Assisted living network wins 5-year legal battle in minority membership dispute

Delaware-based CareOne LLC has won a summary judgment in a five-year legal dispute surrounding the removal and buyout of two minority members.

At issue was founder Daniel Straus’ authority under CareOne’s operating agreements to remove Adina Straus and Jeffrey Rubin as members of CareOne — a senior care company that operates assisted living, memory care, skilled nursing and post-acute care facilities in five states — and the fairness of the valuation formula.

Judge James J. DeLuca of the New Jersey Superior Court, Bergen County, Chancery Division, granted summary judgment Nov. 23 in CareOne’s favor on all counts, including approving the company’s claim for a declaratory judgment. The court found that the removal and buyout of Straus and Rubin was authorized and appropriate.

According to the law firm Cole Schotz P.C., which represented Daniel Straus, the litigation spanned more than five years in both federal district and state courts, involving “novel issues under Delaware law.” These included the “propriety of the majority members’ amendment of the limited liability company agreement to insert a buyout formula simultaneously with their vote to remove the minority members and whether that buyout formula provided adequate consideration to the removal minority members under Delaware law.”

After removing Adina Straus and Rubin as members, CareOne issued $546,506.61 checks to each of them to buy out their membership interests. Adina Straus’ check was cashed in September 2015, whereas Rubin’s check never was cashed. CareOne stated the amount was based on the fair market value of their membership interests in the company, which was disputed by Adina Straus and Rubin.

The Delaware Limited Liability Company Act provides broad discretion to members in drafting LLC operating agreements to provide “wide contractual freedom to structure the company as they see fit.”

The court found that the adoption of CareOne’s various operating agreements, as well as amendments to those agreements, “were proper and in accordance with the operating agreements in effect.” 

“From the inception of CareOne, Daniel had complete control and authority over the day-to-day operations of CareOne,” the decision reads, adding that Daniel Straus also held a supermajority of the relative interests in the company, giving him “the right and ability to admit new members and eliminate current members, including Adina and Mr. Rubin.”