Member loses right to file derivative action against LLC by filing bankruptcy petition.

Northwest Wholesale, Inc. v. Pac Organic Fruit, LLC,2014 Wash. App. LEXIS 2197 (Wash. Ct. App.Sept. 4, 2014)

Case decision: 140904-Northwest-v-Pac-Organic

This case provides an example of the application of Washington limited liability company law to derivative actions when a member files a petition in bankruptcy. One party wanted to bring a derivative action after filing a Chapter 11 petition. This is not allowed under Washington Law.

RCW 25.15.370 reads:

A member may bring an action in the superior courts in the right of a limited liability company to recover a judgment in its favor if managers or members with authority to do so have refused to bring the action or if an effort to cause those managers or members to bring the action is not likely to succeed.

 39 RCW 25.15.375 provides:

 In a derivative action, the plaintiff must be a member at the time of bringing the action and:

(1) At the time of the transaction of which the plaintiff complains; or

(2) The plaintiff’s status as a member had devolved upon him or her by operation of law or pursuant to the terms of a limited liability company agreement from a person who was a member at the time of the transaction.

Under RCW 25.15.130(1)(d)(ii), a member of a limited liability company loses his or her membership upon the filing of bankruptcy. The statute provides:

 (1) A person ceases to be a member of a limited liability company, and the person or its successor in interest attains the status of an assignee as set forth in RCW 25.15.250(2), upon the occurrence of one or more of the following events:


 (d) Unless otherwise provided in the limited liability company agreement, or with the written consent of all other members at the time, the member . . .  (ii) files a voluntary petition in bankruptcy . . .  .


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