Key Points

  • The Appellate Division, First Department, unanimously affirmed the with-prejudice dismissal of claims arising from a reverse triangular merger that made Sol-REIT Advisors LLC a wholly owned subsidiary of Red Oak Advisors LLC.
  • Under Delaware law, the operating agreement required only a majority vote to approve any merger, and its unanimous-consent provisions on admitting new members did not limit that merger provision or apply to the transaction.
  • The implied covenant claim failed because the plaintiffs identified no contractual benefit comparable to the pro rata distribution right at issue in AEA Middle Mkt. Debt Funding LLC v. Marblegate Asset Mgt., LLC.
  • The unjust enrichment and fraud allegations were too vague, and the complaint did not allege the domination and abuse of the corporate form needed to pierce the corporate veil and reach the individual defendants.
  • Dismissal with prejudice was proper because the plaintiffs identified no new facts or theories, and repleading would be futile.

A New York appeals court on Thursday upheld the dismissal of a lawsuit brought by members of Sol-REIT Advisors LLC who were eliminated from the company through a merger, ruling that the company's operating agreement allowed a majority of members to approve "any merger."

A four-justice panel of the Appellate Division, First Department, unanimously affirmed an order by Justice Anar R. Patel of Supreme Court, New York County, that had dismissed the amended complaint of James Spano and the other plaintiffs with prejudice. The unsigned decision rejected claims for breach of contract, breach of the implied covenant of good faith and fair dealing, fraud and unjust enrichment. The panel also agreed that the plaintiffs had not alleged enough to hold the individual defendants personally liable.

The decision also distinguishes the First Department's 2023 ruling in AEA Middle Mkt. Debt Funding LLC v. Marblegate Asset Mgt., LLC, which the plaintiffs had invoked to argue that the majority could not use restructuring tools to defeat their contractual expectations. The panel held that the plaintiffs pointed to no contractual right comparable to the one at stake in that case.

The dispute arose from a reverse triangular merger in which, according to the decision, Sol-REIT Advisors became a wholly-owned subsidiary of Red Oak Advisors LLC.

The defendants included Solar-Fi Advisor LLC, Bas Sol-Reit Manager LLC, Afi Solar Capital Solutions LLC, and three individuals: Brian Sidman, Kevin Adler and Allen Funk. Justices Kapnick, Rosado, O'Neill Levy and Parker-Raso heard the appeal, with Justice Kapnick presiding.

The plaintiffs' central argument was that the merger needed unanimous approval. They relied on provisions of the operating agreement that required unanimous consent for the "admission of a new member." The panel disagreed, writing that "the documentary evidence conclusively established that under the operating agreement, 'any merger' had to be approved by only a majority vote."

The court found "no basis for reading this provision to limit Section 5.1.11.1's merger approval provision." It added that the documents showed the merger "did not constitute the admission of a new member within the meaning of those provisions."

Applying Delaware law, the panel held that the defendants' construction was "the only reasonable interpretation of the contract," citing a 2003 Delaware decision, VLIW Tech., LLC v. Hewlett-Packard Co. That finding made dismissal proper under CPLR 3211(a)(1).

The panel next turned to the implied covenant of good faith and fair dealing. The plaintiffs argued that the defendants acted in bad faith "by using the restructuring mechanisms to frustrate plaintiffs' contractual rights and expectations," relying on AEA Middle Mkt.

The court found that case did not fit. The plaintiffs, the panel wrote, "cite no contractual benefit akin to the right to a pro rata distribution in AEA Middle Mkt." Without such a benefit, they had no reasonable expectation that a majority of members would refrain from undertaking "a reverse triangular merger transaction that resulted in plaintiffs' elimination from the company," the court held.

The unjust enrichment claim fared no better. Those allegations centered principally on the alleged diversion of Sol-REIT assets and the unauthorized use of Spano's image. The panel called them "vague, conclusory, and derivative of rights governed by the operating agreement."

On fraud, the plaintiffs had narrowed their theory to a claim that Adler and Sidman falsely denied forming Sol-EQUITY, which the plaintiffs said the two used to divert Sol-REIT assets. The panel held that the allegations about the supposed diversion of assets and any resulting injury were too vague to meet the pleading requirements for fraud.

The court also upheld the trial court's refusal to pierce the corporate veil. The amended complaint did not include allegations "of domination and abuse of the corporate form adequate to pierce the corporate veil so as to allow the claims to be asserted against the individual defendants," the panel wrote, citing its 2024 decision in S.M. v. Madura.

The panel also upheld the decision to dismiss with prejudice rather than allow another amendment. The plaintiffs "fail to identify any new theories or facts that they could now add that would provide a valid basis for their claims," the court wrote, and "it is clear that further repleading of the claims would be futile." The panel said it had considered the plaintiffs' remaining arguments and found them "unavailing."

The appellate court affirmed without costs. Justice Patel's order was entered on or about Sept. 30, 2025, under index number 652529/25. The appeal was docketed as Appeal No. 7437, Case No. 2025-06372.

Lawyers for the plaintiffs included Daniel E. Lust of Moritt Hock & Hamroff, LLP. Solar-Fi Advisor, Sidman and Bas Sol-Reit Manager were represented by Danielle Cohen of Tesser & Cohen.

The First Department's decision, entered Nov. 5, is uncorrected and subject to revision before publication in the Official Reports.