Kate Karl has been named one of the 2014 “Top Women in Law” by The Daily Record. The Top Women in Law award recognizes the outstanding accomplishments of women attorneys who are making notable contributions to the legal profession, while inspiring a positive change in the community. Kate is chair of Underberg & Kessler’s Real Estate and Banking Practice Groups, and counsels business owners, developers and financial institutions on a broad range of legal issues. She is an active member of the Board of Trustees of The Landmark Society of Western New York, Inc., and a long-term Board and Executive Committee member of the Rochester Downtown Development Corporation. As always, if you have any questions, please feel free to contact us here or call us at 585.258.2800.

General Mills, the food conglomerate, recently made headlines when it changed the legal terms on its website and reversed course after a social media backlash. General Mills’ actions, however, highlight how companies can use social media and the Internet to manage their litigation risks. According to the now-defunct terms, in exchange for benefits derived from interacting with the company in various capacities, consumers agreed to resolve any dispute with General Mills through binding arbitration and waived the right to consolidate claims. The broad language encompassed a variety of contacts between the company and consumers. Anyone who used General Mills’ websites, became a member of a General Mills website or online community, subscribed to email newsletters, downloaded or printed a digital coupon, entered a sweepstakes or contest, redeemed a promotional offer, or otherwise participated in a General Mills offering agreed to these terms. Following a New York Times article and subsequent public outcry on social media, General Mills issued an apology and returned to its previous legal terms. Media coverage focused on fears of losing the right to sue General Mills in the event of mislabeling or unintended contamination. It is likely that the backlash General Mills suffered is due in large part to the fact that it is the first large food producer to attempt to implement a mandatory arbitration clause with a class-action waiver. However, it is unlikely that General Mills’ course reversal signals a change in the prevailing corporate attitude towards arbitration and class-action waivers. Many large corporations, such as Verizon and Dropbox, currently include mandatory arbitration clauses and class action waivers in the legal terms and conditions governing contracts with consumers. Controlling the forum for dispute resolution and limiting exposure to class actions just makes sense for businesses. While consumers tend to disfavor mandatory arbitration clauses, the clauses typically do not keep consumers from purchasing a product or using a company’s service. Few consumers read the terms and conditions before clicking “I accept” when using a company’s online services. For companies of any size, dispute resolution through mandatory arbitration offers a significant advantage. The benefits of arbitration include reduced litigation costs, quicker resolutions to claims, and flexibility. Arbitration also offers participants the benefit of privacy: The proceedings and outcome are not a matter of public record. There is growing legal precedent supporting the use of arbitration clauses in consumer contacts. In a series of recent cases, the Supreme Court supports arbitration as a method of resolving disputes. In AT&T Mobility v. Concepcion, 131 S. Ct. 1740 (2011), AT&T customers instituted a class-action suit alleging that the company defrauded customers by charging sales tax on phones advertised as free. The cellphone contract provided that all disputes must be resolved through arbitration individually. The Supreme Court held that the Federal Arbitration Act preempts state laws which deem class action waivers in arbitration agreements unenforceable. In American Express Co. v. Italian Colors Restaurant, 133 S. Ct. 2304 (2013), merchants instituted an antitrust class-action against American Express. American Express moved for individual arbitration based on the terms of the credit card company’s arbitration agreement with the merchants. The Supreme Court held that the contractual waiver of class arbitration is enforceable even if the cost of proving an individual arbitration exceeds the potential recovery. The court noted that arbitration agreements are matters of contract and must be “rigorously enforce[d].” Using coupons available on a company’s website or participation in associated social media forums to create a contract with consumers, which includes an agreement to settle disputes through mandatory arbitration and a class action waiver, helps businesses use the pervasiveness of modern technology to try to reduce their exposure to litigation. While it remains to be seen whether broad language on mandatory arbitration for online interactions like that used by General Mills is enforceable, litigating the enforce ability of such language is an expensive and formidable initial barrier to anyone wishing to avoid arbitration by bringing suit. There are potential risks, however, and use of the Internet and social media by businesses can be a double edged sword. The backlash suffered by General Mills in response to its change in legal terms provides a cautionary tale. While mitigating litigation costs and maintaining privacy are certainly appealing, negative press or consumer feedback through freely accessible social media can have a significant impact on a business. Businesses must communicate their legal terms in a manner that will not offend customers. Companies looking to bind customers with mandatory arbitration clauses and class-action waivers through use of benefits provided on websites and through social media should do so carefully. Download the Reprint from The Daily Record As always, if you have any questions, please feel free to contact us here or call us at 585.258.2800.

