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Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: October 6, 2019

Derivative Claims Against LLC’s Non-Managing Members Dismissed

On September 27, 2019, Justice Schecter of the New York County Commercial Division issued a decision in Weinstein v. W.W.W. Assoc., LLC, 2019 NY Slip Op. 32868(U), dismissing derivative claims against an LLC’s non-managing members, explaining:

Barbara and Candee Weinstein seek dismissal of all claims asserted against them because plaintiff does not seek to pierce LBKC’s corporate veil and because they are non-managing members of LBKC. It is well settled that where tort claims are asserted, individual members of an LLC may be held personally liable if the requisite elements of the claims are sufficiency pleaded. However, Barbara and Candee cannot be held liable for the actions of LBKC and its managing members merely by virtue of their status as nonmanaging members unless they are specifically alleged to have provided substantial assistance to the managers’ breach. Merely alleging that minority members of an LLC benefitted from their LLC’s wrongful actions is not a basis for imposing personal liability. Nor are such minority members proper parties to such a lawsuit. Plaintiffs suggestion that the Company can obtain Barbara’s and Candee’s membership interests in LBKC as a remedy is rejected. There is no logical justification, nor any authority cited by plaintiff, suggesting that imposing such a remedy absent wrongdoing by them is permissible. While it is premature to determine whether monetary damages or an equitable remedy is appropriate if liability against Kenneth is established, the latter would most likely entail the Property itself – and not membership interests in LBKC – being transferred to the Company. The claims against Barbara and Candee are therefore dismissed.

(Internal citations omitted).

This decision relates to something common in complex commercial litigation–the question of whether a claim can be brought by an individual on his or her own behalf or must be brought on behalf of a corporation or other entity in which the plaintiff has an ownership stake (that is, derivatively). Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding bringing an action on behalf of a corporation or other business entity.

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