Mantese Firm Wins Protections For Non-Controlling Shareholders In Michigan Supreme Court
LANSING, Mich., July 16, 2014 /PRNewswire/ -- In a case of first impression, the Michigan Supreme Court issued a groundbreaking, unanimous ruling today that significantly enhances and solidifies the statutory protections of non-controlling shareholders in closely held companies. In Madugula v. Taub, the Michigan high court clarified the contours of a "minority shareholder oppression" claim under section 1489 of the Michigan Business Corporation Act, strengthening the shareholder interests protected under the statute and broadening the types of corporate misconduct that can be evidence of oppression under the statute. The Court also provided that, while an oppression claim is equitable, the trial court may utilize an advisory jury trial in deciding the case.
The plaintiff and minority shareholder in the case, Rama Madugula, was represented by Gerard V. Mantese, Mark C. Rossman, and Brian M. Saxe, of the Troy based firm, Mantese Honigman Rossman and Williamson, P.C.
Madugula is the first shareholder oppression case ever to be decided by the Michigan Supreme Court, and the first decision in the United States to address the specific issues at hand. This decision will be a guidepost for courts and litigators around the country.
The Michigan shareholder oppression statute, MCL 450.1489, provides a cause of action against controlling shareholders for "illegal, fraudulent or willfully unfair and oppressive" conduct that substantially impairs shareholding interests. The remedies available to the minority shareholder include damages and the buy-out of stock at fair value. The statute applies to any business whose shares are not publicly traded.
A jury had previously awarded $1.3 million to Mr. Madugula in damages and for the buy-out of his minority ownership interest in Ann Arbor based Dataspace, Inc., a data warehousing and intelligence company. The verdict was rendered against the majority shareholder, Benjamin Taub, whom the jury determined had acted oppressively toward Mr. Madugula. After the Court of Appeals affirmed in 2012, the Michigan Supreme Court accepted the case for review.
At the Supreme Court level, Mr. Madugula retained Gerard Mantese to brief and argue the matter, because of his successes in corporate litigation and shareholder matters. The Mantese firm has obtained numerous multi-million dollar recoveries in shareholder oppression cases and contract disputes and is recognized nationally for its work in a wide array of business litigation.
Writing for the Court, Justice David Viviano adopted the positions advanced by Mr. Madugula's counsel on the key substantive matters at issue in this case. With regard to the shareholder rights and interests protected under the oppression statute, the Court held that, "Through this interest in the corporation, a shareholder retains certain statutory rights that allow the shareholder to protect and gain from his or her interest as a shareholder, including, but not limited to, the right to vote, inspect the books, and receive distributions." The Court rejected the extremely narrow interpretation of shareholder rights advocated by Taub.
The Michigan Supreme Court also held "that violations of a shareholder agreement may constitute evidence of shareholder oppression." Taub had argued that contractual breaches have no relevance in a shareholder oppression action, and that shareholders should be left to their contractual remedies. However, the Court held, "Taub fails to recognize that several of the rights modified in the stockholders' agreement were Madugula's rights as a shareholder." Thus, as held by the Court, "a breach of the rights and interests contained in the stockholders' agreement could be evidence of shareholder oppression." Under the Court's holding, then, a violation of an agreement or corporate governance document by the oppressor may be used against him to establish liability under the statute.
Finally, while Taub had argued that he was constitutionally and strictly entitled to a bench trial, the Court provided that, on remand, the trial court may consider the jury's findings advisory and should "determine whether, on the present record, sitting as a court of equity, it can make the requisite findings of fact and conclusions of law" to confirm the jury's verdict in a final judgment.
This decision affirms the substantial protections that the Michigan oppression statute affords minority shareholders against oppressive conduct by those in control of companies, including other shareholders, officers, and directors. Mr. Mantese, counsel for Mr. Madugula, said of the Court's decision, "This important ruling protects minority shareholders from the tyranny of a controlling faction, and ensures that those wronged by abusive conduct have effective remedies, including damages and the ability to purchase, or sell, stock from or to the wrongdoers at fair value. This ruling protects a broad spectrum of shareholder interests, and is a major club against corporate abuses."
The case was handled by Gerard V. Mantese, Mark C. Rossman, and Brian M. Saxe, who regularly obtain substantial verdicts and settlements in Michigan and around the country in business disputes. More information on their practice is available at www.manteselaw.com, and in the links below.
Contact:
Gerard V. Mantese
Mantese Honigman Rossman and Williamson, P.C.
1361 E. Big Beaver Rd.
Troy, Michigan 48083
248.457.9200
[email protected]
Link to the Court's decision:
Link to the Mantese Firm's Supreme Court Brief:
http://courts.mi.gov/Courts/MichiganSupremeCourt/briefs/Documents/12-13/146289/146289plae.pdf
Link to Mantese Firm's articles concerning corporate oppression:
http://www.manteselaw.com/docs/feb_2012_article.pdf
http://www.manteselaw.com/files/bar_journal.december_2008.partnership.pdf
SOURCE Mantese Honigman Rossman and Williamson, P.C.
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