JACOBS v. CARTALEMI (App Div., 2nd Dep’t)

In June 1995, William Jacobs and Charles Cartalemi entered into an operating agreement and formed Westchester Industrial Complex, LLC (“WIC”).  On July 20, 2015, Jacobs commenced an action asserting that he was entitled to withdraw as a member of WIC and was entitiled to be paid the fair value of his membership interest.

Based on the operating agreement, Jacob’s withdrawal as a member of WIC was effective as of December 1, 2015.  WIC’s operating agreement includes an article setting forth the procedures to be followed when a member “desires to sell his, her or its Membership Interest.”  In cases where a selling member has received a prior offer from a bona-fide purchaser, the selling member must offer the membership interest first to the other WIC members.  In cases where there is no offer, the selling member must make an offer to the other WIC members who may accept or counter offer.  In the event of a rejection of the offer, the selling member may offer the membership interest to any other party.

Jacobs did not engage in this procedure.  However, it is Jacobs’s contention that these provisions govern a “sale” of a membership interest and not a member’s withdrawal from WIC. The court found this point unavailing as the operating agreement establishes procedures for when a member wishes to relinquish his, her or its membership interest but has not received an offer of sale.  Based on that premise, the Supreme Court properly determined Jacobs was not entitled to a judgment of the fair value of his membership interest in WIC.  However, the Supreme Court should have declared that Jacobs has withdrawn as a member of WIC as of December 1, 2015 and should follow the procedures set forth in the operating agreement to receive the value of his membership interest.