Petty v. Morris

Petty v. Morris, 

.

STATE OF NORTH CAROLINA                       IN THE GENERAL COURT OF JUSTICE
                                                  SUPERIOR COURT DIVISION
COUNTY OF GUILFORD                                       14 CVS 7741

RONALD E. PETTY, SR. and                  )
RONALD E. PETTY, III, Individually        )
and Derivatively on Behalf of             )
ABSOLUTE RECYCLING                        )
CONTRACTORS, LLC,                         )
                                          )
                 Plaintiffs,              )
                                          )
       v.                                 )
                                          )
CHADHAM S. MORRIS and                     )                ORDER
MICHAEL R. MCFEELEY,                      )
                                          )
                 Defendants               )
                                          )
       and                                )
                                          )
ABSOLUTE RECYCLING                        )
CONTRACTORS, LLC                          )
                                          )
                 Nominal Defendant.       )
                                          )


      {1}    THIS MATTER is before the Court on Defendants’ Motion to Dismiss,
filed on August 22, 2014 (“Defendants’ Motion”), and Plaintiffs’ Motion to Recognize
Plaintiff’s July 17, 2014 Letter As a Proper Demand on ARC and Allow Plaintiffs to
Proceed with the Derivative Claims Against Defendants, or Alternatively, to
Shorten or Waive the 90-Day Waiting Period, filed on December 1, 2014 (“Plaintiffs’
Motion”) (collectively, the “Motions”). As the Motions challenge the parties’
standing to bring claims, the Court must resolve these Motions prior to further
considering the other matters at issue.


      Smith Moore Leatherwood LLP, by Patti W. Ramseur and W. Craig Turner
      for Plaintiffs.
      Brooks, Pierce, McLendon, Humphrey & Leonard LLP, by Justin N. Outling
      and Jennifer K. Van Zant for Defendants.

Gale, Chief Judge.

                            I.   MATTER BEFORE THE COURT

      {2}    This litigation arises from disputes among the members of Absolute
Recycling Contractors, LLC (“ARC”). The five ARC members and their percentage
interests are as follows:
      (a) Plaintiff Ronald E. Petty, Sr. (“Petty, Sr.”) owns 25.4%;
      (b) Plaintiff Ronald E. Petty, III (“Petty, III”) owns 25.4%;
      (c) Defendant Chadham S. Morris (“Morris”) owns 14.4%;
      (d) Defendant Michael R. McFeeley (“McFeeley”) owns 9.4%;
      (e) Nonparty C. Norman Bunce (“Bunce”) owns 25.4%.
As more fully discussed below, ARC’s Operating Agreement provides that decisions
affecting ARC’s assets or affairs requires agreement of two-thirds of the ownership
interests.
      {3}    Plaintiffs and Defendants both seek to assert derivative claims on
behalf of ARC. This Order is limited to the consideration of whether demand
prerequisites have been met, entitling the members to bring derivative actions.
Assuming that at least one of the parties has standing, the Court will address the
merits of the respective derivative claims in a separate order.
      {4}    Plaintiffs initiated the action by filing a Verified Complaint and
Motion for Preliminary Injunction (“Original Complaint”) on July 22, 2014.
Plaintiffs assert that their derivative claims follow a pre-suit demand on ARC by
letter from their counsel dated July 17, 2014 (“Plaintiffs’ Demand Letter”). They
seek to redress alleged breaches of fiduciary duty by Defendants Morris and
McFeeley.
      {5}    On August 22, 2014, Defendants moved to dismiss the Original
Complaint, asserting that the purported individual claims are instead derivative
claims and attacking Plaintiffs’ standing to bring a derivative claim for failure to
make a proper pre-suit demand.
      {6}    On September 15, 2014, Defendants filed their Answer and
Counterclaims. They also derivatively filed their Motion for Preliminary Injunction
and for Receivership, seeking to redress alleged breaches of Plaintiffs’ fiduciary
duties to ARC. Defendants assert that their derivative claims followed a pre-suit
demand on ARC made by letter from their counsel dated June 6, 2014 (“Defendants’
Demand Letter”).
      {7}    On October 23, 2014, the Court held an initial case management
conference. The Court set a hearing on pending motions for November 18, 2014. At
that time, no motion to dismiss had been made to dismiss Defendants’ derivative
claims for failure to make proper pre-suit demand. After the hearing, when
considering Defendants’ Motion to Dismiss, the Court, on its own motion, raised the
question of whether Defendants’ pre-suit letter was an adequate demand, and noted
that the record did not contain certain facts necessary to resolve whether either
party had met the statutory requirements for pre-suit demand.
      {8}    On November 10, 2014, Plaintiffs filed their First Amended Complaint
and Motion for Preliminary Injunction (“Amended Complaint”).
      {9}    The Court allowed the parties to supplement the record to present
additional facts as to the circumstances of how the demand letters were sent and
received. On December 1, 2014, Plaintiffs responded by filing the Plaintiffs’ Motion,
accompanied by the Fifth Affidavit of Ronald E. Petty, III. By the motion, Plaintiffs
also asked the Court to find that Plaintiffs legitimately brought the derivative claim
less than ninety days after demand on ARC, in light of their demonstration of the
immediate irreparable harm ARC was suffering.
      {10}   Defendants replied by filing the Defendants’ Motion and Bunce’s
supplemental affidavit.
      {11}   The challenge to the adequacy of any pre-suit demand is, inter alia, a
challenge to the Court’s subject matter jurisdiction over the derivative claims. A
party’s standing to bring a derivative claim depends on whether they properly meet
the demand requirement. N.C. Gen. Stat. § 57D-8-01 (2014) (“[A] member may
bring a derivative action if the following condition[ is] met: . . . The member made
written demand on the LLC to take suitable action . . . .”). “Standing is a necessary
prerequisite to a court’s proper exercise of subject matter jurisdiction.” Aubin v.
Susi, 

