Look out! Another SMLLC is effectively disregarded by the court, seemingly for no other reason other than the composition of the members. In Rossignol v. Rossignol, 2011 WL 723041 (N.Y.3d Dept., Mar. 3, 2011) the Supreme Court, Appellate Division in New York, affirmed a decision that found when spouses are the sole members of an LLC, the divorce action could provide complete relief. The court found that since the spouses were the sole members of the LLC and both spouses were parties to the divorce action, the consolidation of the divorce action and the action to dissolve the LLC was proper as there would be no issues left for resolution after the distribution of the marital property. Not only does the court disregard the entity itself, the court implies that through the divorce action the court has the power to dissolve the LLC due to the court’s empowerment to provide complete relief under the local Domestic Relations law and through the equitable distribution of marital property.
There has also been an interesting comparison to the Olmstead v. FTC case, where the Florida Supreme Court expanded the rights of personal creditors of the single-member of an LLC. (See Professor Rosins blog posting on Unincorporated Business Entities Law). We will just have to wait to see how far Rossignol actually opens the door to Olmstead’s expansive view.
-Allison M. Lindner/Dickinson Business Law Associate