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General, Unspecified Demands Are Insufficient To Maintain A Derivative Claim

Where a member of an LLC makes just general allegations in her complaint that she demanded the LLC take action before filing suit, such allegations are insufficient to satisfy the statute’s pre-suit demand requirement.  Al-Hassan v. Salloum, 2020 NCBC 14 (J.Conrad).  Without a proper demand, the member was precluded from maintaining a derivative action on behalf of the LLC.

Plaintiff is a member of Pebble Creek, LLC (“Pebble Creek”), which was formed for the sole purpose of purchasing and developing a small piece of real property. Defendant Salloum was Pebble Creek’s manager and allegedly contracted to sell the property without the requisite approval. Plaintiff filed suit to block the sale and asserted numerous individual and derivative claims against Salloum.  In her complaint, Plaintiff made only general, non-specific allegations that she had made written demands on the LLC before filing suit.  Salloum moved to dismiss the derivative claims, contending that Plaintiff failed to allege “compliance with the pre-suit demand” required under the statute. (Opinion, ¶11). 

The Business Court agreed.  Finding that the pre-suit demand is mandatory because “the LLC is the real party in interest” for any derivative claim (Id., ¶12), the Business Court recognized that such demand gives the “LLC a chance to investigate the claim and, if it chooses, to vindicate its own rights before freeing its members to seek relief on its behalf.”  Id.  Noting that that Plaintiff had failed to describe the contents of her demands (or attach copies of the written demand as exhibits to her complaint), the Business Court found that the plaintiff’s bare allegations that she had made undefined demands were “facially insufficient” to satisfy the statute’s requirement and dismissed the derivative claims. (Id., ¶¶15,16).

Based upon this decision, any business that finds one of its members filing suit in its name without having first been given the opportunity to investigate those claims should decide whether it wants to allow such claims to go forward

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Phil Mohr Bankruptcy and Litigation Attorney Womble Bond Dickinson
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Phil is a trial lawyer. Although he will search for creative legal and business solutions for his clients, his more than two decades of trial experience for both publicly traded and privately held companies in state and federal courts throughout the country have taught him that some cases simply have to be tried to verdict. Representing companies that have both been wronged and accused of wrongdoing, Phil has honed his trial skills in cases involving complex business litigation (including fraudulent transfer and equitable subordination cases in federal bankruptcy court)...

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