United States District Court, N.D. Illinois, Eastern Division
MEMORANDUM OPINION AND ORDER
D. LEINENWEBER, JUDGE.
Haresh Shah and Rilwala Property Management, LLC bring this
purported derivative suit against Defendant Nishant Sheth and
nominal Defendant Madeira Boulevard Investments, LLC.
Defendants move to dismiss on the grounds that Plaintiffs
lack standing. For the reasons stated herein, Defendants'
Motion to Dismiss (Dkt. No. 12) is granted.
Plaintiffs bring this case: Haresh Shah, an individual, and
Rilwala Property Management (“Rilwala”), an
Illinois limited liability company (LLC). (Am. Compl.
¶¶ 1-2, Dkt. No. 11.) Plaintiffs are suing
Defendants Nishant Sheth, an individual, and Madeira
Boulevard Investments (“Madeira”), a Delaware
LLC. (Am. Compl. ¶ 4.) Haresh Shah has a limited power
of attorney for Suresh Shah. (Am. Compl. ¶ 6; Amended
Limited Power of Attorney for Real Estate and Legal
Proceedings (“POA”), Ex. B to Am. Compl., Dkt.
No. 11-2.) As these two individuals share a last name, the
Court will refer to them as “Haresh” and
and Sheth are the sole members of Madeira. (Am. Compl. ¶
6.) Sheth owns a 60% interest in Madeira; Suresh owns 40%.
(Id.) Voting rights in Madeira are divided 50-50
between Sheth and Suresh. (Id.) Madeira owns only
one material asset: a parcel of land and a house, located at
121 N. Madeira Beach Boulevard, Kissimmee, Florida (the
“House”). (Am. Compl. ¶16.) Rilwala is
Madeira's principal creditor. (Am. Compl. ¶ 14.)
Madeira owes Rilwala over $250, 000. (Id.) Haresh is
the principal member and manager of Rilwala. (Am. Compl.
contend that on September 20, 2018, Sheth conveyed the House
to himself, without any consideration paid to Madeira. (Am.
Compl. ¶ 18.) This transfer rendered Madeira insolvent
and unable to pay its creditors. (Am. Compl. ¶ 19.)
Plaintiffs allege that Sheth conveyed the House to himself
without Suresh's consent and in violation of
Rilwala's rights as Madeira's principal creditor.
Thus, Plaintiffs contend, Sheth unjustly enriched himself and
breached his fiduciary duty to Madeira and its creditors.
seek the following remedies: (1) declaratory judgment that
Sheth, or any entity Sheth controls, holds the House solely
as a trustee of Madeira and its creditors; (2) removal of
Sheth as Madeira's manager; and (3) damages in an amount
equal to the value of the House, in the event that the House
is not re-conveyed to Madeira free and clear of any lien or
encumbrance. Defendants now move to dismiss the Amended
Complaint on the basis that neither Haresh nor Rilwala have
standing to bring a shareholder's derivative action
first sentence of their Motion to Dismiss, Defendants state
that they bring the motion under Federal Rule of Civil
Procedure 12(b)(1), 12(b)(6), and 17(a)(1). However, despite
this brief reference to Rules 12(b)(6) and 17(a)(1),
Defendants' motion primarily challenges standing and thus
falls under Rule 12(b)(1). Regardless, for purposes of a
motion to dismiss under both Rules 12(b)(1) and 12(b)(6), a
court accepts all well-pleaded allegations contained in the
complaint as true and draws all reasonable inferences in
favor of the plaintiff. Scanlan v. Eisenberg, 669
F.3d 838, 841 (7th Cir. 2012); McReynolds v. Merrill
Lynch & Co., Inc., 694 F.3d 873, 879 (7th Cir.
2012). Under Rule 12(b)(1), the plaintiff bears the burden of
establishing that the court has jurisdiction over its claims.
United Phosphorous, Ltd. v. Angus Chem. Co., 322
F.3d 942, 946 (7th Cir. 2003) (en banc). The court may
consider matters outside of the complaint in ruling on a
motion to dismiss for lack of subject-matter jurisdiction.
Ezekiel v. Michel, 66 F.3d 894, 897 (7th Cir. 1995).
12(b)(6) motion to dismiss tests the legal sufficiency of the
complaint and not the merits of the case.
McReynolds, 694 F.3d at 878. The allegations in a
complaint must set forth a “short and plain statement
of the claim showing that the pleader is entitled to
relief.” Fed.R.Civ.P. 8(a)(2). A plaintiff need not
provide detailed factual allegations and merely must provide
enough factual support to raise his right to relief above a
speculative level. Bell Atl. Corp. v. Twombly, 550
U.S. 544, 555 (2007). A claim must be facially plausible,
meaning that the pleadings must allow the court to draw the
reasonable inference that the defendant is liable for the
purported misconduct. Ashcroft v. Iqbal, 556 U.S.
662, 678 (2009).
LLC Derivative Suit
derivative suit, an individual shareholder sues to enforce
the corporation's right to proceed against officers,
directors, and third parties. Kamen v. Kemper Fin.
Servs., Inc., 500 U.S. 90, 95 (1991).
Defendants initially argue that a derivative action is for
corporations and shareholders only; thus, because Madeira is
an LLC and has “members” rather than
“shareholders, ” this case cannot state a claim.
(See Defs.' Mot. at 2, Dkt. No. 12
(“Obviously, with no shareholders there can be no
shareholder derivative lawsuit.”).) Because Madeira is
incorporated in Delaware, Delaware law controls this issue.
See Westmoreland Cty. Employee Ret. Sys. v.
Parkinson, 727 F.3d 719, 725 (7th Cir. 2013).
within the same motion to dismiss, Defendants concede that
Delaware law provides for derivative actions by LLC members.
See Del. Limited Liability Company Act (the
“LLC Act”), 6 Del. C. § 18-1001 (“A
member or an assignee of a limited liability company interest
may bring an action in the Court of Chancery in the right of
a limited liability company to recover a judgment. .
.”); see also Kroupa v. Garbus, 583 F.Supp.2d
949, 952 (N.D. Ill. 2008) (“Delaware law explicitly
allows for LLC members to bring derivative claims.”).
It is unclear why Defendants raised this argument only to
immediately concede it, other than perhaps to point out
Plaintiffs were wrong to label their complaint a
“shareholder” derivative suit; regardless, it is