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Years ago, we wrote about Lengyel-Fushimi v Bellis, a pitched legal battle for control of a Brooklyn brewpub, Kings County Brewers Collective, LLC ("KCBC"), yielding not one, not two, but three decisions in rapid succession on the same minority LLC owner's injunction request.
In the first decision, the motion court (Ruchelsman, J.), granted one of the brewpub's three founders, Peter Lengyel-Fushimi ("Peter"), a preliminary injunction restraining the other two founders, Anthony Bellis ("Anthony") and Zachary Kinney ("Zachary"), from removing Peter as a Class A member and co-manager with Anthony and Zachary of KCBC. The motion followed close on the heels of Anthony and Zachary's decision to attempt to amend KCBC's operating agreement by mere majority vote, purporting to subordinate Peter from Class A to Class D member. Under the operating agreement, only Class A members were eligible to serve as manager. Article 10.1 of the operating agreement required "a written instrument executed by all of the Members" for amendment.
In the second decision, the motion court granted Anthony and Zachary leave to reargue, and, upon reargument, adhered to the court's original decision enjoining them from removing Peter as a Class A member of KCBC,but vacated its prior decision in part, denying Peter's motion to enjoin them from removing Peter as a manager of KCBC. The motion court concluded that change of equityholder status required unanimity under Article 10.1, but change of managerial status required mere majority vote under Articles 4.1 and 6.1 of the operating agreement, the former of which empowered the Class A member-managers to make management decisions by majority vote about matters "in the ordinary course of business," that latter of which empowered the Class A member-managers to make decisions by majority vote about "day to day operations." Neither provision explicitly addressed manager removal or expulsion, only minimum voting thresholds for actions by the managers in general.
In the third decision, the motion court denied Peter leave to reargue the portion of its prior reargument decision denying his motion to enjoin Anthony and Zachary from removing Peter as a manager of KCBC. Double reargument motions. Yikes.
Now we revisit the case with an appellate decision bringing up for review those same three decisions, Lengyel-Fushimi v Bellis, ___ AD3d ___, 2025 NY Slip Op 05229 [2d Dept Oct. 1, 2025]).
Four weeks ago, we wrote about the mighty power of New York's unusual interlocutory appeal system to reverse fortunes mid-lawsuit while litigation continues to play out in the lower court. We observed that it is "not uncommon for the appeal process in the Second Department to take three years." Lengyel-Fushimi surpassed that rule of thumb by a country mile, taking exactly four years and 24 days from filing of the notice of appeal to the date of the appeal court's decision. Four years. But who's counting.
Lengyel-Fushimi was Peter's appeal from the portion of the second decision, and from the entire third decision, declining to enjoin Anthony and Zachary from removing him as co-manager of KCBC. Anthony and Zachary chose not to cross-appeal the portions of the first and second decisions enjoining them from removing Peter as a Class A member of KCBC.
Before the motion court, the legal arguments were distinctly contractual in nature, focusing almost entirely upon the language of the operating agreement – the only source of law the motion court addressed in its three decisions. Before the appeals court, the arguments took a sharp turn for the statutory.
For the Appellate Division – Second Department, the crux of the issue was how to harmonize four default rules under the New York Limited Liability Company (the "LLC Law") with the express provisions of the operating agreement.
The first, LLC Law § 401 (a), provides: "Unless the articles of organization provides for management of the limited liability company by a manager or managers or a class or classes of managers, management of the limited liability company shall be vested in its members who shall manage the limited liability company . . ., subject to any provisions in . . . the operating agreement . . . ."
The second, LLC Law §401 (b), provides; "If management of a limited liability company is vested in its members, then (i) any such member exercising such management powers or responsibilities shall be deemed to be a manager . . ., unless the context otherwise requires, and (ii) any such member shall have and be subject to all of the duties and liabilities of a manager . . . ."
The third, LLC Law § 408 (a), provides: "If the articles of organization provides that the management of the limited liability company shall be vested in a manager or managers or class or classes of managers, then the management of the limited liability company shall be vested in one or more managers or classes of managers . . ., subject to any provisions in . . . the operating agreement . . . ."
