• There's No Need for Publication Notice of LLC Judicial Dissolution Proceedings
  • June 28, 2011 | Author: Peter A. Mahler
  • Law Firm: Farrell Fritz, P.C. - New York Office
  • One of my earliest posts, discussing the requirement in the Business Corporation Law (BCL) for publication notice of judicial dissolution proceedings for New York corporations, pointed out that no such requirement exists for dissolution proceedings for limited liability companies brought under Section 702 of the LLC Law.

    Not that everyone reads this blog (I wish), but why after all these years are lawyers submitting and judges signing initial orders to show cause in LLC dissolution cases with provisions requiring newspaper publication in each of the three weeks preceding the hearing date, as specified in BCL Section 1106?

    As Justice Leonard Austin reminded us in last year's important ruling on LLC dissolution in the 1545 Ocean Avenue case, LLCs do not "fall within the ambit" of the BCL.  "[T]he existence and character of these various entities," he added, "are statutorily dissimilar as are the laws relating to their dissolution." 

    The procedural dissimilarities are pronounced.  Whereas the BCL mandates commencement of dissolution by way of petition and order to show cause, the LLC Law is silent on manner of commencement, which in theory means LLC dissolution can and ought to be commenced by ordinary summons and complaint (though courts routinely accept show cause orders for LLC dissolution).

    The form of order to show cause used to commence dissolution proceedings is prepared by the petitioner's lawyer and submitted to the court for signature by a judge.  The court clerk's office reviews it for compliance with certain formal criteria before it gets passed on to the judge.  At that point the judge's review normally will focus on any provisions included by the petitioner's lawyer for temporary injunctive relief, and on ensuring adequate service of the papers on the appropriate parties within the time determined by the judge.

    Publication of a copy of the order to show cause for three consecutive weeks in the legal notice section of the New York Law Journal or some other newspaper of general circulation can be a very expensive proposition, sometimes in the thousands of dollars.  So why would a petitioner's lawyer needlessly include such a notice provision in the proposed order to show cause seeking judicial dissolution of an LLC?

    I can only guess.  Perhaps the lawyer hasn't read the dissolution sections of the LLC Law and simply assumes, based on prior experience with dissolution of corporations, that the BCL's publication requirement also exists in the LLC Law.  Perhaps the lawyer recycles a form of order previously used in a corporate dissolution case without taking care to properly adapt it to an LLC dissolution proceeding.  Perhaps the lawyer, even though aware it's not required, includes a publication provision in the order to show cause because the client wants whatever degree of public and industry awareness it will generate to put additional pressure on the opposing ownership faction.

    Should the judge strike such a provision when included by the petitioner's lawyer in the order to show cause?  It's not for me to say.  After all, the LLC Law does not prohibit the court from ordering publication notice.  It just doesn't require it.

    Does it matter from the respondent's point of view?  It could, especially if the respondent is concerned about potential harm to the business from whatever adverse publicity the legal notice might cause in the hands of competitors, or if brought to the attention of concerned creditors.  Otherwise, a respondent might well be content to let his or her disputing business partner put a thousand or more dollars into the pocket of some newspaper publisher.

    Certainly, before paying that kind of money for publication notice, the client has a right to know that it's not legally required.