, 

 (2002). Because “[a] Court may
not properly exercise subject matter jurisdiction over the parties to an action unless
the standing requirements are satisfied,” the Court must first determine whether
the demand requirement is met prior to entering further orders in this matter.
Teague v. Bayer AG, 

, 

 (2009).

                                  II.     FINDING OF FACTS

        {12}   It is appropriate for the Court to consider record evidence beyond the
pleading in order to determine its jurisdiction. Tart v. Walker, 

, 

 (1978) (“In our view, matters outside the pleadings . . .
may be considered and weighed by the court in determining the existence of
jurisdiction over the subject matter.”). The Court makes the following findings of
fact for purposes of the pending Motions only, and only as necessary to determine
its jurisdiction.
        {13}   ARC is a privately held North Carolina Limited Liability Company
(“LLC”) owned by five members in the percentages noted above.
        {14}   The members executed the First Amended and Restated Operating
Agreement of Absolute Recycling Contractors, LLC (“Operating Agreement”) in
2010.
        {15}   Section 6.1 of the Operating Agreement provides that ARC is membermanaged, and that “except as otherwise provided herein, any management or
similar decisions affecting the Company or its assets or affairs shall require the
consent of Members owning more than two-thirds (2/3) of the Percentage Interests.”
(Am. Compl. Ex. A, at 9.)1


1 Plaintiffs contend in their Amended Complaint that there has been an “Event of Sale” caused by

the termination of Morris’s and McFeeley’s employment. Defendants challenge that contention.
         {16}   Section 11.6(a) of the Operating Agreement provides for notice to
members by personal delivery or by mail, and without requiring registered or
certified mail. Section 11.6(b) provides that delivery of notice to the Company may
be made as follows:
         Any notice to be given to the Company hereunder may either be
         delivered personally or mailed by registered or certified mail, postage
         prepaid, addressed to the Company at the address of its registered
         office set forth in Article III hereof. Any notice so delivered or mailed
         shall be deemed to have been given to the Company at the time it is
         delivered or mailed, as the case may be.
(Am. Compl. Ex. A, at 27.)
         {17}   Section 11.6 does further not provide that these means of delivery of
notice to members or the company are exclusive.
         {18}   Petty, III is, and at all relevant times has been, ARC’s registered
agent.
         {19}   Each of ARC’s members was a member at the time relevant to the
Motions.
         {20}   Plaintiffs and Defendants each claim that the opposing parties have
violated fiduciary duties owed to ARC, thereby triggering claims that may be
brought by or on behalf of ARC, and that such claims are properly brought as
derivative claims.
         {21}   Defendants’ Demand Letter was written by the law firm of Brooks,
Pierce, McLendon, Humphrey & Leonard LLP (“Brooks Pierce”) while representing
Bunce, McFeeley, and Morris, and was addressed to ARC “c/o” of the law firm of
Smith Moore Leatherwood, LLP (“Smith Moore”). Smith Moore represented the
Pettys at that time, but there is some dispute whether Smith Moore also
represented ARC.
         {22}   The Defendants’ Demand Letter followed earlier correspondence
regarding Bunce’s demand to review ARC’s corporate records. Bunce initially



