645 B.R. 10
Bankr. S.D.N.Y.2022Background
- Weiss and Yoel Goldman (through entities) co-owned the William Vale hotel; Weiss holds 50% of Member LLC and YGWV (a wholly-owned subsidiary of debtor All Year) holds the other 50% and is managing member.
- The Member LLC Agreement (between Weiss and YGWV) restricts any member from assigning interests without the other member’s written consent (Section 8.1).
- All Year issued Series C bonds, funded Fee Owner, and arranged corporate structuring that placed YGWV (not All Year) as Member LLC signatory; Weiss alleges All Year negotiated the agreement and dominated YGWV.
- Weiss negotiated to buy All Year/YGWV’s interest; All Year later proposed (in bankruptcy plan) to transfer its YGWV interest to Paragraph or a Wind‑Down entity as part of a confirmed Plan/Investment Agreement.
- Weiss sued seeking declaratory relief (Claims I–III) that the transfer would breach the Member LLC Agreement, violate the implied covenant, and that YGWV was dissolved by operation of NY LLC law after All Year’s bankruptcy; Claims IV–V seek injunctions blocking transfer and management by All Year/YGWV.
- The bankruptcy court dismissed all claims and denied Weiss’s partial summary judgment motion on Claim III.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether All Year (non‑signatory) is bound to the Member LLC Agreement by alter‑ego | All Year dominated YGWV and used control to evade the agreement; so All Year should be bound | YGWV is a separate signatory; Weiss fails to plead domination tied to the challenged transfer or a fraud/wrong | Dismissed — alter‑ego not adequately pleaded (no transaction‑specific domination or actionable fraud) |
| Whether All Year is bound by the Agreement via an "intent to be bound" | All Year (and Goldman) negotiated the agreement and thus manifested intent to be bound despite not signing | Parties objectively substituted YGWV for All Year; negotiation presence alone doesn’t show intent | Dismissed — no objective manifestations that All Year intended to be contractually bound |
| Whether YGWV/All Year breached implied covenant of good faith and fair dealing (Delaware law) | Transfer plan subverts Weiss’s economic expectations and thus breaches the implied covenant | Agreement expressly addresses transfers (Section 8.1); issue is not a contractual gap for the implied covenant to fill | Dismissed — implied covenant not implicated where contract provides explicit rules and expectations were foreseeable |
| Whether All Year’s bankruptcy terminated its membership or dissolved YGWV under NY LLCL §§ 701, 603 (and whether federal law preempts those state effects) | Bankruptcy filing terminated/assigned All Year’s membership interest and dissolved YGWV | Filing does not operate as an automatic transfer/assignment for §603 or termination under §701(b); even if it did, §541 preempts state rules that terminate/modify debtor’s property rights | Dismissed — No termination/assignment under NY law on these facts; in any event state rules would be preempted by §541 of the Bankruptcy Code |
| Injunctive relief to block transfer/management | Relief flows from the declaratory claims and alleged dissolution | Underlying declaratory claims fail, so injunctive remedy has no basis | Dismissed — injunctions fail because the predicate claims fail |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading standard: plausibility requirement)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (established plausibility pleading framework)
- N.L.R.B. v. Bildisco & Bildisco, 465 U.S. 513 (1984) (debtor‑in‑possession is not a new entity for certain contract/estate questions)
- Wm. Passalacqua Builders, Inc. v. Resnick, 933 F.2d 131 (2d Cir. 1991) (factors for veil piercing/alter‑ego analysis)
- Am. Fuel Corp. v. Utah Energy Dev. Co., 122 F.3d 130 (2d Cir. 1997) (alter‑ego requires domination plus fraud/wrong causing injury)
- Chamison v. HealthTrust, Inc., 735 A.2d 912 (Del. Ch. 1999) (implied covenant inheres in contracts; elements for breach)
- Glaxo Grp. Ltd. v. DRIT LP, 248 A.3d 911 (Del. 2021) (limits on using implied covenant to rewrite agreements or rebalance foreseeable economic allocations)
- Milford Power Co. v. PDC Milford Power, LLC, 866 A.2d 738 (Del. Ch. 2004) (analysis of interaction between state LLC rules and bankruptcy law/executory‑contract principles)