Recently, in two separate cases, two New York judges construing two LLC agreements of two LLCs formed under the laws of two different states — Delaware and Nevada — came to the same conclusion when faced with the same argument by the LLCs’ controllers who contended that minority members waived the right to institute litigation asserting derivative claims based on provisions in the agreements requiring managerial or member consent to bring an action on behalf of the company.
In both cases, the judges rejected the waiver argument after finding that the language of the provisions upon which the controllers relied did not expressly prohibit derivative claims. The more interesting question not reached, at least in the case of the Delaware LLC for reasons I’ll explain below, is whether the statute authorizing derivative claims is mandatory or permissive.
The first case, Talking Capital LLC v Omanoff, 2018 NY Slip Op 30332(U) [Sup Ct NY County Feb. 23, 2018], involves a New York-based, three-member Delaware LLC in the factoring business, providing financing to telecommunications firms that route international calls. The suit was filed by one of the members against the other two and their principals, at heart alleging derivative claims for usurpation of business opportunity, breach of the LLC agreement, and breach of fiduciary duty by forming a competing entity in league with the LLC’s third-party lender. Continue Reading Can LLC Agreement Waive Right to Sue Derivatively? Not in These Two Cases