USA – NEW YORK Trends and Developments Contributed by: Konstantine Paschalidis, Michael Iakovou and Socrates Xanthopoulos, IX Legal
Learning from prior buyout litigation We recently settled a matter involving a dispute between members of a limited liability company that owned valuable real estate in Astoria, Queens ( Imian P . V . Member LLC v Vlacich LLC , No. 654719/2024 (Sup. Ct. N.Y. Co.); Vlacich LLC v Imian P . V . Member LLC et . al ., No. 721125/2024 (Sup. Ct. Queens Co.)). In that situation, the operating agreement contained a buyout provision providing a mechanism for dis - pute resolution that permitted the aggrieved party to value the company and, in his valuation, simultane - ously submit his interest for sale within a period of time after serving notice on the other member. The caveat remained that the other member possessed the right, within the same period, to elect to purchase the initiating member’s interest at the same valuation. If the non-triggering member did not elect to purchase within the timeframe, the triggering member’s notice served as his purchase price for the other member. The concept gave the triggering member a dilemma with balance: select a price too low and the receiving member turns the tables to purchase your interest at a discount. Alternatively, the triggering party risked paying a premium for overvaluing the company, as the agreement forced the triggering party to purchase at the same rate where the other member did not elect to purchase under his valuation. A conceptually straight - forward summary judgment motion became muddied when the other member disputed our client’s standing as a member after the court dismissed its counter - claim. However, the parties came to terms before the dust settled following a motion to reargue the sum - mary judgment motion. Conversely, in a shareholder dispute highlighted by a breakdown of trust between the two 50% interest holding principals with only a voluntary (rather than a forced) buyout or mechanism in place to address potential misappropriation of corporate assets, the sole logical remedy remained a BCL Section 1104 dissolution ( Matter of Markopoulos , No. 718319/2025 (Sup. Ct. Queens Co.)). As the election remedy of BCL Section 1118 remains unavailable in a dissolution under Section 1104, the petitioner filed without the fear that his shareholder partner could use his peti - tion to purchase his interest in the business. Here, cooler heads prevailed and the respondent’s selec - tion of competent counsel led to a swift settlement of
but stay the action pending arbitration since judicial action may be required after the arbitration). Critically, the Princeton matter concerned the applicability of a buyout provision in a shareholders’ agreement. The right to arbitrate is not absolute, however, and may be “modified, waived, or abandoned” ( Stark v Molod Spitz DeSantis & Stark , P . C ., 9 N.Y.3d 59, 66 (2007)). The courts will examine the totality of a party’s conduct to determine whether it waived its rights to arbitrate when that party’s “use of the courts is clearly inconsist - ent with [its] later claim that the parties were obligated to settle their differences by arbitration” ( Cusimano v Schnurr , 26 N.Y.3d 391, 400 (2015), internal citations omitted). A party that chooses to “fully participate in litigation for more than 16 months” before moving to compel arbitration clearly waived its rights to arbitrate the underlying claims ( Flores v Lower E . Side Serv . Ctr ., 4 N.Y.3d 363 (2005)). In deciding on how much time constitutes waiver, the First Department and Sec - ond Department held that four months of active litiga - tion suffice ( Hyde v Jewish Home Lifecare , 149 A.D.3d 674 (1st Dept. 2017); Byrnes v Castaldi , 72 A.D.3d 718 (2d Dept. 2010)). From the court’s perspective, such behaviour of active engagement in litigation followed by a reversal and application to compel arbitration contains indications of “blatant forum-shopping” ( Cuisamano at 401). Criti - cally, waiver is fact-specific, and a party that merely moves to dismiss prior to compelling arbitration does not waive its right to arbitrate unless the opposing party demonstrates prejudice ( Stark at 67). While a party may still file an action in court, a valid arbitration cause ensures that the action is promptly stayed and then moved to the appropriate private forum. This prevents the public from further engag - ing in review of the latest filings on the docket and speculating as to the nature of the parties’ spat. How - ever, there is nothing preventing a vindictive aggrieved interest holder from filing in the first instance in the courts, even with a valid arbitration provision. Par - ties must consider that even a brief attempt to litigate rather than promptly move to compel may jeopardise the ability to compel arbitration.
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