(a) An action may be brought in a superior court of this State, which shall have exclusive original jurisdiction over actions brought hereunder, in the right of any domestic or foreign corporation by any member or director, provided that, in the case of an action by a member, the plaintiff or plaintiffs shall allege, and it shall appear, that each plaintiff-member was a member at the time of the transaction of which he complains.
(b) The complaint shall allege with particularity the efforts, if any, made by the plaintiff to obtain the action the plaintiff desires from the directors or comparable authority and the reasons for the plaintiff's failure to obtain the action or for not making the effort. Whether or not a demand for action was made, if the corporation commences an investigation of the charges made in the demand or complaint, the court may stay any proceedings until the investigation is completed.
(c) Upon motion of the corporation, the court may appoint a committee composed of two or more disinterested directors or other disinterested persons, acceptable to the corporation, to determine whether it is in the best interest of the corporation to pursue a particular legal right or remedy. The committee shall report its findings to the court. After considering the report and any other relevant evidence, the court shall determine whether the proceeding should be continued.
(d) Such action shall not be discontinued, dismissed, compromised, or settled without the approval of the court. The court, in its discretion, may direct that notice, by publication or otherwise, shall be given to any directors, members, creditors, and other persons whose interests it determines will be substantially affected by the discontinuance, dismissal, compromise, or settlement. If notice is so directed to be given, the court may determine which one or more of the parties to the action shall bear the expense of giving the same, in such amount as the court shall determine and find to be reasonable in the circumstances, and the amount of the expense shall be awarded as costs of the action.
(e) If the action on behalf of the corporation is successful, in whole or in part, whether by means of a compromise and settlement or by a judgment, the court may award the plaintiff the reasonable expenses of maintaining the action, including reasonable attorneys' fees, and shall direct the plaintiff to account to the corporation for the remainder of any proceeds of the action.
(f) In any such action, the court, upon final judgment and a finding that the action was brought without reasonable cause, may require the plaintiff or plaintiffs to pay to the defendant or defendants the reasonable expenses, including attorneys' fees, incurred by them in the defense of the action.
(g) In proceedings hereunder, no member shall be entitled to obtain or have access to any communication within the scope of the corporation's attorney-client privilege which could not be obtained by or would not be accessible to a party in an action other than on behalf of the corporation. (1985 (Reg. Sess., 1986), c. 801, s. 34; 1993, c. 398, s. 1.)
Article 8.
Directors and Officers.
Part 1. Board of Directors.
Notes of Decisions
Cited in
16
cases (
2 in the last 5 years), 1994–2021 · leading case:
Harris v. Matthews, 643 S.E.2d 566 (N.C. 2007).
Harris v. Matthews, 643 S.E.2d 566 (N.C. 2007).
· cites it 18× “On 16 July 2003, pursuant to N.C.G.S. § 55A-7-40, plaintiffs filed suit, as members, on behalf of Saint Luke, alleging conversion of funds, breach of fiduciary duty, and civil conspiracy by defendants.”
McMillan v. Ryan Jackson Props., LLC, 753 S.E.2d 373 (N.C. Ct. App. 2014).
· cites it 56× “Here, the trial court awarded fees pursuant to N.C. Gen. Stat. § 55A-7-40, which governs derivative actions for nonprofit corporations.”
Anderson v. SeaScape at Holden Plantation, LLC, 773 S.E.2d 78 (N.C. Ct. App. 2015).
· cites it 12× “Section 55A-7-40(b) provides that a complaint brought in the right of a nonprofit corporation by its members "shall allege with particularity the efforts, if any, made by the plaintiff to obtain the action the plaintiff desires from the directors or comparable authority and the…”
Morris v. Thomas, 589 S.E.2d 419 (N.C. Ct. App. 2003).
· cites it 7× “Standing to bring a derivative suit against a non profit corporation is addressed in N.C.G.S. § 55A-7-40(a) (2003), which provides in relevant part: An action may be brought in a superior court of this State, .”
Cole v. Bonaparte'S Retreat Prop. Owners' Ass'n, Inc., 815 S.E.2d 403 (N.C. Ct. App. 2018).
· cites it 6× “In bringing a derivative claim against a nonprofit, the complaining member must comply with N.C. Gen. Stat. § 55A-7-40, which requires the plaintiff to, inter alia , "allege with particularity the efforts, if any, made by the plaintiff to obtain the action the plaintiff desires…”
Willowmere Cmty. Ass'n, Inc. v. City of Hous., 809 S.E.2d 558 (N.C. 2018).
“§ 55A-7-40 (2017) (authorizing and explaining the procedures **562 by which to prosecute a derivative action under the North Carolina Nonprofit Corporation Act).”
Ocracomax, LLC v. Davis, 788 S.E.2d 664 (N.C. Ct. App. 2016).
· cites it 6× “Standing Defendants claim that plaintiff lacks standing to sue the Association, citing N.C. Gen.Stat. § 55A-7-40(a). Plaintiff responds by citing the Declaration, which provides that relief may be brought by any aggrieved unit owner.”
Stewart v. Kopp, 454 S.E.2d 672 (N.C. Ct. App. 1995).
· cites it 2× “See N.C. Gen. Stat. § 55A-7-40 (1994). Plaintiff next argues that summary judgment in favor of defendants on her claim for damages was improper because the evidence showed that defendants engaged in a civil conspiracy against her and violated the North Carolina Civil RICO Act by…”
Ward v. Fsc I, LLC, 2016 NCBC 91 (N.C. Bus. Ct. 2016).
