Nonvoting Members of an LLC are Still Members

Nonvoting Members of an LLC are Still Members

      In a recent decision from Georgia, the court considered and rejected the suggestion that non-voting members of an LLC should not be considered members for purposes of determining citizenship for diversity jurisdiction purposes. That suggestion was rejected. Bellack v. The Rainmaker Group Ventures, LLC, Civ. Act. No. 1:17-CV-1198-TWT, 2017 WL 4046358 (N.D. Ga. September 13, 2017).

      Bellack, formerly a member of Rainmaker Group Ventures, brought this action challenging, post hoc, the terms of his redemption from the company. In his complaint, Belloc asserted that Rainmaker is a Delaware LLC with its principal place of business in Georgia. On the basis that he was a Florida citizen, he alleged that diversity jurisdiction existed. In considering a motion to dismiss, the court stated that Bellack failed to meet his burden of demonstrating that diversity exist, writing:

The citizenship of an LLC is determined differently from that of a corporation: the citizenship of the LLC’s members is what determines the citizenship of the LLC. Since Bellack did not list out the members of the LLC and the respective citizenship, the Complaint fails to adequately allege subject matter jurisdiction.

      No leave to amend was granted to cure this jurisdictional defect because the defendants had already tendered evidence that Rainmaker Group Ventures was itself a Florida citizen. In response, Bellack asserted that those Florida citizen members of Rainmaker Group Ventures should be ignored because they held Class B interest in the company, which have no voting rights. Even as the court acknowledged that it is possible to have an ownership or financial interest in an LLC without being a member, it characterized as a “logical mistake” by Bellack “believing that because ownership is not sufficient, that means that voting rights are necessary [in order to constitute being a member].” After noting that the Delaware LLC Act allows for nonvoting members (Del. Code Ann. tit. 6, § 18-302(a)), the court turned his attention to the operating agreement of the particular LLC, finding that holders of the nonvoting interest are indeed members. Ergo, the citizenship of the Class B nonvoting members of the LLC would be attributed to the LLC for diversity of citizenship purposes.