When Transfer Restrictions Control: Lessons from Verderber v. Commander Enterprises Centereach, LLC

Transfer restrictions in LLC operating agreements often sit quietly in the background—until a member tries to sell, assign, or gift their interest. Then, as the New York Supreme Court illustrated in Verderber v. Commander Enterprises Centereach, LLC, they can become decisive.

In this case, the Verderbers held a 20% membership interest in a real estate–holding LLC. When they eventually transferred their interest to their family entity, Verbenco LLC, a dispute erupted over (1) whether that transfer was permitted, and (2) how their interest should be valued.

1. Mandatory Transfer Restrictions Are Enforceable

CEC’s Operating Agreement contained a strict clause:If any member wished to “give, sell, assign, pledge… or otherwise transfer” their interest, the entire interest had to be transferred to Benco LLC, the 80% owner.

The court upheld this restriction. Under New York law, a transfer limitation is valid so long as it is not an effective prohibition on alienation. Here, because the agreement required Benco to purchase the interest and specified a payment formula, the restriction was not an unreasonable restraint—just a narrow one.

The Verderbers’ transfer to Verbenco LLC, an entity outside the Operating Agreement, triggered an automatic “deemed offer” to Benco under Article VII. The court emphasized that the fact the Verderbers owned Verbenco was irrelevant; the transfer still terminated their membership interest.

2. The Purchase Price Must Follow the Contractual Formula

CEC’s Operating Agreement contained a buy‑out formula:NOI × 8.80 minus the mortgage balance, payable over five years.

The plaintiffs argued this formula unfairly limited the value of their interest and should be replaced with fair market value. The court disagreed. Because the contract was clear and the formula was part of a negotiated operating agreement, the court enforced it as written.

New York courts consistently refuse attempts to rewrite private business agreements—even when the economic result seems unfavorable to one side. Predictability and stability in closely held entities take precedence.

3. Valuation Date Was the Transfer Date—Not the Earlier Negotiations

Although there were negotiations in 2008, the court found no transfer or withdrawal occurred until January 2009, when the Verderbers actually assigned their interest to Verbenco. Only that event terminated their membership and set the valuation date.

Takeaways for LLC Members and Drafters

• Read transfer restrictions carefully—even family transfers may trigger mandatory buy‑outs.

• A formula you dislike later is still a formula a court will likely enforce.

• Valuation hinges on the actual, legally effective transfer date.

• “Indirect” transfers to controlled entities won’t avoid contractual restrictions.

The Verderber decision is a strong reminder that LLC operating agreements are contracts first—and courts will enforce them strictly.