Although the Pettys could ultimately attain a two-thirds controlling interest if they obtained the
interests of both Morris and McFeeley, they have not done so.
retained Brooks Pierce during or before May 2013. On May 16, 2013, Bunce made
demand on ARC to allow Michael Schaefer (“Schaefer”) of Brooks Pierce, or his
designee, to inspect ARC’s corporate books and records. Bunce’s letter was sent by
certified mail and addressed to “Absolute Recycling Contractors, LLC c/o its
Members,” listing each of the four other members. (Second Aff. Norman Bunce Ex.
B, at 4.)
       {23}   On May 17, 2013, Petty, III advised Bunce by e-mail that any request
for “information from any Petty family member, A-1 Sandrock and ARC” should
“flow through our lawyers at Smith Moore.” (Second Aff. Norman Bunce, Ex. B, at
2.)
       {24}   In response, Schaefer corresponded with Stephen Klee (“Klee”) at
Smith Moore, who Bunce believed was ARC’s corporate counsel. Thereafter,
discussions continued between Schaefer and Patti W. Ramseur (“Ramseur”) of
Smith Moore. On June 5, 2013, Schaefer sent a letter addressed to Ramseur, copied
to “Absolute Recycling Contractors, LLC c/o its Members,” and listing each of the
four additional members. (Second Aff. Norman Bunce Ex. E, at 2.) It is unclear
whether the letter was mailed separately to the individual members.
       {25}   Justin N. Outling (“Outling”), a Brooks Pierce attorney, assumed
ongoing communications with Smith Moore. On February 17, 2014, Outling, on
Bunce’s behalf, sent a certified mail letter addressed to “Absolute Recycling
Contractors, LLC c/o its Members,” listing the other four members. (Fifth Aff.
Ronald E. Petty, III, Ex. 4, at 1.) Carbon copies were listed as sent to Ramseur and
Klee. It is unclear whether the letter was individually mailed to each member.
       {26}   In a February 21, 2014, email, Outling asked Ramseur whether Smith
Moore represented ARC regarding the matter detailed in Outling’s February 17,
2014, letter. Ramseur responded by e-mail on February 24, 2014, that Smith Moore
did represent ARC in that regard, but gave Outling permission to contact Jimmy
Petty, who is not an ARC member, but who was believed to be associated with A-1
Sandrock. Some of the records in question related to A-1 Sandrock and its dealings
with ARC.
         {27}   On June 6, 2014, Outling sent the Defendants’ Demand Letter,
addressed to “Absolute Recycling Contractors, LLC c/o Patti West Ramseur, Esq.”
with a reference line of “Members’ Demand for Action by Absolute Recycling
Contractors, LLC.” (Fifth Aff. Ronald E. Petty, III Ex. 3, at 1.) The letter reflects
that it was sent by e-mail and regular U.S. mail. Different from prior
correspondence, the letter was not addressed to ARC “c/o” its listed members. The
salutation of the letter was: “Dear Members.” (Fifth Aff. Ronald E. Petty, III Ex. 3,
at 1.) The letter listed copies to Bunce, Morris, and McFeeley, but not to Petty, Sr.
or Petty, III. The text of the letter identified each of the five members and their
percentage interest. It identified Petty, III as an owner but not as ARC’s registered
agent.
         {28}   The first paragraph of the Defendants’ Demand Letter states that,
         [o]n behalf of Messrs. Bunce, Morris and McFeeley, we hereby make a
         written demand (“Demand”), pursuant to Section § [sic] 57D-8-01 of
         the North Carolina General Statutes, that the Company take suitable
         action to address certain misconduct and improper transactions
         effected by particular Members, management, or other persons
         affiliated with the Company.
(Fifth Aff. Ronald E. Petty, III Ex. 3, at 1.)
         {29}   On June 18, 2014, Ramseur wrote a letter addressed to Morris
individually, copied to Outling, Bunce, and McFeeley, demanding that Morris
provide information regarding certain ARC revenues that had been received in
cash. Her letter identifies Smith Moore’s clients as Petty, Sr. and Petty, III. (Fifth
Aff. Ronald E. Petty, III Ex. 2, at 17.)
         {30}   On June 24, 2014, Ramseur responded to the Defendants’ Demand
Letter. She addressed her letter to Outling, and listed no copies. Her letter began:
         As you know, our firm represents Ronald E. Petty, Sr. and Ronald E.
         Petty, III. We have reviewed your letter dated June 6, 2014, which is
         addressed to Absolute Recycling Contractors, LLC (“ARC”). Our
         clients are unable to respond to any statutory demands directed to
         ARC. As you noted, Mr. Petty, Sr. and Mr. Petty, III do not own the
         2/3 of ARC’s percentage interests required for management decisions
         affecting ARC.
(Fifth Aff. Ronald E. Petty, III Ex. 2, at 4.)
       {31}   On July 17, 2014, Ramseur wrote Plaintiff’s Demand Letter, addressed
only to Outling. The letter has the reference line: “Absolute Recycling Contractors,
LLC.” (Fifth Aff. Ronald E. Petty, III Ex. 2, at 1.) The letter lists copies to ARC,
Bunce, Morris, and McFeeley, but not to Petty, Sr. or Petty, III.
       {32}   Plaintiffs’ Demand Letter identified that Ramseur wrote on behalf of
Petty, Sr. and Petty, III, and stated her understanding that Bunce would not join
with the Pettys to institute suit by ARC. She then advised that the Pettys intended
to “pursue legal action to protect their interests as Members of ARC and to protect
ARC.” (Fifth Aff. Ronald E. Petty, III Ex. 2, at 2.) Although the letter was
addressed only to Outling, the body of the letter contained the following, in bold:
       “Please accept this letter as a written demand on ARC (made pursuant
       to N.C. Gen. Stat. § 57D-8-01) to initiate a lawsuit against Mr. Morris
       and Mr. McFeeley for damages to ARC and for preliminary and
       permanent injunctions enjoining Mr. Morris and Mr. McFeeley from
       engaging in activities that contravene their fiduciary duties to ARC.”
(Fifth Aff. Ronald E. Petty, III Ex. 2, at 2.)
       {33}   Petty, III testifies by affidavit that a copy of the letter was addressed
and sent to “Absolute Recycling Contractors, LLC, c/o Ronald Eugene Petty, III,
Registered Agent,” and that Petty, III received the letter, accepting it as ARC’s
registered agent. (Fifth Aff. Ronald E. Petty, III, at ¶ 5.) There is no record of
whether the letter was sent by registered or certified mail.
       {34}   The ARC members did not meet in response to either the Defendants’
Demand Letter or Plaintiffs’ Demand Letter, and no combination of members
representing a two-thirds interest have taken or expressly refused to take action in
the name of ARC in response to the demands of those letters.
       {35}   Plaintiffs initiated their action and sought injunctive relief on July 22,
2014, less than ninety days following delivery of Plaintiffs’ Demand Letter. Both
the Original Complaint and the Amended Complaint allege that ARC was suffering
immediate, irreparable harm, but Plaintiffs did not further ask the Court to excuse
the ninety-day waiting period before the derivative action was allowed to proceed.
Plaintiffs made such a request in Plaintiffs’ Motion, filed December 1, 2014, at
which time the ninety-day period had expired.
      {36}   Defendants’ derivative claim and the corresponding Motion for
Preliminary Injunction and for Receivership were filed on September 15, 2014, more
than ninety days following Defendants’ Demand Letter.

