Background
Ken McAllister, a 45% member and former co-manager of Elevatus Brand Partners LLC, brought claims in part derivatively for the company. He alleged that fellow 45% member and co-manager Robert Stidham, assisted by Joe Lewis, diverted company employees, assets, funds, and business opportunities. McAllister alleged aiding and abetting fiduciary breaches, civil conspiracy, and unjust enrichment against Lewis.
McAllister made no pre-suit demand, alleging that demand was futile because the two managers were deadlocked and Lewis was hired at Stidham’s behest. But in October 2024, before Lewis was first named as a defendant in July 2025, the court appointed a liquidating trustee as the company’s sole manager.
The Court’s Holding
Magistrate in Chancery Christian Douglas Wright recommended granting Lewis’s motion to dismiss Counts VIII, IX, and X with prejudice. The claims were derivative under Tooley because the alleged misappropriation of company funds and diversion of company opportunities injured the company directly, and any recovery would belong to the company.
Rule 23.1 therefore required McAllister either to make a demand or plead demand futility with particularity. His allegations of former manager deadlock and Lewis’s relationship with Stidham did not address the neutral, court-appointed liquidating trustee who had sole managerial authority when Lewis was added. Claims against a newly added defendant require a separate demand inquiry and were not already “validly in litigation” under Braddock. Notice through File & ServeXpress was not a substitute for a formal demand.
Key Takeaways
- Claims alleging diversion of LLC assets and corporate opportunities generally belong to the LLC, making them derivative.
- Demand-futility allegations must address the entity’s actual decisionmaker when the derivative claim is filed.
- Adding a new defendant to a derivative action can trigger a separate Rule 23.1 demand inquiry.
Why It Matters
The report emphasizes that a court-appointed liquidating trustee changes the demand analysis. A plaintiff cannot rely on alleged futility tied to a superseded management structure when a neutral fiduciary has exclusive authority to decide whether the company should sue.
It also reinforces that actual notice of litigation does not satisfy the formal demand requirement, and that repeated pleading failures under Rule 23.1 may result in dismissal with prejudice.