that authority are likely to be enjoined.