Florida LLCs: When Can One Member Directly Sue Another?

A recent Florida appellate decision highlights the uncertainty regarding what test applies to whether a claim brought among members of a limited liability company is direct or derivative, but the Florida legislature offers some clarification.

In Dinuro Investments, LLC v. Camacho, 141 So. 3d 731 (Fla. 3d DCA 2014), Florida’s Third District Court of Appeal addressed what test applies to determine whether a claim brought among LLC members is direct.  After describing the facts, which involved claims among members concerning the transfer of assets in the context of a distressed real estate investment, the Dinuro opinion outlined the three most common tests to determine whether a claim is direct: direct harm; special injury; and duty owed.  The opinion concludes: “[A]n action may be brought directly only if (1) there is a direct harm to the shareholder or member such that the alleged injury does not flow subsequently from an initial harm to the company and (2) there is a special injury to the shareholder or member that is separate and distinct from those sustained by the other shareholders or members.”  Id. at 739-40 (emphasis original).  However, the opinion explains “[w]e also find that there is an exception to this rule under Florida law.  A shareholder or member need not satisfy this two-prong test when there is a separate duty owed by the defendant(s) to the individual plaintiff under contractual or statutory mandates.”  Id. at 740.

The exception noted by the Dinuro opinion—the separate duty exception—arguably displaces the two-prong test, particularly in the context of fiduciary duty claims.  The court expressly did not address the situation where a statutory fiduciary duty claim is directly asserted claiming damage to the plaintiff’s equity interest.  In footnote 4, the court states that the plaintiff “potentially may have been able to maintain a direct action for breach of a statutory fiduciary duty,” but because the plaintiff abandoned the claim, “[w]e therefore do not reach the issue of whether a direct claim may be brought for breach of fiduciary duty under section 608.4225 in this opinion.”  Id. at 741 fn 4.

Enter the Florida legislature, which recently overhauled the state’s LLC law.  See Fla. Stat. § 605.1101, et seq.  The changes in the law apply to LLCs formed on or after January 1, 2014, and will apply to all LLCs after January 1, 2015.  Existing LLCs formed prior to January 1, 2014, may elect to be governed by the revised law.  See Fla. Stat. § 605.1108.  Notably, the revised LLC law defines direct claims.  Section 605.0801(2), Florida Statutes, provides that a member who brings a direct claim “must plead and prove an actual or threatened injury that is not solely the result of an injury suffered or threatened to be suffered by the limited liability company.”  Thus, the revised LLC law imposes a “direct harm” test that may preclude a member from directly asserting a fiduciary duty claim based solely upon an overall decline in the value of the company.