R&R Capital LLC v. Merritt

Appellate Division of the Supreme Court of New York, First Department · 2019 · Corporations

CorporationsLLC operating agreementsTortious interferenceDefamation pleadingLender liabilityLLCoperating agreementcapital contributions

Facts

The parties were members of LLCs whose operating agreements addressed what would happen if one party funded the LLCs and the other did not. Those agreements did not require either party to make contributions; instead, they allowed the funding party to advance the other party's share as a loan to the LLCs at 12% interest. Merritt asserted counterclaims including lender liability, tortious interference, and possibly slander based on the premise that plaintiffs were obligated to fund the LLCs and had harmed her relationships with lenders. Prior Pennsylvania and Delaware litigation had established that plaintiffs alone funded the LLCs, that Merritt had defrauded the LLCs and plaintiffs, and that Delaware had barred her from receiving LLC distributions or assets and directed her to withdraw New York claims seeking entitlement to LLC assets.

Issue

Whether Merritt's counterclaims for lender liability, tortious interference, and slander were legally sufficient where the LLC operating agreements imposed no duty on plaintiffs to fund the LLCs, prior litigation foreclosed claims to LLC assets, and her pleadings lacked the elements required for those tort claims.

Rule

When an LLC operating agreement does not require members to fund the LLCs but instead specifies that a member who funds the other member's share may treat that amount as a loan to the LLC at stated interest, a counterclaim premised on a mandatory funding obligation fails. A tortious interference claim requires allegations of valid agreements with a third party and cannot rest on vague, conclusory references to unnamed lenders or on the absence of allegations that the opposing party knew of or interacted with those third parties. A lender liability claim fails absent a lender-borrower relationship, and a slander claim must allege the actual words used and not merely nonactionable rhetorical hyperbole.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Dallas, Maya Singh and Owen Keller each own 50% of Red Mesa Ventures LLC. The operating agreement states that if one member elects to contribute the other member's unmet capital share, that amount will be treated as a loan to the LLC bearing 11% interest. Maya sues Owen, alleging he wrongfully refused to fund the company and is liable in tort because he had a legal duty to contribute his half.

Which is the strongest argument for dismissing Maya's claim?

Explanation. The majority relied on the plain language of the operating agreement. Where the agreement does not require either member to fund the LLC and instead specifies the consequence if one member elects to fund the other's share—treating it as a loan to the LLC with interest—a court will not imply a mandatory funding obligation. A claim premised on such an obligation is therefore defective. (Derived from R&R Capital LLC v. Merritt (n.d.).)