I am an attending physician at a nursing home. What if a resident is unhappy that a safe discharge plan cannot be developed by our interdisciplinary team and wants to return home anyway? The nursing home should inform the resident, and/or their proxy, of the resident’s right to refuse care and leave the nursing home against medical advice (AMA). The resident must also be informed that the nursing home will notify Adult Protective Services when a resident discharges themselves AMA. The nursing home’s staff should document such conversations in the resident’s medical chart. Often times, although a resident’s goal upon admission to a nursing home is to return home, the resident’s health care needs prevent a safe discharge plan to do so. Upon admission to the nursing home, the interdisciplinary team, which includes medical, nursing, social work, and therapy, must make assessments as to the resident’s care needs. This may include the development of a discharge plan for the resident to be returned safely home, if appropriate. New York law requires a nursing home to encourage and assist in the fullest possible exercise of a resident’s civil liberties, including the right to independent personal decisions and knowledge of available choices. Therefore, the nursing home must encourage the resident to participate in care planning meetings, which may include discharge planning. One of a resident’s options is the right to refuse medical care and sign out of a nursing home, at any time, against medical advice. New York Public Health Law provides that “[e]very patient shall have the right . . . to refuse medication and treatment after being fully informed of and understanding the consequences of such actions.” This includes refusing personal care, administration of medication, and other services. Frequently, a resident’s health care needs prevent them from being safely discharged back to their home. State and federal law requires a nursing home to assess the home care that the resident will be discharged into to ensure that the environment is safe and not risk a deterioration of the resident’s quality of life. These rules and regulations also require the nursing home to plan for the safe and orderly discharge of the resident to an appropriate community housing option with the services necessary for community reintegration, and which provides for the safety and well being of the resident. If a resident no longer requires the level of care that a nursing home provides but is in need of assistance in their home, the nursing home is required to coordinate the discharge with community services such as home care agencies. If the home care agencies determine that, after assessing the resident and the resident’s family, the necessary services cannot be provided, the nursing home must not discharge the patient home unless the resident’s family can ensure that they are able to provide the required care and assistance. All of these requirements must be considered when the attending physician signs off on a resident’s discharge plan. The physician should also ensure that the resident has been informed of the right to refuse the nursing home’s care and treatment, and to leave the nursing home against medical advice. Download the Reprint from The April 2014 Edition of 'The Bulletin' by MCMS As always, if you have any questions, please feel free to contact us here or call us at 585.258.2800.

