The New Jersey Revised Uniform Limited Liability Company Act gives Courts discretion to remedy oppressive conduct. If a court determines that a member or controlling member has, is or will act illegally, fraudulently, harmfully or oppressively towards a member, a Court may: (1) appoint a custodian or provisional manager; (2) order the sale of a member’s LLC interest to the LLC or the members (N.J.S.A. 42:2C-48(b)); (3) dissolve the company; and (4) award legal fees and other expenses if a party acted vexatiously or otherwise not in good faith (N.J.S.A. 42:2C-48(c)).
The New Jersey Supreme Court in Brenner v. Berkowitz, 134 N.J. 488, 512 (1993) held that in addressing corporate minority oppression, Courts were not limited to the statutory remedies contained in the statute. That means at least within the context of a shareholder dispute within a corporate entity, Courts may utilize its common law powers to fashion an equitable remedy. At this point, it is unclear whether or not the same equitable powers will be given to Courts when confronted with remedying an oppressive conduct within an LLC. Based upon my review of the Brenner decision, I believe Chancery Courts will have the same equitable powers to remedy oppression whether the entity is a corporation or an LLC. That is because the Supreme Court in Brenner held “when a statutory violation occurs, a court retains its discretion to fashion equitable remedies.” Brenner v. Berkowitz, 134 N.J. at 514.
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.