A recent Court of Chancery opinion is notable as a reminder that the same requirement of pre-suit demand futility in the corporate context is also required to be satisfied as a prerequisite to asserting a derivative claim in the LLC context. Dietrichson v. Knott, C.A. No. 11965-VCMR (Del. Ch. April 19, 2017).
Background: This matter involved two 50/50 members of an LLC. One of those members filed claims alleging that an unauthorized salary was taken by the other member and that the other member misappropriated the proceeds of an asset sale.
The court explained that the claims regarding improper compensation and misappropriation of company assets were derivative in nature based on the criteria described in the Delaware Supreme Court’s Tooley decision, and that because pre-suit demand futility was not established, the claims were dismissed. The court also referred to Section 18-1001 of the Delaware LLC Act and Chancery Rule 23.1 for the requirements of pre-suit demand applicable in the LLC context.
The court reasoned that the claims of excessive compensation and dissipation of company assets are inherently derivative, and the facts of this case did not allow them to qualify as “dual-natured.” Only in exceptional circumstances can a claim be both direct and derivative.
In addition to dismissing the claims for failure to satisfy the prerequisites of derivative claims, the court dismissed an unjust enrichment claim based on the well-known principle that when a complaint alleges an express, enforceable contract that controls the parties’ relationship, a claim for unjust enrichment will be dismissed.