There is more and more emphasis on improving physician communication with patients to provide better outcomes at reduced cost. I am concerned, however, that some of my patients have difficulty understanding my discussion of their diagnoses and possible treatments or simply want me to take charge, saying that because I am the doctor, I know best. What are my risks and options? As you know, under ethical rules and the regulations of the Board of Regents related to professional misconduct, physicians must obtain consent from patients or their representatives for any proposed medical services. Your ability to effectively communicate with your patients is crucial to obtaining their informed consent. That said, many studies indicate that a majority of patients prefer to let their doctors make treatment decisions for them. Therefore, it is important that you document the information you provide the patient about any treatment options, including the risks, efficacy and likely or possible side effects, and the patient’s questions or comments. Patient refusal of treatment deserves extra vigilance on your part, especially when a proposed treatment is widely accepted in the local medical community as appropriate for patients with the same diagnosis. In such circumstances, in addition to thoroughly documenting your consultation, you should reflect on how you handled the discussion with the patient to be certain that your communication style did not contribute to the refusal. You may also want to suggest to a patient who is having difficulty with a decision that he or she have a family member or trusted friend participate in future consultations. At the earliest opportunity, have your patient sign an authorization that will allow you to communicate directly with this individual. A signed authorization in the chart will avoid any delays or confusion should it become necessary in the future for a member of your staff to contact this person. Keep in mind that a person covered by a HIPAA-compliant authorization to receive the patient’s PHI is not empowered to make health care decisions for the patient. In general, only a health care agent holding a legitimate health care proxy or a surrogate under the Family Health Care Decisions Act has that power. If the patient does not have a health care agent, you should suggest that he or she also appoint someone to act in this capacity. A physician may look to the agent to make decisions for the patient when the patient does not have “capacity to make health care decisions”. This phrase is defined by law as “…the ability to understand and appreciate the nature and consequences of health care decisions, including the benefits and risks of and alternatives to any proposed health care, and to reach an informed decision.” We recommend that you encourage your patients to ask questions and discuss their decisions with close family and friends. This sets the table for better communication and increases the patients’ ability to make informed decisions. Download the Reprint from The February/March 2014 Edition of 'The Bulletin' by MCMS As always, if you have any questions, please feel free to contact us here or call us at 585.258.2800.

I have seen an increase of patients with chronic pain disorders and more and more of them are requesting narcotics for their pain. I am concerned about the cases I see in the newspaper regarding physicians being disciplined for prescribing narcotics. My patients have pain that should be treated. What should I be doing to minimize my risk? A physician has responsibility for properly prescribing and dispensing narcotics to their patients. Physicians should base their prescribing of controlled substances for pain on legitimate medical purposes. The prescribing of narcotics should be based on accepted scientific knowledge of the treatment of pain and sound clinical grounds. There are six risk areas that a physician should focus on when prescribing narcotics for pain. These include: initial patient evaluation, the treatment plan, informed consent, periodic review, additional consultations, and medical records. Prior to prescribing narcotics for pain, the physician should take a complete medical history and perform an appropriate physical exam. The evaluation should include the nature and level of the pain, past and present treatments for the pain, underlying conditions and causes, and the effect of the pain on the person. A history of substance abuse should be included. The physician should take additional steps to verify the cause of pain (including appropriate testing and obtaining information from past or current physicians) and not prescribe for vague complaints. A treatment plan should be developed and reviewed routinely to verify treatment efficacy. Diagnostic evaluations and treatment options such as physical therapy, use of over the counter pain medications, massage, etc. should be explored prior to prescribing narcotics, if possible. The drug therapy should be monitored and adjusted to the individual needs of the patient. The physician should discuss the risks and benefits of the use of the narcotic with the patient and obtain informed consent. This includes the risk of drug dependence. The new ISTOP Program will help reduce the risk of physician shopping. However, the physician should still communicate and document the expectations of the patient. This includes not sharing drugs, keeping them safe, no early refills, no use of narcotics in conjunction with alcohol or other illegal substances, etc. Next, the physician should periodically review the course of the patient’s treatment. It is not enough to merely document that “condition remains; continue with medication.” The physician should consider the progress of the patient’s treatment plan. It should be documented that, if the pain is not controlled or improved, other therapeutic modifications are considered. The prescribing of higher and higher doses of narcotics over long periods of time, without documented consideration of other options, is a red flag to OPMC investigators. The physician should consider consulting with pain treatment experts for patients with significant pain that is not resolved with routine treatments. The primary care physician should be in regular communication with the patient’s other physicians to coordinate the treatment of pain. Consider referring patients to a rehabilitation center or patient treatment pain center for consultation when patients have a history of substance abuse. Finally, medical records must be accurate and include all of the previous topics discussed above: medical history and exam, treatment plan, diagnostic and therapeutic results, evaluations and consultations. Professional investigators from the OPMC and the Narcotics Bureau will assume that if it is not documented, “it wasn’t done.” In order to defeat an allegation of inappropriate narcotic prescribing, the documentation of all six areas will be key. Download the Reprint from The November/December 2013 Edition of 'The Bulletin' by MCMS As always, if you have any questions, please feel free to contact us here or call us at 585.258.2800.

