138 A.D.3d 83
N.Y. App. Div.2016Background
- Raharney Capital, LLC (Delaware LLC) and Capital Stack, LLC (NY or Nevada LLC) each had principal places of business and sole members in New York County.
- The parties formed Daily Funder, LLC, a Delaware LLC with its sole place of business in New York County; each member held a 50% interest and there was no written operating agreement.
- Raharney petitioned in New York Supreme Court to judicially dissolve Daily Funder under Delaware law, alleging hopeless deadlock and impracticability of continued operation.
- Capital Stack cross-moved to dismiss for lack of subject matter jurisdiction (and failure to state a claim); the motion court dismissed the petition for lack of jurisdiction.
- The Appellate Division, First Department affirmed, holding New York courts lack subject matter jurisdiction to judicially dissolve a foreign business entity formed under another state’s law.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether NY courts have subject-matter jurisdiction to judicially dissolve a limited liability company formed under another state's laws | Raharney: New York courts can dissolve Daily Funder doing business in NY and should grant dissolution under Delaware statute due to deadlock | Capital Stack: NY courts lack subject-matter jurisdiction to dissolve a foreign entity; dissolution must be sought in the state of formation | Held: NY courts lack subject-matter jurisdiction to judicially dissolve a foreign business entity; only the state of formation may dissolve it |
| Whether claims about internal affairs of a foreign entity permit judicial dissolution in NY | Raharney: internal-affairs jurisdiction supports resolving disputes and may include dissolution relief | Capital Stack: internal-affairs jurisdiction does not extend to ordering dissolution of a foreign entity | Held: NY can adjudicate internal-affairs disputes (e.g., derivative claims) but such jurisdiction is distinct and does not authorize judicial dissolution of a foreign entity |
Key Cases Cited
- Vanderpoel v. Gorman, 140 N.Y. 563 (N.Y. 1894) (state that created corporation has exclusive power to dissolve it)
- Sokoloff v. National City Bank of N.Y., 239 N.Y. 158 (N.Y. 1924) (foreign dissolution beyond NY courts’ power)
- Merrick v. Van Santvoord, 34 N.Y. 208 (N.Y. 1866) (a franchise granted by one state cannot be revoked by another)
- Miller v. Barlow, 88 A.D. 529 (1st Dep’t 1903) (NY courts lack power to dissolve corporation organized under other state’s laws)
- Rimawi v. Atkins, 42 A.D.3d 799 (3d Dep’t 2007) (NY courts lack subject-matter jurisdiction to dissolve a foreign LLC)
- MHS Venture Mgt. Corp. v. Utilisave, LLC, 63 A.D.3d 840 (2d Dep’t 2009) (a claim for dissolution of a foreign LLC is beyond NY courts’ subject-matter jurisdiction)
- Young v. JCR Petroleum, Inc., 188 W. Va. 280 (W. Va. 1992) (state courts lack jurisdiction to dissolve foreign corporations; Full Faith and Credit considerations)