Lazar v. Mor, 2024
Gabriel Lazar and Joel Sheinbaum, et al., the plaintiffs, moved for leave to file a second amended complaint, adding two breach of contract claims against Arik Mor and Uriel Zichron, the defendants.
Background.
This action arose from a dispute among real estate investors. The plaintiffs were residents of Israel and co-managing members of Attena and Hemera, which acquired (hold and sell) multifamily properties in Manhattan. The plaintiffs were also residents of Israel and co-managers of the entities.
The plaintiffs sought to add two causes of action, alleging that the plaintiffs breached Attena and Hemera’s operating agreements. The plaintiffs alleged that the defendants’ distributions exceeded the amounts to which they were entitled based on their capital contributions. “Specifically, plaintiffs allege that Mor and Zichron’s capital contributions to Attena were 9.2% and 10.5%, respectively, but they took distributions as though they each contributed 21.5% of Attena’s capital. Also, despite each having a capital account balance of negative $241,500 at Hemera, defendants allegedly took distributions as though they each contributed 15% of its capital.”
Discussion.
Statute of limitations. The court determined that the new claims have been made within the time frame of the statute of limitations.
Merits of breach of contract claims. The plaintiffs argued the distributions were not wrongful. “Defendants argue that the entities’ operating agreements, entitled them to pro rata distributions in proportion to their Membership Capital Accounts’ value, which was based on their capital contributions and corresponding membership interests.” The plaintiffs further argued that, for their services and monetary contributions, they received 21.5% and 15% stakes in the two entities, which corresponded to the distributions.
Per the operating agreements, the plaintiffs were entitled to distributions equal to the monetary value of their capital accounts pro rata to the value of all of the member capital accounts. The court noted that the “the agreements unambiguously state that distributions are allocated based on Member Capital Accounts’ monetary values, and not on the basis of Membership Interests.” The plaintiffs’ reliance on Santelli v. Spitzer was misplaced. There was no clarifying language in the operating agreement here as there was in Santelli.
“Further, contrary to defendants’ argument, Santelli does not stand for a proposition that because an LLC member is permitted to make capital contributions in the form of services, other members cannot challenge distributions to such an LLC member.”
The court also noted that the addition of these amendments does not result in prejudice against the plaintiffs in presenting and defending their case. Thus, the plaintiffs motion to amend was granted.