In June, the United States Supreme Court issued two decisions under Title VII of the Civil Rights Act of 1964 (Title VII), both good news for employers. First, the court narrowed the definition of “supervisor” to include only employees with the authority to take tangible employment actions against the alleged victim of harassment. Second, the court narrowed the causation standard for retaliation under Title VII, making it harder for employees to succeed on retaliation claims. In Vance v. Ball State University, the court, for the first time, defined the term “supervisor” for the purposes of employment discrimination and harassment litigation. The court made it more difficult to hold employers liable for the actions of their supervisors, unless the supervisor is authorized to take tangible employment actions against the employee. In Vance, the employee sued her employer, claiming that someone she alleged to be her supervisor subjected her to a racially hostile work environment in violation of Title VII. In upholding the dismissal of the plaintiff’s claims, the court first looked to two of its prior decisions which established the standard of employer liability for harassment under Title VII, depending on the harasser’s identity. In its prior rulings, the court held that if the harasser was a coworker, the employer would be liable only if it knew or should have known of the harassment and was negligent in addressing the conduct. On the other hand, if the harasser was a supervisor, the employer would be strictly liable if the harassment resulted in a tangible employment action. If, however, the harassing conduct did not result in a tangible employment action, the employer would still face liability but could refute it by proving that it exercised reasonable care to prevent and correct any harassing behavior, and that the victim employee unreasonably failed to take advantage of preventative or corrective opportunities offered by the employer. While the defending employer retained the burden of proof in establishing reasonable care when supervisors engaged in discriminatory conduct, the duty to prove employer negligence in correcting or remedying the offensive behavior by co-workers fell to the suing employee. The Vance court defined “supervisor” by finding that only those employees who have the authority to take tangible employment actions — hire, fire, promote, demote, transfer, discipline, reassign with significantly different responsibilities, or make a decision which causes a significant change in benefits — with respect to the victim, are considered supervisors. The court, in issuing this bright line rule, expressly rejected the EEOC’s definition of supervisor for a more strict definition. On the same day that it issued the Vance decision, the court also issued another significant employment decision, Univ. of TX Southwestern Med. Ctr. v. Nassar, where it determined how retaliation claims under Title VII of the Civil Rights Act will be analyzed. The court held that Title VII retaliation claims must be proved according to the traditional principles of but-for causation, not the lessened motivating-factor test that governs Title VII discrimination claims. The Nassar plaintiff alleged that he was retaliated against for complaining of discrimination. The trial jury was instructed that retaliation claims, like discrimination claims, require only a showing that retaliation was a motivating factor for the action, rather than its but-for cause. The jury returned a verdict for the plaintiff, which was upheld by the 5th Circuit. The Supreme Court vacated the 5th Circuit’s decision and concluded that the statute requires proof that retaliation is the “but-for” cause of the adverse employment action, rather than simply “a motivating factor” for the adverse employment action. The court reviewed the common law and concluded that it is “textbook tort law” that a plaintiff ordinarily must provide that the harm “would not have occurred in the absence of — that is, but for — the defendant's conduct.” The court noted that Title VII’s status-based discrimination provision was expressly amended in 1991 to provide that “race, color, religion, sex, or national origin” need only be “a motivating factor” for an employment practice in order to establish that the employment practice is unlawful, but Title VII’s retaliation provision was not similarly amended. Noting that retaliation claims are being made with increasing frequency, the court found that the “but-for” causation standard also struck the appropriate balance between protecting the rights of employees and protecting employers from frivolous claims. While both decisions can be seen as a “win” for employers, as always, employers must remain vigilant about harassment and discrimination in the workplace. Download the Reprint from The Daily Record As always, if you have any questions, please feel free to contact us here or call us at 585.258.2800.

