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Business Cases in the News: Shareholder Oppression

Business Cases in the News:

 

Shareholder Oppression  

 

     In the recent (unpublished) case of Berger v. Katz, Case No.: 293880 the Michigan Court of Appeals, the appellate court of Michigan, affirmed (agreed with) significant relief afforded to the minority shareholder. In doing so the Court of Appeals swept aside the argument of the Defendants that the minority shareholders were not entitled to relief under MCL 450.1489 because all of their decisions and conduct was authorized by the bylaws.  The Court of Appeals noted that even authorized and legal decisions could still be oppressive to the minority shareholders.

 

     In reaching their decision, the Court of Appeals looked at the statutory language:

 

MCL 450.1489 provides, in relevant part:

 

(1) A shareholder may bring an action in the circuit court of the county in which the principal place of business or registered office of the corporation is located to establish that the acts of the directors or those in control of the corporation are illegal, fraudulent, or willfully unfair and oppressive to the corporation or to the shareholder…

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(3) As used in this section, “willfully unfair and oppressive conduct” means a continuing course of conduct or a significant action or series of actions that substantially interferes with the interest of the shareholder as a shareholder. Willfully unfair and oppressive conduct may include the termination of employment or limitation on employment benefits to the extent that the actions interfere with distributions or other shareholder interests disproportionately as to the affected shareholder. The term does not include conduct or actions that are permitted by an agreement, the articles of incorporation, the bylaws, or a consistently applied written corporate policy or procedure.

 

     If you or a loved one are a victim of oppressive conduct, call Guy Vining of the Vining Law Group, PLC, for a discrete and no charge consultation. Elements of oppressive conduct found by various courts include: being denied notices, changes in bylaws and articles of incorporation, insider contracts, salary elimination, termination of employment, issuing stock without need the corporation, significant pay and benefit increases to those in control of the corporation and denying the minority shareholders a voice in management.

 

Guy Vining has practiced law throughout the state of Michigan. His office is located in the downriver city of Taylor where he primarily serves the Metro-Detroit area. He has represented shareholders in stock court actions including the Court of Appeals. All initial consultations are confidential and without charge. Please feel free to call.

Business Cases in the News: Shareholder Oppression

Business Cases in the News:

 Shareholder Oppression

 

     In an unpublished opinion last year in Berger v. Katz, Case No.: 291663, the Michigan Court of Appeals sent a strong message to the business community that it would liberally enforce the provisions of MCL 450.1489. That statute gives a remedy to minority shareholders who have suffered  shareholder oppression at the hands of the majority shareholders.

 

     In Berger, the Court of Appeals found evidence that Defendants stopped making payments to Plaintiff, no longer sought his input on corporation matters and substantially increased their salaries at his expense was sufficient to support a claim, for among other things, breach of fiduciary duty. In that regard the Court held:

 

     “Majority Shareholders in a corporation owe “the utmost good faith in its control and management as to the minority and it is the essence of this trust that it must be so managed so as to produce to each shareholder, the best possible return upon his investment.” Salvador v. Connor, 87 Mich App 664, 675; 276 NW2d 458 (1978), quoting 6 Callaghan’s Michigan Civil Jurisprudence (2d ed), §166, p 365. Where the evidence shows that majority shareholders improperly diverted corporate funds, a breach of fiduciary duty of the majority shareholders can be found. Salvador, 87 Mich App at 675-677.”

 

     If you or a loved one are involved in a corporation or limited liability company (LLC) and need assistance, just call Guy Vining. Guy Vining of the Vining Law Group, PLC, has assisted many minority shareholders in cases involving oppressive conduct of the majority shareholders. Your initial meeting will be without any charges and strictly confidential. Many of these cases can be prosecuted on a contingency fee basis so that you will not pay an attorney fee unless there is a favorable financial outcome.

