On April 1, 2022, Justice Boddie of the Kings County Commercial Division issued a decision in Family Group 188, LLC v. Foukas, 2022 NY Slip Op. 30764(U), holding that where members of an LLC fail to sign an LLC operating agreement, the LLC is governed by the default rules of the LLC Law, explaining:
Limited Liability Company Law § 417(a) mandates members of an LLC adopt a written operating agreement not inconsistent with law or its articles of organization relating to (i) the business of the limited liability company, (ii) the conduct of its affairs and (iii) the rights, powers, preferences, limitations or responsibilities of its members, managers. Notwithstanding the mandate of Limited Liability Company Law § 417, the absence of an operating agreement does not render company action void or voidable but simply subjects it to governance by the default provisions of the Limited Liability Company Law.
Here, both sides agree that the 2016/ 88 and 2016/196 operating agreements were not executed. Both sides also cited Flores. In Flores, the Court explained. “We have long held that a contract may be valid even if it is not signed by the party to be charged, provided its subject matter does not implicate a statute–such as the statute of frauds–that imposes such a requirement. The Court went further in explaining, that the absence of an executed document did not end the inquiry, stating: an unsigned contract may be enforceable, provided there is objective evidence establishing that the parties intended to be bound. Defendant, citing Flores, argued the operating agreements were binding because the parties acted in accord with the provisions of the operating agreements, therefore demonstrating their intent to be bound.
However, where, as here, the parties failed to adopt operating agreements for Family Group 188 and 196 LLC, the provisions of the Limited Liability Company Law apply to management actions by their members. Plaintiffs correctly argued Limited Liability Company Law § 402 was implicated. This section provides, Except as provided in the operating agreement, whether or not a limited liability company is managed by the members or by one or more managers, the vote of at least a majority in interest of the members entitled to vote thereon shall be required to adopt an operating agreement. Plaintiffs averred no such vote was taken and defendant failed to raise an issue of fact as to such vote. Therefore, the PFSK Members were entitled to proceed pursuant to a majority vote to agree to sell the properties, pursuant to Limited Liability Company Law § 402[d][2].
(Internal quotations and citations omitted).