· cites it 26× “Accordingly, pursuant to N.C. Gen. Stat. § 55A-7-40, the Court must now determine whether this action should be continued or should be dismissed.”
Finley v. Brown, 2017 NCBC 78 (N.C. Bus. Ct. 2017).
· cites it 25× “Plaintiff Albert Earle Finley, III (“Plaintiff”) filed this action on March 6, 2017, asserting claims against the Director Defendants (i) derivatively on behalf of the Foundation under N.C. Gen. Stat. § 55A-7-40, (ECF No. 1 at 1), for alleged breach of fiduciary duty, gross…”
Ward v. Fsc I, LLC, 2017 NCBC 19 (N.C. Bus. Ct. 2017).
· cites it 20× “Pursuant to G.S. § 55A-7-40 of the Nonprofit Act, the Court discontinued the derivative action and dismissed the Plaintiffs’ claims with prejudice.”
— N.C. Gen. Stat. § 55A-7-40(a) — 9 cases
Harris v. Matthews, 643 S.E.2d 566 (N.C. 2007).
“On 16 July 2003, pursuant to N.C.G.S. § 55A-7-40, plaintiffs filed suit, as members, on behalf of Saint Luke, alleging conversion of funds, breach of fiduciary duty, and civil conspiracy by defendants.”
Morris v. Thomas, 589 S.E.2d 419 (N.C. Ct. App. 2003).
“Standing to bring a derivative suit against a non profit corporation is addressed in N.C.G.S. § 55A-7-40(a) (2003), which provides in relevant part: An action may be brought in a superior court of this State, .”
McMillan v. Ryan Jackson Props., LLC, 753 S.E.2d 373 (N.C. Ct. App. 2014).
“Here, the trial court awarded fees pursuant to N.C. Gen. Stat. § 55A-7-40, which governs derivative actions for nonprofit corporations.”
Ocracomax, LLC v. Davis, 788 S.E.2d 664 (N.C. Ct. App. 2016).
“Standing Defendants claim that plaintiff lacks standing to sue the Association, citing N.C. Gen.Stat. § 55A-7-40(a). Plaintiff responds by citing the Declaration, which provides that relief may be brought by any aggrieved unit owner.”
— N.C. Gen. Stat. § 55A-7-40(b) — 7 cases
Harris v. Matthews, 643 S.E.2d 566 (N.C. 2007).
“On 16 July 2003, pursuant to N.C.G.S. § 55A-7-40, plaintiffs filed suit, as members, on behalf of Saint Luke, alleging conversion of funds, breach of fiduciary duty, and civil conspiracy by defendants.”
Anderson v. SeaScape at Holden Plantation, LLC, 773 S.E.2d 78 (N.C. Ct. App. 2015).
“Section 55A-7-40(b) provides that a complaint brought in the right of a nonprofit corporation by its members "shall allege with particularity the efforts, if any, made by the plaintiff to obtain the action the plaintiff desires from the directors or comparable authority and the…”
Cole v. Bonaparte'S Retreat Prop. Owners' Ass'n, Inc., 815 S.E.2d 403 (N.C. Ct. App. 2018).
“In bringing a derivative claim against a nonprofit, the complaining member must comply with N.C. Gen. Stat. § 55A-7-40, which requires the plaintiff to, inter alia , "allege with particularity the efforts, if any, made by the plaintiff to obtain the action the plaintiff desires…”
Finley v. Brown, 2017 NCBC 78 (N.C. Bus. Ct. 2017).
“Plaintiff Albert Earle Finley, III (“Plaintiff”) filed this action on March 6, 2017, asserting claims against the Director Defendants (i) derivatively on behalf of the Foundation under N.C. Gen. Stat. § 55A-7-40, (ECF No. 1 at 1), for alleged breach of fiduciary duty, gross…”
— N.C. Gen. Stat. § 55A-7-40(c) — 1 case
Ward v. Fsc I, LLC, 2016 NCBC 91 (N.C. Bus. Ct. 2016).
“Accordingly, pursuant to N.C. Gen. Stat. § 55A-7-40, the Court must now determine whether this action should be continued or should be dismissed.”
— N.C. Gen. Stat. § 55A-7-40(e) — 2 cases
Ward v. Fsc I, LLC, 2017 NCBC 19 (N.C. Bus. Ct. 2017).
“Pursuant to G.S. § 55A-7-40 of the Nonprofit Act, the Court discontinued the derivative action and dismissed the Plaintiffs’ claims with prejudice.”
Ward v. Fsc I, LLC, 2016 NCBC 91 (N.C. Bus. Ct. 2016).
“Accordingly, pursuant to N.C. Gen. Stat. § 55A-7-40, the Court must now determine whether this action should be continued or should be dismissed.”
— N.C. Gen. Stat. § 55A-7-40(f) — 2 cases
McMillan v. Ryan Jackson Props., LLC, 753 S.E.2d 373 (N.C. Ct. App. 2014).
“Here, the trial court awarded fees pursuant to N.C. Gen. Stat. § 55A-7-40, which governs derivative actions for nonprofit corporations.”
Ward v. Fsc I, LLC, 2017 NCBC 19 (N.C. Bus. Ct. 2017).
“Pursuant to G.S. § 55A-7-40 of the Nonprofit Act, the Court discontinued the derivative action and dismissed the Plaintiffs’ claims with prejudice.”
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