 

Guy Vining has practiced law throughout the state of Michigan. His office is located in the downriver city of Taylor where he primarily serves the Metro-Detroit area. He has represented employers and employees in employment litigation in the trial court and the appellate courts in the following areas: whistleblower, breach of contract, public policy, discrimination, wage and hour violation, covenants not to compete, Americans with disabilities action and retaliation

Business Cases in the News: Minority Shareholder Oppression

Business Cases in the News:

 

Minority Shareholder Oppression

 

     In our blogs we have on occasion discussed cases of minority shareholder oppression. Recently, in writing a brief to be filed in the Wayne County Circuit Court, on the issue of the proper valuation standard, Guy Vining ran across the following quote from the William Mitchell Law Review in 1996:

 

     “Close corporations typically are formed by friends, relatives, or other business associates who choose to combine their capital, skills, labor and experience in a new business. Shareholders in a close corporation generally plan to be employed by the corporation and to have an active role in management. As a result, shareholders usually expect to receive a salary, bonus and additional benefits consistent with their roles as employees, officers, and directors.

 

      While those corporations begin as friendly ventures, the balance of power in the close corporation often lends itself to oppression of those shareholders who do not control the corporation and usually own only a small percentage of shares — the minority shareholders. Minority shareholders may be subjected to a “freeze out,” (sometimes known as a “squeeze out”) by the majority shareholders. Typical “freeze out” techniques include terminating the minority shareholder’s employment with the corporation or terminating dividends and the minority shareholder’s returns on his or her investment.

 

      Although minority shareholders in any corporation are in a difficult position due to their lack of control, minority shareholders in closely held corporations have uniquely difficult positions because their shares are not readily marketable. In other words, when minority shareholders in a large, publicly-traded corporation become dissatisfied with corporate operations, they can “vote with their feet” — sell their shares and discontinue their involvement with the corporation. Minority shareholders in the closely held corporation, on the other hand, often cannot easily sell their shares.

 

      The lack of a market for close corporation shares owned by a minority shareholder means that a non-controlling investor may be locked into a business that is providing little return on investment, or at least is failing to fulfill the owner’s non-monetary expectation. Left without a meaningful return on his or her investment, the minority shareholder may have little choice but to sell for less than a fair price, usually to the majority shareholders.”

 

The above is a succinct summary of the problems encountered by minority shareholders in such small corporations. As the author notes many times, what starts as a friendly venture turns very ugly when the money starts rolling in.

 

Guy Vining of the Vining Law Group, PLC, would be happy to perform a no charge analysis of your case if you find yourself in such a situation. You may be entitled to significant relief from shareholder oppression under MCL 450.1489. Under this statute a judge is empowered to examine the circumstances and afford relief, such as advising the Defendants to buy your interest out at “fair value,” consistent with equity.

 

Guy Vining has practiced business law throughout the state of Michigan. His office is located in the downriver city of Taylor where he primarily serves the Metro-Detroit area. He serves the Metro-Detroit and Downriver communities, including Rockwood,  Gibraltar, Brownstown, Woodhaven, Grosse Ile, Trenton, Riverview, Romulus, Wyandotte, Ecorse, Lincoln Park, Alan Park, Dearborn, and Dearborn Heights.

Bankruptcy Cases in the News

Bankruptcy Cases in the News

The 6th Circuit Court of Appeals issued an important and very interesting case recently in White v. Wyndham Vacation Ownership, Inc., 617 F3d. 472 (2010). This Court is the Court of Appeals for a great number of Midwestern Bankruptcy Courts, including the State of Michigan. The White case shows the importance of full disclosure of all assets in a consumer bankruptcy case. As we have discussed in the past blog postings, failure to make full disclosure can result in the dismissal of a case, attorney fees and in some instances, criminal charges.

The White case dealt with an interesting additional concept called “judicial estoppel.” Here is what happened. When Mrs. White signed and filed her bankruptcy petition she forgot to list as a possible asset of a lawsuit against her former employer, Wyndham. Apparently, the reason she had financial problems was because she had been discharged under circumstances which were suspicious of employment discrimination. A potential lawsuit is an asset.

Neither in her plan, nor in her schedules did she disclose to the Bankruptcy Court or her creditors that she had a significant cause of action for employment discrimination against her former employer, Wyndham. After her plan was approved and before she filed suit against Wyndham, she made some attempts to modify her bankruptcy schedules regarding the employment claim. Still, the U.S. District Court dismissed her lawsuit for discrimination, at her former employer’s request, based upon judicial estoppel and the 6th Circuit affirmed the dismissal. The 6th Circuit discussed in the opinion the doctrine of judicial estoppel:

    In the bankruptcy context, this court has previously noted that “judicial estoppel” bars a party from (1) asserting a position that is contrary to one that a party has asserted under oath in a prior proceeding, where (2) the prior court adopted the contrary position either as a preliminary matter or as part of a final disposition. [Citations omitted.] Id. At 476.

