Gurney-Goldman v. Goldman

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STEVEN GURNEY-GOLDMAN, as Executor of the Estate of Allan H. Goldman, and AMY GOLDMAN FOWLER, Plaintiffs, v. JANE H. GOLDMAN, Defendant, and SG WINDSOR, LLC, a Delaware Limited Liability Company, Nominal Party.

C. A. No. 2023-1124-JTL

Court of Chancery of Delaware

July 12, 2024

Date Submitted: July 9, 2024

Michael A. Barlow, QUINN EMANUEL URQUHART & SULLIVAN LLP, Wilmington, Delaware; S. Michael Blochberger, ABRAMS & BAYLISS LLP, Wilmington, Delaware; Michael B Carlinsky, David E. Myre, Ryan A. Rakower, Caitlin E Jokubaitis, QUINN EMANUEL URQUHART & SULLIVAN, LLP, New York, New York; Attorneys for Plaintiff Steven Gurney-Goldman, as Executor of the Estate of Allan H. Goldman.

Paul J. Loughman, Robert M. Vrana, Michael A. Laukaitis II, YOUNG CONAWAY STARGATT & TAYLOR, LLP, Wilmington, Delaware; Mitchell Geller, Jasmine S. Chean, HOLLAND & KNIGHT LLP, New York, New York; Attorneys for Plaintiff Amy Goldman Fowler.

Rudolf Koch, Daniel E. Kaprow, Morgan R. Harrison, RICHARDS, LAYTON & FINGER, P.A., Wilmington, Delaware; Jason Cyrulnik, Paul Fattaruso, CYRULNIK FATTARUSO LLP, New York, New York; Attorneys for Defendant Jane H. Goldman.

POST-TRIAL OPINION

LASTER, V.C.

Four siblings owned equal, 25% shares in a New York-based real estate empire. From 1987 until 2022, two of the siblings managed the business. The other two pursued other interests.

Today, literally hundreds of entities play roles in the empire. One of the entities is a Delaware limited liability company ("LLC") that lacks a written LLC agreement. From 2002 until 2022, the four siblings each owned a 25% member interest in the LLC.

In 2022, one of the siblings who managed the business died. His 25% interest passed to his estate. In this action, his son seeks a declaration that he can exercise the governance rights associated with his deceased father's member interest. One of the two siblings who has not historically been involved in managing the business supports his efforts. The sibling who currently oversees the management of the family's real estate empire opposes their efforts. So does the other sibling who has not been involved in management.

The parties seek declarations regarding the governance of the Delaware LLC. This decision holds that (i) the LLC is member-managed, (ii) the estate does not own a member interest in the LLC but rather only holds an assignee interest, and (iii) the executor of the estate can exercise the member rights associated with the LLC interest for the purpose of administering and settling the estate. The court will not issue any injunctive relief.

I. FACTUAL BACKGROUND

The court held a one-day trial where three witnesses testified live. The parties introduced 234 exhibits, including six deposition transcripts.^[1]

The plaintiffs bore the burden of proving their claims by a preponderance of the evidence. The defendant bore the burden of proving her affirmative defenses by a preponderance of the evidence. The court has evaluated the credibility of witnesses and weighed the factual record. The record supports the following findings of fact.

A. The Goldman Family Real Estate Business

From humble beginnings, Sol Goldman^[2] built one of the largest private real estate empires in New York City. He was a Brooklyn grocer's son who started buying foreclosed properties in 1933 at age 16. When he died in 1987, his real estate portfolio encompassed some thirteen million square feet of commercial and residential space in Manhattan. His estate was valued at $1 billion-the largest to enter New York probate.

Sol left behind his spouse, Lillian Goldman. He also left behind four children: Jane H. Goldman, Diane Goldman Kemper, Amy Goldman Fowler, and Allan H. Goldman.

For many years before Sol's death, Jane worked side-by-side with her father as he managed the family business. In his will, Sol chose Jane and Allan to serve as co-executors, along with a third executor whom he authorized Jane to appoint. Jane selected a longtime employee, Louisa Little. Amy testified that her father spoke with her about being a co-executor with Jane, but she recommended that he select Allan.

After Sol's death, Jane, Allan, and Louisa performed their duties as coexecutors, which put them in the position of making determinations about how to handle Sol's many properties. Their service as co-executors morphed into ongoing roles managing the Goldman family business.

