Jeffrey Franks v. Newell a Franks II

If this opinion indicates that it is “FOR PUBLICATION,” it is subject to
revision until final publication in the Michigan Appeals Reports.
STATE OF MICHIGAN
COURT OF APPEALS
JEFFREY FRANKS, MICHAEL WILLIAM FOR PUBLICATION
FRANKS, as the Successor Trustee of the September 24, 2019
FRANKS FAMILY TRUST, and WILLIS 9:15 a.m.
FRANKS,
Plaintiffs-Appellees,
v No. 343290
St. Joseph Circuit Court
NEWELL A. FRANKS II, BRIAN LC No. 2013-000809-CB
MCCONNELL, LEEAN MCCONNELL, also
known as LEEANN MCCONNELL, also known
as LEANN MCCONNELL, DAVID FRANKS,
LAWRENCE FRANKS, and BURR OAK TOOL,
INC.,
Defendants-Appellants.
Before: K. F. KELLY, P.J., and FORT HOOD and REDFORD, JJ.
PER CURIAM.
In this shareholders’ dispute, defendants, Newell A. Franks II, Brian McConnell, LeeAnn
McConnell, David Franks, Lawrence Franks, and Burr Oak Tool, Inc., appeal by right the trial
court’s order entered following its granting of summary disposition in favor of plaintiffs, Jeffrey
Franks, the Franks Family Trust,1 and Willis Franks. Defendants also challenge the trial court’s
order compelling Burr Oak to purchase plaintiffs’ shares in Burr Oak. We reverse and remand
for proceedings consistent with this opinion.
I. BASIC FACTS
1
The Franks Family Trust was substituted for Richard Franks after he died during the course of
the litigation in the lower court.
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The late Newell A. Franks founded Burr Oak in 1944. Burr Oak manufactures and sells
machine tools in the heat transfer industry. It is located in Sturgis, Michigan. The parties to this
case are all related to Newell A. Franks in some way. Newell A. Franks was the father of
defendant Lawrence Franks, former plaintiff Richard Franks, and Tom Franks, who was
deceased by the time of this litigation. Lawrence Franks is the father of defendant Newell A.
Franks II, defendant David Franks, and defendant LeeAnn McConnell. LeeAnn McConnell is
married to defendant, Brian McConnell. Tom Franks was the father of plaintiffs Jeffrey Franks
and Willis Franks.
Defendants own voting shares—Class A shares—of Burr Oak or have an active role in
the management of the corporation, as noted by Burr Oak’s then accountant, Bruce Gosling.
Newell A. Franks II is the Chief Executive officer and the Chairman of the Board of Directors.
Plaintiffs each own Class B or C shares in the corporation, which are nonvoting shares. Class B
shares do not get dividends, but Class B shares can be converted into Class C shares, which do
get dividends. Plaintiffs have no role in the management of the corporation.
Historically, Burr Oak distributed dividends to its shareholders: Burr Oak issued
dividends every year from 1950 to 2004 with the exception of five years. In 2001, for example,
Burr Oak distributed $23 per share to holders of Class A stock and $45 per share to holders of
Class C stock. Burr Oak paid out about $2.2 million to shareholders in 2002, and paid out
$2,288,000 in 2003. It distributed another $2.2 million to shareholders in 2004. However, Burr
Oak ceased paying dividends after the death of Newell A. Franks in 2007. Newell A. Franks II
testified that Burr Oak stopped paying dividends because the company incurred a “tremendous
outflow of cash” related to his grandfather’s estate. He stated that the company had no formal
policy for determining when to make a dividend distribution. Previously, his grandfather would
just make the decision and it would be carried out.
Newell A. Franks II agreed that he had Gosling calculate the value of Burr Oak in 2012
in anticipation of a stock buyback. He agreed that Gosling’s report, which was dated May 21,
2012, valued the company at $46,125,355, or at approximately $598 per share for the 77,043
shares of outstanding stock. Gosling testified that Newell A. Franks II asked him to prepare the
valuation to help with a proposed buyout of the “minority shareholders.” Newell A. Franks II
stated that Burr Oak had more than $20 million in cash in May 2012. He indicated that it was
not all available for the payment of dividends, but agreed that some could have been used to pay
dividends. He also testified that Burr Oak loaned $1 million to Sturgis Bank in 2012, and he
conceded that David Franks served on the board of directors for the bank. David Franks testified
that he was a voting shareholder of the bank.
Six months after Gosling’s valuation, defendants had Burr Oak offer to purchase
defendants’ shares for $62 per share. Newell A. Franks II conceded that there was no valuation
to support that offer. He further acknowledged that Gosling wrote him and stated that his offer
was “a good plan” because the nonvoting members were astute enough to realize that their shares
had no value unless a different buyer were to offer them more. Gosling said that he told Newell
A. Franks II that because, “if no dividends are being paid and there are no redemptions being
made, then nobody else is going to buy the stock.” He explained that Burr Oak was probably the
only market for the shares and, if one cannot convert the stock certificate into cash in some way,
it has no value. David Franks similarly testified that he knew that the $62 offer did not have any
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support, but he agreed to move to make the offer on the understanding that it would get the
conversation started. He also testified that he did not expect anyone to accept that offer. Newell
A. Franks II admitted that no one accepted the offer of $62 per share. He also admitted that there
was no valuation to support it. He, however, opined that $62 per share was a fair return given
that plaintiffs paid zero dollars for their shares.
E-mail communications between David Franks and Brian McConnell suggested that the
$62 per share offer to the “outside stock holders” was not made in good faith. David Franks
wrote that the justification for the offer that Brian McConnell proposed to provide to Jeffrey
Franks after Jeffrey Franks questioned the basis of the offer should not mention a related
company—Oak Press Solutions, Inc.—because they had taken measures to ensure that that entity
paid a fair price and he did not want to “plant a bug” about that company, which itself did not
have the same “ownership concerns.” Notably, plaintiffs had alleged that defendants caused
Burr Oak to conduct business through related entities such as Oak Press Solutions to receive
undisclosed distributions. Newell A. Franks II also admitted that his grandfather had in the past
paid dividends of $62 per share in a single year. At a February 2013 meeting of the board of
directors, the directors agreed to offer plaintiffs $141.26 per share. In September 2013, Burr Oak
offered to buy shares at $248 per share. Defendants did not, however, accept any of these offers.
In September 2013, Jeffrey Franks, Richard Franks, and Willis Franks sued defendants.
They alleged that Lawrence Franks, David Franks, Newell A. Franks II, Brian McConnell, and
LeeAnn McConnell used their control of Burr Oak to benefit themselves and their families at the
expense of the minority shareholders. They asserted that the identified conduct amounted to
illegal, fraudulent, willfully unfair, and oppressive conduct in violation of MCL 450.1489. They
asked the trial court to remedy the oppression by, among other possible remedies, ordering
defendants to purchase plaintiffs’ shares at fair value. They also alleged a claim of breach of
fiduciary duty and a claim for an accounting. Plaintiffs filed an amended complaint in October
2013. They alleged seven claims in the amended complaint: shareholder oppression under MCL
450.1489, breach of fiduciary duties, accounting, fraud, constructive fraud, breach of contract,
and aiding and abetting the scheme to deprive plaintiffs of their interests as shareholders.