                   III.   LEGAL STANDARDS REGARDING DEMAND
      {37}   The derivative claims in this action are governed by the North
Carolina Limited Liability Company Act (the “LLC Act”), contained in Chapter 57D
of the North Carolina General Statutes. See N.C. Gen. Stat. §§ 57D-1-01 to -11-03.
The Court refers to various provisions of the LLC Act by reference to their article or
section number.
      {38}   Derivative actions on behalf of an LLC are governed by Article 8. See
id. §§ 57D-8-01 to -07. Section 57D-8-01(a)(2), requires that
      [t]he member made written demand on the LLC to take suitable
      action, and either (i) the LLC notified the member that the member’s
      demand was rejected, (ii) 90 days have expired from the date the
      demand was made, or (iii) irreparable injury to the LLC would result
      by waiting for the expiration of the 90-day period.
Id. § 57D-8-01(a)(2).
      {39}   Section 57D-8-01(a)(2), therefore, imposes two requirements: (1) that a
written demand on the LLC must be made; and (2) if a demand was properly made,
that a ninety-day period after the demand expire, unless excused by a corporate
refusal or a finding of irreparable injury that would result from imposing such a
waiting period.
      {40}   The Court is guided in interpreting those requirements by prior
legislative history, both of the LLC Act and of North Carolina’s Business
Corporation Act.
      {41}   Chapter 57D displaced the former Chapter 57C of the General
Statutes. Former Section 57C-8-01 did not have an express demand requirement
followed by a mandatory waiting period, instead providing that :
      [t]he complaint shall allege with particularity the efforts, if any, made
      by the plaintiff to obtain the action the plaintiff desires from the
      managers, directors, or other applicable authority and the reasons for
      the plaintiff’s failure to obtain the action, or for not making the effort.
N.C. Gen. Stat. § 57C-8-01(b) (2012) (repealed by the LLC Act, § 1, 