The White court noted that the doctrine was “utilized in order to preserve the integrity of the courts by preventing a party from abusing the judicial process through cynical gamesmanship.” Id. The Court further noted that it is the debtor’s absolute duty to disclose all assets to the Bankruptcy Court pursuant to various statutes in the Bankruptcy Code. Further, that based upon the purposes of bankruptcy:

  “[W]hen a bankruptcy court – which must protect the interest of all creditors – approves a payment from the bankruptcy estate on the basis of a party’s assertion of a given position that in our view is sufficient ‘judicial acceptance’ to estop the party from later advancing an inconsistent position.” [Citations omitted.]. Id. At 479.

The omission to list property or the true value assets is viewed as very significant when compared to the purpose of bankruptcy law. The White court specifically noted:

    “[T]he disclosure obligations of consumer debtors are at the very core of the bankruptcy process and meeting these obligations is part of the price that debtors pay in receiving the bankruptcy discharge. [Citations Omitted.] Viewed against the backdrop of the bankruptcy system and the ends it seeks to achieve, the importance of the disclosure duty can not be over emphasized. Id. At 480.

 
Dismissal of a significant claim was a drastic remedy. However, it was a remedy necessary to protect the bankruptcy court system. Had Mrs. White disclosed the Trustee might have brought the claim and any settlement or judgment could have been used to pay her creditors which would have got her out of her plan sooner, helping her and her creditors. When you and your bankruptcy lawyer file a petition for bankruptcy, yours assets (subject to proper exemptions) are no longer yours. The trustee has a right to bring those cases for the benefit of all administrative claimants and creditors. If all these folks get paid and there is money left over, the debtor will receive the balance.

The importance of the disclosure duty can not be over emphasized. Be sure to disclose all potential claims with your bankruptcy attorney. Otherwise, you will jeopardize your fresh start.

[Guy Vining, a bankruptcy attorney, in metro-Detroit, maintains his office in the city of Taylor, Michigan, where he serves the downriver communities of Monroe, South Rockwood, Gibraltar, Brownstown Township, Grosse Ile, Woodhaven, Trenton, Southgate, Riverview, Allen Park, Lincoln Park, Dearborn, Dearborn Heights, Westland, Wayne, and Ecorse. If you or a family member of friend would like a no-obligation no cost consultation/financial analysis, just call or E-mail Guy Vining of Vining Law Group, P.L.C to schedule a meeting.]

Employment Law in the News

Employment Law in the News

From time to time Guy Vining of Vining Law Group, PLC, (VLG) has both prosecuted and defended employment law claims for individual clients and various corporate clients. Employment law cases generally are very difficult because they are factually intensive requiring the review of many documents and the interviewing or deposing of multiple witnesses. Unlike a traffic accident case where the question might simply be: red light or green light?; the employment case may span many years and many incidents or events.

A great deal of care should be employed in determining who to hire to represent you in your employment law case. These cases require meticulous preparation and tenacity in advancing or defending the case. Past trial experience, good abilities at legal research, writing and trial practices are a must. Moreover, your attorney needs to have life experience and understand how witnesses and jurors see things.

Guy Vining offers a free telephone consultation with respect to employment law cases. In the event that he can help you with a particular matter he will set up an appointment to discuss the matter in greater detail. Since Mr. Vining has been helping people with these kinds of matters since 1982 he will be able to appropriately analyze your case. Please call for free to discuss yours at 734.281.2050. He has experience in prosecuting and defending sexual harassment cases; whistleblower cases; terminations in violation of public policy cases; and, general discrimination matters, including retaliation cases.

Guy Vining has practiced law throughout the state of Michigan. His office is located in the city of Taylor, Michigan, where he primarily serves the Metro-Detroit area. He has represented employers and employees in employment litigation in the trial court and the appellate courts in the following areas: whistleblower, breach of contract, public policy, discrimination, wage and hour violation, covenants not to compete, Americans with disabilities action and retaliation

Top Ten Bankruptcy Mistakes: The ‘Cheap’ Bankruptcy

TOP TEN BANKRUPTCY MISTAKES

 

#10

The ‘Cheap’ Bankruptcy

There is always some one working out of their car or basement that will do anything from window cleaning to practicing law “cheaper” or at the “lowest prices.” But, the hard reality is that there are no free lunches and we usually get what we pay for in life. Your financial future is sometimes dear and valuable and should not necessarily be handled by the lowest bidder.