On June 16, 2014, plaintiffs filed a motion with the trial court asking it to order Burr Oak
to issue a dividend. In that same month, defendants moved for summary disposition of
plaintiffs’ claims under MCR 2.116(C)(8) and (C)(10). Defendants argued that the trial court
had to dismiss the shareholder oppression claim because the conduct at issue did not establish a
question of fact as to whether there was shareholder oppression. Specifically, they maintained
that the failure to purchase stock was not by itself oppressive conduct; and, similarly, an offer to
purchase stock at a particular price was also not oppressive. Moreover, they stated, defendants
eventually offered to purchase plaintiffs’ shares at $248 per share, which was the same price
earlier offered to Lawrence Franks for his shares. Finally, they argued and presented evidence
that the Board of Directors elected not to issue dividends for legitimate business reasons, which
were protected under the business judgment rule. Namely, they maintained that Burr Oak had to
retain its profits for capital improvements, to retire debt, and possibly redeem stock. Defendants
relied in part on Brian McConnell’s affidavit. Brian McConnell averred that he was Burr Oak’s
Chief Operating Officer and stated that Burr Oak had to pay out more than $15 million from
2007 to 2012 to cover obligations under Newell A. Franks’ estate plan. He also stated that the
Board of Directors felt that Burr Oak needed to establish an ambitious expansion plan to remain
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competitive. Defendants also argued that the failure to pay dividends affected all the
shareholders equally and so could not be oppressive to plaintiffs. In short, they maintained that
there was no evidence that the board’s exercise of business judgment was feigned or a mere
subterfuge. As pertinent to this appeal, defendants also argued that plaintiffs failed to state a
claim against LeeAnn McConnell because she was not a director of Burr Oak and did not
participate in any of the decisions at issue.
On June 30, 2014, plaintiffs moved for partial summary disposition on their claim of
shareholder oppression. Plaintiffs maintained that the undisputed evidence showed that
defendants tried to implement an unfair stock redemption plan and wrongfully withheld the
payment of dividends for the purpose of squeezing the nonvoting stock holders out of the
corporation. They argued that the wrongful conduct established as a matter of law that
defendants engaged in shareholder oppression. They further stated that defendants’ admission
that they had an obligation to buy the minority shareholders shares at fair value, which did not
include discounts for marketability or lack of control, established that the trial court had to order
a buyout at fair value with no discounts.
Defendants argued in opposition to plaintiffs’ motion for partial summary disposition that
the evidence showed that, at the very least, whether defendants acted with sound business
judgment when they elected not to distribute dividends was a contested matter. They also
maintained that whether Burr Oak had sufficient reserves to pay dividends was a contested
matter. They supported their position with another affidavit by Brian McConnell in which he
made averments concerning the financial condition of Burr Oak during 2012 and 2013 and its
ability to pay dividends.
Plaintiffs filed a brief in opposition to defendants’ motion for summary disposition and
moving for summary disposition of their claim for shareholder oppression under MCR 2.116(I)
on July 21, 2014. In part, plaintiffs argued and presented evidence that LeeAnn McConnell,
contrary to her affidavit, did play a significant role in the management of Burr Oak as part of the
controlling family faction. As for the claim that defendants had not engaged in any oppressive
conduct, plaintiffs argued that the evidence showed that defendants implemented an aggressive
stock redemption program in which they offered an unfair price after deliberately manipulating
and misrepresenting the fair value of the stock. They made the offer after wrongfully
withholding dividends in order to bully the minority shareholders into accepting a suppressed
value. Plaintiffs presented evidence that the obligations that Burr Oak had arising from Newell
A. Franks’s estate ended in mid-2012, and that Burr Oak had significant cash reserves with
which to both expand its operations and pay a significant dividend. This evidence, they
maintained, showed that defendants were not in fact withholding dividends for a legitimate
reason.
The trial court held a hearing on the various motions that were before it on December 1,
2014. The trial court started the hearing by stating that it would deny defendants’ motion for
summary disposition because there were “issues that do suggest that there was infringement of
the minority shareholders.” It went on, however, and stated that it found “infringement of the
minority shareholders’ rights.” The trial court indicated that it was unsure what the remedy
should be and stated that it wanted input from an independent expert to determine how to remedy
the situation. The trial court stated that it wanted the parties to agree on an expert but said that it
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would appoint one if they could not agree. The trial court also said that it would thereafter set a
date for a two-day hearing to address the remedy. When asked to clarify its ruling, the trial court
indicated that it was not granting plaintiffs’ motion “just yet” on the issue of liability. But it also
stated that it was not sure whether there were issues of material fact on plaintiffs’ motion for
partial summary disposition. On December 3, 2014, the trial court entered an order denying
defendants’ motion for summary disposition and reserving its ruling on the remaining motion.
As pertinent to this appeal, the court subsequently instructed the parties to brief an appropriate
remedy for shareholder oppression and indicated that it did not think that dissolution was a
proper remedy.
As pertinent to this appeal, the trial court subsequently held a hearing on October 21,
2016 to consider plaintiffs’ original motion for partial summary disposition. The trial court
surveyed the evidence indicating that the controlling shareholders were not in fact dealing fairly
with the nonvoting shareholders. On the basis of that evidence, it then found “that there has been
suppression of the minority shareholder[s].” For that reason, the trial court stated, it would grant
plaintiffs’ motion for summary disposition. The trial court determined that the appropriate
remedy was to compel the corporation to buy the nonvoting members’ shares at a price to be
determined after an evidentiary hearing. Defendants moved for reconsideration in November
2016. As they had throughout the pendency of the lower court proceedings, defendants stated
their belief that the trial court could not find oppression and select a remedy without holding an
evidentiary hearing. The trial court denied the motion for reconsideration in January 2017.
A trial on the issue of plaintiffs’ remedy was held on May 2, 2017. Plaintiffs’ expert
certified public accountant, Thomas Frazee, testified generally about his valuation of Burr Oak.
He opined that plaintiffs’ shares in Burr Oak were worth $26,826,736. After Frazee testified,
plaintiffs rested and defendants moved for a directed verdict. They argued that Frazee’s
testimony and report were insufficient to establish the value of plaintiffs’ shares because he did
not discount the value for marketability. The trial court denied the motion. Brian McConnell
testified for the defense and stated that he had worked for Burr Oak for 26 years. He was Burr
Oak’s President and Chief Operating Officer. He stated that the three classes of stock came into
being because Newell A. Franks wanted to create different classes to transfer as gifts for
dividend purposes. The individuals who owned the voting shares ended up purchasing those
shares whereas the other classes were all gifts. Although they often referred to the nonvoting
shareholders as the “minority shareholders,” the holders of the Class B and C shares actually
owned 52% of the company. Newell A. Franks established the Class B and C shares in the
1980s so that he could pay dividends to those whom he gifted Class C shares without paying
himself a dividend as the owner of the Class B shares.
Brian McConnell stated that, in 2006, before he died in 2007, Newell A. Franks sold his
voting shares for $280 per share. The highest price ever requested for shares of Burr Oak was
$356.22 per share, which was substantially less than the $712 per share calculated by Frazee.
Brian opined that the company was not worth $50 million. He stated his belief that Burr Oak
would be vulnerable if it became highly leveraged. The trial court, however, precluded him from
testifying about the debt load that Burr Oak might be able to carry. Michael Oliphant testified on
behalf of the defense as an expert certified public accountant. He opined that plaintiffs’ shares
were worth $398 per share. He, however, discounted the shares for marketability. The
mathematical value based on the company’s valuation would be $632 per share.
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The trial court held a hearing to state its ruling on July 25, 2017. The trial court adopted
plaintiffs’ proposed findings of fact and found that plaintiffs’ shares were worth $712 per share.
The trial court specifically held that it could not apply a discount to lower the fair value of the
shares. The trial court subsequently signed an order requiring Burr Oak to purchase plaintiffs’
shares within two years for $712 per share. The trial court’s order provided that Burr Oak would
pay equitable interest and plaintiffs’ attorney fees as well. The trial court entered a stipulated
order dismissing plaintiffs’ remaining claims without prejudice on December 28, 2017. It further
provided that its order requiring redemption would be stayed pending defendants’ appeal. The
trial court entered an order dismissing plaintiffs’ remaining claims with prejudice on March 27,
2018. Defendants now appeal as of right.
II. ANALYSIS
We review de novo a trial court’s decision on a motion for summary disposition.
Barnard Mfg Co, Inc v Gates Performance Engineering, Inc, 285 Mich. App. 362, 369; 775
NW2d 618 (2009).
A motion under MCR 2.116(C)(10) tests the factual sufficiency of the complaint.
