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I was fired without "cause," as an executive of a Delaware

corporation based out of Long...
I was fired without "cause," as an executive of a Delaware corporation based out of Long Island, NY. As a 40.5% membership share holder in this outsourcing LLC, I sued to keep my shares. Lost in arbitration. When it came time for me to settle with the company, the remaining managers wanted me to sign a subordination quite unlike that they had given to any other executive. Very long and laborious, it basically states that until they never have or incur another debt, refinancing, loan, or "any other type of debt," I cannot get paid out. Other member's subordinations were to default to the senior lender only. Now, the LLC is suing me over the assignment of the 40.5% membership shares and to force me to accept their subordination as written. My attorney was doing a good job seeking changes, then they returned with he original unacceptable language. What is my recourse? Is there any such thing as a subordination specialist attorney in NY? If so, where? Thank you.
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Answered in 19 minutes by:
1/4/2009
socrateaser
socrateaser, Attorney
Category: Business Law
Satisfied Customers: 39,498
Experience: Retired
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Your recourse is to defend on the LLC's requirements as being unconcionable and a breach of the implied covenant of good faith. And, simultaneously sue the LLC members for breach of fiduciary. Majority shareholders have a duty of good faith towards minority shares. If your buyout is substantially different than any other shareholder, then you are clearly being treated dishonestly.

 

Apparently, the arbitrators didn't find a problem, which makes me wonder what's going on. I can't review your documents, but you can certainly ask your attorneys why you should have to take the short end of this stick. Maybe it's simply that you signed an employment contract going in that requires you to sell back your shares under this onerous scenario.

 

 

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Customer reply replied 9 years ago

In response: When you say I am to "defend on the LLC's requirements ..." do you mean bring a lawsuit against the LLC and its board of managers? The decision of the arbitrators stated that they were not going to "second guess the Board......there was no breach of fiduciary duty here; no fraud or abuse of discretion or 'ulterior motives.'" However, the decision did cancel out the Employment Agreement's demand for "delivery of a release of claims," stating that "In light of this award, however, no 'release' should be required and the 'redemption agreement' does not appear to be required by either the Employment Agreement, or the Operating Agreement."

The Employment Agreement clearly states "At the closing of any sale of the membership interests in the Company, the Company shall deliver to the employee a certified bank check in the amount equal to the purchase price or, in the Company's sole discretion, one or more subordinated notes, in an aggregate principal amount equal to the purchase price of such membership." No description of how or anything beyond that statement. This is what I am trying to deal with. May I bring suit for breach of fiduciary duty even though the arbitrators have ruled on this? Or, do I bring suit against the members of the Board of Managers for being out of step with the requirements of an LLC's duties of the Board of Managers, i.e., "...breach of implied covenant of good faith?"

I think that the implied covenant suit works better, because it appears that the LLC is trying to add some additional terms that effectively permit it to never buy you out.

 

I'm not sure how the arbitrators don't see a breach of faith here. It seems like a pretty weak ruling to me, but they must have some case law to back it up. In order for me to interpret the arbitrator's ruling, I'd need to read the whole thing -- and that's out of scope for this venue.

 

What do your attorneys say?

 

 

socrateaser
socrateaser, Attorney
Category: Business Law
Satisfied Customers: 39,498
Experience: Retired
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socrateaser
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Category: Business Law
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