Michigan Supreme Court: shareholder-oppression claims against directors and officers don’t get juries


In Michigan, minority shareholders in closely-held corporations can sue directors and officers for illegal, fraudulent, or willfully unfair and oppressive actions. If successful, the oppressed shareholder can get relief ranging from damages to dissolution of the corporation. But who decides whether the shareholder was oppressed and, if so, what the appropriate relief should be?

The Michigan Supreme Court held in Madugula v Taubthat these are issues for a judge, not a jury.

In Madugula, the defendant, Benjamin Taub, founded a technology consulting firm in the mid-nineties. In 2002, he hired the plaintiff, Rama Madugula, to be the vice president of sales and business development. Madugula eventually obtained 36% of the company’s shares. The company was struggling in 2007, when Taub terminated Madugula’s employment (though Madugula kept his position on the board of directors and continued to receive dividends).

Madugula sued Taub, alleging (among other things) that Taub violated Michigan’s shareholder-oppression statute. Like most plaintiffs in civil suits, Madugula filed a jury demand. Before the trial, Taub filed a motion arguing that Madugula wasn’t entitled to a jury and that the court should decide the case and the appropriate relief. The trial court disagreed and a jury returned a verdict in Madugula’s favor. The jury awarded Madugula $191,675 in economic damages and concluded that Taub had to buy Madugula’s stock for $1.2 million.

Taub appealed to the Court of Appeals, which affirmed the trial court’s ruling. But the Supreme Court reversed. The Supreme Court took the issue in steps. First, it determined that the shareholder-oppression statute did not indicate a legislative intent to provide a right to a jury trial. The sticking point here was that the statute authorized the award of damages, which are usually determined by juries. But that wasn’t enough. The statute also says that the court “may” award “relief as it considers appropriate” and provides a nonexhaustive list of potential remedies, which, in addition to damages, includes equitable remedies like dissolution. Since “such wide latitude to fashion relief is consistent with an action in equity” and equitable relief is determined by courts, the statute did not suggest a right to a jury.

The next step was determining whether the Michigan Constitution provided a right to a jury for shareholder-oppression claims. Again, the answer was “no.” The right to a jury under the Michigan Constitution is basically a snap-shot in time. If a claim is similar to one that had a right to a jury when the Constitution was enacted, then it still does. But the claims analogous to a shareholder-oppression claim —shareholder derivative claims and claims for corporate dissolution — were decided without a jury.

So the Court concluded that there was no right to a jury and shareholder-oppression claims in Michigan “must be tried before a court of equity,” — that is, a bench trial. But that rule came with a caveat. The Michigan Court Rules permit the use of “advisory juries.” to help courts decide issues of fact. A court may use an advisory jury and a shareholder-oppression lawsuit, but it “must still state [its] own findings of the facts and conclusions of law.” Since that didn’t happen in Madugula, the Court remanded the case to the trial court to make the requisite findings or conduct a new trial.

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