Welcome to The Jayson Law Group LLC’s final post on the Revised Uniformed Limited Liability Company Act’s (“RULLCA”) derivative action rules. In Part 1 we discussed what a derivative action is and how a derivative action can be brought. In Part 2 we discussed the proper plaintiff and what the proper plaintiff must allege in the complaint. In Part 3 we began our discussion of Special Litigation Committees and how they are created. In Part 4 we will discuss what the Special Litigation Committee does and what happens to the benefits and proceeds from a successful derivative action.
What does the Special Litigation Committee Do
The purpose of the Special Litigation Committee is determined what is best for the LLC as it relates to the derivative action. The Special Litigation Committee can decide that the derivative action should proceed under the plaintiff’s control, under the Special Litigation Committee’s control, be settled on the Special Litigation Committee’s terms, or be dismissed.
Once the Special Litigation Committee makes this determination they will file a statement of their determination with the court. It must also give notice to the plaintiff of its determination. Upon receiving this statement of determination from the Special Litigation Committee, the court must determine if the people on the Special Litigation Committee were disinterested and independent and whether the investigation and conclusions of the Special Litigation Committee were independent, in good faith, and with reasonable care. It is the burden of the Special Litigation Committee to prove such conditions existed. If the court decides that the Special Litigation Committee met these requirements then it shall enforce the Special Litigation Committee’s recommendation. If the court is not satisfied with the independency, good faith, and reasonable care of the Special Litigation Committee then the court shall dissolve the discovery stay and let the plaintiff’s suit continue.
What Happens if the Plaintiff is Successful in the Derivative Action
If the Plaintiff is successful in the derivative action any proceeds or benefits from the derivative action belong to the limited liability company. If the plaintiff receives any proceeds from the derivative action, the plaintiff must remit those proceeds to the limited liability company immediately. However, the court may award the plaintiff reasonable expenses, including attorney’s fees and costs, from the recovery of the limited liability company.
That concludes The Jayson Law Group LLC’s examination of the RULLCA’s new rules on derivative actions. Stay tuned for more posts on New Jersey’s business laws.