Opinion ID: 1057994
Heading Depth: 2
Heading Rank: 2

Heading: Must the LLC be Named as a Party?

Text: The Trust asserts that [i]t is not necessary to join MIC as a nominal defendant, as it is already the real plaintiff, all of its members have always been parties, and its interests are represented in the litigation. In support of its argument, the Trust cites the pragmatic opinion of the Iowa Supreme Court: Of course, though the corporation is ordinarily named a defendant, it is the real plaintiff in interest, and beneficiary of any judgment recovered. For these reasons and because apparently there are no stockholders other than the two who are parties in this equity action, we proceed as though the corporation is properly before the court. A court in equity may determine and decree as to the rights of the parties regardless of their positions as plaintiffs or defendants, and in a proper case may adjust rights and award relief as between co-plaintiffs and co-defendants. Holi-Rest, Inc. v. Treloar, 217 N.W.2d 517, 523 (Iowa 1974) (citations omitted). We decline to adopt the Iowa approach and note that we have previously answered this question. A limited liability company that is the subject of a derivative action must be a party to the suit. As the United States Supreme Court has noted: The corporation is a necessary party to the [derivative] action; without it the case cannot proceed. Although named a defendant, it is the real party in interest, the stockholder being at best the nominal plaintiff. The proceeds of the action belong to the corporation and it is bound by the result of the suit. Ross v. Bernhard, 396 U.S. 531, 538, 90 S.Ct. 733, 24 L.Ed.2d 729 (1970). That this case involves a limited liability company is a distinction without substantive difference. We have previously stated that a derivative action against a corporation is maintained directly for the benefit of the corporation, and the final relief, when obtained, belongs to the corporation, and not to the stockholder plaintiff. The corporation is therefore an indispensably necessary party, not simply on the general principles of equity pleading, in order that it may be bound by the decree, but in order that the relief, when granted, may be awarded to it, as a party to the record, by the decree. Mount v. Radford Trust Co., 93 Va. 427, 431, 25 S.E. 244, 245 (1896) (internal quotation marks and citation omitted). See also Simmons v. Miller, 261 Va. 561, 573, 544 S.E.2d 666, 674 (2001) (A derivative action is an equitable proceeding in which a shareholder asserts, on behalf of the corporation, a claim that belongs to the corporation rather than the shareholder.). Similarly, any claim or judgment in a derivative action against a limited liability company belongs to the limited liability company, a legal entity entirely separate and distinct from the shareholders or members who compose it, including the member who brings the derivative action. Remora Investments, L.L.C. v. Orr, 277 Va. 316, 322, 673 S.E.2d 845, 847 (2009); Mission Residential, LLC v. Triple Net Props., LLC, 275 Va. 157, 161, 654 S.E.2d 888, 891 (2008).