In this special proceeding, petitioner Yariv Natanel seeks judicial dissolution of Y & Y Ditmas, LLC (the "Company"), pursuant to New York Limited Liability Company Law (hereinafter "LLCL") § 702.

The following facts are not in dispute. Petitioner and respondent Yosef Cohen are the sole members of the Company, in which they each hold a 50% interest. The Company was formed in 2004 to hold title to real property located at 9502 Ditmas Avenue, Brooklyn, NY 11236 (the "Premises"). Prior to the formation of the Company, Natanel and Cohen acquired a moving business, A-One Moving & Storage, Inc. ("A-1"), which moved into the Premises as a commercial tenant in 2000. In 2002, A-1 expanded and began leasing 60% of the Premises. As a result, Natanel and Cohen decided to purchase the Premises, maintaining 60% of the space for r [*2]A-1, and renting out the remainder of the space to other commercial tenants. Articles of Organization for the Company were filed October 20, 2004.

By 2008, the relationship between the parties began to deteriorate, and they began to communicate only by email and through their wives. Each claims that the other caused the conflict, with allegations ranging from differences in opinion as to the management and direction of A-1 to the improper use of Company computers for the purposes of conducting a side business and visiting adult internet websites. The parties dispute whether A-1 has ceased operating, but it is not in dispute that they each formed their own moving companies, and that many of A-1's former customers transferred their business to one or the other of the two new companies.

The area formerly occupied by A-1 is not being leased, nor is it generating rental income. Some equipment and property remain in the area, and petitioner claims that the property belongs to respondent who is improperly storing his equipment on behalf of his own business, while respondent asserts that the property belongs to A-1, which still has residual storage commitments to some of its customers. Both parties have expressed interest in renting out the Premises, and it appears some attempts have been made to enlist a broker and find commercial tenants. Petitioner blames respondent for rejecting a number of viable rental candidates, and respondent claims that petitioner has chosen an unqualified broker, petitioner's neighbor, who has been unable to produce viable offers for the space.

Petitioner initiated this action by notice of petition filed May 24, 2013, seeking judicial dissolution of the Company, the appointment of himself as a receiver, and asserting derivative claims for breach of fiduciary duty and an accounting against Cohen. On June 24, 2013, respondent filed an answer with counterclaims for derivative claims of breach of fiduciary duty and an accounting against Natanel.

Petitioner argues that dissolution is necessary because it is no longer reasonably practicable to carry on the business of the Company, and the Company is insolvent. Respondent opposes the petition, claiming that despite contention between the parties, the Company has been profitable and continues to function.

LLCL § 702 provides the standard for judicial dissolution of limited liability companies (LLCs) and grants to Supreme Court the authority to decree a dissolution of a LLC "whenever it is not reasonably practicable to carry on the business in conformity with the articles of organization or operating agreement." The Second Department has established that:

[F]or dissolution of a limited liability company pursuant to LLCL 702, the petitioning member must 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 the entity to be realized or achieved, or (2) continuing the entity is financially unfeasible (In re 1545 Ocean Ave., LLC, 72 AD3d 121, 131 [2d Dept 2010]).

Petitioner argues that the purpose of the Company is to own real estate specifically while A-1 was operating in it and that because A-1 is in the process of dissolution and winding-up, it no longer occupies the Premises, obviating the Company's purpose. Although he attempted to lease the space after A-1 allegedly disbanded, petitioner claims he did so merely to mitigate damages. In opposition, Respondent argues that the purpose of the Company is not as narrowly defined as petitioner alleges and is to hold the Premises as a real estate investment, renting it out to commercial tenants. The Company has no operating agreement, and the Articles of Organization do not define the Company's purpose.^[FN1] Respondent also disputes that A-1 is defunct, claiming that despite the cessation of A-1's moving business, it still maintains the storage element of its business, citing a number of existing contracts with customers.

Petitioner also claims that the company is insolvent, with expenses exceeding its income by $4500 each month. In support of this position, Petitioner submits an affidavit from Andrew Ross, a certified public accountant, opining that the Company is insolvent because it cannot pay its debts as they come due. Respondent rejects this contention, claiming that the Company has generated increasing profits for its members for the last five years, with a capital account increase of over 170% over the past five years, and that any perceived cash flow problem was artificially created by petitioner who withdrew money from the Company to create an illusion of insolvency in anticipation of filing his instant petition.

Due to the lack of an operating agreement or other documentary evidence of the Company's purpose, and given the number of disputed facts of material significance, including the Company's financial situation, this matter cannot be resolved on the papers and must proceed to a hearing.

Accordingly, the petition for an order granting dissolution and for the appointment of a receiver is deferred pending hearing. A pending motion is scheduled to be heard on October 23, 2013, at which time a hearing date will be scheduled.

The foregoing constitutes the decision and order of the Court.

E N T E R:

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HON. CAROLYN E. DEMAREST, J.S.C.