Tuesday, November 13, 2018

Court Will Enforce Agreements As Written, Even If Poorly Written

Court Will Enforce Agreements As Written, Even If Poorly Written


In his blog New York business divorce, Peter Mahler has reviewed a recent decision from the New York trial court enforcing, as written, the quorum requirements under an operating agreement.  Casilli v. Natan, 2018 NY Slip Op 32621(U) [Sup Ct NY County Oct. 12, 2018].

In a blog entry titled Think Twice Before Putting 100% Quorum Requirements in By-Laws or LLC Agreements (Nov. 12, 2018), Peter explained that, in this particular LLC, there were three managers, and the quorum requirement for a meeting of the managers was all of the managers. Not surprisingly, one of them refused to attend the meetings. While there was no unanimity requirement with respect to meetings of the members, the operating agreement provided, inter alia, that members could consider matters only after they were considered and recommended by the managers. In effect there was a “two-house rule,“ and the members were precluded from acting outside of a recommendation from the managers.  When the two of the three members sought to call a meeting of the members to consider the filing of the bankruptcy petition, a topic that had not been considered and recommended by the board of managers, that effort was enjoined.

The court rejected the suggestion that the operating agreement be reformed to require only a majority to constitute a quorum.  I’m with Peter in viewing that determination as not surprising.  As a general proposition, courts should enforce agreements and not question the wisdom of what was agreed to. 

      HERE IS A LINK to Peter’s review of this case.

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