Opinion ID: 6342114
Heading Depth: 2
Heading Rank: 2

Heading: Oral Modification

Text: Finally, the district court properly granted summary judgment in favor of Plaintiffs because the undisputed evidence established an oral modification to the Agreements, thus barring Defendant’s counterclaims. Defendant brought ten counterclaims on behalf of the Estate. All were based on the same underlying theory that, from 1997 onward, Plaintiffs improperly disregarded Philip’s rights as a member in AORLLC, failed to consult with him on important management decisions, and did not distribute to him his share of the company’s profits. Defendant claimed that these actions violated various provisions of AORLLC’s Operating Agreement and AORINC’s PreIncorporation Agreement. Plaintiffs do not dispute that their post-1997 behavior was inconsistent with certain provisions of the Agreements, but they argue that they were acting in accordance with an oral modification made at Philip’s request. Specifically, Philip wanted to exit the family business and retire, but he also wanted to avoid the tax consequences of selling his membership interest outright. Philip and Plaintiffs therefore orally agreed that his interest would be “nominal” (i.e., on 11 paper only) so he could avoid the tax implications of a sale, and Philip would otherwise remove himself from the company. Plaintiffs proffered ample evidence at summary judgment in support of this oral modification, including testimony from AORLLC’s accountant and lawyer; tax forms reflecting that Philip’s profit percentage in AORLLC was zero for more than a decade; testimony that Philip had never complained about the tax forms or the running of AORLLC; and the 1997 Agreement itself, which suggested that Philip had intended to retain only a nominal interest in AORLLC. Defendant offered virtually no countervailing evidence, and the district court concluded that “[t]he evidence is so one-sided that [Plaintiffs] must prevail as a matter of law.” Sp. App’x at 46 (internal quotation marks omitted). On appeal, Defendant points to no evidence overlooked by the district court. 3 He primarily resorts to attacking the admissibility of the evidence and the enforceability of the oral agreement. But none of his arguments is persuasive. 3 Defendant disputes the authenticity of a letter purporting to show that Philip resigned from AORLLC, but Plaintiffs made a substantial showing of other, undisputed evidence in support of an oral modification. The letter was therefore not necessary to the district court’s conclusion. Defendant also points to a single statement made by Plaintiff Sasson during a deposition, in which he stated that he was unaware of any “oral or written agreements concerning [Philip’s] resignation from [AORLLC].” Mann’s Br. at 41 (quoting App’x at 3252). But the district court already addressed this “snippet” of evidence, correctly concluding that this single statement – devoid of any context – was insufficient to create a genuine dispute of material fact as to an oral modification. Sp. App’x at 62. 12 First, the oral agreement was not barred by a clause in the Operating Agreement prohibiting oral modifications. Generally, written agreements expressly proscribing oral modifications cannot be modified except by a signed writing. Turk v. Anello, 721 N.Y.S.2d 122, 123 (3d Dep’t 2001) (citing New York General Obligations Law § 15-301(1)). New York law, however, recognizes several exceptions to this general prohibition: full or partial performance, equitable estoppel, and waiver. Rose v. Spa Realty Assocs., 42 N.Y.2d 338, 343–44 (1977). Here, the uncontroverted evidence establishes that “all acts expressly or implicitly required by the [oral modification] were fully performed.” Maynard Ct. Owners Corp. v. Rentoulis, 652 N.Y.S.2d 664, 666 (1997) (internal quotation marks omitted). From 1997 until his death, Philip avoided paying taxes on his substantial negative capital account and avoided the risk of financial loss during his retirement – all in exchange for forgoing his right to participate in AORLLC’s management or share in its profits. 4 At the very least, there was clearly partial performance because the post-1997 behavior (such as AORLLC’s tax forms reflecting that Philip stopped drawing his share of partnership profits) is 4 The oral modification was also clearly supported by consideration, as Philip was able to avoid a substantial tax bill (and the risk of losing his retirement savings), while Plaintiffs were able to reap greater rewards from incurring all the risk of running the business. 13 “explainable only with reference to the oral agreement.” Anostario v. Vicinanzo, 59 N.Y.2d 662, 664 (1983); see also Rose, 42 N.Y.2d at 343 (“[P]artial performance [must] be unequivocally referable to the new contract.”). Second, the oral modification was not barred by the various provisions of New York’s Limited Liability Company Law cited by Defendant. Sections 102(r) and 601 simply define a “membership interest”; nothing in these provisions suggests that a member cannot withdraw or modify that interest. See N.Y. Limited Liab. Co. L. §§ 102(r), 601. Section 417(b) prohibits amendment regarding allocation of income or losses “without the written consent of each member adversely affected thereby.” Id. § 417(b). But there is no indication that Philip was “adversely affected” by the oral modification; on the contrary, the modification was made for his benefit. Under section 606(a), a member can withdraw from a limited liability company only “in accordance with the operating agreement.” Id. § 606(a). Here, the parties complied with this rule; AORLLC’s Operating Agreement provided that any member can withdraw with “the prior consent of the remaining members,” App’x at 113, and both Plaintiffs undisputedly consented to Philip’s withdrawal from the management of AORLLC. Finally, section 509 states that, 14 upon withdrawal, the withdrawing member is entitled to receive “the fair value of his or her membership interest in the limited liability company.” Id. § 509. Philip, however, had already negotiated payment for his interest under the 1997 Agreement, and otherwise maintained a nominal interest only for tax purposes. There is no evidence that Philip was entitled to or expected any further payment for his membership interest. Third, Plaintiffs’ evidence in support of an oral modification was not barred by the “Dead Man’s Statute,” N.Y. C.P.L.R. § 4519. This statute “disqualifies parties interested in litigation from testifying about personal transactions or communications with deceased . . . persons.” Sepulveda v. Aviles, 762 N.Y.S.2d 358, 365 (1st Dep’t 2003) (internal quotation marks omitted). But the statute does not bar the testimony of disinterested non-party witnesses like AORLLC’s tax accountant or its attorney. Nor does it bar Plaintiffs’ “observations of [Philip’s] conduct and demeanor,” id. at 366, such as their testimony that AORLLC operated without Philip’s involvement. The district court therefore properly granted summary judgment in favor of Plaintiffs on Defendant’s counterclaims. 15