 (2013)).
      {42}   This change in the LLC Act provisions regarding bringing a derivative
action parallels changes to North Carolina Business Corporation Act providing for
derivative actions on behalf of corporations. See 

 (2014).
Section 55-7-42(2) of the Business Corporation Act uses language almost identical to
section 57D-8-01(a) and requires written demand on a corporation followed by the
corporation’s rejection of the demand, the expiration of ninety days after the
demand, or irreparable injury to the corporation that would result from waiting for
the ninety days. 

 Compare 

, with N.C. Gen. Stat. §
57D-8-01(a)(2). Section 55-7-42 displaced the former section 55-7-40(b), which
required only that the derivative claimant allege efforts made to obtain the
requested relief before filing suit, using language essentially the same as the
language of repealed section 57C-8-01(b). See 

(b) (1990)
(amended by June 1, 1995 Act, § 1, 

 (1995)).
      {43}   The North Carolina Court of Appeals has considered the impact of
these legislative changes in the context of corporations, but not LLCs. See Norman
v. Nash Johnson & Sons' Farms, Inc., 

, 408–12, 

,
261–63 (2000). In Norman, the court noted that former section 55-55(b), dealing
with derivative actions for a corporation, allowed for a futility exception to the
demand requirement, but that the legislature’s enactment of section 55-7-42 clearly
abolished the exception, such that the demand requirement must now be strictly
construed. 

 at 409–11, 537 S.E.2d at 261–63.
      {44}   In the context of corporations, but not LLCs, the court of appeals has
further addressed what may properly be considered corporate action adequate to
refuse demand and excuse the ninety-day waiting period. See Allen v. Ferrera, 

, 

 (2000). In Allen, there were two fifty-percent
shareholders in a corporation (“Subject Corporation”), one an individual and the
other a corporation (“Corporate Shareholder”) that was in turn owned by two
individuals who were also its directors. 

, 540 S.E.2d at 763–64. The
individual fifty-percent shareholder wrote a letter to the Corporate Shareholder and
the two directors, making demand that the Subject Corporation take certain action.

 at 285–86, 540 S.E.2d at 764–65. The corporate shareholder and the directors
responded to the demand nine days later, denying the plaintiff’s claims and making
allegations of their own against the plaintiff. 

, 

. The
plaintiff initiated an action less than ninety days following his demand letter,
including both a derivative claim and individual claims. 

 at 286–87, 

. The court of appeals found that the plaintiff had failed to satisfy the
demand requirements of section 55-7-42, because the Subject Corporation had not
refused the pre-suit demand within the mandatory ninety-day waiting period,
which was otherwise unexcused. 

