New York Court Holds LLC Is Bound By Option Agreement

FUNDAMENTAL LLC v. CAMMEBY'S, 985 NE 2d 893 - NY: Court of Appeals 2013 - Google Scholar:

This is a simple breach of contract case. In 2006, the LLC granted an option to Cam Funding to allow Cam Funding "to acquire one third of Fundamental's membership units for a strike price of $1,000, provided the option was exercised on or before June 9, 2011. This agreement was signed by Forman, as manager of Fundamental, and was accepted and agreed to by Schron, as manager of Cam Funding, and Grunstein and Forman, the sole members of Fundamental."

Later the LLC amended its operating agreement in an effort to alter the terms of the option. Obviously, Cam Funding was not a member of the LLC and did not sign the operating agreement.The court explains:

"Fundamental relied on paragraph 3.3 of its operating agreement, dated December 22, 2005 and amended and restated September 3, 2009, which states that

"[a]dditional Interests shall not be issued except upon the consent of the Board of Managers [i.e., Grunstein and Forman] and the unanimous consent of the Members [i.e., Grunstein and Forman]. Upon the issuance of any additional Interests, the Person to whom such Interests are issued shall make a capital contribution to the Company in respect of such issuance in an amount equal to at least the fair market value per Interest so issued.""

The trial court held that the 2006 option agreement was binding and enforceable and that the subsequent amendment of the operating agreement did not nullify the option agreement. The trial court entered judgment in favor of the party exercising the option, Cammeby's. The appellate court affirmed the judgment.

Edward X. Clinton, Jr.

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