Wednesday, October 23, 2019

Is an LLC a Necessary or a Nominal Party To the Action For Its Judicial Dissolution?

Is an LLC a Necessary or a Nominal Party To the Action For Its Judicial Dissolution?

In his blog New York Business Divorce, Peter Mahler has reviewed the various cases addressing whether an LLC is a necessary or a nominal party to a lawsuit seeking its judicial dissolution.

One implication of this determination will control as to whether or not the lawsuit can be heard in federal court under the rules of diversity jurisdiction. If the LLC is a necessary party to the lawsuit it will have the citizenship of the member who is moving for judicial dissolution, thereby destroying diversity jurisdiction. Another consequence of this determination is the degree to which the LLC is involved in the dispute, which will give rise to the question as to who is to direct the LLC’s involvement. If the LLC is a mere nominal party to the action, presumably it should not require legal representation and, as such, will not be applying its assets, presumably in opposition to the dissolution action. Conversely, if it is a necessary party to the action, it will need to have legal representation. That raises, however, the question of how that representation will be controlled. Assume a 50-50 split in the members; from which side is the attorney for the company to take instruction?

In a posting titled LLCs as Nominal Parties in Dissolution Cases: An Uncertain Portal to Federal Court Jurisdiction (October 21, 2019, Peter has collected the few cases that have addressed the question. HERE IS A LINK to his posting. As he notes therein, some of the courts say “yes” while others say “no.” As he also noted, these decisions cannot be reconciled.

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