On January 17, 2012, the New Jersey Appellate Division released its decision in the case, Hopkins, et. al. v. Duckett, et. al. The Hopkins decision further clarifies some of my earlier blog posts relating to choice of law issues in minority oppression litigation and the applicability of minority oppression claims to limited liability companies.
Choice of Law
Plaintiff Hopkins was a former New Jersey resident who moved to Indiana shortly before he commenced litigation in the Superior Court of New Jersey, Chancery Division, Bergen County. Nightingale & Associates, LLC, the company at the center of Mr. Hopkins’ lawsuit, was a Delaware LLC with a principal place of business in Connecticut. The LLC’s operating agreement set forth the members’ agreement which states that all disputes were governed by Delaware law.
The Appellate Division found that Delaware law should govern the dispute because unlike the decisions which were the subject of my previous blog posts there were no substantial relationships to New Jersey. Moreover, there was no fundamental policy which required the application of New Jersey law. In other words, unlike Krzastek v. Global Resource Industrial and Power, Inc., No. A-1815-06T2 (App. Div. Sept. 11, 2008) and Conway v. DialAmerica Marketing, Inc., BER-C-116-08 (Super. Ct. Sept. 30, 2008), Nightingale & Associates, LLC did not maintain full time offices in New Jersey. Moreover, Nightingale & Associates, LLC did not employ many New Jersey residents.
Finally, only one owner of Nightingale & Associates, LLC had ties to New Jersey (although, he moved to Indiana prior to the commencement of his litigation). In addition, the entities in the Krzastek and Conway cases were corporations. The entity in the Hopkins case was a limited liability company where the parties entered into an operating agreement and agreed that Delaware law should apply. Those reasons led to the use of Delaware law in the Hopkins case.
Application of the Minority Oppression Statute to an LLC
In an article I published in the New Jersey Law Journal, I asserted that the minority oppression statute may not apply to limited liability companies. In that article, I asserted that the minority oppression statute should protect minority members of a Limited Liability Company. I asserted that the New Jersey Legislature should modify the statute to afford the same protections offered to minority members of a Limited Liability Company. The Appellate Division in Hopkins reaffirmed that the New Jersey minority oppression statute does not apply to limited liability companies. See also, Denike v. Cupo, 394 N.J. Super. 357, 378 (App. Div. 2007), rev’d on other grounds, 196 N.J. Super. 502 (2008). Until the New Jersey Legislature amends the statute to afford minority members the same protections offered to shareholders in a corporation, I strongly encourage minority members to insist that the operating agreement afford them the protections found in N.J.S.A. 14A:12-7(c).
Scott Unger is a Shareholder in Stark & Stark’s Lawrenceville, New Jersey office concentrating in Shareholder & Partner Dispute Litigation. For questions, or additional information, please contact Mr. Unger.