Applying these three default rules to the operating agreement, the Court wrote:
Here, Article 4.1 of the operating agreement provided that KCBC shall be managed by the Class A members instead of managers. Contrary to the defendants' contentions, Article 4.1 and Article 6.1, which provides . . . that the Class A members will have sole voting rights on KCBC's "day to day operations" and that disputes may be resolved by a vote of the majority of the Class A members, do not authorize the Class A members to remove another Class A member as a manager by majority vote.
In effect, the Court ruled that removal of a manager was an extraordinary matter, not an ordinary one, falling outside of the "ordinary course of business" or "day to day" decision making contemplated by Articles 4.1 and 6.1, requiring unanimity, not majority vote.
The Court turned to a fourth statute Anthony and Zachary raised in their defense, LLC Law § 414, which provides: "Except as provided in the operating agreement, any or all managers of a limited liability company may be removed or replaced with or without cause by a vote of a majority in interest of the members entitled to vote thereon."
On its face, the statute would seem right on point. In a similar case, Ross v Nelson (54 AD3d 258 [1st Dept 2008]), the Appellate Division – First Department wrote: "Lacking a specific mechanism in the operating agreement for . . . expulsion, the parties" to an operating agreement are free to "rel[y] on section 414 of the Limited Liability Company Law, which allows for removal of a manager by majority vote of the other members."
But the Lengyel-Fushimi Court ruled that Ross was "distinguishable" because "the operating agreement in that case lacked a specific mechanism for the expulsion of the member-manager," so "the parties could rely upon Limited Liability Company Law § 414 to provide the mechanism for removal."
"By contrast," wrote the Second Department, "here, no provision of the operating agreement clearly and unambiguously indicated the parties' intent to allow for the removal of a Class A member as a manager, and therefore, the defendants may not rely upon Limited Liability Company Law § 414 to provide the mechanism for removal of the plaintiff as a manager of KCBC."
Held the Court:
Thus, the plaintiff demonstrated that his removal as a manager of KCBC would likely require an amendment to the operating agreement, which, under Article 10.1, required a written instrument executed by all of the members. As it is undisputed that all members did not execute any purported amendment to the operating agreement removing him as a manager of KCBC, the plaintiff demonstrated [his entitlement to a] preliminary injunction restraining the defendants from . . . removing him as a manager of KCBC.
It's arguable whether Ross was, in the words of the Second Department, "distinguishable" from Lengyel-Fushimi. Like Ross, the operating agreement in Lengyel-Fushimi lacked a "specific mechanism" for expulsion of removal of a manager. The outcome of Lengyel-Fushimi echoes language from the last major general partnership case to reach the New York State Court of Appeals, Congel v Malfitano.
In Congel, the Court wrote:
In the agreement establishing a partnership, the partners can chart their own course. New York's Partnership Law creates default provisions that fill gaps in partnership agreements, but where the agreement clearly states the means by which a partnership will dissolve, or other aspects of partnership dissolution, it is the agreement that governs the change in relations between partners and the future of the business.
(Congel v Malfitano, 31 NY3d 272 [2018]).
Lengyel-Fushimi seems to embrace a comparably broad, subject matter preemption type principle: if LLC members adopt a written operating agreement expressly addressing, or establishing a regime for addressing, a particular subject – in this case, which matters require majority vote of the managers, which require unanimity – it will entirely displace default statutes addressing the same concept, like the majority-vote-for-manager-removal provision of LLC Law § 414. In other words, especially with LLCs, as we've written many times, the contract is king, and courts will seldom resort to the default statutes to supply terms the parties chose not include themselves in their own agreement.
There's a saying in the law, "Justice delayed is justice denied." One has to wonder: even after Peter's win of an injunction on appeal, after four-plus years of Anthony and Zachary managing KCBC to the exclusion of Peter, is it possible to undo actions Anthony and Zachary may have taken over all these years? Peter's success on appeal may be more of a paper victor than a practical one.
P.S. – Proof that a blogger's job is never done: as I post this, I sit with my wife in the hospital as she is about to give birth.
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