Just back from the dealer. Yes, known transfer case issue. They first change the fluid in the transfer case, service tech said its higher viscosity. If that doesn't fix the problem them its replace transfer case. I'll have to see over the next couple weeks if this fixes the issue.

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Bob Voskian

2012 BMW X5 3.5i
2014 BMW 535i xDrive (wife's)
1991 Porsche 928 GT 5 speed (44K miles)
2003 MB SL 500 (wife's summer car)
2004 Audi TT 3.2 quattro with DSG