In Part 1 of The Jayson Law Group LLC’s series on the Revised Uniform Limited Liability Company Act (“RULLCA) we discussed what a derivative action is and how a derivative action can be brought.  In Part 2 of this series The Jayson Law Group LLC discussed the proper plaintiff and what the proper plaintiff must allege in the complaint.  In Part 3 we will discuss the Special Litigation Committee and how they are created. 

The Special Litigation Committee

Section 42:2C-71 describes the Special Litigation Committee that should be established if an LLC is named or made a party to a derivative action.  It should be noted that the Special Litigation Committee is not a requirement, but its function is to protect the members or managers of the LLC moving forward with the derivative action.

The purpose of the Special Litigation Committee is to determine whether it is in the best interest of the LLC to pursue the derivative action.  Because of the purpose of the Special Litigation Committee, Section 42:2C-71(a) requires the court stay discovery for a reasonable amount of time so that the Special Litigation Committee can complete its investigation.

Who Comprises the Special Litigation Committee

The Special Litigation Committee is comprised of one or more disinterested and independent individuals.  Section 42:2C-71(c) makes a distinction between member-managed and manger-managed LLC, but this section treats types of managed LLC’s the same in appointing the people to the Special Litigation Committee.  The appointment of the Special Litigation Committee is created by the consent of the majority of the members/managers not named as defendants or plaintiffs in the proceeding.  If all members/managers are named as parties to the derivative action then the Special Litigation Committee will be appointed by the members/managers named as defendants in the derivative action.

This concludes Part 3 of The Jayson Law Group LLC’s examination of the RULLCA’s derivative action law.  In the next post we will continue looking at the Special Litigation Committee by examining what the Special Litigation Committee does and also what happens to the proceeds and benefits should the plaintiff succeed in the derivative action.