Partnership and LLC Disputes.
New York Supreme Court.

The Governing Agreement Comes First

Every partnership and LLC dispute in New York starts with the same question: what does the agreement say? The partnership agreement or LLC operating agreement controls, subject to statutory defaults that fill gaps and statutory floors that cannot be contracted around.

Before filing anything, the agreement gets read end to end. A surprising number of disputes resolve once the parties actually confront the language they signed. Arbitration clauses, forum selection, buyout formulas, transfer restrictions, dispute escalation, and dissolution triggers are all on the first reading.

Common drafting failures create downstream litigation:

• No buyout formula. When a partner wants out and there is no mechanism, the dispute goes to court.
• No deadlock mechanism. Two equal partners with no tiebreaker produce deadlock, which is itself a ground for dissolution.
• No fiduciary duty modification. The default duties apply, which can be broader than the partners intended.
• No clear capital account treatment. Distributions, profit allocation, and capital contributions require precision. Imprecise drafting produces accounting disputes.

The Statutory Framework

General partnerships

Partnership Law governs. Key provisions:

• Partnership Law 40 and 41. Partnership property and partner rights. Management, voting, and the default rule that partners share profits and losses equally.
• Partnership Law 43. Duty to render true and full information to co-partners on demand.
• Partnership Law 44. Right to an accounting, which can be enforced by suit.
• Partnership Law 63. Judicial dissolution for partner misconduct, incapacity, breach of the agreement, prejudice to the business, or any ground that makes continuation not reasonably practicable.
• Partnership Law 69 and 74. Winding up and distribution on dissolution.

Limited liability companies

LLC Law governs:

• LLC Law 401 and 409. Management and duties of managers. Manager-managed LLCs impose fiduciary duties on the managers.
• LLC Law 417. Operating agreements and what they can and cannot modify.
• LLC Law 702. Judicial dissolution where it is no longer reasonably practicable to carry on the business in conformity with the operating agreement.
• LLC Law 1102. Right of members to inspect books and records.

The leading case interpreting LLC Law 702 is Matter of 1545 Ocean Avenue, which adopted the reasonably practicable standard and narrowed the circumstances in which judicial dissolution is available. The petitioner must show that the management structure has failed or that the LLC cannot achieve its stated purpose.

The Common Dispute Categories

Partner deadlock

Two equal partners, no tiebreaker, no mechanism for resolution. Deadlock paralyzes the business. It is a ground for dissolution under Partnership Law 63 and can support dissolution under LLC Law 702 where the deadlock prevents the business from functioning.

Breach of the partnership or operating agreement

A partner takes a distribution not authorized by the agreement. A member transfers an interest in violation of transfer restrictions. A manager makes a decision that requires supermajority consent without obtaining it. The remedy is damages, injunction, or unwinding of the offending transaction, depending on the facts.

Breach of fiduciary duty

Self-dealing, usurping business opportunity, competing with the partnership, paying unfair self-compensation, diverting assets. Damages are compensatory. Disgorgement of profit is available for breach of the duty of loyalty. The three-year and six-year statutes of limitations under CPLR 214(4) and CPLR 213(8) apply depending on whether the claim sounds in damages or fraud.

Accounting

The request that the managing partner or member produce a full accounting of the business. Often paired with a dissolution petition. An order for an accounting forces disclosure of transactions that would otherwise remain hidden until trial.

Buyout disputes

A partner wants out. The agreement has a buyout formula, or it does not. Disputes center on valuation method, minority discounts, marketability discounts, and whether the exiting partner was wrongfully expelled. Expert valuation is frequently required.

Judicial dissolution

The statutory endgame. Partnership Law 63 and LLC Law 702 are the vehicles. In practice, most petitions end in a negotiated exit or a forced buyout rather than actual dissolution of the entity.

Where the Case Belongs

New York Supreme Court has jurisdiction over partnership and LLC disputes. The $25,000 floor applies. Partnership and LLC disputes under $25,000 generally belong in Civil Court, though the scope of remedies available there is narrower.

