I like writing this blog. What I don’t like is coming up with ideas for it. Pennsylvania courts just aren’t pumping out business divorce cases with the frequency I’d like to keep the posts flowing. But occasionally we get a gem. The Superior Court’s recent decision in Cramer v. Kaplin Stewart Meloff Reiter & Stein, P.C., 2026 WL 1961013 (Pa. Super. July 7, 2026), gives us plenty to talk about.

The holding is not groundbreaking — Pennsylvania law requires a derivative plaintiff to make a demand on the corporation, and failure to make that demand is fatal to the claim. I’ve written about this before (see my prior post on the demand requirement). The interesting part is the context in which the demand issue reached the court. That context gives us a peek into the messy world of business divorce litigation, puts some creative lawyering on display, and suggests how it could have been executed better.

The Freezeout, the Firm, and the Failed Demand

Evan Cramer and his brother Matthew were co-equal 50% owners of two companies — M. Cramer & Associates LLC and Philadelphia Theatrical Supply, Inc. The Kaplin Stewart law firm represented the companies for years. When the brothers’ relationship broke down, Matthew (per the complaint) went to Kaplin Stewart for help pushing Evan out, which the complaint alleges the firm provided.

Setting aside the apparent conflict of interest, the Kaplin Stewart attorneys apparently failed to consider or advise Matthew on the potential impact the freezeout could have on the companies’ financing and bonding facilities, both of which Evan and Matthew personally guaranteed. As a result of the alleged freezeout, the companies’ lender refused to extend their line of credit without Evan’s consent, bonded contracts fell through, and the businesses started circling the drain. Id. at *3.

Evan sued Matthew and his wife for the typical claims — breach of fiduciary duty (direct and derivative) and breach of the shareholders’ agreement, among others. Evan secured a preliminary injunction preventing Matthew and his wife from winding down the companies and successfully had Kaplin Stewart disqualified.

Here’s where things get interesting. While the litigation against Matthew and his wife was pending, Evan filed a writ of summons and, later, a complaint against Kaplin Stewart asserting a legal malpractice claim derivatively on behalf of the companies.

Matthew and Evan subsequently settled their dispute. The settlement agreement expressly allowed Evan to continue pursuing Kaplin Stewart on the malpractice claim and had the companies assign any claims they held against the firm to Evan.

The trial court granted Kaplin Stewart’s motion for summary judgment. On appeal, the Superior Court affirmed on the basis that Evan never made a demand on the companies under 15 Pa.C.S.A. § 1781 before filing the derivative malpractice complaint.

Pennsylvania is a universal-demand state. Under 15 Pa.C.S.A. § 1781, “a plaintiff may maintain a derivative action to enforce a right of a business corporation only if” the plaintiff “first makes a demand on the corporation or the board of directors requesting that the corporation bring an action.” The demand must be in record form and set out, “with reasonable specificity,” the material facts supporting each claim against each proposed defendant and the basis for the plaintiff’s standing. § 1781(c). Demand is excused only on a specific showing of immediate and irreparable harm — and even then, it must be made promptly after the action is commenced. Id. at 9–10 (citing Cuker v. Mikalauskas, 692 A.2d 1042 (Pa. 1997)).

Evan filed first and worried about the demand later. The trial court thought a demand existed, pointing to the minutes of a May 2019 shareholders’ meeting that occurred between the filing of the writ and the complaint in the malpractice case. The Superior Court disagreed, and its walk through those minutes is instructive. The minutes reflected only a general heads-up that Evan intended to file — not the fact-specific demand the statute requires. Id. at 10–11. As the court put it, the companies were never provided “the material facts relied upon to support each of the claims” or “the basis on which the person making the demand has standing.” Id. at 11. No demand meant no standing to pursue the companies’ claims. Full stop.

The assignment of claims in the settlement agreement fared no better. Because the malpractice complaint was filed on a derivative basis, the failure to make a demand deprived Evan of standing to pursue it in his own right, assignment or not.

What to Take from Cramer

Rare Use of a Derivative Claim Against a Third Party — Derivative claims are the stock-in-trade of minority owners trying to hold wrongdoing majority owners responsible for breaches of fiduciary duty owed to the company. They are very rarely used to bring claims against third parties, like the company’s own law firm. But nothing in the BCL or the LLC Act prevents their use this way, and Cramer implicitly authorizes it.

The Demand Requirement Is Really Rigid — The Superior Court again emphasized the pre-suit demand as a prerequisite to standing for a derivative claim. Nothing new there, but if there were ever a case for relaxing the requirement, this might be it. You have 50/50 owners where it appears both had full knowledge of the facts supporting the claim — indeed, Matthew, the owner who would have received the demand, may have understood the malpractice claim better than Evan did. Matthew knew Evan had filed a writ and knew the nature of the underlying claim. The settlement agreement expressly contemplated that Evan would pursue the derivative claim and assigned the companies’ claim to him, which itself implies the companies had no intention of taking up the malpractice claim Evan had already started. It’s hard to see what purpose a demand would have served under these circumstances.

Creative Settlement Agreements — It’s worth paying attention to the creativity in this settlement agreement. Most of our business divorce cases end in a buyout transaction, often involving a division of the company’s assets in some logical way. A malpractice claim against the company’s own attorneys is another form of asset that potentially has value and can be part of a negotiated resolution — that’s what Evan and Matthew appear to have been trying to do here. The complaint alleged that Kaplin Stewart’s poor advice damaged the business; if successful, that claim may have had significant value to Evan once Kaplin Stewart’s malpractice carrier paid out. The Superior Court doesn’t say one way or another, but it’s a fair guess that the value Evan anticipated receiving is what made a settlement between the brothers possible. That’s good, creative lawyering. The demand failure ultimately made the malpractice claim worthless, but that shouldn’t discourage business divorce practitioners from structuring creative deals. If you’re considering any transaction where a claim is being transferred, it’s worth a quick read of my article on champerty and assigning legal claims.

Law Firm Conflicts — The allegations regarding Kaplin Stewart’s conflict of interest are unflattering, but perhaps not uncommon. It’s easy for attorneys to forget who they represent when a closely held business is involved, particularly when the firm deals with one owner regularly. The trial court’s decision to disqualify Kaplin Stewart — which doesn’t appear to have been challenged on appeal — is a good reminder that company counsel needs to stay vigilant to avoid slipping into an owner-versus-owner dispute.

You can settle the business divorce. You can assign the claim. What you can’t do is go back in time and send the demand you skipped.