Shapiro v. Ettenson

Robert Shapiro (plaintiff), Gabriel Ettenson (defendant), and David Newman (defendant) formed ENS Health, a limited-liability company (LLC), in January 2012. Each member held a one-third ownership interest. Shapiro claimed the three members made an oral agreement that all material decisions would be made by unanimous vote of all three members. No written operating agreement was executed until December 2013. In December 2013, Ettenson and Newman adopted an operating agreement for ENS Health and amended its articles of organization. They did not obtain the consent of Shapiro for the operating agreement. State law permits a majority of members of an LLC to approve company actions. The operating agreement contained provisions that gave a majority of members the power to approve ENS Health actions or decisions. The agreement also provided a provision on capital contributions. In October 2014, Newman and Ettenson reduced Shapiro’s salary to zero and made a call for a capital contribution of $10,000 per member at an ENS Health member meeting. Shapiro filed a declaratory action, seeking nullification of the operating agreement and recovery of damages related to members’ salaries. Ettenson and Newman made counterclaims for declaratory judgment, seeking declarations that the operating agreement, articles of organization, and capital call were valid and binding on all members of ENS Health. Alternatively, Ettenson and Newman sought a declaration that default state LLC rules apply if the operating agreement is invalid. The parties went before the New York Supreme Court.