In evaluating a motion for summary disposition brought under this subsection, a
trial court considers affidavits, pleadings, depositions, admissions, and other
evidence submitted by the parties, MCR 2.116(G)(5), in the light most favorable
to the party opposing the motion. Where the proffered evidence fails to establish
a genuine issue regarding any material fact, the moving party is entitled to
judgment as a matter of law. MCR 2.116(C)(10), (G)(4). Quinto v Cross &
Peters Co, 451 Mich. 358; 547 NW2d 314 (1996). [Maiden v Rozwood, 461 Mich.
109, 120; 597 NW2d 817 (1999).]
In considering a motion for summary disposition, the trial court is not permitted to
“weigh the evidence or make determinations of credibility[.]” Innovative Adult Foster Care, Inc
v Ragin, 285 Mich. App. 466, 480; 776 NW2d 398 (2009). When opposing a properly supported
motion for summary disposition under MCR 2.116(C)(10), the nonmoving party cannot rely on
mere allegations or denials in his or her pleadings to establish a question of fact. Quinto, 451
Mich. at 362. Rather, the nonmoving party must present evidence that establishes that there is a
genuine issue of disputed fact on the issue raised by the moving party. Id. “A genuine issue of
material fact exists when the record, giving the benefit of reasonable doubt to the opposing party,
leaves open an issue upon which reasonable minds might differ.” West v Gen Motors Corp, 469
Mich. 177, 183; 665 NW2d 468 (2003).
This Court reviews de novo whether the trial court properly interpreted and applied the
relevant statutes and court rules. Brecht v Hendry, 297 Mich. App. 732, 736; 825 NW2d 110
(2012).
A. THE CREDIBILITY EXCEPTION TO SUMMARY DISPOSITION
Defendants rely on the decision in White v Taylor Distrib Co, Inc, 275 Mich. App. 615;
739 NW2d 132 (2007), aff’d 482 Mich. 136 (2008), and indirectly on the decision in Vanguard
Ins Co v Bolt, 204 Mich. App. 271; 514 NW2d 525 (1994), for the proposition that a reviewing
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court cannot grant summary disposition on a claim, such as the one stated under MCL 450.1489,
when the claim involves motive or intent as an element. These decisions appear to state a rule
that summary disposition cannot be granted when an essential element of the claim or defense
involves motive or intent. The majority in White, for example, stated that the grant of summary
disposition is “ ‘especially suspect where motive and intent are at issue or where a witness or
deponent’s credibility is crucial.’ ” White, 275 Mich. App. at 625, quoting Vanguard, 204 Mich
App at 276. However, if those statements are accepted at face value, summary disposition would
rarely be appropriate because one could almost always argue that a finder of fact might
disbelieve a witness’s testimony involving an essential element of a claim or defense. A review
of the authorities, however, shows that Michigan does not apply a rule precluding summary
disposition whenever a claim or defense involves an individual’s motive or intent.
The majority of the decisions citing a credibility exception to the grant of summary
disposition, such as the one described in White, trace their origin to the plurality opinion by
Justice SOURIS in Durant v Stahlin, 375 Mich. 628; 135 NW2d 392 (1965). See, e.g., White, 275
Mich. App. at 625, citing Vanguard, 204 Mich. App. at 276, citing Metro Life Ins Co v Reist, 167
Mich. App. 112, 121; 421 NW2d 592 (1988), citing Brown v Pointer, 390 Mich. 346, 354; 212
NW2d 201 (1973), citing Durant, 375 Mich. at 647-648. In Durant, a Republican politician,
Richard Durant, sued several other Republicans, including Richard Van Dusen, Arthur Elliott,
and George Romney, for allegedly trying to prevent his re-election through improper methods,
including a conspiracy that led to libel against him. Id. at 634-635 (opinion by ADAMS, J.).
Durant produced proofs showing that a letter was published in newspapers with the signature of
John H. Stahlin, which accused Durant of being the leader of an extremist group that resorted to
bribery and threats of physical violence, among other things. Id. at 636. Van Dusen, Elliott, and
Romney moved for summary disposition under the prior court rules and supported their motions
with their own affidavits. Id. at 636-637. In their affidavits, they denied knowing about or
participating in the creation and publication of the letter. Id. at 637. The trial court agreed that
Durant’s claims against these three defendants must be dismissed. Id. at 634.
Writing for three justices, Justice ADAMS stated that Durant failed to present any
admissible evidence “by deposition, affidavit, or otherwise” from which “it could be found that
the defendants participated in any way in the preparation or publication of [the letter] or in the
purported conspiracy surrounding its preparation and publication.” Id. at 638-639. Because
Durant failed to present any admissible evidence to rebut the movants’ affidavits, Justice ADAMS
concluded, the trial court properly dismissed Durant’s claims against those defendants under then
GCR 1963, 117.3. Durant, 375 Mich. at 640.
Justice SOURIS, who wrote for three Justices as well, agreed that the trial court’s decision
to dismiss was proper, but wrote separately to explain that summary disposition under such
circumstances should be rare. Id. at 640-658 (opinion by SOURIS, J.). Justice SOURIS wrote that
he was concerned by a “disturbing misapprehension among members of the bench and bar
concerning the propriety of peremptory disposition of cases by summary judgment prior to trial
as provided by our recently adopted rule, GCR 1963, 117.” Id. at 642. This procedure, he
cautioned, “strikes at the very heart of a litigant’s right to determination of his legal dispute in an
adversary judicial proceeding . . . .” Id. at 644. It, for that reason, should be put to “very limited
use[.]” Id. Relying on federal authorities, including Judge Frank’s opinion in Arnstein v Porter,
154 F2d 464 (CA 2, 1946), Justice SOURIS agreed that summary judgment would be
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inappropriate in cases where, “notwithstanding the opposing party’s failure to attempt even to
discredit the honesty of [an] affiant by counter-affidavits or other proofs,” the affiant’s credibility
is “crucial to decision of a disputed fact issue.” Durant, 375 Mich. at 647-648. This was
especially true, he stated, for matters that are “peculiarly within the defendant’s knowledge.” Id.
at 648, quoting Arnstein, 154 F2d at 469, 471.
Turning to the motion at issue, Justice SOURIS recognized that Van Dusen, Elliott, and
Romney did not challenge the fact of the libel, but instead challenged Durant’s ability to
establish their participation in the libel. Durant, 375 Mich. at 655 (opinion by SOURIS, J).
Durant, however, did not respond to the motion with any admissible evidence “from the
depositions taken or from any other source to establish that if permitted to go to trial there would
be any genuine issue of material fact to be decided by a jury or by the judge trying the case
without a jury.” Id. at 658. For that reason, Justice SOURIS agreed that the trial court properly
granted the motion for summary disposition. Id.
Since the decision in Durant, courts have slowly, but steadily moved away from the
notion that summary disposition should be disfavored. In Federal Practice and Procedure, for
example, the authors identify Judge Frank of the Second Circuit, whose views Justice Souris
approved in Durant, as “the principal proponent of a very strict approach to summary judgment,”
and state that he “usually was able to find an issue of credibility lurking in the cases brought
before that court.” See 10A Wright, Miller, & Kane, Fed Practice & Procedure, 4th ed., § 2726,
p 443. Judge Frank’s application of the exception was, in the authors’ view, extreme: “The
effect of the approach adopted by Judge Frank in these cases would be to deny summary
judgment whenever the motion depended on facts presented by affidavit—a restriction that
would cripple the summary judgment procedure.” Id. at 444. None of the circuits have adopted
Judge Frank’s position; instead, the general rule is “that specific facts must be produced in order
to put credibility in issue so as to preclude summary judgment.” Id. at 444-445. In modern
federal practice, the nonmoving party may not rely on the fact that a jury might disbelieve a
witness’s testimony to establish a question of fact that precludes summary disposition. See
Anderson v Liberty Lobby, Inc, 477 U.S. 242, 256; 106 S. Ct. 2505; 91 L. Ed. 2d 202 (1986)
(rejecting the respondents’ contention that summary judgment is inappropriate whenever state of
mind is at issue). The same is true in Michigan.
