Tuesday, December 17, 2019

Series LLC Lacks Standing to Pursue Claim of One of its Series

Series LLC Lacks Standing to Pursue Claim of One of its Series

      In a recent decision rendered by the Federal District Court for the Northern District of Ohio, it considered and rejected the suggestion that a series LLC has standing to pursue a claim belonging to one of its series. MSP Recovery Claims, Series LLC v. Phoenix Ins. Co., Case No. 5:19 CV 00436, 2019 WL 6770981 (N.D. Ohio Dec. 12, 2019). 

      The LLC Acts of Delaware and of certain states (including Ohio but not including Kentucky) allow the formation of an LLC that may in turn have series, which is thereafter designated a “series LLC.” A series is used to segregate assets and liabilities. Although the use of series in operating companies has only lately begun (and raising significant problems), series have been with us for quite some time; it is how you organize an investment company/mutual fund. This case arose out of certain claims originally held by MSP Recovery Claims, Series LLC that it, in turn, had assigned to one of its series. Notably, under the Delaware LLC Act, an individual series has the ability to sue and be sued.

      This decision, rendered in response to a broad motion to dismiss, addressed whether the series LLC, as well as the individual series, could be plaintiffs in this action. On the basis of the language employed in the Delaware LLC Act and commentary from Delaware to the effect that a series is similar to a subsidiary, the court held that the series LLC could not be a party to the action, applying the rule that “parent corporations lack standing to sue on behalf of their subsidiaries.” 2019 WL 6770981, *10. On that basis, the series LLC itself was dismissed from the action.

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