Underberg & Kessler LLP has been named a 2014 Rochester Tier 1 “Best Law Firm” by U.S. News - Best Lawyers®. The firm’s real estate, municipal law and environmental litigation practices were included in the top tier rankings of Rochester law firms.  The “Best Law Firms” are recognized for professional excellence with persistently impressive ratings from clients and peers. Achieving a ranking signals a unique combination of quality law practice and breadth of legal expertise. The U.S. News – Best Lawyers® “Best Law Firms” rankings are based on a rigorous evaluation process that includes the collection of client and lawyer evaluations, peer review from leading attorneys in their field, and review of additional information provided by law firms as part of the formal submission process. As always, if you have any questions, please feel free to contact us here or call us at 585.258.2800.

On August 14, 2013, the U.S. Department of Health and Human Services (HHS) announced an agreement with Affinity Health Plan, Inc. (Affinity) to settle potential HIPAA violations whereby Affinity will pay HHS $1,215,780. The case arose from Affinity’s failure to “wipe” the memories of its leased photocopiers when surrendering the copiers at the end of their lease terms. The Columbia Broadcasting System later bought one of these copiers and, upon discovering patient protected health information (PHI) in the copier’s memory, alerted Affinity. Affinity then reported the breach to HHS as required by HIPAA, estimating that as many as 344,579 individuals may have been affected by the breach. HHS took Affinity to task for the breach itself, and for Affinity’s failure to recognize that photocopiers could be the source of an unauthorized disclosure of PHI and to adopt policies to mitigate the risk. In order to avoid capital costs and to remain current with technology, many health care providers lease photocopiers from third parties and elect to return them rather than purchase them at the expiration of the lease term. Today’s copiers are essentially computers, and are often used in a network environment for printing, scanning and faxing, as well as copying. They are capable of storing thousands of images. Providers need to understand how these machines can put their practices at substantial risk. The Affinity case was based on breaches occurring following lease expiration. However, while in provider custody, copiers are regularly serviced by third parties whose personnel may be able to access copier memory while performing maintenance and repairs. Providers should assure that their service contracts contain “Business Associate Agreement” clauses, permitting access to PHI in the course of maintenance and repair but restricting the use or disclosure of PHI except as needed to perform contractual obligations. Further, providers should know how to erase the memories of these machines before they are surrendered at lease expiration, and document the responsibility for assuring that this is done. Modern fax machines function in much the same way as photocopiers, in that they store images before transmitting them. Similar precautions should be taken with respect to these devices. Download this Legal Alert As always, if you have any questions, please feel free to contact us here or call us at 585.258.2800.

We are considering the possibility of group medical visits to better serve the needs of our patients. What are some of the legal issues we should consider? Group medical visits, sometimes also called shared medical appointments, are gaining in popularity among both physicians and patients. In a group setting, over a 90-minute to two-hour period, the physician performs a series of one-on-one patient encounters, to manage the health of each patient and educate and advise the group of patients. Sometimes offered as a cooperative health clinic to patients with a single disease focus (e.g., diabetes, high blood pressure or high cholesterol), and sometimes offered on a drop-in basis to patients with multiple diagnoses, these programs have been found to provide patients with increased access to their physician, improve the quality of their care through enhanced education and support, make patients more active participants in their care and offer patients peer support. From the practice perspective, this model can improve physician and staff productivity, decrease costs and reduce patient scheduling congestion. The first legal issue to consider is patient confidentiality and privacy. Each patient wishing to participate in a shared medical appointment must sign a HIPAA compliant release and waiver acknowledging that their protected health information will be shared with other participants in the