As Professor Joshua Fershee has often noted, many judges fail to distinguish between corporations and limited liability companies. See, e.g., LLCs Are Not Corporations. Be Vigilant. Respect the Entity. Therefore, it is nice to see that some judges do recognize that LLCs are not corporations.
The plaintiff's claim in D.R. Mason Constr. Co. v. GBOD, LLC, 2018 U.S. Dist. LEXIS 41236 was straightforward: the defendants had fraudulently induced it to invest in securities in exchange for work completed at a restaurant. The plaintiff claims it completed the work but never received the five percent ownership interest it was promised. The question for U.S. District Judge Cynthia Ann Bashant was equally uncomplicated: should the plaintiff's complaint be dismissed for lack of subject matter jurisdiction?
The potential source of federal subject matter jurisdiction was Section 10(b) of the Securities Exchange Act of 1934. However, Section 10(b) is not a federal breach of contract statute nor is it a general fraud statute. A violation of Section 10(b) must be in connection with the purchase or sale of security. The question for the court was wehther plaintiff's claim to a "five percent interest" involved a "security" within the meaning of Section 10(b) of the Exchange Act.