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Plaintiff Did Not Adequately Allege a Presuit Demand Would Be Futile

The First Department, noting that the presuit demand required by Business Corporation Law 626(c) applies to Limited Liability Companies, determined that plaintiff failed to adequately allege the presuit demand was excused as futile. The court noted that Business Corporation Law 625(c) does not differentiate between majority and minority shareholders and a corporation’s refusal to provide information is not on the list of circumstances where a demand is excused:

Pursuant to Business Corporation Law § 626(c), a plaintiff shareholder must “set forth in the complaint – with particularity – an attempt to secure the initiation of such action by the board or the reasons for not making such effort” … . Demand is excused due to futility when a complaint alleges with particularity that: (1) “a majority of the board of directors is interested in the challenged transaction”; or (2) “the board of directors did not fully inform themselves about the challenged transaction to the extent reasonably appropriate under the circumstances”; or (3) “the challenged transaction was so egregious on its face that it could not have been the product of sound business judgment of the directors” … . The demand requirement of Business Corporation Law § 626(c) also applies to members of New York limited liability companies … .

The complaint alleges only that since Sowers owns 80% of the LLC, it would be futile for plaintiff to make a demand upon him to consent to the filing of an action on the LLC’s behalf. However, this Court has made clear that Business Corporation Law § 626(c) “does not differentiate between minority and majority shareholders for demand purposes” … . We note that Sowers’ alleged concealment of financial information does not warrant a finding that demand was futile, since “[a] corporation’s refusal to provide information to its shareholders is not on the [] list of circumstances where demand is excused” … , Barone v Sowers, 2015 NY Slip Op 04195, 1st Dept, 5-14-15

 

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