Direct Versus Derivative Distinction Applied to Connecticut LLC

Direct Versus Derivative Distinction Applied to Connecticut LLC

In a (relatively) recent decision, a Connecticut court applied the direct versus derivative distinction to dismiss on the grounds of standing allegations made by certain members of an LLC against other members. Lichocki v. Brice, FSTCV126015051S, 2015 WL 5314835 (Super. Ct. Conn. Aug. 6, 2015).

O’Shea’s Bar and Grill was owned by, apparently, Mark Lichocki, Andrea Florez, Mary Brice, Lisa Luther and Courtney Davy. Lichocki, joined by Florez, filed a complaint against Brice, Luther and Davy. Brice and Luther then filed a counterclaim alleging, amongst other theories, breach of fiduciary duty. In response, Lichocki and Florez filed a motion to dismiss for lack of standing. As summarized by the court:

The plaintiffs move to dismiss the defendants’ counterclaim on the grounds that the defendants lack standing to bring those claims because any alleged harm suffered by the defendants is derivative to that of the LLC, that there is no cause of action for breach of fiduciary duty relating to the management of or membership in an LLC, that there is no civil cause of action for embezzlement, and that a cause of action for aiding a tort requires an underlying violet cause of action, which does not exist because the plaintiffs have moved to dismiss all other accounts. (footnote omitted).

After noting the rule that a LLC is a legal entity distinct from its members, and after having reviewed a number of decisions applying the direct versus derivative distinction in LLCs, the court would find:

The defendants essentially allege that the plaintiff Lichocki’s actions caused a disruption in the operation of the restaurant, which affected its revenue and therefore the revenue of the LLC that owns the restaurant, and attempt to argue that as the majority members of the LLC, they too have been financially harmed. The defendants, however, fail to allege that they have been personally harmed. For example, there is no allegation that the defendants have been exposed to some sort of personal liability associated with the aftermath of the plaintiff Lichocki’s resignation. Instead, the defendants allege specific operational issues that arose in the restaurant as a result of the plaintiff Lichocki’s resignation. Therefore, as in Ward [v. Gamble, Superior Court, judicial district of Hartford, Docket No. CV–08–5017829–S (July 23, 2009, Prescott, J.) (48 Conn. L. Rptr. 286)], the plaintiff’s allegations, if proven, would demonstrate harm to the LLC, and derivatively to the members of the LLC.

 

On that basis the counterclaim was dismissed.