Court Opinion

ID: 9654444
Source: CourtListenerOpinion
Date Created: 2023-08-23 18:20:59.317998+00
Date Added: 2024-06-11T18:13:09.339100
License: Public Domain

Hoekstra, J.
(dissenting). I respectfully dissent because I disagree with the majority’s conclusion in section I, which is that the statute of limitations applicable to a cause of action brought by shareholders of a closely held coiporation is the same statute of limitations applicable to a cause of action brought by shareholders of a publicly held corporation. Accordingly, I would conclude that the six-year period of limitation of MCL 600.5813; MSA 27A.5813 is applicable to a suit brought pursuant to § 489 of the Business Corporation Act, MCL 450.1489; MSA 21.200(489), rather than the shorter limitation period set forth in § 541a(4) of the act, MCL 450.1541a(4); MSA 21.200(541a)(4).
To reach its conclusion that the shorter limitation period is applicable, the majority relies upon our Supreme Court’s holding in Detroit Gray Iron & Steel Foundries, Inc v Martin, 362 Mich 205; 106 NW2d 793 (1961), as the “key” to unlocking the answer to this question. I believe that reliance on Detroit Foundries as controlling authority is improper primarily because Detroit Foundries was decided several years before the Legislature enacted in 1972 PA 284, the predecessor statute to § 489, which was MCL 450.1825; MSA 21.200(825). Instead, when faced with questions of statutory interpretation, this Court must first determine the Legislature’s intent by examining the specific language of the statute. House Speaker v State Administrative Bd, 441 Mich 547, 567; 495 NW2d 539 (1993). Our Supreme Court’s decision in 1961 may be an aid in this process, but it should not both begin and conclude our analysis.
*501The majority states that § 489 does not by its terms create a new cause of action. The majority posits that § 489 merely grants shareholders in a closely held corporation standing to bring a derivative action when a director breaches the duty of care described in § 541a and that § 489 sets forth the jurisdiction and venue in which to bring suit. In my view, § 489 creates a new cause of action. Where reasonable minds can differ with regard to the meaning of a statute, judicial construction is appropriate. Heinz v Chicago Rd Investment Co, 216 Mich App 289, 295; 549 NW2d 47 (1996).
If the majority’s view is correct, then the Legislature could have merely referenced the standard of care established in § 541a for directors of publicly held corporations. Instead, the Legislature provided a different standard of care in § 489. The omission of a provision in one part of a statute that is included in another part should be construed as intentional, Farrington v Total Petroleum, Inc, 442 Mich 201, 210; 501 NW2d 76 (1993), and seeming inconsistencies should be reconciled if possible, Gross v General Motors Corp, 448 Mich 147, 164; 528 NW2d 707 (1995). To maintain a suit pursuant to § 489, a plaintiff must show misconduct that is “illegal, fraudulent, or willfully unfair and oppressive.” In contrast, to maintain a suit pursuant to § 541a(l), a plaintiff must show conduct that did not conform to three requirements, including that a director act in “good faith,” “[w]ith the care [of] an ordinarily prudent person,” and in the “best interests of the corporation.” These differences belie the majority’s conclusion that the holding in Detroit Foundries fixes § 541a as providing the definitive standard of care and thereby § 541a(4) as provid*502ing the definitive period of limitation for actions involving either a closely held or a publicly held corporation. Indeed, another section of the act, which specifically references the standard of care described in § 541a(l), nonetheless supplies its own limitation period. See MCL 450.1551; MSA 21.200(551) (establishing a three-year limitation period in § 554, MCL 450.1554; MSA 21.200[544], for suits arising from certain corporate actions).
Moreover, if the majority’s view is correct, then the jurisdiction and venue provisions in § 489(1) would merely supplement implicit references to jurisdiction and venue in the act, MCL 450.1514; MSA 21.200(514), MCL 450.1773; MSA 21.200(773), MCL 450.1851; MSA 21.200(851), and more explicit references elsewhere, MCL 600.711; MSA 27A.711, MCL 600.715; MSA 27A.715. In construing a statute, this Court should presume that every word has some meaning and should avoid any construction that would render a statute, or any part of it, surplusage or nugatory. Altman v Meridian Twp, 439 Mich 623, 635; 487 NW2d 155 (1992). As far as possible, effect should be given to every phrase, clause, and word. Gebhardt v O’Rourke, 444 Mich 535, 542; 510 NW2d 900 (1994). The inclusion of the jurisdiction and venue provisions in § 489(1) indicates to me that the Legislature was establishing a new and separate cause of action for shareholders in closely held corporations.
I am additionally persuaded that the unique characteristics of a suit brought pursuant to § 489 compel this construction. This Court is required to look at the object of the statute, the harm it is designed to remedy, and apply a reasonable construction that best *503accomplishes the purpose of the statute. People v Adair, 452 Mich 473, 479-480; 550 NW2d 505 (1996). In general, a closely held corporation differs from a publicly held corporation in two ways. See Henn & Alexander, Corporations (3d ed), § 257, p 696; 1 O’Neal’s Close Corporations (3d ed), §§ 1.02, 1.08, pp 4-7, 31-34. The most obvious difference is that a shareholder who may pursue a suit under § 489 is unable to escape an oppressive situation by dispensing with shares of ownership in the public arena. MCL 450.1489(2); MSA 21.200(489)(2). Instead, the shareholder seeking relief is required to seek a judicial dissolution of the closely held corporation or another remedy within the statute. MCL 450.1489(1)(a)-(f); MSA 21.200(489)(1)(a)-(f).
