In Sirott v. Superior Court, 2022 Cal. App. LEXIS 389 (Cal. App. May 5, 2022), the First Appellate District of the California Court of Appeal (Humes, J.) analyzed the ownership requirements a plaintiff must satisfy to pursue derivative claims on behalf of a limited liability company. Under California Corporations Code § 17709.02 (“Section 17709.02”), a putative derivative plaintiff must show both “contemporaneous” and “continuous” ownership to proceed with a derivative lawsuit. Subject to certain statutorily defined exceptions, the contemporaneous ownership prerequisite requires the plaintiff to plead that it was a member of the limited liability company at the time of the transaction or any part of the transaction of which the plaintiff complains took place. The continuous ownership requirement, in turn, obligates the plaintiff to remain a member of the limited liability company through the conclusion of the litigation. In Sirott, the plaintiff’s derivative claims were properly ordered dismissed because the plaintiff lacked standing after it lost its interest in the limited liability company—i.e., the real party in interest with respect to the derivative claims.
Continue Reading California Court of Appeal Clarifies that a Derivative Plaintiff Must Demonstrate Both “Contemporaneous” and “Continuous” Ownership to Maintain a Derivative Suit on Behalf of a Limited Liability Company