By Tabitha Taylor
Summary: The article discusses a frequent mistake in Florida LLC litigation: combining direct and derivative claims in one lawsuit, using the Dinuro case to illustrate why proper claim separation is essential for legal clarity and effective advocacy.
Case citation: Dinuro Investments, LLC v. Camacho, 141 So. 3d 731 (Fla. 3d DCA 2014)
Importance of topic to BLS: Understanding the distinction between direct and derivative claims is key for Florida business attorneys to effectively navigate LLC litigation. Proper categorization and filing of these claims align with Florida legal standards and enhance case strategy.
When you delve into Florida LLC litigation, understanding the distinction between direct and derivative claims may seem straightforward to most litigators. Yet time and time again, many courts are seeing a very common mistake in pleadings with direct and derivative claims: both claims in the same lawsuit. Although it may seem counterintuitive, Florida courts require direct and derivative lawsuits to be filed separately. Understanding the nuanced distinctions between direct and derivative actions are arguably the building blocks of a corporate litigator’s career.
Direct vs. Derivative Claims: Breaking It Down
In a direct action, the shareholder asserts personal rights against the corporation or another entity and seeks relief for personal harm distinct from that suffered by other shareholders. Conversely, in a derivative action, a shareholder steps into the corporation’s shoes to enforce rights the corporation may not have addressed. These actions are predicated on harm to the corporation that, indirectly, affects all shareholders.
In Dinuro Investments, LLC v. Camacho, 141 So. 3d 731 (Fla. 3d DCA 2014), the court highlighted the importance of properly categorizing claims to ensure they align with Florida’s legal standards and provides guidance on how these claims should be pursued. In that case, the Third District Court of Appeal of Florida addressed the issue of whether members of an LLC could bring direct claims for damages that they alleged were caused by the actions of the LLC’s managing members and manager. The plaintiffs in this case attempted to assert direct claims against the managers for various alleged wrongful acts that, they argued, resulted in personal losses to the members.
However, the court clarified that the injuries claimed by the LLC members were actually to the LLC itself and that any individual losses were merely reflective of the overall harm to the company. Therefore, the appropriate avenue for such claims was a derivative action, not direct litigation. The court emphasized that direct claims require a demonstration of direct harm to the member that is separate and distinct from the harm to the company.
The Frequent Oversight
It’s a typical scenario: attorneys, possibly in an effort to be thorough or streamline their case, pack both direct and derivative claims into a single lawsuit. Attorneys may even file a derivative claim as their main cause of action, and include a direct claim pled in the alternative. But this tactic doesn’t align with Florida’s procedural standards and still leaves attorneys vulnerable to dismissal.
So, why are Florida courts adamant about this separation? It boils down to clarity and justice. Direct claims address personal issues, while derivative claims look out for the company as a whole and may lead to confusion with the jury when determining what damages belong to whom. Keeping them apart ensures that each is evaluated properly, under its own legal standards, which helps in delivering a fair and transparent verdict. Although it may seem more efficient to file both jointly, Florida courts consider this an improper joinder. More importantly, it gives the defendant the opportunity to slow down the momentum of litigation by arguing the complaint is procedurally defective, thereby requiring dismissal.
Concluding Thoughts
Grasping and respecting the difference between direct and derivative claims is not just procedurally efficient — it is essential for effective advocacy for clients. Notably, this procedural requirement does not mean that an individual defendant cannot bring direct and derivative claims at the same time; it merely means that the different claims must be brought in two separate lawsuits. In the event a court dismisses a complaint that improperly joins a direct and derivative claim, the plaintiff will be given leave to amend the complaint to include either a direct or derivative claim, and the opportunity to bring the remaining claim in a separate lawsuit.