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Conduct of Members Insufficient to Amend Operating Agreement

12/29/2019

 
In an older opinion from 2018 that was eventually published recently, the Appellate Division considered whether or not the provisions in the operating agreement governing the value of the business upon retirement of a member would be strictly construed or amended based upon the members conduct.  Specifically, the retiring member was seeking to have the value of his membership based upon the fair market value of the company as opposed to the operating agreement formula which was the last agreed upon value adjusted to reflect an increase or decrease in the net worth of the company.  The retiring member argued that sixteen years passed since the parties determined an agreed value of the company, and during that time the company had used the fair market value method to value the company on three separate occasions for planning purposes.  However, the Court disagreed and enforced the terms of the operating agreement as written.  In doing so, the court affirmed existing caselaw which requires that there be a "mutual and clear" intention to modify a written agreement by conduct.  Where, as here, such an intention is not demonstrated by the evidence, the court will enforce the operating agreement as written.  (Namerow v. Pediatricare Associates LLC, et. al.)

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    Authors

    Peter J. Vazquez, Jr.
    Jeffrey Heldman

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Peter J. Vazquez, Jr.
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