In A Liminal Legal Space: Court Finds Estate Executors As Non-Successors Can Exercise Decedent’s Membership Rights Under LLC Law § 608

I’m a word person. One of the reasons I like reading e-books is any time I come across a word that’s new to me or unusual, I tap on it and up pops a definition. Not quite as convenient when reading court decisions, so when I read the phrase “liminal legal space” in a very recent decision in a business porce case I’m involved in on the side of the co-executors, I had a vague idea but immediately went online to find the precise meaning and etymology of the word liminal.

Merriam Webster online defines it as “of, relating to, or being an intermediate state, phase, or condition,” which makes perfect sense in the context used in the decision, as highlighted below.

According to the OED as cited by Copilot, liminal comes from the Latin līmen meaning threshold. OED traces liminal’s earliest known English usage to an 1875 translation of a work by the early Christian theologian Tertullian (c. 155 – 220 A.D.), pictured or more likely imagined in the accompanying 1584 portrait, as part of a multi-volume publication called the Ante-Nicene Christian Library. Tertullian is known as the first Christian theologian to write in Latin.

In Chapter 1 of his work titled On Modesty, in a passage apparently condemning those who engage in second marriages (I assume he meant concurrent), he wrote that such “digamists” merit “[t]he self-same liminal limit we fix for adulterers also and fornicators; dooming them to pour forth tears barren of peace, and to regain from the Church no ampler return than the publication of their disgrace.” Note that Tertullian’s use of liminal as an adjective to the word limit seems truer to the Latin (threshold) than to its modern English meaning (intermediate state).

Case Background

As for the case, basically, it involves a member-managed LLC owned by a father (60%) and son (40%) to hold a passive 50% interest in another single-asset realty holding company managed by the other 50% investor. Subsequent to the father’s death, the highly valuable realty asset was sold with the consent of the son and his sibling co-executors of the father’s estate.

Things went awry when the son and co-executors gave the managing member conflicting pay-out instructions for the LLC’s 50% share of the net proceeds, each directing payment to a different LLC account controlled by one or the other.

The son took the position that under the terms of the LLC agreement he was the sole surviving member with management rights and that the estate at best was an economic interest holder with no management rights. The co-executors disagreed, taking the position that under LLC Law § 608 as interpreted by a series of appellate precedents featured on this blog on multiple occasions, the co-executors held the same majority membership and management rights held by the father at the time of his death.

The 50% managing member of the realty holding company, which held the contested sale proceeds, subsequently filed an interpleader action, after which all parties consented to the court’s appointment of an escrow agent to hold the funds rather than depositing them with the court. That left undetermined the competing cross claims filed by the son and the co-executors.

The Operating Agreement

The operating agreement’s terms relevant to the disputed status of the estate and the co-executors include:

• “Interest Holder” defined as “any Person who holds an Interest, whether as a Member or an unadmitted assignee of a Member.”
• “Involuntary Withdrawal” defined as “with respect to any Member, the occurrence of any of the following events . . . (viii) if the Member is an inpidual, the Member’s death or Incapacity . . .”
• “Person” defined as “an inpidual, corporation, partnership, limited partnership, association, limited liability company, trust, estate, or other entity.”
• Section 6.3 (Involuntary Withdrawal) provides in relevant part that, in the event of an Involuntary Withdrawal, “the successor of the withdrawn Member shall thereupon become an Interest Holder, but shall not become a Member . . . and shall have the rights of an Interest Holder [(i.e., to receive the profits, losses, and distributions that the Member would have received, at the time the Member would 0therwise have been entitled to receive-them had the Member not withdrawn)], but shall not be entitled by reason of the withdrawal to receive in liquidation of the Interest, the value of the Member’s Interest as of the date the Member involuntarily withdrew from the Company.”
• Section 9.7 (Binding Provisions) provides that “[t]his Agreement is binding upon, and inures to the benefit of, the parties hereto and their respective representatives, heirs, executors, successors, and permitted assigns.

The Parties’ Contentions

The parties filed dueling motions for summary judgment on their respective cross claims.

The son argued that the father’s death was an Involuntary Withdrawal event under Section 6.3 and that the estate and/or its co-executors as the “successors” were demoted to the lesser Interest Holder status, stripped of any management or voting rights. Therefore, the son contended, he as the sole surviving member held sole management rights with respect to the disposition of the LLC’s 50% share of the sale proceeds, notwithstanding his minority ownership. The son further argued that LLC Law § 608, which empowers estate representatives to “exercise all of the [decedent’s] member’s rights for the purpose of settling his or her estate or administering his or her property,” was displaced by Section 6.3

The co-executors made a two-fold argument for summary judgment in their favor. On the one hand, they argued that LLC Law § 608, lacking the “except as provided in the operating agreement” phrase identifying it as a default rule, is a mandatory rule immune from override by Section 6.3.