[Guy Vining, a bankruptcy attorney, in metro-Detroit, maintains his office in Taylor, Michigan, where he serves the downriver communities of Monroe, South Rockwood, Gibraltar, Brownstown Township, Grosse Ile, Woodhaven, Trenton, Southgate, Riverview, Allen Park, Lincoln Park, Dearborn, Dearborn Heights, Westland, Wayne, and Ecorse. If you or a family member of friend would like a no-obligation no cost consultation/financial analysis, just call or E-mail Guy Vining of Vining Law Group, P.L.C to schedule a meeting.]

 

Oppression of Minority Shareholders: What are Shareholder Rights?

Oppression of Minority Shareholders:

What are Shareholder Rights?


    As discussed in previous posts, a minority shareholder can bring an action against the directors and/or others that are in control of a corporation for illegal, fraudulent or oppressive conduct, MCL 450.1489.  Willfully oppressive conduct is defined by the statute as a continuing course of conduct or a significant action, or series of actions, that substantially interferes with the interest of the shareholder “as a shareholder.”

 

The question then arises as to what the interests of a shareholder are. In other words, what are the rights incidental a shareholder’s interests? Generally, speaking a shareholder’s rights in a close corporation consists of: the right to inspect the books and records and for a reasonable accounting; the right to vote and participate in management of the corporation; and, the right to receive a share of the profits of the business. These rights are based upon statutes and the common law of Michigan.

 

More recently, by amendment of the Shareholder Oppression Statute, MCL 450.1489, the Legislature has added employment security in certain circumstances. It has been amended to add the following language: “Willfully unfair and oppressive conduct may include the termination of employment or limitations on employment benefits to the extent that the actions interfere with distributions or other shareholder interest disproportionately as to the affected shareholder.”

 

These are the types of rights which if violated in a significant way or on a continuous basis may form a minority shareholder oppression case pursuant to MCL 450. 1489. In blog postings to follow we will examine some of the cases when oppressive acts have been found and not found under the shareholder oppression statute.

 

In the meantime, it is interesting to note that Michigan has a long history prior to the Shareholder Oppression Statute protecting minority shareholders. One of the interesting cases is Dodge Brothers v. Ford Motor, Co., 204 Mich 459 (1919). In that case the minority shareholders requested and received a court order requiring Henry Ford (majority holder) to declare and pay a significant dividend to the minority shareholders. The Michigan Supreme Court noted that Ford’s refusal appeared to be arbitrary because the company had consistent profits and was at the time cash rich. Apparently, Mr. Ford’s reluctance may have had something to do with keeping his competitors from receiving money that they would use to compete against him. In any event, in equity, because the purpose of an investment is to make money, the Michigan Courts for over 90 years now, have ordered dividends paid in an appropriate case.

[Guy Vining, an attorney, in metro-Detroit, maintains his office in Taylor, Michigan, where he serves the local communities and the tri-county area. If you or a family member of friend would like a no-obligation no cost consultation, just call or E-mail Guy Vining of Vining Law Group, P.L.C to schedule a meeting.]

 

Oppression of Minority Shareholders: Special Needs of Minority Shareholders

BUSINESS LITIGATION CASES

OPPRESSION OF MINORITY SHAREHOLDERS

Special Needs of Minority Shareholders

Minority shareholders are often the abused backbone of close corporations. That is to say it was their “sweat equity,” ideas or capital contributions which allowed the corporation to be conceived. Once the corporation becomes successful it is all too easy for the majority shareholders to forget that they were significantly helped along the way by others. The majority then, out of greed or just callous disregard for the rights of others neglects or freeze out and squeeze out the minority shareholders.

The Michigan Business Corporation Act (MCL 450.1103) provides that, among other things, that its purpose and policy is to foster businesses and small business. Specifically, the statute declares that the entire act “…shall be liberally construed and applied to promote its underlying purposes which include (c) [g]ive special recognition to the legitimate needs of close corporations.”

