LLC as Necessary Party to Derivative Action; No Diversity Jurisdiction

LLC as Necessary Party to Derivative Action; No Diversity Jurisdiction

      A recent decision from New York considered the argument that an LLC, on which behalf the derivative action had been brought, had been fraudulently joined in order to defeat diversity jurisdiction.  The argument was rejected, and it was found that the LLC was a necessary party to the action. Rose v. Harem, No. 17-cv-6408 (MKB), 2018 WL 4344954 (E.D.N.Y. Sept. 11, 2018).

      Citing numerous cases, the decision begins with the punch line, namely:

In derivative actions commenced on behalf of an LLC, the LLC is not a nominal party but instead a necessary party under Rule 19 of the Federal Rules of Civil Procedure.

       The court continued its discussion by engaging in the fraudulent joinder analysis, finding that the LLC’s inclusion was not fraudulent.

      The case was remanded to state court.