Alternatively, they argued that neither the estate nor the co-executors are “successors” as that term — not defined in the operating agreement — is used in Section 6.3, in which case § 608 applies whether it’s a mandatory or default rule.

The Court’s Decision

In his Decision and Order issued last week, Nassau County Commercial pision Justice Timothy S. Driscoll noted that neither side disputed that the father’s death was an Involuntary Withdrawal event as defined in the operating agreement. “The critical question before the Court,” he wrote, “is whether [the son] became [the LLC’s] sole surviving member and manager upon the death of [the father].”

He then summed up the competing positions as, for the son, that Section 6.3 “functions as a ‘Hotel California’ provision pursuant to which the deceased member immediately withdraws and its successor is a non-member interest holder,” leaving the son as sole member. For the co-executors, they “are not ‘successors’ demoted to interest holder status under Section 6.3, but rather, legal representatives of the Estate exercising [the father’s] membership rights as those rights existed on the date of his death.”

There being no definition of “successor” in the operating agreement, Justice Driscoll looked to its definition in Black’s Law Dictionary as “someone who succeeds to the office, rights, responsibilities, or place of another; one who replaces or follows a predecessor.” He continues:

The Co-Executors, however, have not succeeded to . . . the rights and responsibilities of the [father], nor have they replaced [the father] as a member in [the LLC]. See Black’s Law Dictionary 13c (12th Ed. 2024) (“executor” is “[a] person named by a testator to carry out the provisions of the testator’s will”). [The father’s] membership interest has not been transferred or assigned to the Co-Executors and/or the Estate, which is, of course, merely a vehicle for ultimately passing [the father’s] real and personal property to his heirs or beneficiaries.

Justice Driscoll further observes that “[t]he fact that the Co-Executors are not members of [the LLC], however, does not automatically render them ‘successors’ under the Operating Agreement.” As he further explains (Spoiler Alert: here comes liminal):

Rather, the Estate and its Co-Executors appear to exist in a liminal legal space that is not addressed by the Operating Agreement. Indeed, while [the son] contends that Section 9.7 of the Operating Agreement provides that the entire agreement is binding upon executors, among others, it is not lost on the Court that this provision expressly delineates between “executors” and “successors.” . . . The separation of “executors” from “successors” bolsters the Court’s conclusion that executors are not “successors” under the Operating Agreement.

As the Co-Executors are not “successors” and the Operating Agreement is otherwise silent as to whether and to what extent the Co-Executors may exercise [the father’s] membership rights, the Court turns to the [LLC] Law to fill in the gap in the agreement. . . . LLCL § 608 provides that “[i]f a member who is a natural person dies . . . the member’s executor, administrator, guardian, conservator or other legal representative may exercise all of the member’s rights for the purpose of settling his or her estate or administering his or her property, including any power under the operating agreement of an assignee to become a member.” Accordingly, the Co-Executors may exercise all of [the father’s] membership rights in [the LLC] for the purpose of settling his Estate.

In a footnote to the preceding passage, à la the doctrine of constitutional avoidance, Justice Driscoll added that the Court “accordingly need not address the parties’ dispute as to whether LLCL § 608 is a mandatory provision.”

I would be remiss if I didn’t also relate Justice Driscoll’s footnote concerning his spot-on characterization of the son’s reading of Section 6.3 as a Hotel California provision. “The lyrics to the song ‘Hotel California,”’ he wrote, “famously state that ‘you can check out any time you like, but you can never leave.'”

I’ll finish with an observation that builds on the several posts on this blog addressing court decisions applying LLC Law § 608. Those decisions have marked the statute as a powerful tool for legal counsel for estate representatives in management, voting, and other disputes with the surviving LLC members.

To what extent, if any, the tool can be blunted by the operating agreement awaits further judicial development. On that subject precisely, earlier this year, in an opinion by V.C Laster in In re Dynamk Fund Advisors LLC, at *4 n.8 (C.A. No. 2026-0002-JTL [Del. Ch. May 20, 2026], he made clear his disagreement with a 2008 Chancery Court opinion treating as a default rule Delaware’s statute governing judicial dissolution of LLCs (which essentially is the same as New York’s), writing that “[t]he absence of the otherwise nigh-ubiquitous ‘unless otherwise provided in the limited liability company agreement’ strongly signals a mandatory term.”