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.
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