PSD Wins Standing Battle on LLC Derivative Claims Against Outside Counsel of Cannabis Company

A PSD client, who is a member and manager of certain Massachusetts LLCs that invested in a cannabis company, prevailed on standing issues, allowing him to bring derivative claims on behalf of one of the LLC’s through which he invested in the business. The Court rejected various arguments by defendants, explaining that “[w]hile futility of a demand is not a viable theory with respect to a business corporation, it is with respect to a limited liability company.” The Court then reviewed whether certain managers were disqualified and found that demand was excused where sufficient other managers suffered from conflicts of interests. In addition, the Court found that all of the claims were adequately pleaded against a law firm that represented the LLC while it allegedly served instead the interests of one of the conflicted managers.

Barry Pollack and Phil Rakhunov represented the plaintiff on these derivative claims.