814 S.E.2d 179
Va.2018Background
- Dorothy C. Davis, a 72% member of Woodside Properties LLC, sued derivatively alleging managers (MKR Development and her two sons) misappropriated rent and corporate funds and refused to account.
- Woodside’s operating agreement appointed MKR as manager; MKR’s managers include Davis’s sons (Rex, Melvin Jr., Kaye previously dissociated).
- Davis’s amended complaint alleged she did not make a pre-suit demand because demand would be futile: the managers who authorized the conduct control the decision to sue.
- Defendants moved to dismiss, arguing Code § 13.1-1042(B) requires a written demand and a 90-day wait before filing; the trial court granted the plea in bar and dismissed without prejudice.
- The Supreme Court reviewed whether the 2011 amendments to the LLC statute abolished the common-law futility exception to the demand requirement and held the futility exception survives; the dismissal was reversed and remanded.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the 2011 amendments to Va. Code § 13.1-1042 abolished the futility exception to the LLC derivative demand requirement | Davis: demand not required when futile; complaint adequately pleads futility | MKR: § 13.1-1042(B) now categorically requires written demand and 90-day wait, abolishing futility | The futility exception survives; the 2011 amendments did not abrogate it; dismissal was error |
| Whether plaintiff’s pleading alleging demand would be futile suffices under pleading rules | Davis: complaint sets particularized reasons for not making demand, satisfying § 13.1-1044 | MKR: statutory 90-day written-demand requirement is mandatory regardless of pleading | Court: § 13.1-1044 and § 13.1-1001.1(A) preserve equitable principles (including futility); pleading was adequate to invoke exception |
| Whether statutory summary or legislative history may be used to infer intent to abolish futility | Davis: legislative summary not binding; cannot be used to infer intent | MKR: summary suggests legislature intended to abolish futility | Court: cannot rely on bill summary under Va. Code § 1-247; summary irrelevant |
| Whether dismissal without prejudice forecloses appellate review here | Davis: challenges dismissal despite "without prejudice" due to statute of limitations risk on refiling | MKR: procedural posture not dispositive | Court addressed the merits and reversed; remanded to reinstate complaint |
Key Cases Cited
- Perreault v. Free Lance-Star, 276 Va. 375, 666 S.E.2d 352 (Va. 2008) (standard of review for statutory construction: de novo)
- Ross v. Bernhard, 396 U.S. 531 (U.S. 1970) (derivative suits permit shareholders to enforce corporate causes of action)
- Cohen v. Beneficial Indus. Loan Corp., 337 U.S. 541 (U.S. 1949) (derivative actions in equity protect corporations from faithless managers)
- Simmons v. Miller, 261 Va. 561, 544 S.E.2d 666 (Va. 2001) (nature of derivative actions as equitable proceedings)
- Mount v. Radford Trust Co., 93 Va. 427, 25 S.E. 244 (Va. 1896) (establishing demand requirement and futility exception)
- Virginia-American Water Co. v. Prince William Cty. Serv. Auth., 246 Va. 509, 436 S.E.2d 618 (Va. 1993) (presumption that an amendment effects substantive change)
- City of Richmond v. Virginia Elec. & Power Co., 292 Va. 70, 787 S.E.2d 161 (Va. 2016) (canon against interpreting statutes to render language superfluous)