Commercial Division eligibility under Rule 202.70(b)(11) covers disputes among partners, members, and shareholders in closely held businesses, subject to the county monetary threshold. See the Commercial Division Playbook for detail.

Arbitration clauses in partnership and operating agreements are enforceable and frequently require that the dispute proceed in arbitration rather than in court. The first motion in many partnership cases is a motion to compel arbitration or a motion to stay arbitration while a preliminary question is resolved in court.

Remedies

Judicial dissolution

Partnership Law 63 or LLC Law 702. The court orders winding up, distribution of assets, and dissolution of the entity. In practice, most petitions resolve short of actual dissolution.

Forced buyout

The negotiated or court-ordered exit of one partner or member at fair value. Valuation is often the central dispute. The agreement may specify a formula. If not, expert valuation is required.

Accounting

An equitable remedy ordering the managing partner or member to produce a full accounting. Typically a preliminary step toward damages or dissolution.

Damages

Compensatory damages for breach of the agreement or breach of fiduciary duty. Disgorgement of profits for breach of the duty of loyalty. Return of improper distributions. Pre-judgment interest at 9 percent under CPLR 5001.

Injunction and provisional remedies

Preliminary injunctions against further diversion of assets. Temporary restraining orders freezing bank accounts. Appointment of a receiver where the business requires active management during the pendency of the litigation. Attachment under CPLR 6201 in appropriate cases.

The Process

1. Document review and demand

The agreement gets read. Books and records requests get served. A demand letter goes out identifying the breach and the relief sought. Many disputes settle at this stage.

2. Filing

Petition or complaint filed in the Supreme Court of the county that has venue. Request for Judicial Intervention triggers assignment. Commercial Division assignment if the threshold and subject matter are met.

3. Provisional remedies

Preliminary injunction, TRO, receiver, or attachment considered early where the case requires them.

4. Preliminary conference and discovery

Discovery focuses on the business records, financial records, and communications among the partners or members. Accountings are produced. Depositions of the managing partner and any third-party CPAs are common.

5. Valuation

In dissolution or buyout cases, valuation is a central phase. Expert appraisers are retained. Valuation methodology disputes (income approach, market approach, asset approach) and the availability of discounts for lack of marketability and minority interest are litigated.

6. Motion practice and resolution

Summary judgment motions on liability and on the scope of fiduciary duty. Most cases resolve through a negotiated buyout with releases and restrictive covenants rather than forced dissolution.

What I See in Practice

After more than 20 years of handling business disputes in New York Supreme Court, the partnership and LLC cases follow consistent patterns.

• The agreement is ignored until it matters. Parties sign partnership and operating agreements and never look at them again. When the dispute comes, the agreement is often more favorable to one side than either party remembered.
• Undocumented distributions are the single most common fact pattern. One partner controlled the books and paid out. The other partner did not track. When trust breaks, the accounting claim is almost automatic.
• Dissolution is rarely the actual remedy. It is the threat that produces the buyout. The petition creates settlement pressure. The parties almost always end up with a negotiated exit.
• Books and records demands are underused. LLC Law 1102 and Partnership Law 43 both provide pre-suit disclosure mechanisms. A properly drafted demand forces documentation that would otherwise require a motion to compel.
• Valuation is the whole game in a buyout. Once the parties agree the exit is happening, the dispute collapses into the number. Expert selection and valuation methodology become the decisive moves.

Talk to a Partnership Dispute Lawyer in New York

The Law Office of Frederic R. Abramson represents partners, members, and managing partners in partnership and LLC disputes in New York Supreme Court across the five boroughs, Nassau, Suffolk, and Orange counties. Case evaluation, demand letters, books and records demands, dissolution petitions, buyout negotiations, and litigation through resolution.

Related: Business Disputes Overview  ·  Shareholder Disputes  ·  Breach of Fiduciary Duty  ·  Breach of Contract  ·  Commercial Division Playbook  ·  Civil Litigation Overview

Attorney Advertising. Prior results do not guarantee a similar outcome. The information on this page is general and is not legal advice. Consult an attorney about the specific facts of your matter. Law Office of Frederic R. Abramson, 160 Broadway, Suite 500, New York, NY 10038. 212-233-0666.