## Facts

- Pennington Property Co. LLC owned a Manhattan apartment building as its principal asset.
- Plaintiffs, minority members holding a combined 25% interest, sued both individually and derivatively on the LLC’s behalf.
- Plaintiffs alleged the controlling members and related entities arranged for the building to be leased and then sold for below-market amounts.
- Plaintiffs alleged the lease was unlawfully assigned and that fiduciaries personally benefited from the sale.
- The only claims at issue sought (1) a declaration voiding the sale and (2) termination of the lease.

## Issues

1. Whether members of a New York LLC may bring a derivative action on the LLC’s behalf when the Limited Liability Company Law contains no express authorization for derivative suits.
2. Whether statutory silence in the LLC law implies the Legislature intended to bar derivative actions for LLC members.

## Decision

- The Court of Appeals affirmed the Appellate Division’s order reinstating the derivative claims.
- The court held that LLC members may bring derivative suits on the LLC’s behalf despite the absence of statutory provisions governing such actions.
- The court rejected the inference that legislative omission of derivative-suit provisions in the LLC statute reflects an intent to prohibit derivative litigation.

## Legal Principles

- Derivative actions are an equitable, judge-made remedy in New York, recognized in corporate law long before statutory codification.
- Courts may permit derivative suits for business entities where those in control are alleged wrongdoers and the entity requires a mechanism to seek redress.
- Legislative silence in a statutory scheme does not, without clear evidence of intent, abrogate longstanding equitable remedies.
- LLCs share characteristics with corporations and limited partnerships, for which New York law recognizes derivative actions; comparable relief is available for LLC members.
- Prior authority reading the LLC statute’s silence as a prohibition on derivative suits was rejected.

## Conclusion

New York law permits LLC members to sue derivatively on the LLC’s behalf as a matter of equity, and the absence of express derivative-action provisions in the Limited Liability Company Law does not eliminate that remedy.


Tzolis v. Wolff, 10 N.Y.3d 100 (N.Y. 2008)