As readers here know, we have discussed, as far back as 2007, the importance of properly drafted documents. In December 2007 we wrote about an Inc. Magazine feature article which described the fallout between friends caused by incomplete or nonexistent incorporating documents. A recent Suffolk County Supreme Court decision highlights that again–to the tune of hundreds of thousands of dollars.
In 2006, Gary Duff and Peter Curto, Jr., formed a LLC to buy property. After Duff spent some $500,000 on the project, it collapsed. Duff sued Curto claiming that Curto was obligated to reimburse Duff half of his costs because the parties had agreed to contribute to the LLC evenly. That may have been true, except that the LLC operating agreement did not exactly say that. The operating agreement provided that each would provide 50% of the capital, but did not detail how much that was. While that alone may have not carried the day, even though Curto denied any agreement to provide anything, that Duff carried his “contributions” to the LLC as loans on his tax returns provided Judge Pines the basis she needed to find that Duff could not maintain a claim against Curto, dismissing them, even though the operating agreement was vague as written.
Would the outcome have been the same had the operating agreement been properly completed?