, 

.
      {45}   The Allen court did not address the preliminary matter of whether the
letter constituted adequate demand. See 

, 

. The court
instead focused on whether the response letter was a “rejection by the corporation.”

 (emphasis in the original). The court found that the defendants,
      although respectively directors and a shareholder of [the Subject
      Corporation], did not sign the response letter in those corporate
      capacities. Plaintiff does not allege that defendants . . . held actual or
      apparent authority to bind [the Subject Corporation] through their
      individual signatures. The principles of agency therefore dictate that
      the corporation did not act to reject plaintiff’s demand.
 

 (citing Rowe v. Franklin Cnty., 

, 

 (1986)).
      {46}   The Court concludes that Norman and Allen collectively make clear
that, at least for derivative actions governed by the Business Corporation Act, (1)
the demand requirement must be strictly construed, allowing for no futility
exception, and (2) any response adequate to constitute a corporate rejection that
excuses the further running of the ninety-day waiting period must be made by those
with authority to act on behalf of the corporation.
      {47}   Considering the virtually identical demand requirements in the LLC
Act, the same principles apply to derivative actions governed by the LLC Act.
      {48}   Section 57D-8-01(a)(2) is clear that the demand preceding a derivative
action must be made “on the LLC.” N.C. Gen. Stat. § 57D-8-01(a)(2). An LLC is
required to continuously maintain a registered agent within North Carolina. N.C.
Gen. Stat. § 55D-30 (2014). “The sole duty of the registered agent to the [LLC] is to
forward to the [LLC] at its last known address any notice, process, or demand that
is served on the registered agent.” Id. § 55D-30(b). Even if an Operating
Agreement does not expressly so provide, a demand is effective pursuant to section
57D-8-01(a)(2) if delivered to an LLC’s registered agent. See N.C. Gen. Stat. § 55D-
33(a) (“Service of process, notice or demand required or permitted by law to be
served on an entity may be served on the registered agent required by [N.C. Gen.
Stat. § 55D-30.]”). The statue does not require delivery to be made by registered or
certified mail.
      {49}   Allen further teaches that corporate action sufficient to reject a
demand may be made only by one with authority to act on behalf of the corporation.
The statutory powers of a registered agent do not extend that far. Generally, the
power to act on the LLC’s behalf is defined by the Operating Agreement. See N.C.
Gen. Stat. § 57D-2-30(a) (“The operating agreement governs the internal affairs of
an LLC and the rights, duties, and obligations of . . . the company officials in
relation to each other, the LLC, and the interest owners. . . . ”).

