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In re 1545 Ocean Avenue

January 26, 2010

IN THE MATTER OF 1545 OCEAN AVENUE, LLC, A LIMITED LIABILITY COMPANY. AND CROWN ROYAL VENTURES, LLC, PETITIONER-RESPONDENT;
v.
OCEAN SUFFOLK PROPERTIES, LLC, APPELLANT,
WALTER T. VAN HOUTEN, ET AL., RESPONDENTS-RESPONDENTS.



APPEAL by Ocean Suffolk Properties, LLC, in a proceeding pursuant to Limited Liability Company Law § 702, for judicial dissolution of 1545 Ocean Avenue, LLC, from an order of the Supreme Court (Jeffrey Arlen Spinner, J.), dated December 19, 2007, and entered in Suffolk County, which, inter alia, granted the petition for dissolution.

The opinion of the court was delivered by: Austin, J.

Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.

This opinion is uncorrected and subject to revision before publication in the Official Reports.

STEVEN W. FISHER, J.P., MARK C. DILLON, HOWARD MILLER, CHERYL E. CHAMBERS and LEONARD B. AUSTIN, JJ.

(Index No. 17984/07)

OPINION & ORDER

On this appeal, we are asked to determine whether the Supreme Court properly granted the petition of Crown Royal Ventures, LLC (hereinafter Crown Royal), to dissolve 1545 Ocean Avenue, LLC (hereinafter 1545 LLC). For the following reasons, we answer in the negative and reverse the order of the Supreme Court.

I.

1545 LLC was formed in November 2006 when its Articles of Organization were filed with the Department of State. On November 15, 2006, two membership certificates for 50 units each were issued respectively to Crown Royal and the appellant, Ocean Suffolk Properties, LLC (hereinafter Ocean Suffolk).

On the same date that the membership certificates were issued, an operating agreement was executed by Ocean Suffolk and Crown Royal. The operating agreement provided for two managers; Walter T. Van Houten (hereinafter Van Houten), who was a member of Ocean Suffolk, and John J. King, who was a member of Crown Royal. Each member of 1545 LLC contributed 50% of the capital which was used to purchase premises known as 1545 Ocean Avenue in Bohemia (hereinafter the property) on January 5, 2007. 1545 LLC was formed to purchase the property, rehabilitate an existing building, and build a second building for commercial rental (hereinafter Building A and B, respectively).

It was agreed by Van Houten and King that they would solicit bids from third parties to perform the necessary demolition and construction work to complete the project. Van Houten, who owns his own construction company, Van Houten Construction (hereinafter VHC), was permitted to submit bids for the project, subject to the approval of the managers.

Ocean Suffolk alleges that when there were no bona fide bidders, the managers agreed to allow VHC to perform the work, while Crown Royal maintains that VHC began demolition and reconstruction on Building A without King's consent. In rehabilitating the existing building, Van Houten claims that he discovered and remediated various structural flaws with the claimed knowledge and approval of King or another member of Crown Royal.

King wanted architect Gary Bruno to review the blueprints upon which VHC began demolition since it had been started without the necessary building permits. In addition, King claimed that VHC did not have the proper equipment to efficiently do the excavation and demolition work, causing the billing to be greater than necessary. VHC billed 1545 LLC the sum of $97,322.27 for this work. King claims that he agreed 1545 LLC would pay VHC's invoice on the condition that it would no longer unilaterally do work on the site. Notwithstanding King's demand, VHC continued working on the site. Despite his earlier protests, King did nothing to stop it.

Thereafter, Bruno applied to the Town of Islip for the necessary building permits. The Suffolk County Department of Health required an environmental review whereby a so-called "hot spot" was detected by an environmental engineering firm which proposed to remediate it for $6,500. F & E, the company recommended by Crown Royal to do the remediation work, estimated that the cost for the environmental remediation work would be about $6,675. King claims that Van Houten objected to F & E and had another firm do a separate evaluation without King's approval, while Van Houten asserts that although F & E eventually charged $8,229.63 for its work, payment to F & E by 1545 LLC was made with his approval. Moreover, Van Houten claimed that the separate evaluation was paid for by Ocean Suffolk out of its own account.

Following this incident, King contended that tensions between King and Van Houten escalated. King asserted that things could not continue as they were or else the project would not be finished in an economical or timely manner. King claimed that Van Houten refused to meet on a regular basis; that he proclaimed himself to be a "cowboy;" and that Van Houten stated he would "just get it done." Nevertheless, King acknowledged that the construction work undertaken by VHC was "awesome." By April 2007, King announced that he wanted to withdraw his investment from 1545 LLC. He proposed to have all vendors so notified telling them that Van Houten was taking over the management of 1545 LLC. As a result, Van Houten viewed King as having resigned as a manager of 1545 LLC.

Ultimately, King sought to have Ocean Suffolk buy out Crown Royal's membership in 1545 LLC or, alternatively, to have Crown Royal buy out Ocean Suffolk. In the interim, King had his attorney send a "stop work" request to Van Houten.

There ensued discussions regarding competing proposals for the buy-out of the interest of each member by the other. No satisfactory resolution was realized. Nevertheless, despite disagreement among the members during this difficult period, VHC continued to work unilaterally on the site so that the project was within weeks of ...


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