Texas Court Limits LLC Derivative Suits to Current Members
On March 15, Texas court ruled only current LLC members can file derivative suits.
Why it matters: This decision impacts legal strategies, necessitating careful monitoring of membership status and leveraging buy-sell clauses in LLC operations.
- Judgment issued March 15 on Crain v. Northern case.
- Texas law requires filing by current LLC members.
- Crain's inaction on buy-sell option lost him membership and lawsuit standing.
- Decision stresses buy-sell agreements' importance in LLCs.
On March 15, the Texas Business Court ruled that only present LLC members have the legal standing to file derivative lawsuits. This decision stems from the Crain v. Northern case, where Crain's inability to act on a buy-sell agreement timely resulted in his dismissal due to lack of standing.
Texas Business Code Section 101.463 explicitly limits standing in derivative proceedings to current LLC members, thereby necessitating vigilance in membership status. Crain, who failed to exercise his buy-sell option, exemplifies the critical role such agreements play in ensuring compliance with statutory requirements.
Lawyers must now reassess case approaches, ensuring plaintiffs remain members throughout the legal process. This ruling aligns with the stipulations of Senate Bill 29, reinforcing stricter procedural demands across corporate governance and litigation strategies in Texas, potentially reshaping judicial outcomes.
By the numbers:
- March 15 — Date of Texas court ruling on Crain v. Northern.
- 101.463 — Texas Business Code section cited in ruling.
What's next: Monitor how this ruling affects future Texas LLC litigation strategies and outcomes.