Members of LLC’s Should Be Prepared To Prove Discrete Harms Before Bringing A Lawsuit Against A Fellow LLC Member

Under Florida law, if a member of an LLC wishes to individually sue another member for damages arising out of the membership, the plaintiff-member must prove: “(1) a direct harm to the … member such that the alleged injury does not flow subsequently from an initial harm to the company and (2) a special injury to the … member that is separate and distinct from those sustained by the other … members.” Dinuro Investments, LLC v. Camacho, 141 So. 3d 731, 739-740 (Fla. 3d DCA 2014). Alternatively, a plaintiff-member may prove that the defendant-member owes a separate duty to the plaintiff member that is distinct from the duties owed by the members to the LLC. See Dinuro Investments, LLC v. Camacho at 740. The Mavrick Law Firm regularly represents businesses and their owners in business litigation in Miami, Fort Lauderdale, and Palm Beach.

To initiate a lawsuit, a plaintiff must have standing, otherwise described as the right to sue. Accordingly, the right to sue varies depending on the particular context of the plaintiff’s alleged harm. § 605.0802, Fla. Stat. allows for a member to “maintain a derivative action to enforce a right of a limited liability company,” but the statute does not provide the right to sue individually. A derivative action seeks to “enforce a corporate right or to prevent or remedy a wrong to the corporation,” when “the corporation, because it is controlled by the wrongdoers or for other reasons, fails and refuses to take appropriate action for its own protection.” Salit v. Ruden, McClosky, Smith, Schuster & Russell, P.A., 742 So. 2d 381, 388 (Fla. 4th DCA 1999). Whereas, an individual suit seeks to recover damages that the plaintiff suffered as a result of a wrong done to the corporation. Thus, the right to sue individually as a member of an LLC presents special considerations that were confusing and opaque in Florida until recently.

In Dinuro Investments, LLC v. Camacho, the Third District Court of Appeal used a two-prong test that has been adopted throughout Florida to resolve the issue of individual standing in actions for individual damages in LLC disputes. See Strazzulla v. Riverside Banking Co., 175 So. 3d 879, 884 (Fla. 4th DCA 2015) (“we agree with the Third District[‘s decision in Dinuro Investments, LLC v. Camacho] and adopt a two-prong test”). The South Florida offices of The Mavrick Law Firm represents plaintiff-members and defendant-members in disputes throughout the judicial circuits that are bound by Third and Fourth DCA decisions. In Dinuro Investments, LLC v. Camacho, the court thoroughly examined the three tests routinely are routinely applied to resolve the direct versus derivative claim question: The Direct Harm Test, The Special Injury Test, and The Duty Owed Test. After addressing the pros and cons of each of the tests, and in an attempt to “reconcile nearly fifty years of apparently divergent case law” the court reasoned that a two-prong test was appropriate. See 141 So. 3d at 740.

As mentioned earlier, a member can only individually sue another member for damages if the two-prong test is met, or if the member can prove the existence of a separate duty owed by the defendant-member(s) to the individual plaintiff-member that is based on a contractual or statutory mandate. Dinuro Investments, LLC v. Camacho, 141 So. 3d at 740. Concerning the first prong, direct harm, a member can only bring a direct suit if the damages are unrelated to the damages that are suffered by the LLC, and if the LLC would have no right to recover in its own action. Strazzulla v. Riverside Banking Co., 175 So. 3d 879, 885–86 (Fla. 4th DCA 2015). Regarding the second prong, the plaintiff-member’s injuries must be separate and distinct from the other members. Id. Moreover, unless explicitly stated, an LLC’s operating agreement will not function to impose individual rights and liabilities to individual members. See Dinuro Investments, LLC v. Camacho, 141 So. 3d at 741 (“[w]hen analyzing a claim for breach of an operating agreement, the precise terms of the agreement are critical”). Therefore, potential plaintiff-members should assess the nature of their harm and any individual contractual rights before suing another member of an LLC. A failure to make a thoughtful and reasoned assessment of the factors discussed in this article will likely result in a waste of resources.

Peter T. Mavrick has successfully represented many businesses in non-competition covenant litigation. This article is not a substitute for legal advice tailored to a particular situation. Peter T. Mavrick can be reached at: Telephone: 954-564-2246; Address: 1620 West Oakland Park Boulevard, Suite 300, Fort Lauderdale, Florida 33311.