A second obvious difference is that the shareholders of a closely held corporation participate in the management of the corporation, whereas the management of a publicly held corporation represents the shareholders. One tool of a dissatisfied shareholder in a publicly held corporation is the ability to bring a lawsuit against a director. In this regard, our Supreme Court speculated in Detroit Foundries, supra at 217, that the legislative intent in establishing the statute of limitations in § 541a(4) may have been to ensure that persons qualified to be directors of Michigan corporations would step forward because their corporate conduct would not be challenged after two years following disclosure to interested parties, or within six years after the conduct occurred. Thus, the shorter statute of limitation period in MCL 450.1541a(4); MSA 21.200(541a)(4) curbs the number of suits brought for harassment purposes and protects directors of publicly held corporations from any languish*504ing fear of such suits. Nonetheless, in those cases where a director commits misconduct, a shareholder has an appropriate amount of time to discover the facts of the single instance and seek relief pursuant to § 541a.
In contrast, because the shareholders participate in the management of the corporation, the relationship among those in control of a closely held corporation requires a higher standard of fiduciary responsibility, a standard more akin to partnership law. Henn & Alexander, § 268; O’Neal’s, §§ 1.02, 1.08. The Legislature highlighted this special duty of care in the language of § 489(1) when it chose the words “illegal, fraudulent, or willfully unfair and oppressive” to describe the “acts” of the defendants. This language does not indicate that a shareholder would be successful in a suit based on one instance of misconduct; rather, a shareholder who would be likely to prevail under this statute is one who presented an ongoing pattern of oppressive misconduct.
These two differences lead me to believe, first, that the Legislature intended to provide shareholders of closely held corporations special relief for ongoing oppression, and second, that the Legislature did not simultaneously intend for such relief to be available only to those shareholders who could satisfy the burden of proof within a short period. The six-year period of limitation in MCL 600.5813; MSA 27A.5813 provides a shareholder an appropriate amount of time to produce proof of a pattern of oppressive conduct and seek relief pursuant to § 489. Therefore, this limitation period best accomplishes the legislative purpose in enacting § 489.
*505Not only are the purposes of a § 489 suit different from a § 541a suit, but many concrete differences between the two suits also exist. First, as already stated, suits brought pursuant to §§ 489 and 541a redress different injuries. A § 489 suit seeks to redress oppression that injures either the corporation or the shareholder, whereas a § 541a suit seeks to redress wrongs to the corporation. See, e.g., Moore v Carney, 84 Mich App 399, 407; 269 NW2d 614 (1978) (analyzing whether attorney fees may be awarded in a suit brought pursuant to the predecessor of § 489 because such fees are awarded only where the suit benefits the corporation). Second, a suit brought pursuant to § 489 is decided differently from a suit brought pursuant to § 541a, which is governed by the standard of conduct explained in Detroit Foundries, supra. Although Michigan courts have yet to consider what action constitutes “willfully unfair and oppressive conduct” in suits brought pursuant to § 489, several other states’ courts have applied an objective test based on the shareholder’s reasonable expectations. Bruno, “Reasonable Expectations” — A Primer on an Oppressive Standard, 71 Mich B J 434 (1992). See, e.g., In re Kemp & Beatley, Inc, 64 NY2d 63, 73; 473 NE2d 1173 (1984).
Third, §§ 489 and 541a suits involve different parties. The defendants in a § 489 suit may be either the directors or “those in control of the corporation,” whereas the defendants in a § 541a suit are only the directors or officers who have breached their fiduciary duty of care. Application of § 492a of the act, MCL 450.1492a; MSA 21.200(492a), to § 541a means that the plaintiffs in a § 541a suit may be either current or former shareholders, whereas the plaintiffs in *506a § 489 suit may only be current shareholders. Last, the parties in §§ 489 and 541a suits arrive in different procedural postures. The plaintiffs in a § 489 suit may represent themselves and other similarly situated shareholders and bring their suits as individual or direct actions. The plaintiffs in § 541a suits typically represent the corporation and bring their suits as derivative actions pursuant to § 492a.
In summary, both the language of § 489 and the unique characteristics of § 489 suits compel me to dissent from the majority in this case. I do not believe that the Legislature intended for the statute of limitations governing a cause of action brought by shareholders of a publicly held corporation to also apply to a cause of action brought by shareholders of a closely held corporation. This Court has found that the six-year “catch-all” period of limitation of MCL 600.5813; MSA 27A.5813 applies when the right to recovery arises from a statute. Nat’l Sand, Inc v Nagel Constr, Inc, 182 Mich App 327, 337, n 7; 451 NW2d 618 (1990). Therefore, I would conclude that the six-year period of limitation applies to the right of recovery arising from § 489. Accordingly, I would find error in the trial court’s judgment that MCL 450.1541a(4); MSA 21.200(541a)(4) applies to this case and would reverse the orders.
I note that my analysis of the applicable statute of limitations provision makes it unnecessary to reach plaintiffs’ argument that the trial court erred in applying the two-year discovery period to their claims in Docket No. 188874, which is discussed in section m of the majority opinion. However, if I were required to address this issue, then I would also disagree with the majority and hold that plaintiffs have raised sufficient *507disputed facts to preclude the granting of summary disposition in favor of defendants.
In all other respects, I am in full agreement with the majority opinion.