In a December 20, 2011, decision by Justice Schmidt, the court denied plaintiffs’ motion for summary judgment declaring that they are entitled to defendants’ membership interests in defendant-LLC as a security interest in connection with the purchase of real property. Defendant-LLC borrowed $3.5 million to purchase real property from the plaintiffs. Plaintiffs claimed that under the mezzanine loan agreements, the defendant-LLC members pledged their membership interests in the LLC as security to be transferred to plaintiffs upon default. The defendant-members signed the loan agreements, not in their individual capacities, but on behalf of defendant-LLC. Because an LLC “cannot hold its own LLC interests and, therefore, could not grant the plaintiffs a lien on its own LLC interests,” the court denied plaintiffs’ motion. The court further noted that had the parties followed “the traditional mezzanine loan structure,” they would have formed a separate holding company to own the borrower-LLC, allowing the LLC to grant plaintiffs a lien on its interests in the newly-formed holding company.
Lebedowicz v Meserole Factory LLC, Sup Ct, Kings County, December 20, 2011, Schmidt, J., Index No. 20293/10