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New Supreme Court Decision Regarding Michigan’s Shareholder Oppression Statute

For those of you who thought shareholder oppression cases could be tried to a jury, think again. It is true that the Michigan shareholder oppression statute, MCL 450.1489(f) of the Business Corporation Act, states that “if the shareholder establishes grounds for relief, the circuit court may make an order or grant relief as it considers appropriate, including, without limitation, an order providing for any of the following: . . . (f) An award of damages to the corporation or a shareholder . . .” Moreover, Article 1, § 14 of the 1963 Michigan Constitution states that “[t]he right of trial by jury shall remain, but shall waived in all civil cases unless demanded by one of the parties in the manner prescribed by law.” Similarly, MCR 2.508(A) provides that “[t]he right of trial by jury as declared by the constitution must be preserved to the parties inviolate.” These clear affirmations of the right to a jury trial in civil matters would appear to leave no room to argue that shareholder oppression claims can be tried to a jury.

But that is no longer an accurate statement of the law. In its newly issued unanimous decision in Madugula v. Taub, 2014 Mich. LEXIS 1281 (July 15, 2014), the Michigan Supreme Court held that shareholder oppression claims, including those seeking damages, can only be tried before judges sitting as courts of equity.

Writing for the entire Court, Justice Viviano first analyzed the Michigan shareholder oppression statute by comparing it to the Whistleblowers’ Protection Act (“WPA”). In Anzaldua v. Band, 457 Mich 530 (1998), the Supreme Court held that there was a right to a jury trial in an action under the WPA, even though that statute made no reference to a jury trial. The Anzaldua Court had recognized that damages are “a legal, rather than an equitable, remedy, and legal issues are traditionally tried to a jury.” Because the Legislature included a damages remedy in the WPA, the Supreme Court held that this was an indication that the Legislature also intended to attach a jury right to that remedy. Since § 489 also provides for an award of damages as one of the remedies for shareholder oppression, it would seem that such claims must be tried before a jury.

The Madugula Court disagreed. After carefully parsing the language of § 489 and contrasting it to the provisions of the WPA, Justice Viviano held that Anzaldua was not controlling. Placing great emphasis on the statute’s inclusion of the phrases “may”, “as it considers appropriate” and “without limitation,” the Court determined that § 489 gave a circuit court wide discretion in deciding what relief should be awarded when oppression is shown, consistent with the powers of a court of equity. What clinched it for the Court was the Legislature’s decision not to include a right to a jury trial in § 489 when it adopted the language of the statute’s predecessor, MCL § 850.1825, that had described the circuit court’s authority to grant relief.

But what about the Constitutional right to a jury trial? The Court had previously held that “the right to have equity controversies dealt with by equitable methods is as sacred as the right of trial by jury.” It had also previously held that the 1963 Constitution did not abolish the distinction between law and equity. Therefore, the Court framed the issue as being whether a § 489 claim “is similar to a claim that afforded the right to a jury trial at the time the 1963 Constitution was adopted.” After a lengthy analysis, the Court determined that because an oppression claim was similar to equitable shareholder derivate claims and claims for dissolution, there is no Constitutionally-protected right to a jury trial for § 489 claims.

While Madugula only dealt with § 489 shareholder oppression claims, this case likely means that a limited liability member’s oppression claim under MCL 450.4515 can only be tried to a court of equity. That is because the language of the two statutes is virtually identical with respect to remedies and the circuit court’s authority to grant them.

To learn more, contact Stephen McKenney directly at smckenny@neumananderson.com.