                                     IV.    ANALYSIS
      {50}   The Court now turns to whether either Plaintiffs or Defendants have
met the statutory demand requirements in order to have standing to bring a
derivative claim.
      {51}   ARC’s registered agent has authority to accept notice for the LLC, both
by statute and by ARC’s Operating Agreement. However, two-thirds of the
percentage interests must join to make decisions affecting ARC’s affairs. Neither
Plaintiffs nor Defendants have such ownership. If demand on ARC was delivered
not to its registered agent but only to members with less than two-thirds ownership
collectively, it would not be effective. If demand was properly made on ARC
through delivery to its registered agent, neither Plaintiffs nor Defendants had
authority on their own to reject the demand on ARC’s behalf.
         {52}   The Court must determine whether either Plaintiffs or Defendants
delivered effective demand to ARC by delivery to either ARC’s registered agent or
by delivery to members collectively owning the requisite two-thirds percentage
interest. If such a demand was made, then the Court must determine whether ARC
took corporate action in response, or whether the ninety-day waiting period expired
or may be excused because of the possibility of irreparable harm to ARC during the
waiting period.
         {53}   It is clear that both Plaintiffs and Defendants were keenly aware that
they were required to provide pre-suit notice pursuant to section 57D-8-01(a)(2). It
is also clear that each knew to write to ARC by addressing correspondence to ARC
“c/o” its individual members, and when doing so, included members with a collective
ownership interest greater than a two-thirds.
         {54}   The Court first examines Plaintiffs’ Demand Letter. The letter was
addressed solely to Outling. Outling represented three clients who collectively had
no authority to take action on ARC’s behalf.
         {55}   The Court does not construe the Plaintiffs’ Demand Letter to be an
effective demand delivered through all of its members. Although Bunce, McFeeley,
and Morris were listed as copy recipients, the Pettys were not, and the Court does
not construe that the letter was addressed to the Pettys simply because it was
written by their counsel. Ramseur could have but did not make demand on ARC by
a letter addressed to ARC in care of each of its members.
         {56}   Plaintiffs contend, however, that Plaintiffs’ Demand Letter constituted
proper delivery of the demand to ARC through its registered agent because the
letter, although addressed only to Outling, included in the body a “demand on
ARC,” and the letter was copied and mailed to ARC, and received by its registered
agent.
      {57}   The Court is asked to follow an indirect path, rather than the clear
path that would have existed if the letter had been addressed expressly to ARC.
With some reluctance, the Court finds Plaintiffs’ Demand Letter to be a demand on
ARC delivered through its registered agent.
      {58}   The Court more easily finds that Defendants’ Demand Letter was a
demand on ARC by delivery to its registered agent. This letter was expressly
addressed to ARC. While the letter was sent in care of Smith Moore, Smith Moore,
as of June 6, 2014, clearly represented Petty, III, and Petty, III was ARC’s
registered agent. Petty, III had directed his fellow members to make any request
for action on his part through Smith Moore. Petty, III had delegated to Smith
Moore the authority to accept correspondence on his behalf. The better course
might have been to state expressly that the letter was being delivered through
ARC’s registered agent; but, regardless, the letter’s practical result was the same.
      {59}   The Court has found both Plaintiffs’ Demand Letter and Defendants’
Demand Letter to have been adequate pre-suit demands on ARC. That does not,
however, end the inquiry as to Plaintiffs’ standing, because Plaintiffs filed suit less
than ninety days after their demand.
      {60}   Plaintiffs argue that ARC was suffering irreparable harm during the
waiting period, so that the suit not untimely filed before expiration of the ninety
days. The Court concludes that it need not now address the merits of that assertion
because the ninety-day waiting period has already expired, without action from
ARC in response to the demand letter.
      {61}   The present case is different than one where a derivative claimant files
a complaint without having made demand on the LLC at all. In that situation, this
Court has previously rejected the argument that the demand deficiency can be
cured by treating the complaint itself as the requisite demand. See In re Harris
Teeter Merger Litig., 

, at *10 (N.C. Super. Ct. Sept. 24, 2014)
(citing Greene v. Shoemaker, 

, at *11 (N.C. Super. Ct. Sept 24,
1998)).
                            V.     CONCLUSIONS OF LAW

      {62}   The Court makes the following conclusions of law:
      {63}   Plaintiffs made demand on ARC to take corporate action on July 17,
2014, in compliance with section 57D-8-01(a)(2)(i). Although Plaintiffs brought
their derivative claim prior to the expiration of the ninety-day period after their
demand, they did so with specific allegations of immediate irreparable harm to
ARC. ARC has not taken action in response to Plaintiffs’ Demand Letter, ninety
days following that letter have now expired, and Plaintiffs are now entitled to
pursue a derivative claim based on that demand.
      {64}   Defendants’ Motion is DENIED to the extent that it seeks to dismiss
the derivative claims on the basis of inadequate demand on ARC. The Court does
not otherwise rule on the merits of Plaintiffs’ derivative or individual claims.
      {65}   Defendants’ Demand Letter made demand on ARC to take corporate
action in compliance with section 57D-8-01(a)(2)(i). ARC has not taken action in
response to Defendants’ Demand Letter, ninety days following that letter expired
before Defendants instituted their derivative claim or sought equitable relief on
ARC’s behalf, and Defendants are now entitled to pursue their derivative claim
based on that demand. Plaintiffs’ Motion is DENIED to the extent it challenges
Defendants’ standing. Otherwise, Plaintiffs’ Motion is MOOT.
      {66}   The Court makes no findings or conclusions regarding the merits of the
parties’ derivative claims, beyond finding that Plaintiffs or Defendants have
standing to prosecute them.


      IT IS SO ORDERED this 16th day of December, 2014.