On October 26, 2021, the First Department issued a decision in Sajust, LLC v Mendelow, 2021 NY Slip Op. 05835, holding that an LLC member’s claim based on the decrease in the value of its capital account was derivative, not direct, explaining:
Defendant’s motion to dismiss the complaint was properly granted on the ground that plaintiff lacks standing to assert the claims in the complaint because they are derivative, not direct. Under New York law, a shareholder lacks standing to pursue a direct cause of action to redress wrongs suffered by the corporation. Rather, such claims must be asserted as derivative claims, for the benefit of the corporation. In determining whether a claim is derivative or direct, a court should consider (1) who suffered the alleged harm (the corporation or the suing stockholders, individually) and (2) who would receive the benefit of any recovery or other remedy (the corporation or the stockholders, individually).
Here, plaintiff, a member of FGLS Equity, LLC, alleged injury because the value of its capital account, akin to the value of shares in a corporation, was reduced. Such claims are derivative, even if the diminution in value derives from a breach of fiduciary duty. Therefore, plaintiff lacks standing to assert its diminution in value claim.
(Internal quotations and citations omitted).