Michigan courts were formerly required to be “liberal” in finding that a genuine issue of
material fact exists and only granted summary disposition when the court was convinced that it
was impossible for the claim or defense to be supported at trial. Rizzo v Kretschmer, 389 Mich.
363, 372; 207 NW2d 316 (1973). However, our Supreme Court has disavowed the continuing
validity of that standard, Smith v Globe Life Ins Co, 460 Mich. 446, 455 n 2; 597 NW2d 28
(1999), and it has further stated that a party may not avoid summary disposition by promising to
produce evidence at trial, Maiden, 461 Mich. at 121. Rather, the nonmoving party must identify
evidence that puts the affiant’s or deponent’s credibility at issue to avoid summary disposition.
See, e.g., Debano-Griffin v Lake Co, 493 Mich. 167, 180-181; 828 NW2d 634 (2013) (stating that
the plaintiff presented evidence that called into question a witness’s credibility and, because the
proffered justification for the act was established by that witness, there was an issue of fact for
the finder of fact that precluded summary disposition); see also White v Taylor Distrib Co, Inc,
482 Mich. 136, 142-143; 753 NW2d 591 (2008) (affirming this Court’s decision because the
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defendant’s own statements were inconsistent, which put his credibility at issue on the question
whether he experienced a sudden emergency).
To the extent that this Court’s decisions seem to apply an absolute exception to the
application of summary disposition premised on the mere possibility that a jury might disbelieve
an essential witness, as first articulated in Durant, the application of such a rule is limited to
those situations where the moving party relies on subjective matters that are exclusively within
the knowledge of its own witness and where the witness would have the motivation to testify to a
version of events that are favorable to the moving party. See White, 275 Mich. App. at 630. This
is not such a case. As will be discussed in this opinion, plaintiffs presented evidence that, if left
unrebutted, established that defendants engaged in shareholder oppression within the meaning of
MCL 450.1489(1) and MCL 450.1489(3), and that they did so with the requisite intent. As such,
the trial court could properly grant summary disposition on liability if defendants did not
establish a question of fact on the issue of intent. The evidence also called into question whether
defendants’ proffered business reasons were merely pretexts for unlawful shareholder
oppression.
B. THE EQUITY EXCEPTION TO SUMMARY DISPOSITION
On appeal, defendants also assert that it was improper for the trial court to grant summary
disposition in this case because it involved an equitable action. Our Supreme Court has stated
that traditional equity actions do not lend themselves to summary disposition because actions in
equity may involve numerous questions that must be determined by the trial court sitting in
equity in order to shape a proper decree. Sun Oil Co v Trent Auto Wash, Inc, 379 Mich. 182, 191;
150 NW2d 818 (1967). Notably, our Supreme Court did not state in Sun Oil that summary
disposition was never appropriate in cases involving equity. Rather, it opined that summary
disposition was inappropriate under the facts of that case. See id. The cause of action stated
under MCL 450.1489(1) includes elements that can readily be tested in a motion for summary
disposition using ordinary proofs, even if a court sitting in equity might need to take evidence to
craft a proper decree. MCL 450.1489(1) and MCL 450.1489(3). Additionally, the decision in
Sun Oil occurred before adoption of the current rules governing summary disposition, and our
Supreme Court has since rejected prior practice, which disfavored summary disposition unless
the trial court determined that it was impossible for a claim to be supported by evidence at trial.
Maiden, 461 Mich. at 120-121. Rather, the Court reiterated that summary disposition is
appropriate unless the nonmoving party demonstrates that there are issues that must be decided
by the finder of fact. Id. at 121 (“A reviewing court may not employ a standard citing the mere
possibility that the claim might be supported by evidence produced at trial.”). And this Court has
determined that a trial court properly granted summary disposition in favor of a plaintiff on an
equitable claim given that the material facts were not in dispute. See, e.g., Johnson Family Ltd
Partnership v White Pine Wireless, LLC, 281 Mich. App. 364, 386; 761 NW2d 353 (2008)
(affirming a trial court’s decision to grant summary disposition in favor of the plaintiff in an
action to reform a deed). Accordingly, if the material facts are undisputed, a trial court may be
warranted in granting summary disposition on one or more elements of a claim under MCL
450.1489(1). MCR 2.116(C)(10).
C. SHAREHOLDER OPPRESSION CLAIM: NATURE AND ELEMENTS
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In this case, plaintiffs sued defendants—in relevant part—for taking acts in violation of
MCL 450.1489, which is commonly referred to the “shareholder-oppression statute[.]”
Madugula v Taub, 496 Mich. 685, 697; 853 NW2d 75 (2014). In that statute, the Michigan
Legislature provided a cause of action to redress certain wrongs by those in control of a closely
held corporation when the acts interfere with a shareholder’s property rights:
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. [MCL 450.1489(1).]
In Madugula, our Supreme Court explained that the cause of action stated under MCL
450.1489 was similar to historical shareholder derivative claims against directors or those in
control of a corporation to remedy fraud, illegality, abuses of trust, or other oppressive conduct.
It also noted that the common law allowed an aggrieved shareholder to bring a claim for
dissolution in a court of equity to remedy oppressive conduct. Madugula, 496 Mich. at 707-711.
The Court recognized that the Legislature enumerated remedies under the statute that were
traditionally equitable and also did not limit the trial court’s authority to grant relief to those
enumerated remedies. Rather, the Legislature provided courts with broad authority to fashion an
appropriate remedy, which, it stated, was consistent with practice under equity. Id. at 711-714.
On the basis of these observations, the Court held that a claim under MCL 450.1489 sounded in
equity and must be tried before a court sitting in equity. Id. at 714-715. Consequently,
plaintiffs’ claim under MCL 450.1489 was an equitable claim.
The Legislature expressed its intent to apply the shareholder-oppression statute to remedy
harms against shareholders of closely held corporations whose shares were not readily
marketable. See MCL 450.1489(2) (providing that the cause of action does not apply to a
“shareholder whose shares are listed on a national securities exchange or regularly traded in a
market maintained by 1 or more members of a national or affiliated securities association”). As
this Court has recognized, the shareholders of a closely held corporation frequently expect to
obtain pecuniary benefits from their shares by working for the corporation or participating in its
management, rather than by selling the shares. Franchino v Franchino, 263 Mich. App. 172, 184;
687 NW2d 620 (2004). Notwithstanding that recognition, the Court in Franchino interpreted a
prior version of MCL 450.1489(3) and concluded that the Legislature did not intend to protect
shareholders from acts to terminate their employment or participation in the management of the
closely held corporation:
Michigan’s statute neither explicitly protects minority shareholders’
interests as employees or directors, nor is it silent on the issue. Rather, the
Legislature amended the statute to explicitly state that minority shareholders
could bring suit for oppression only for conduct that “substantially interferes with
the interests of the shareholder as a shareholder.” MCL 450.1489(3) (emphasis
added). To construe the statute in a way that allows [the] plaintiff to sue for
oppression of his interests as an employee and director would ignore the
Legislature’s decision to insert the phrase “as a shareholder” and render the
phrase nugatory, which is contrary to a fundamental rule of statutory construction.
-10-
Accordingly, we hold that the trial court correctly concluded that MCL
450.1489(3) does not allow shareholders to recover for harm suffered in their
capacity as employees or board members. [Franchino, 263 Mich. App. at 185-186
(some citations omitted).]
After the decision in Franchino, the Legislature amended MCL 450.1489(3) to
specifically provide that willfully unfair and oppressive conduct could include termination of
employment or other acts that disproportionately interfered with a shareholder’s interests. See
2006 PA 68. MCL 450.1489(3) now provides:
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 interests of the shareholder as a shareholder.
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 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.
