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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: Statute of Limitations



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



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.]


Business Tort Cases: Receivership and Cancellation of Shares





    In a case a few years ago, VLG was able to successfully prosecute an action in behalf of one shareholder against his fellow shareholder-brother. This case was somewhat typical of a closely held corporation in that the brothers acquired the business from their parents and for sometime were successful and cooperative in running the company. Many of the formalities of the corporation had been over looked for years, however.

When personal disputes arose there were employment terminations, alleged personal injury and financial misconduct. In addition, the defendant’s wife commenced arguing that she was also a shareholder. It was alleged that the brothers were no longer 50/50 shareholders but each held 1/3 with defendant’s wife holding an additional 1/3.

After discovery of the basic facts and based upon this information VLG brought a motion for the appointment of a receiver. The motion was granted by the trial judge. A receiver can be appointed by the Court to conclude the sale and wind up the affairs of a business. MCLA 600. 2926, provides:

“Circuit court judges in the exercise of their equitable powers,
may appoint receivers in all cases pending where appointment
is allowed by law. This authority may be exercised in vacation,
in chambers and during sessions of the court… Subject to
limitations in law or imposed by the court, the receiver shall be
charged with all of the estate, real and personal debts of the
debtor or the trustee for the benefit of the debtor, creditors and the others interested.”


Black’s Law Dictionary (7th ed.) defines “receivers” as “[a] disinterested person appointed by the court, for a corporation or other person, for the protection or collection of a property that is the subject of diverse claims”. A receiver is an officer of the court who protects and preserves property on behalf of the parties to a lawsuit. 65 Am Jur2d, Receivers, § 1, p.351.
A Circuit Court’s decision whether to appoint a receiver is reviewed under an abuse of discretion standard. Jail Inmate v. Wayne County Executive, 178 Mich App 64, 651 (1981). Receivership is a harsh remedy and the Court should therefore consider less intrusive measures. Band v. Livonia Associates, 176 Mich App 95, 104 (1989). Extreme business stalemate and/or business misconduct must be usually demonstrated for the appointment of a receiver.
In addition, the trial court ultimately cancelled the stock which Plaintiff’s sister-in-law allegedly held. In her deposition the sister-in-law testified that she had provided services in exchange for the stock for years. The testimony also showed, however, that she had been paid for each and every service which she had earlier rendered. The trial ruled that she did not have any shares because they were not properly issued and because she had not paid any separate consideration for them. There can not be a legally binding commitment without separate consideration. As noted by legal scholars, to support a present contract or transaction, “past consideration is not consideration.” Contracts, Calamari & Perillo, 3rd Edition 1973, § 54, p 106.
Since plaintiff’s sister-in-law had been paid for her work she was not entitled to anything extra. In the regard, VLG cited the trial court to an interesting out-of-state case, Kelsoe v. International Wood Products, Inc., 588 So. 2d 877 [Alabama] (1991), there was a similar fact pattern to this case (out of state cases are not binding Michigan Courts, but sometimes can be persuasive). There an employee alleged an agreement to receive shares of stock from her employer because of years of good and faithful service. However, the Alabama Supreme Court affirmed a directed verdict in favor of the employer, holding:

It is a well-settled general rule that consideration is an
essential element of, and is necessary to the enforceability or
validity of, a contract. 17A Am Jur 2d Contracts § 117 (1991).
It is generally stated that in order to constitute consideration for a promise, there must be an act, a forbearance,
a detriment, or a destruction of a legal right, or a
return promise, bargained for and given in exchange for the promise. [citation omitted].

The undisputed evidence here shows that International Wood’s
promise to issue the stock to Kelsoe was gratuitous in nature
and was prompted only by Kelsoe’s past favorable job
performance. As such, International Wood’s promise was without consideration and created no
legally enforceable contract right. [citation omitted].

In the end, the business was sold, creditors paid and VLG’s client received a distribution of 50% of the returning proceeds. The sister-in-laws’s alleged shares were cancelled.


[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 Tort Cases: Recent Defamation Case



Recent Defamation Case

It is more and more common for traditional business cases to take on other civil wrong – tort features.
In a recent case, VLG successfully defended against charges of defamation against a shareholder in a small business corporation who was quite vociferous in slamming management. Specifically, it was alleged that before a shareholders’ meeting, at the meeting, and just after in correspondence that the shareholder had defamed the President of the company. The shareholder defended in part, that as a shareholder, he had a right to express his opinion as to the operations of the corporation.

At common law, the elements of defamation appear fairly simple. In Rouch v. Enquirer & News of Battle Creek, 440 Mich. 238, 251 (1992), the Supreme Court set forth the oft-cited four elements:

   “1) a false and defamatory statement concerning the plaintiff, 2) an unprivileged communication to a third party, 3) fault amounting to at least negligence on the part of the publisher, and 4) either actionability of the statement irrespective of special harm or the existence of special harm caused by publication.”

Since a defamation lawsuit necessarily implicates First Amendment guarantees, a plaintiff must also overcome a number of constitutional barriers to prevail in such an action. These constitutional concerns make the elements concerning defamation considerably more complex and difficult to prove than other civil actions. While a defamation plaintiff has a difficult burden, such cases must be defended vigorously because they also threaten the possibility for a large verdict against the defendant.

In this particular case defendant asserted that because he was a shareholder and his speech was specifically directed only to corporation matters and other shareholders that he was entitled to a “qualified privilege” to say things, which outside of the privilege, might be defamatory.As explained in Swenson-Davis v. Martel, 135 Mich App 632, 635, lv. den. 419 Mich. 946 (1984):

    In general, a qualified privilege extends to all communications made bona fide upon any subject matter in which the party communicating has an interest, or in reference to which he has a duty, to a person having a corresponding interest or duty, and embraces cases where the duty is not a legal one but is of a moral or social character of imperfect obligation. Timmis v. Bennett, 352 Mich 355, 366; 89 NW2d 748 (1958). The initial determination of whether a privilege exists is one of law for the court. Lawrence v. Fox, 357 Mich 134, 139-140; 97 NW2d 719 (1959).

A plaintiff may only overcome a qualified privilege by a showing of malice. Malice in the defamation context does not mean ill-will. Rather, it means a heightened level of fault. Citing Grebner v. Runyon, 132 Mich. App. 327, 332-333 (1984), the Ireland Court explained:

“Actual malice is defined as knowledge that the published statement was false or as reckless disregard as to whether the statement was false or not. Reckless disregard for the truth is not established merely by showing that the statements were made with preconceived objectives or insufficient investigation. Furthermore, ill will, spite or even hatred, standing alone, do not amount to actual malice. “Reckless disregard” is not measured by whether a reasonably prudent man would have published or would have investigated before publishing, but by whether the publisher in fact entertained serious doubts concerning the truth of the statements published.” Ireland, supra. at 622.

In the subject case VLG was also successfully able to assert an additional defense that the spoken and written words were not capable of defamatory meaning and were also true. In other words, even if words are capable of being understood as defamatory, if truthful, then they are not actionable. Only false statements are actionable and truth is always a perfect defense. The trial judge granted defendant’s motion to dismiss the lawsuit summarily.

[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.]