group visit. The patient should also pledge confidentiality as to the protected health information of other participants, agreeing not to share any protected health information of other patients outside the group setting. The patient should also acknowledge that while each patient in the group visit has signed a similar confidentiality pledge, neither the physician nor the physician group can guarantee the confidentiality of protected health information received by the other group members. Finally, where the shared health information may include HIV or mental health status, there are special New York State rules to follow for a valid waiver and release agreement. From a patient care and risk management perspective, the physician should document the visit in each participating patient’s medical record in the same manner as an individual visit. Vital signs should be recorded, patient evaluation, counseling and education noted, and each medical decision and advice to the specific patient documented. The chart notes should reflect all individual medical examinations and services provided to the patient, as well as the services provided to the group as a whole. The chart details will serve the physician well for purposes of back-up of the billing to a third-party payor or in the event of a malpractice claim. The physician should be mindful that in the group setting the other patients may be witnesses in the event of any malpractice claim by a group participant. To the extent practice staff assist the group, their activities should be within the scope of their respective licenses (nurse, nurse practitioner or physician assistant). Next, the physician will need to carefully consider the coding and billing of the shared medical appointment to thirdparty payors. The American Academy of Family Physicians web site provides guidance on these matters. Since no official payment or coding rules have been published by Medicare, the AAFP asked CMS for guidance. The response from CMS was, “…under existing CPT codes and Medicare rules, a physician could furnish a medically necessary face-to-face E/M visit (CPT code 99213 or similar code depending on level of complexity) to a patient that is observed by other patients. From a payment perspective, there is no prohibition on group members observing while a physician provides a service to another beneficiary.” The reply letter went on to state that any activities of the group (including group counseling activities) should not impact the level of code reported for the individual patient. It is important to note that medical insurance company coverage and payment rules may very well differ from this Medicare guidance. The physician should seek written advice from each insurance plan in which they are a participating provider to confirm that shared medical appointments are covered services and as to how to properly code and bill a medically necessary, physician-patient encounter conducted as a group medical visit. Group visits should be voluntary and not mandatory, even where the physician believes the patient would benefit from the group. Traditional office visits should be available for patients who refuse the group, or decide to leave the group. Moreover, the shared medical appointments should not completely replace individual visits, and when necessary or desirable to the patient, individual medical appointments should remain available. Finally, the physician should receive written confirmation from his or her malpractice insurance carrier that full coverage will be available in the event of a HIPAA compliance claim or malpractice claim arising in the context of a group medical visit. Download the Reprint from The September/October 2013 Edition of 'The Bulletin' by MCMS As always, if you have any questions, please feel free to contact us here or call us at 585.258.2800.

Thomas F. Knab has been named to the 2013 Buffalo Business First/Buffalo Law Journal’s "Legal Elite of Western New York".  The Legal Elite is a peer-nominated and reviewed listing of Buffalo-area attorneys. Tom is the partner-in-charge of the firm's Buffalo office, and is a member of our Litigation, Labor & Employment and Municipal Practice Groups. As always, if you have any questions, please feel free to contact us here or call us at 585.258.2800.

David M. Tang has been named a 2013 recipient of the Rochester Business Journal's Forty Under 40 award.  The Forty Under 40 honorees are professionals younger than 40 who demonstrate leadership in the workplace and in the community. David is an associate in the firm's Litigation and Creditors' RIghts Practice Groups. As always, if you have any questions, please feel free to contact us here or call us at 585.258.2800.