On appeal, plaintiffs challenge defendants’ argument that MCL 450.1489 requires proof
of intent. Plaintiffs acknowledge that the statute provides that plaintiffs must show that
defendants engaged in “willfully unfair and oppressive” acts, but they disagree that the term
“willfully” required proof that defendants subjectively intended their acts to be unfair and
oppressive to plaintiffs as shareholders. Plaintiffs rely on the fact that the Legislature defined “
‘willfully unfair and oppressive conduct’ [to] mean[ ] a continuing course of conduct or a
significant action or series of actions that substantially interferes with the interests of the
shareholder as a shareholder.” MCL 450.1489(3). More specifically, they note that the
definition of “willfully unfair and oppressive conduct” stated under MCL 450.1489(3) does not
include any particular intent. Plaintiffs contend that it does not matter whether defendants
intended their actions to be unfair and oppressive to plaintiffs as shareholders. Because the
statute does not require proof of intent, plaintiffs maintain that the trial court could properly grant
summary disposition in their favor because the undisputed evidence showed that defendants took
actions that substantially interfered with their interests as shareholders, and it is irrelevant
whether defendants had a legitimate business reason for doing so.
Plaintiffs’ preferred interpretation of the statute would transform the shareholder-
oppression statute into a strict liability statute, which does not comport with the language used by
the Legislature. In MCL 450.1489(1), the Legislature identified three classes of wrongful acts
for which it wished to create a remedy: it created a remedy for “acts” that were “illegal,
fraudulent, or willfully unfair and oppressive[.]” By grouping these terms together, the
Legislature indicated that the terms were of the same class or character and had related meaning.
Atlantic Cas Ins Co v Gustafson, 315 Mich. App. 533, 541; 891 NW2d 499 (2016) (recognizing
that pursuant to the “interpretive canon” noscitur a sociis, “words grouped in a list should be
given related meanings.”) (Citation omitted.) Performing an illegal act ordinarily encompasses
some malevolent intent. See People v Janes, 302 Mich. App. 34, 41-42; 836 NW2d 883 (2013)
(observing that Michigan’s common law requires that “every conviction for an offense required
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proof that the defendant committed a criminal act (actus reus) with criminal intent (mens rea).”).
Similarly, fraud encompasses a malevolent intent: it is “an intentional perversion or concealment
of the truth for the purpose of inducing another in reliance upon it to part with some valuable
thing or surrender a legal right.” Barkau v Ruggirello, 113 Mich. App. 642, 647; 318 NW2d 521
(1982).2 The Legislature’s decision to group “willfully unfair and oppressive” acts with acts that
are illegal or fraudulent strongly suggests that the Legislature required proof of an intent to act in
a manner that was unfair and oppressive to the shareholder.3 Additionally, the use of the term
“willfully” reinforces this conclusion. An act is willfully done when taken “with the intent to do
something specific[,]” that is, the action is undertaken with “the specific intent to bring about the
particular result the statute seeks to prohibit.” In re Erwin, 503 Mich. 1, 10-11; 921 NW2d 308
(2018), mod 503 Mich. 876 (2018) (citations omitted). Because the statute refers to “acts” by the
directors or persons in control that were—in relevant part—“willfully unfair and oppressive,”
our reading of MCL 450.1489(1) leads us to conclude that the Legislature required proof that the
directors or persons in control performed the “acts” and that those acts were done to bring about
an unfair and oppressive result. In re Erwin, 503 Mich. at 10-11.
The Legislature continued to refer to “ ‘willfully unfair and oppressive’ ” activities in
MCL 450.1489(3), but it did not refer to “acts” that were “willfully unfair and oppressive”;
instead, it defined “ ‘willfully unfair and oppressive conduct.’ ” MCL 450.1489(3). The term
conduct does not appear in MCL 450.1489(1). This Court must assume that the Legislature used
the term “conduct” rather than “acts” for a reason. See, e.g., Farrington v Total Petroleum, Inc,
442 Mich. 201, 210; 501 NW2d 76 (1993) (stating that courts cannot assume that the Legislature
was mistaken when it omitted a term that it used in a different statute). This Court must also
read the statute as a harmonious whole. See Macomb Co Prosecuting Attorney v Murphy, 464
2
This Court is not required to follow the rule of law established by this Court in an opinion
published before November 1, 1990. MCR 7.215(J)(1). However, this Court may rely on
decisions published before November 1, 1990, as persuasive authority. In re Stillwell Trust, 299
Mich. App. 289, 299 n 1; 829 NW2d 353 (2012).
3
In interpreting a similar statute that referred to “illegal, oppressive, or fraudulent” actions the
Supreme Court of Texas held that, by grouping the term “oppressive” with illegal and fraudulent,
the Legislature signified that the term “oppressive” should be construed to include acts that were
at least as serious as illegal or fraudulent acts. It also concluded that it could not construe the
term in a way that ignored the director or manager’s fiduciary duty to exercise his or her business
judgment for the benefit of the corporation rather than a sole shareholder. From these
considerations, it held that the term “oppressive” necessarily required proof that the director or
manager acted with the intent to harm a shareholder’s interests. Ritchie v Rupe, 443 S.W.3d 856,
868-871 (Tex, 2014); cf. Baur v Baur Farms, Inc, 832 NW2d 663, 673-674 (Iowa, 2013)
(interpreting the term “oppressive,” as used in a statute that applied to “illegal, oppressive, or
fraudulent” acts, to mean that the act—without regard to intent—frustrated the minority
shareholder’s reasonable expectations). Although foreign authorities are not binding on this
Court concerning an issue of state law, they may be persuasive. Finazzo v Fire Equip Co, 323
Mich. App. 620, 631; 918 NW2d 200 (2018).
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Mich 149, 159; 627 NW2d 247 (2001) (noting that a statute must be read as a harmonious
whole). The Legislature may have used the term “conduct” to define a category of acts, which, if
done willfully—as otherwise required under MCL 450.1489(1)—would amount to a willfully
unfair and oppressive act. See, e.g., Estes v Idea Engineering & Fabrications, Inc, 250 Mich
App 270, 281; 649 NW2d 84 (2002) (stating that MCL 450.1489(1) provides a cause of action to
remedy “acts” that amount to an “ongoing pattern of oppressive misconduct”) (quotation marks
and citation omitted).
If this Court were to treat the definition of “willfully unfair and oppressive conduct”
provided under MCL 450.1489(3) as a substitute for the terms “acts” that “are . . . willfully
unfair and oppressive” stated in MCL 450.1489(1), this Court would in effect read the term
“willfully” out of MCL 450.1489(1). This Court must avoid a construction that renders part of
the statute surplusage or nugatory. Robinson v Lansing, 486 Mich. 1, 21; 782 NW2d 171 (2010).
Because the Legislature grouped willfully unfair and oppressive with illegal and fraudulent, we
cannot lightly adopt a construction that transforms the last category into a form of strict liability.
Therefore, we hold that, with regard to acts that are willfully unfair and oppressive, the
complaining shareholder must prove that the directors or persons in control of the corporation
engaged in a “continuing course of conduct” or took “a significant action or series of actions”
that substantially interfered with the interests of the shareholder as a shareholder, and that they
did so with the intent to substantially interfere with the “interests of the shareholder as a
shareholder.” MCL 450.1489(1); MCL 450.1489(3). Thus, a defendant can avoid liability by
showing that he or she did not have the requisite intent when he or she took the acts that
interfered with the shareholder’s interests. Consequently, we conclude that defendants could
establish a question of fact on this element by proffering evidence from which a finder of fact
could conclude that defendants’ actions, though the actions may have substantially interfered
with the shareholder’s interests as a shareholder, were nevertheless done for a legitimate business
reason and otherwise not done with the intent to harm the shareholder’s interests as a
shareholder.
Under this construction of the statutory scheme, to make out a claim of shareholder
oppression in violation of MCL 450.1489(1), plaintiffs had to allege and be able to prove: (1)
that they were shareholders of the corporation, (2) that defendants were “directors” or “in control
of the corporation”; (3) that defendants engaged in acts; and (4) that those acts were “illegal,
fraudulent, or willfully unfair and oppressive” to the corporation or to them as shareholders. See
MCL 450.1489(1). To the extent that plaintiffs maintained that defendants’ acts were willfully
unfair and oppressive to them as shareholders, they had to be able to prove that the acts
amounted to a “continuing course of conduct or a significant action or series of actions that
substantially” interfered with their interests as shareholders and that defendants took those acts
with the intent to interfere with their interests as shareholders. MCL 450.1489(3).
