Corporate – Derivative Action – Standing – Dissociation – Rule 23(b)(1) – Legitimate Class of One

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To deny Laurence standing in the derivative action would deny him and the Company a remedy, which we find is not the intent of Rule 23(b)(1).

We reversed and remanded.

The Boathouse at Breach Inlet, LLC (the Company), by and through its member Laurence D. Stoney, Jr., appealed the circuit court’s ruling that Laurence lacked standing to bring this derivative action against Richard S.W. Stoney, individually and as member-manager of the Company, and Crew Carolina, LLC. Laurence also argued the circuit court erred in granting a motion to dissociate Laurence as a member of the Company.

Laurence argued the circuit court erred in holding he lacked standing to bring this action because a derivative action was the proper means of seeking redress for alleged wrongs to the Company. He asserted he was a legitimate “class of one” who would fairly and adequately enforce the rights of the Company. We agreed. Section 33-44-1101 of the South Carolina Code (2006) authorizes a member of a limited liability company to bring a derivative action. Rule 23(b)(1), SCRCP sets out the requirements for “one or more . . . members” of a limited liability company to bring a derivative action to enforce a right of the company. Therefore, under the plain language of the statute and applicable rule, a single member of a limited liability company can bring a derivative action. In addition, Rule 23(b)(1) limits who may bring such an action. Because our state has not yet addressed whether a single member of a limited liability company may bring a derivative action, we looked to other jurisdictions for guidance.

We held that under the appropriate circumstances, a single member of a limited liability company may “fairly and adequately represent the interests of” a class of one and have standing to maintain a derivative action. To hold otherwise would be to deprive a sole dissenting shareholder from seeking relief from another shareholder’s wrongdoing.

Considering the totality of the circumstances, we held Laurence qualifies as a legitimate class of one. We also held Laurence fairly and adequately represented the interests of the class of one in prosecuting this derivative action for the benefit of the Company.

Laurence’s claims in this action involved losses to the Company, rather than to his own membership interest, and also involve Richard’s alleged breach of his fiduciary duty to the Company; therefore, the claims must be brought in a derivative action. To deny Laurence standing in the derivative action would deny him and the Company a remedy, which we find is not the intent of Rule 23(b)(1). Accordingly, we held the circuit court erred in finding Laurence lacked standing to bring this derivative action on behalf of the Company.

Laurence argued the circuit court erred in granting the motion to dissociate him from the Company because defendants and intervenors did not meet their burden of showing it was not reasonably practicable to carry on the business with him. We agreed. We, therefore, held the circuit court erred in finding Laurence “engaged in conduct relating to the company’s business which makes it not reasonably practicable to carry on the business with the member.” Accordingly, we reversed the circuit court’s grant of the motion for dissociation.

Reversed and remanded.

The Boathouse at Breach Inlet LLC v. Stoney (Lawyers’ Weekly No. 011-018-24, 16 pp.) (Letitia H. Verdin, J.) Appealed from Charleston County Circuit Court (Clifton Newman, J.) Sarah P. Spruill and Tyler Keith Gilliam, both of Haynsworth Sinkler Boyd, PA, of Greenville; and Stafford John McQuillin, III and Scott Y. Barnes, both of Haynsworth Sinkler Boyd, PA, of Charleston; all for appellant; Capers G. Barr, III, of Barr Unger & McIntosh, LLC, of Charleston; and Jesse Sanchez, of The Law Office of Jesse Sanchez, of Mount Pleasant; both for respondent. South Carolina Court of Appeals