One of These Things Doesn’t Belong Here: An LLC Member’s Direct and Derivative Claims Cannot be Joined in the Same Lawsuit

When litigating cases involving limited liability companies (or LLCs), we often see lawsuits that allege an LLC member’s direct claims together with the member’s derivative claims asserted on behalf of the LLC. Under Florida law, however, it is impermissible for an LLC member to allege both direct and derivative claims within the same lawsuit. Instead, a member’s direct and derivative claims must be pursued in separate actions.

Notwithstanding that the Florida Rules of Civil Procedure allow a plaintiff to assert multiple claims against the same defendant within the same action, the plaintiff only may do so if the plaintiff alleges such claims “in the same right.”[1] In other words, a plaintiff cannot sue a defendant within the same action in “more than one distinct right or capacity” of the plaintiff, even if the plaintiff’s claims arise out of the same event or occurrence.[2]

For example, in a case in which a government agency sues the same defendant in nine different capacities, e.g., on behalf of the agency and as a receiver for eight insurance carriers, the agency must file a separate lawsuit for each capacity in which it sues the defendant.[3]  Further, in such an instance in which the agency improperly alleges claims within the same complaint in nine different plaintiff’s capacities, the court must dismiss the claims brought in eight of the nine capacities but allow the agency to elect the one capacity in which it seeks to proceed with the current lawsuit.[4] Upon the court’s dismissal of the claims brought in the other eight capacities, the agency may then proceed to file eight additional lawsuits to pursue its other claims.[5]

Thus, while a court may dismiss without prejudice an LLC member’s direct or derivative claims that have been improperly combined within the same action, the court may not dismiss the entire lawsuit.[6]  Instead, the court may dismiss, without prejudice, only the claims that it determines are “improperly brought in” more than one capacity.[7]

In sum, LLC members and their attorneys should avoid the common mistake of joining within the same action an LLC member’s direct claims with the member’s derivative claims asserted on behalf of the LLC.  The improper joinder of such claims, brought by the plaintiff member in two different capacities, only will provide an opportunity for the defendant to slow down the progress of the case, to argue that the plaintiff’s complaint is procedurally defective, and to convince the court that it should enter an order dismissing without prejudice either the member’s direct or derivative claims.

If you have any questions involving LLC member disputes that involve a member’s direct claims, or derivative claims alleged on behalf of the LLC, contact the attorneys at Rabin Kammerer Johnson in West Palm Beach at 561-659-7878. You can also find information about the firm at www.RJKlawgroup.com.

[1]  Under Florida Rule of Civil Procedure 1.110(g), “A pleader may set up in the same action as many claims or causes of action or defenses in the same right as the pleader has ….” (Emphasis added).

[2] See Gen. Dynamics Corp. v. Hewitt, 225 So. 2d 561, 563 (Fla. 3d DCA 1969) (internal quotation marks omitted); see also Dep’t of Ins. v. Coopers & Lybrand, 570 So. 2d 369, 370 (Fla. 3d DCA 1990) (citations omitted).

[3] Coopers & Lybrand, 570 So. 2d at 370.

[4] Id.

[5] Id

[6] See Lobree v. ArdenX LLC, 199 So.3d 1094, 1097-98 (Fla. 3d DCA 2016); Karnegis v. Lazzo, 243 So.2d 642, 642 (Fla. 3d DCA 1971).

[7] Id.