D. THE BUSINESS JUDGMENT RULE
Defendants also argued before the trial court and continue to argue on appeal that their
decision to retain cash and refrain from paying out dividends cannot serve as evidence of
shareholder oppression because their decisions are protected by the business judgment rule. Our
Supreme Court has explained that courts generally will not substitute their judgment for that of
directors concerning dividend policies in the absence of evidence that the policy was fraudulent
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or done in bad faith. In re Butterfield Estate, 418 Mich. 241, 255; 341 NW2d 453 (1983). This is
because courts are reluctant to intervene in the affairs of corporate bodies absent a clear showing
of actual or impending wrong. Reed v Burton, 344 Mich. 126, 130; 73 NW2d 333 (1955). Under
the business judgment rule, courts will refrain from interfering in matters of business judgment
and discretion unless the directors or officers “are guilty of willful abuse of their discretionary
powers” or act in bad faith. Id. at 131 (citation and quotation marks omitted).
Here, plaintiffs did not ask the trial court to review the soundness of defendants’ business
decisions. Rather, they alleged and presented evidence that defendants’ decisions were not taken
for legitimate business reasons, but instead were taken to defraud or oppress plaintiffs’ interests
as shareholders. Under MCL 450.1489(1) and MCL 450.1489(3), the Legislature identified acts
by directors or persons of a corporation that are inherently wrongful and would warrant court
intervention. Accordingly, a shareholder necessarily overcomes the business judgment rule by
presenting evidence to establish the elements of a claim under the shareholder-oppression statute
because that statute identifies wrongful conduct and provides a remedy for it. Reed, 344 Mich. at
130-131; see also Wayne Co Prosecuting Attorney v Nat’l Mem Gardens, 366 Mich. 492, 496;
115 NW2d 312 (1962) (stating that the business judgment rule applies only “where there has
been no fraud, misconduct, or abuse of discretion by the officers and directors.”). Accordingly,
the business judgment rule does not prohibit a court from evaluating defendants’ business
decisions—including their dividend policy—in light of the totality of the evidence to determine
whether the evidence showed that defendants formulated their policy in bad faith and as part of a
plan to commit acts amounting to shareholder oppression under MCL 450.1489(1). For this
reason, we reject defendants’ arguments that the trial court could not consider defendants’
dividend policy, their failure to divulge Gosling’s valuation, or the fairness of their $62 per share
offer when considering whether defendants engaged in shareholder oppression.
E. SUMMARY DISPOSITION: LIABILITY
On appeal, defendants argue that the trial court erred in granting summary disposition in
favor of plaintiffs because genuine issues of material fact existed with respect to whether
defendants’ alleged actions met the requirements of MCL 450.1489(1). We agree.
In their motion for summary disposition, plaintiffs asserted that the undisputed facts
showed that defendants took acts that were illegal, fraudulent, or willfully unfair and oppressive
within the meaning of MCL 450.1489(1), and that the appropriate remedy was to order
redemption at fair value under MCL 450.1489(1)(e). It was undisputed that plaintiffs did not
have any voting rights as shareholders of Burr Oak, were not employed by Burr Oak, were not
directors, and had no role in the management of the corporation. As such, it was undisputed that
plaintiffs’ ability to derive pecuniary benefit from their shares depended on the acts of the voting
shareholders who had exclusive control over Burr Oak. Plaintiffs presented evidence that Burr
Oak had consistently paid dividends to the nonvoting shareholders throughout the years with the
exception of the past few years after the death of Newell A. Franks. The evidence showed that
plaintiffs had not been receiving the only benefit that ownership of their Class B and C shares
had before the events at issue; namely, the payment of regular dividends.
Plaintiffs also presented evidence that permitted an inference that, by 2012, defendants
had embarked on a plan to devalue plaintiffs’ shares. Plaintiffs showed that Burr Oak was
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financially sound and had completed a multi-year debt-reduction plan, which included the
completion of the obligations arising from Newell A. Franks’ estate. Plaintiffs cite a January
2012 e-mail by Newell A. Franks II in which he noted that Burr Oak had the resources to pay a
$1.2 million dividend or repurchase Class B and C shares. The evidence nevertheless showed
that, although Burr Oak could return to paying dividends, as was its historical practice,
defendants caused Burr Oak to continue withholding the payment of dividends under
circumstances that could be indicative of shareholder oppression.
Plaintiffs presented e-mail communications between David Franks, Newell A. Franks II,
and Brian McConnell that showed that they had embarked on a plan to purchase the Class B and
C shares in September 2011 and that they understood the value of those shares to be anywhere
from approximately $250 per share to $332 per share. They also identified testimony by Newell
A. Franks II in which he agreed that the board of directors intended to implement a program to
buyout the shareholders in 2012. Plaintiffs presented an e-mail in which Newell A. Franks II
wrote to David Franks and Brian McConnell and acknowledged that the nonvoting shares had a
value of $352 per share, but stated that he suspected that certain shareholders might take less for
“cash today.” This e-mail permitted an inference that Newell A. Franks II understood that they
might take advantage of the Class B and C shareholders’ need for “cash today” to repurchase the
shares at a discount.
Plaintiffs identified evidence that Gosling prepared an updated valuation for the
redemption plan at the request of Newell A. Franks II and that he valued the shares at $356.22
with substantial discounts for marketability; if one did not apply any discounts, the approximate
value would be $598 per share using Gosling’s valuation of Burr Oak. Plaintiffs demonstrated
that defendants did not disclose the revised valuation and then offered plaintiffs just $62 per
share at a time when the Class B and C shareholders had received no dividends for years. They
further cited e-mails between Brian McConnell, David Franks, and Newell A. Franks II that
suggested that the $62 per share offer was not premised on any actual or reasonable valuation
and that they wanted to conceal that fact from the Class B and C shareholders. They also cited
Gosling’s deposition testimony, in which he admitted that he sent Newell A. Franks II an e-mail
informing him that the $62 per share offer was a good offer considering that the shares had no
value if the board of directors was not issuing dividends and would not otherwise repurchase the
shares, as evidence that defendants knew that their actions were devaluing the Class B and C
shares and tried to take advantage of that fact. Plaintiffs further presented evidence that
defendants made two additional offers to repurchase shares at increasingly higher values after
plaintiffs balked at the offer of $62 per share. Notably, there was evidence that the shareholders
had in the past received annual dividend payments that were on par with the one-time offer to
purchase the shares at $62 per share; stated another way, defendants’ offer of $62 per share was
akin to an offer to pay one last dividend in exchange for plaintiffs’ agreement to relinquish their
ownership interests. Plaintiffs argued below this evidence suggested that the $62 per share offer
was done in bad faith.
Taken together, this evidence established that defendants acted in concert to take acts that
were willfully unfair and oppressive to plaintiffs as shareholders. MCL 450.1489(1) and MCL
450.1489(3). The evidence, if left rebutted, showed that plaintiffs could only realize value in
their shares if Burr Oak issued dividends or purchased their shares. The evidence further
established that Burr Oak had not been paying dividends for years, which left plaintiffs without
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income from their shares for a substantial period. The evidence showed that defendants knew
that the Class B and C shares had a substantial value when considered in light of Burr Oak’s
actual market value and historical dividend practices, but the evidence showed that they also
understood that they could—in effect—devalue those shares by refusing to pay dividends. The
evidence showed that defendants then made an extremely low offer to purchase the Class B and
C shares, after obtaining a report that strongly suggested that the shares were worth hundreds of
dollars more per share. In the absence of evidence to justify the $62 per share offer, or to
establish a legitimate business reason for refusing to pay dividends despite the company’s ability
to pay and historical practices, the evidence cited by plaintiffs established that defendants
collectively took acts that substantially interfered with plaintiffs’ interests as shareholders—their
right to receive reasonable dividend payments or sell their shares at a fair value—and that they
did so with the intent to substantially interfere with those shareholder rights. As such, plaintiffs
made a properly supported motion for summary disposition on the issue of liability under MCL
450.1489(1), and, for that reason, were entitled to summary disposition unless defendants
responded and identified evidence that established that there was a question of fact on the issue
of liability. See Barnard Mfg, 285 Mich. App. at 370.
