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N.C. Supreme Court Interprets California Demand Requirement, But Did The Statute Apply?

The North Carolina's Supreme Court's recently issued opinion in  Azure Dolphin, LLC v. Barton, 2018 N.C. LEXIS 1036 caught my eye because it involved an interpretation of California Corporations Code Section 15910.02 which establishes the pleading requirements for a derivative suit involving a California limited partnership:

"A partner may bring a derivative action to enforce a right of a limited partnership if:

(1) the partner first makes a demand on the general partners, requesting that they cause the limited partnership to bring an action to enforce the right, and the general partners do not bring the action within a reasonable time; or

(2) a demand would be futile."

According to the court, the statute requires that a plaintiff also allege "the basis for any claim of futility in any derivative complaint that he or she elects to file on behalf of a limited liability company or a limited partnership".

However, I question whether the statute was applicable to the California defendants.  The court describes the two California entities as California limited partnerships.  However, I did not find any matching entries for either defendant using the California Secretary of State's online business search.  To make matters even more confusing, the name given in the case caption for one of the entities indicates that it is a  limited liability partnership and not a limited partnership.  Thus, in the words of Winston Churchill, I am left with a "riddle wrapped in a mystery inside an enigma".  BBC Broadcast, Oct. 1, 1939.

© 2010-2020 Allen Matkins Leck Gamble Mallory & Natsis LLP National Law Review, Volume VIII, Number 347


About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm

Keith Paul Bishop is a partner in Allen Matkins' Corporate and Securities practice group, and works out of the Orange County office. He represents clients in a wide range of corporate transactions, including public and private securities offerings of debt and equity, mergers and acquisitions, proxy contests and tender offers, corporate governance matters and federal and state securities laws (including the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act), investment adviser, financial services regulation, and California administrative law. He regularly advises clients...