Where an LLC member voluntarily dismissed all remaining claims after losing summary judgment on many others, the dismissal resulted in the conclusion of the then-pending lawsuit. Clark v. Burnette, 2022 NCBC 17 (J. Davis). As a result, the Business Court had authority to enter final judgment and issue an indemnity award to Defendant, notwithstanding the member’s ability to re-file those previously dismissed claims within one year.
Plaintiff is a member-manager and co-owner (with Defendant Burnette) of JBAC Properties, LLC (“Company”). Plaintiff filed suit and alleged numerous claims against Burnette and the Company. Burnette requested reimbursement of fees for defending the Company and advancement of his own legal costs as permitted under the Operating Agreement. Plaintiff refused. Burnette and the Company then filed an amended counterclaim, seeking a determination that they were entitled to indemnification. After discovery, Burnette and the Company successfully obtained summary judgment on several of Plaintiff’s claims. Plaintiff thereafter voluntarily dismissed without prejudice his remaining claims pursuant to NC Rule Civil Procedure 41(a). Burentte and the Company then filed a motion for entry of final judgment and an award of fees. Plaintiff objected, contending that final judgment was inappropriate because he could still refile his previously-dismissed claims.
The Business Court disagreed and entered final judgment. Recognizing that Plaintiff still had the right to file a new action within one year where he could re-assert those claims he had previously dismissed without prejudice, the Business Court nonetheless held that Plaintiff’s dismissal had eliminated all claims in the then-present action. (Opinion, ¶20). As a result, nothing precluded the Court from entering final judgment in the present action and awarding Burnette and the Company its attorneys’ fees based upon the indemnification provisions within the Operating Agreement. (Id., ¶21).
Based upon this decision, a business should recognize that it can seek indemnification once a member dismisses all claims such that no claims remain, notwithstanding the threat that the member might re-file.
Additional Legal Points
Seeking a declaration regarding the right to indemnity is a sufficient basis for the court to make an award of indemnity, considering the principle of judicial economy. (Opinion, ¶24).
Pre-litigation costs for an LLC cannot be indemnified because the LLC Act only provides for indemnity related to any claim that is pending in a court of law, unlike the Business Corporation Act which allows for indemnity related to threatened litigation. (Id., ¶34, 38).
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