In their own motion for summary disposition, defendants proffered evidence that Burr
Oak had legitimate business reasons for withholding the payment of dividends. Defendants cited
an affidavit by Brian McConnell in which he averred that Burr Oak was required to retire
significant debt related to the estate of Newell A. Franks, which was the reason that Burr Oak
had not paid dividends for several years. He further averred that, after the estate obligations
were finally paid in 2012, the board determined that the best way to maximize the value of the
shareholders’ shares was to expand Burr Oak’s facilities. Brian McConnell stated that Burr Oak
had in the past missed delivery expectations and needed to expand to meet market expectations.
For these reasons, he averred, the board decided not to pay dividends in order to retain cash to
meet its needs even after the board paid its obligations related to Newell A. Franks’s estate.
In their memorandum in opposition to plaintiffs’ motion for partial summary disposition,
defendants reasserted the business reasons stated in Brian McConnell’s affidavit as evidence that
defendants’ actions were not fraudulent or willfully unfair and oppressive. They also
supplemented his affidavit with a second affidavit. In his supplemental affidavit, Brian
McConnell averred that Burr Oak made approximately $8.5 million in improvements after it met
its obligations related to Newell A. Franks’s estate. He also explained that Burr Oak net cash
position was actually lower than its total cash on hand. He offered that Burr Oak’s net cash
position was actually in the negative as of June 2014. Defendants also presented evidence that
they eventually offered to purchase plaintiffs’ shares at $248 per share, which, they stated, was
reasonably based on an earlier offer. They presented evidence that they eventually disclosed
Gosling’s valuation report to plaintiffs and asserted that plaintiffs had the information available
to assess the value of their own shares. Defendants argued that the evidence showed that they
did not take acts that were fraudulent or willfully unfair and oppressive. Instead, they made
legitimate business decisions related to the operation of Burr Oak.
Defendants’ evidence, if believed, would support a finding that defendants caused Burr
Oak to hold its cash rather than pay dividends to its shareholders for legitimate business reasons
and not with the intent to substantially interfere with plaintiffs’ interests as shareholders. MCL
450.1489(3). Their evidence also permitted an inference that the board made the various offers
-16-
to purchase plaintiffs’ shares as part of a legitimate bargaining tactic and not as an attempt to
force plaintiffs to sell their shares at a severe discount under the pressure created by the failure to
pay dividends. As such, defendants established a question of fact as to whether their acts were
fraudulent or willfully unfair and oppressive within the meaning of MCL 450.1489(1) and MCL
450.1489(3). Because the trial court could not resolve questions of fact on a motion for
summary disposition, White, 275 Mich. App. at 625, the trial court erred when it granted
plaintiffs’ motion for summary disposition.
F. SUMMARY DISPOSITION: REMEDY
Defendants also argue on appeal that the trial court erred when it selected a remedy
despite the fact that there were numerous questions of fact implicating the proper remedy. We
agree.
The Legislature provided that a court hearing a shareholder oppression claim has broad
authority to fashion a remedy for the shareholder oppression:
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:
(a) The dissolution and liquidation of the assets and business of the
corporation.
(b) The cancellation or alteration of a provision contained in the articles of
incorporation, an amendment of the articles of incorporation, or the bylaws of the
corporation.
(c) The cancellation, alteration, or injunction against a resolution or other
act of the corporation.
(d) The direction or prohibition of an act of the corporation or of
shareholders, directors, officers, or other persons party to the action.
(e) The purchase at fair value of the shares of a shareholder, either by the
corporation or by the officers, directors, or other shareholders responsible for the
wrongful acts.
(f) An award of damages to the corporation or a shareholder. An action
seeking an award of damages must be commenced within 3 years after the cause
of action under this section has accrued, or within 2 years after the shareholder
discovers or reasonably should have discovered the cause of action under this
section, whichever occurs first. [MCL 450.1489(1).]
As our Supreme Court has recognized, the statute provides that a trial court may refuse to
grant any relief, even though the shareholder might have established acts of shareholder
oppression, if the equities warrant the refusal. See Madulga, 496 Mich. at 711. As already noted,
our Supreme Court has held that a claim of shareholder oppression sounds in equity. Id.
-17-
Defendants presented evidence that—if believed—would permit an inference that they chose to
withhold dividends for legitimate business reasons. They also presented evidence that Burr Oak
needed to make improvements to remain competitive. This evidence, even if this Court were to
conclude that it did not establish a question of fact on the issue of liability, was evidence that
implicated the potential for alternate relief. Additionally, defendants maintained that Burr Oak
would not be able to purchase plaintiffs’ shares at full value in the short term without harming
the company. They further noted that the company employs hundreds of employees in the local
community whose welfare could be impacted.
A drastic remedy, such as the forced purchase of the Class B and C shares at a price and
over a term that threatens the viability of the business clearly implicates the interests of innocent
third parties. We acknowledge that the trial court had broad discretion to fashion a remedy to fit
the equities of the case. MCL 450.1489(1). However, it could have ordered the payment of
dividends, could have converted the Class B and C shares into voting shares, could have ordered
the appointment of a disinterested director or directors, or provided other relief necessary to
correct and prevent oppressive conduct short of a forced purchase plan that might harm Burr Oak
as a going concern. See, e.g., Stott Realty Co v Orloff, 262 Mich. 375, 381; 247 N.W. 698 (1933)
(recognizing the trial court’s “ample power” to provide relief for “substantially all corporate
ills.”); MCL 450.1489(1). Even if the trial court determined that a forced purchase plan best
served all the affected parties, it might have been persuaded by the evidence that the sale should
be structured in a way that better preserved the integrity of Burr Oak as a going concern. In any
event, given the conflicting evidence before the trial court, it could not decide as a matter of law
what remedy best fit the equities of the case. As such, the trial court additionally erred by
granting summary disposition on the remedy because the record had not been developed
sufficiently to permit the court to select an appropriate remedy. See White, 275 Mich. App. at
625; MCR 2.116(C)(10).4
G. MCL 450.1489(1)(E)
Defendants next argue that the trial court erred in its valuation of the shares at issue and it
ought to have discounted the price for the shares on the basis of marketability and lack of
control. We disagree.5
One of the several possible remedies for shareholder oppression stems from MCL
450.1489(1)(e): “The purchase at fair value of the shares of a shareholder, either by the
4
To the extent defendants also argue that the trial court erred in not allowing them to depose the
independent expert with regard to the remedy in this case, Eric Larson, we will not address this
claim of error. Although defendants asserted this claim in the statement of questions presented,
they did not address it in any way in their brief on appeal. By failing to analyze this issue,
defendants have abandoned it on appeal. Mitcham v Detroit, 355 Mich. 182, 203; 94 NW2d 388
(1959).
5
While we have concluded that the trial court improperly granted summary disposition in favor
of plaintiffs, we address this issue for the benefit of the trial court on remand if necessary.
-18-
corporation or by the officers, directors, or other shareholders responsible for the wrongful acts.”
It is noteworthy that the Legislature referred to “fair value” rather than “fair market value.”
“Fair market value” generally refers to “the amount of money that a ready, willing, and able
buyer would pay for the asset on the open market[.]” Wolfe-Haddad v Oakland Co, 272 Mich
App 323, 326; 725 NW2d 80 (2006). A fair market value would, therefore, take into
consideration the fact that a ready, willing, and able buyer might discount the value of the shares
on the basis of limitations inherent in the shares.
