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Current Developments in the Commercial Divisions of the
New York State Courts
Posted: July 17, 2016

Assignee of LLC Membership Interest Lacked Standing to Bring Derivative Action

On June 24, 2016, Justice Scarpulla of the New York County Commercial Division issued a decision in MFB Realty LLC v. Eichner, 2016 NY Slip Op. 31242(U), dismissing derivative claims by the assignee of an LLC membership, explaining:

Only a member of an LLC at the time of the alleged wrong to the LLC has standing to bring a derivative claim on behalf of that company. Further, both applicable law and the T. Park operating agreement draw a bright line distinction between members of an LLC and the assignees of membership interests. The New York Limited Liability Company Law provides, in relevant part, that except as provided in the operating agreement an assignment of a membership interest does not entitle the assignee to participate in the management and affairs of the limited liability company or to become or to exercise any rights or powers of a member. That section further provides that the only effect of an assignment of a membership interest is to entitle the assignee to receive, to the extent assigned, the distributions and allocations of profits and losses to which the assignor would be entitled.

The Limited Liability Company Law accords the members of an LLC the right to choose their fellow members, and provides that, except as provided in the operating agreement, an assignee of a membership interest may not become a member without the vote or written consent of at least a majority in interest of the members, other than the member who assigned or proposes to assign such membership interest.

. . . The documentary record submitted demonstrates that [the plaintiff] never obtained the written consent required to become a substituted member [and for that reason] lacks standing to sue on T. Park’s behalf..

(Internal quotations and citations omitted) (emphasis added).

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