Welcome to Part 2 of The Jayson Law Group LLC’s discussion of the Revised Uniform Limited Liability Company Act’s (“RULLCA”) derivative action laws.  In Part 1 of this series we gave a scenario of a member of Widget LLC having an issue with how management of Widget LLC was handling a particular situation with Doodad LLC.  We discussed what a derivative action is, and the requirements for that member to bring a derivative action.

In today’s post we are going to discuss who the proper plaintiff is in order to bring a derivative action.  We will also discuss what must be included in a pleading for a derivative action in New Jersey. 

The Proper Plaintiff

Section 42:2C-69 of the RULLCA discusses the proper plaintiff.  It states that the proper plaintiff must be a person that is a member at the time the derivative action is brought and must remain a plaintiff throughout the derivative action.  There is exception to this requirement if the derivative action is brought by a sole plaintiff and that plaintiff dies during the course of the suit.  If that occurs, then the court may permit another member of the LLC to be substituted as plaintiff.

In the new rules regarding derivative suits for corporations the law requires that the person bringing the suit was a shareholder at the time of the wrong doing or the shares were transferred to the person bringing the suit as an operation of law.  When describing the proper plaintiff for an LLC derivative action the language of Section 42:2C-69 of the RULLCA does not have such a requirement.

What must be in the Pleading?

Once the proper plaintiff determines that a derivative action should be brought, what must the plaintiff include in the pleadings to the court?  Section 42:2C-70 describes what should be pled in the complaint.  It should be noted that Section 42:2C-70 requires that the information be pled with particularity.  First the plaintiff must include the date and content of the demand made to the LLC’s management and the response of management, whether it be managers or members, to the plaintiff.  If a demand was not made by the plaintiff before bringing the derivative action, the plaintiff must show that brining such a demand would have been futile.

This concludes Part 2 of The Jayson Law Group LLC’s examination of the derivative action law under the RULLCA.  Stay tuned for Part 3 coming soon.