In interpreting their shareholder-oppression statutes, some foreign authorities recognize
that it is unfair to discount the value of shares in the context of shareholder oppression because
the discounts would in effect allow the majority to force out the minority without paying a fair
share of the enterprise’s value. For that reason, those authorities have interpreted “fair value” to
have a technical meaning that is different than “fair market value.” See, e.g., HMO-W, Inc v
SSM Health Care Sys, 234 Wis 2d 707, 717-723; 611 NW2d 250 (2000) (surveying authorities
and concluding that fair value should not be treated as synonymous with fair market value);
Colombia Mgt Co v Wyss, 94 Or App 195, 202-206; 765 P2d 207 (1988) (noting there are “no
hard and fast rules for determining the fair value” of corporate shares and concluding that a
minority discount was not appropriate in that case to discern the “fair value” of corporate stock
because the statute at issue “is not designed to produce the equivalent of a sale on the open
market; rather it is a legislative remedy for minority shareholders who find their interest
threatened by significant corporate changes and who may have no other recourse.”).
Nevertheless, although they recognize that such discounts are generally inappropriate in the
context of shareholder oppression, some jurisdictions have recognized that what constitutes a fair
value depends on the circumstances of each case. See, e.g., Brynwood Co v Schweisberger, 393
Ill App 3d 339, 353; 913 NE2d 150 (2009) (“Some of the factors that may be relevant to a
determination of fair value [of corporate stock] include the stock’s market price, the
corporation’s earning capacity, the investment value of the shares, the nature of the business and
its history, the economic outlook of the business and the industry, the book value of the
corporation, the corporation’s dividend paying capacity, and the market price of stock of similar
businesses in the industry. Although ‘fair value’ is not synonymous with ‘fair market value,’ fair
market value is another relevant factor to be considered.”) (citations omitted); Balsamides v
Protameen Chem, Inc, 160 NJ 352, 374-377; 734 A2d 721 (1999) (recognizing that fair value is
not synonymous with fair market value and stating that discounts are generally not appropriate
except when fairness and equity warrant the application of a discount); Robblee v Robblee, 68
Wash App 69, 77-80; 841 P2d 1289 (1992) (surveying cases and holding that a minority discount
was not justified under the facts). As such, in our opinion the Legislature used the term “fair
value” to distinguish the remedy from purchase at “fair market value.” Nevertheless, nothing
within the statute precludes a trial court from considering fair market value when determining
fair value. See, e.g., Morley Bros v Clark, 139 Mich. App. 193, 197-198; 361 NW2d 763 (1984)
(stating that the trial court did not err when it determined the value of the shares on the basis of
various valuations, including a net asset approach and a market value approach, under a different
statute). Likewise, the statutory scheme as a whole does not preclude a trial court from applying
discounts when crafting a remedy.
In providing for relief under MCL 450.1489(1), the Legislature stated that the trial court
could “order or grant relief as it considers appropriate[.]” The Legislature further provided that
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the relief “may” include “without limitation” the “purchase at fair value of the shares of the
shareholder.” MCL 450.1489(1)(e). The Legislature did not define “fair value.” However, by
stating that the trial court “may” order the purchase of the shares at issue at “fair value” “without
limitation,” the Legislature indicated that trial courts were not required to order such relief, but
may do so if appropriate. Stated differently, the Legislature gave the trial court broad authority
to fashion its remedy to suit the equities of the case—that is, to fashion a remedy that was
“appropriate” under the circumstances. MCL 450.1489(1). As such, while the trial court has the
authority pursuant to MCL 450.1489(1)(e) to order that defendants purchase plaintiff’s shares at
“fair value[,]” nothing within the statutory scheme required the trial court to value the shares in
any particular way. Given the Legislature’s broad grant of authority to craft a remedy for
shareholder oppression under MCL 450.1489(1), we conclude that a trial court is required to
order an “appropriate” remedy, which may include an order to purchase at “fair value” or any
other value that the court concludes is appropriate under the totality of the circumstances. In this
case, the trial court had the authority to value the shares without discounts under MCL
450.1489(1)(e), but was not required to do so. Because the trial court had the authority to value
the shares in any way that was equitable under the totality of the circumstances, the trial court
erred to the extent that it felt compelled to value the shares without any discounts. See Ronnisch
Constr Group, Inc v Lofts on the Nine, LLC, 499 Mich. 544, 552; 886 NW2d 113 (2016) (stating
that a trial court necessarily abuses its discretion when it premises its remedy on an error of law).
For the benefit of the trial court on remand, if plaintiffs are successful in their claims and the
court again chooses to order the purchase of the shares, we take this opportunity to clarify that it
retains the discretion to value the shares in any way it determines appropriate under the totality
of the circumstances, including a valuation at fair value as described above.
H. DEFENDANTS’ REMAINING ARGUMENTS ON APPEAL
Defendants next argue that the trial court erred in denying their motion for summary
disposition of the claims against LeeAnn McConnell. We disagree.
In their amended complaint, plaintiffs alleged for their seventh claim that each defendant
participated in all the wrongful conduct alleged in the first six claims by knowingly and
deliberately aiding and abetting each other in the commission of the wrongful conduct described
in those claims. Our Supreme Court has held that multiple persons may be liable in tort for a
single harm under a concert of action theory; in such a case, the plaintiff need only provide
evidence that the defendants were jointly engaged in tortious activity as a result of which the
plaintiff was harmed. Abel v Eli Lilly & Co, 418 Mich. 311, 338; 343 NW2d 164 (1984). A
defendant can also be held liable for a tort committed by some other person under a civil
conspiracy theory if the defendant combined with another person or persons by some concerted
action “to accomplish a criminal or unlawful purpose, or to accomplish a lawful purpose by
criminal or unlawful means.” Urbain v Beierling, 301 Mich. App. 114, 131-132; 835 NW2d 455
(2013) (citation and quotation marks omitted).
In response to defendants’ motion for summary disposition of the claims against LeeAnn
McConnell, plaintiffs provided evidence that LeeAnn McConnell repeatedly voted her shares in
support of her own family members’ control of Burr Oak; she also repeatedly voted to have her
husband, her father, and her brothers serve as the directors. Plaintiffs also presented evidence
that LeeAnn McConnell stated that she played an important role in determining the direction that
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Burr Oak would take, even though she was not a director or officer. In an e-mail, LeeAnn
McConnell acknowledged Jeffrey Franks’s desire to be appointed as a director, but she stated
there were “issues, past and present” with the Franks Family that had to be worked out first. She
further wrote that she promised her grandfather that she would ensure that the Oak companies
would remain part of the Sturgis community. She indicated that she would continue to do the “
‘heavy lifting’ ” to see to it that that legacy continued. Plaintiffs further cited testimony by
Richard Franks in which he testified that LeeAnn McConnell, along with the other defendants,
“besieged” him with questions about selling his stock.
A reasonable finder of fact, viewing this evidence in the light most favorable to the
nonmoving party, Maiden, 461 Mich. at 120, could conclude that LeeAnn McConnell knowingly
acted in concert with the other defendants to oppress the nonvoting members’ interests as
shareholders by repeatedly supporting their membership on the board and actively working
behind the scenes to further their agenda. However, because there was a question of fact as to
whether LeeAnn McConnell participated in the acts of shareholder oppression by the other
defendants, Abel, 418 Mich. at 338, the trial court did not err when it denied defendants’ motion
for summary disposition of the claims against LeeAnn McConnell, Barnard Mfg, 285 Mich. App.
at 369.6
III. CONCLUSION
The trial court’s March 27, 2018 order dismissing this action with prejudice is reversed.
We also reverse the trial court’s October 24, 2016 order granting plaintiffs’ motion for summary
disposition regarding oppression and the appropriate remedy, and vacate its August 31, 2017
order requiring Burr Oak to purchase plaintiffs’ shares within two years for $712 a share. We
remand for proceedings consistent with this opinion. We do not retain jurisdiction.
/s/ Kirsten Frank Kelly
/s/ Karen M. Fort Hood
/s/ James Robert Redford
6
Given our disposition of this appeal we decline to address defendants’ cursory remaining
arguments, not included in their statement of the issues on appeal, addressing the trial court’s
award of attorney fees and interest to plaintiffs. Seifeddine v Jaber, ___ Mich App ___, ___; ___
NW2d ___ (2019) (Docket No. 343411); slip op at 4.
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