Judge Jerry Bullard
The Business Court has ruled that a member of an LLC previously compelled to assign his membership interest by court order lacks standing to bring derivative claims on behalf of the LLC.
Michael D. Crain, individually and derivatively on behalf of Northern Crain Realty, LLC, Northern Crain Property Management, LLC, and Northern Crain, LLC v. William “Will” Northern (2026 Tex. Bus. 11; March 11, 2026) arose from Crain’s lawsuit against Northern on various theories, including breach of contract, breach of fiduciary duty, and fraud. In February the court granted Northern’s motion for summary judgment for specific performance of a buy-sell purchase agreement. This required Crain to tender to Northern “forms of Irrevocable Assignment of Membership Interest in Northern Crain Realty, LLC, Northern Crain Property Management, LLC, and Northern Crain, LLC (“NC Entities”). In this phase of the litigation, Northern challenged Crain’s standing to bring derivative claims against him on behalf of the NC Entities. Northern argued that Crain had no standing under § 101.463, Business Organizations Code, to pursue those claims “because he has not possessed a membership interest in each entity since December 19, 2024 (the date of the assignment referred to above).”
In an opinion by Judge Bullard, the court dismissed Crain’s derivative claims for lack of subject matter jurisdiction. Instead of addressing the standing issue, Crain asked the court to “reexamine its valuation of his membership interests and argues such ‘reconsideration of valuation necessarily precedes, and controls, Defendant’s Plea to the Jurisdiction.” Be that as it may, the court conducted a standing analysis. Under the statutory scheme and relevant authority, only an LLC member may bring a derivative action on behalf of an LLC. Because Crain wasn’t an LLC member when he filed the suit, he lacked standing, and the court lacked jurisdiction.