In recognition of the Legislature purposes to foster business and growth Michigan has, as earlier related in other segments, enacted the Oppressive Acts statute, MCL 450.1489, which provides a cause of action for minority shareholders who are being frozen or squeezed out. Moreover, the courts are commencing to more liberally enforce the rights of minority shareholders. After all, if there is no profit in it and if a minority shareholder may be abused, why invest at all? And, one can see that the absence investment equals to stagnation.

Accordingly, the Michigan Courts are now of the view that the shareholders – in close corporations – are more akin to partners and must be afforded a high duty of care. For instance, in Estes v. Idea Engineering, 250 Mich App 270 (2002) the Michigan Court of Appeals stated, “… because the shareholders participate in management of the corporation, the relationship owing those in control of a closely held corporation requires a higher standard of fiduciary responsibility, a standard more a kind to partnership law.”

[Guy Vining, an attorney, in metro-Detroit, maintains his office in Taylor, Michigan, where he serves the local communities and the tri-county area. If you or a family member of friend would like a no-obligation no cost consultation, just call or E-mail Guy Vining of Vining Law Group, P.L.C to schedule a meeting.]

 

Oppression of Minority Shareholders: Statute of Limitations

BUSINESS LITIGATION CASES

OPPRESSION OF MINORITY SHAREHOLDERS

Statute of Limitations

A minority shareholder, pursuant to MCL 450.1489, may seek relief from majority oppression. The general statute of limitations is a period of 6 years for general oppressive conduct. The reason apparently is because the minority shareholder has the burden of establishing “a continuing course of conduct or a significant action or series of actions that substantially interferes with the interests of the shareholders, as a shareholder.” Therefore, the statues allow a long “look back” at majority misconduct with respect to equitable relief available. In Estes v. Idea Engineering, 250 Mich App 270 (2002) the Court of Appeals found that the 6 years provides an appropriate amount of time to produce proof of a pattern of misconduct and to seek relief.

The equitable relief available is broad and includes, among other things: dissolution and liquidation of the corporation, injunctions and Court ordered buy-outs.

An important distinction is made under the statute, however, with respect to relief consisting of monetary damages. Specifically, claims for money damages must be brought within 3 years of accrual or within 2 years after the aggrieved shareholder discovers or should have reasonably discovered the damages, which ever occurs first. Therefore, a minority shareholder should seek legal counsel at the first signs of oppression to protect his rights. A delay in prosecuting a case might result in a denial of money damages even though significant equitable remedy is available.

[Guy Vining, an attorney, in metro-Detroit, maintains his office in Taylor, Michigan, where he serves the local communities and the tri-county area. If you or a family member of friend would like a no-obligation no cost consultation, just call or E-mail Guy Vining of Vining Law Group, P.L.C to schedule a meeting.]

 

Business Litigation: Oppression of Minority Shareholders

BUSINESS LITIGATION CASES

BUSINESS TORT CASES

Minority Shareholder Oppression

 

Business Litigation: Oppression of Minority Shareholders

In years past, minority shareholders were frequently abused by majority shareholders with impunity. That is to say that the rights of minority shareholders were greatly constrained and limited. As a consequence their shareholder equity could be held up and used to benefit the majority shareholders who would take excessive salaries and benefits and other privileges not enjoyed by the minority shareholders. There were a few cases, which were the exception for instances forcing a corporation to pay a shareholder dividend.

In 1989 the legislature, however, enacted MCL 450.1489 with the purpose of providing minority shareholders a cause of action to complain in court against directors or those in control of the corporation. The statute provides a variety of relief which may be awarded to an aggrieved minority shareholder who is able to prove that the acts against him are: illegal, fraudulent or willfully unfair and oppressive. Oppression has been defined elsewhere to mean acts which are done under the color of authority which can be unnecessarily burdensome or severe or which weighs heavily.

This redress for wrongs against a minority shareholder gives such a minority shareholder, meaningful tools to level the playing filed. Among the remedies available the judge, upon a proper case, can even order a buy-out at a fair value so that the minority shareholders can get out and not be constantly victimized.

 

[Guy Vining, an attorney, in metro-Detroit, maintains his office in Taylor, Michigan, where he serves the local communities and the tri-county area. If you or a family member of friend would like a no-obligation no cost consultation, just call or E-mail Guy Vining of Vining Law Group, P.L.C to schedule a meeting.]