No one objected to Jane, Allan, and Louisa managing the business. Amy and Diane were content with the arrangement and acceded to it. Both pursued other interests.

B. The Dispute Between The Siblings And Lillian

After Sol's death, disputes arose between the siblings and Lillian over the distribution of his estate. The siblings became concerned that if Lillian received significant assets, she might divide them among her children unequally. In 1988, the siblings addressed that issue by executing a one-page agreement in which they committed "to share equally among us, if we are living or our descendants if we are not, any gift or bequest or benefits we may receive from mother, either during her lifetime, or by her will."^[3] Lillian and the siblings ended up settling their disputes. Lillian received one-third of Sol's estate, and the siblings received equal shares of the other two-thirds.

Neither the family dispute nor the settlement had any meaningful effect on the day-to-day operation of the business. Jane, Allan, and Louisa were managing the entire real estate portfolio. After the settlement, Lillian continued to rely on them to manage her share.

Lillian died in August 2002. In her will, she named the four siblings as her executors. Twenty-two years later, Lillian's estate remains open and unsettled.

C. The Legal Structure Of The Goldman Family Business

Sol ran his real estate empire as a sole proprietorship. After Sol's death, Jane, Allan, and Louisa turned to Simpson Thacher & Bartlett LLP, a major New York law firm, to create the legal structure for their sprawling intersts.

Simpson Thacher created many entities to hold individual real estate properties, hold the interests in those entities, and for other purposes. Today, the Goldman family business involves literally hundreds of entities. The entities that hold specific Goldman properties roll up to three parent entities. One is Sol Goldman Investments, LLC, which holds the properties the siblings inherited from Sol. The others are Lighthouse Properties, LLC and Plaza Circle LLC, which hold the properties that Lillian inherited from Sol and that became part of her estate. For simplicity, this decision calls these entities the "Property Owners."

The entity at the heart of the Goldman empire is Solil Management LLC, organized on June 11, 2001. Its name is a portmanteau of the first syllables of Sol and Lillian. That entity provides property-management services to the Goldman family's properties. For simplicity, this decision calls it the "Property Manager."

The Property Owners pay fees to the Property Manager for its services. Those services would be familiar to anyone who has hired a property manager to manage real estate, albeit on a grander scale. They consist of collecting rents, handling maintenance, monitoring the timing of lease renewals, managing lease renewals, and similar tasks.

Despite its nominally junior position as a service provider, the Property Manager is the only Goldman-affiliated entity with any employees. Technically, the Property Manager does not make major business decisions, such as whether to lease a given property or take on debt; the Property Owners make those calls. But because the Goldman family owns both the Property Manager and the Property Owners, the same people make the decisions irrespective of the entity through which they act. The record suggests that the Goldman family has not always observed entity formalities by maintaining a strict division between the Property Manager and the Property Owners. Who does what in what capacity seems fluid.

The Property Manager is a New York LLC. Despite its significance to the Goldman family business, it does not have an executed written operating agreement.

The Property Manager's two members are SG Windsor, LLC, a Delaware LLC, and SG Empire, a New York LLC. Until 2022, each of the four siblings owned a 25% member interest in SG Windsor. The same appears true for SG Empire.

SG Windsor and SG Empire are holding companies. Neither has any assets or operations other than owning their member interests in the Property Manager.

Simpson Thacher created SG Windsor in July 2002 by filing a certificate of formation with the Delaware Secretary of State. The entity's original name was Mill Neck L.L.C. ("Mill Neck"), and the certificate identified Lillian as the sole member. For reasons unknown, the LLC changed its name to SG Windsor on September 6, 2012. The entity does not have a written LLC agreement.

After Lillian died in August 2002, Jane, Diane, Amy, and Allan treated themselves as equal members of SG Windsor, with each receiving a 25% member interest. There are no documents establishing the transfer of interests in SG Windsor to the siblings. No one remembers how that was accomplished. It just happened.

As long as Jane, Allan, and Louisa were operating the family business, SG Windsor and SG Empire played minimal roles. The entities filed annual tax returns, and they made distributions to their members. There was no reason for SG Windsor or SG Empire to do more. In fact, Amy had never heard of SG Windsor until a year or so ago.^[4]

D. Thirty-Five Years Of Unified Management

For thirty-five years after Sol's death in 1987, Jane, Allan and Louisa managed the Goldman real estate empire. During this time, Jane and Allan were the key...