LLCs, which were created by the New York Limited Liability Company Law (LLCL), are hybrid business entities that combine the tax aspects of partnerships with the limited liability of corporations. The two basic principles underlying the LLCL are (1) LLC owners (members) have flexibility in structuring the LLC through its operating agreement, and (2) the LLCL provides default procedures for an LLC, which apply unless the operating agreement clearly provides otherwise. The LLCL is largely silent on the remedies available to a member facing another member’s refusal to cooperate in the management of the business, or worse yet, another member’s bad faith or intentional misconduct. As a result, judges and “business divorce” practitioners continue to wrestle with numerous questions about how to protect the rights of an LLC member from the misconduct of other LLC members. In some instances, the courts have created nonstatutory remedies derived by analogy from the Business Corporation Law (BCL), the Partnership Law and the common law, but in other instances the courts have denied aggrieved LLC members remedies which are not expressly provided in the LLCL. For example, in Tzolis v. Wolff, the Court of Appeals held that LLC members may sue derivatively, even though the LLCL does not expressly authorize such actions, applying the law of trusts, corporations and limited partnerships. Similarly, in Mizrahi v. Cohen, a 2013 decision by the Second Department, the court, citing general equitable principles, held that the aggrieved member was entitled to the judicial dissolution of the LLC, and that the member was entitled to an order authorizing him to purchase defendant’s interest in the LLC upon dissolution, even while acknowledging that the LLCL does not authorize such a buyout. Nevertheless, the courts have held firm to the express terms of LLCL §702, which addresses judicial dissolution. That section empowers a court to dissolve an LLC “whenever it is not reasonably practicable to carry on the business in conformity with the articles of organization or operating agreement.” In Matter of 1545 Ocean Avenue, LLC, the court analyzed the derivation of LLCL §702, the dissolution provisions of the BCL and Partnership Law, and §702’s “not reasonably practicable” standard. Although the member seeking dissolution in that case had alleged “deadlock” between the managing members arising from one of the member’s violations of the operating agreement, the court held that the member had to establish, in the context of the terms of the operating agreement or articles of incorporation, that: “(1) the management of the entity is unable or unwilling to reasonably permit or promote the stated purpose of entity to be realized or achieved, or (2) continuing the entity is financially unfeasible.” In its decision, the court cited Widewaters Herkimer Co., LLC v. Aiello, in which the Fourth Department held that allegations that the majority members breached their fiduciary duty to the aggrieved members and engaged in “unlawful or oppressive conduct toward them” were insufficient to plead the requisite grounds for dissolution under LLCL §702. Recent decisions show that the courts are holding fast to that position. In a February 2013 case, Doyle v. Ikon, LLC, a member who had been “expelled” from the LLC sued for dissolution, alleging that he had been “systematically excluded from the operation and affairs of the company.” The First Department reversed the Supreme Court’s order which denied defendants’ motion to dismiss and granted that motion, finding that allegations of expulsion and systematic exclusion were insufficient to establish that it was no longer “reasonably practicable” for the company to carry on its business; the court noted that the company had been able to carry on its business after plaintiff was expelled and that the company was financially feasible. In Matter of Nunziata, a July 2013 decision from the Queens Supreme Court, a member petitioning to dissolve an LLC alleged that the two managing members had: failed to allow him to participate or vote in business meetings; excluded him from all aspects and control of the business, to his financial detriment; and engaged in “oppressive conduct” toward him. The managing members cross-moved to dismiss the petition for failure to state a cause of action. The court noted that the operating agreement provided for the management of the LLC by the managing members and set forth a limited number of “Dissolution Events.” The court then found that the petition’s allegations that the aggrieved member had been “systematically excluded” from the company’s operations and affairs were insufficient to establish that it was no longer “reasonably practicable” to carry on the company’s business, because they did not show that the management of the business was unable or unwilling to reasonably permit or promote the stated purpose of the entity, or that continuing the entity was financially unfeasible. BCL §§1104 (deadlock) and 1104-a (oppression, fraudulent conduct, looting, waste or diversion of corporate assets) authorize an aggrieved shareholder to petition for judicial dissolution of a corporation in order to protect his interests. Partnership Law §63 authorizes an aggrieved partner to seek dissolution when another partner willfully or persistently commits a breach of the partnership agreement or when other circumstances “render a dissolution equitable.” Therefore, both statutes give an owner of a business a mechanism to extricate himself and his investment from that business upon a showing that the internal relationships between that owner and the other owners are dysfunctional and untenable. In sharp contrast, an owner of a business operated as an LLC has no statutory mechanism to extricate himself from a similarly dysfunctional and untenable internal relationship as long as the business can continue operating (to the outside world) on a financially feasible basis. While this anomaly exists, it is critical that LLC members take steps to control their own destinies and prevent a default to the LLCL, through well-crafted operating agreements which include provisions addressing management decision-making and withdrawal procedures such as buyouts and non-judicial dissolution. Download the Reprint from The Daily Record As always, if you have any questions, please feel free to contact us here or call us at 585.258.2800.