NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 14a0300n.06
No. 13-1952
FILED
Apr 22, 2014
UNITED STATES COURT OF APPEALS DEBORAH S. HUNT, Clerk
FOR THE SIXTH CIRCUIT
JOHN WOLDING, )
)
Plaintiff-Appellant, )
ON APPEAL FROM THE
)
UNITED STATES DISTRICT
v. )
COURT FOR THE EASTERN
)
DISTRICT OF MICHIGAN
RICHARD CLARK, )
)
OPINION
Defendant-Appellee. )
)
Before: BATCHELDER, Chief Judge; McKEAGUE, Circuit Judge; OLIVER, District Judge*
OLIVER, District Judge. Plaintiff-Appellant, John Wolding (“Plaintiff”), appeals the
order of the district court granting summary judgment in favor of Defendant-Appellee Richard
Clark (“Defendant”) on Plaintiff’s claim for breach of fiduciary duties and oppression of his
rights as a minority shareholder. For the following reasons, we AFFIRM the judgment of the
district court.
I. FACTUAL AND PROCEDURAL BACKGROUND
A. Procedural Background
On February 12, 2010, Plaintiff filed this action against Defendant in the United States
District Court for the Eastern District of Michigan, asserting the following claims: (1) violation
of the Fair Credit Reporting Act (“FCRA”), 15 U.S.C. § 1681 et seq.; (2) breach of fiduciary
*
The Honorable Solomon Oliver, Jr., Chief Judge, United States District Court for the Northern
District of Ohio, sitting by designation.
No. 13-1952, Wolding v. Clark
duties and violating his rights as a minority shareholder pursuant to Michigan Complied Laws
(“MCL”) Section 450.1489; (3) fraud; and (4) injunctive relief requesting an appointment of
receiver and accounting. Plaintiff then filed an Amended Complaint on September 28, 2010,
asserting the following claims: (1) violation of the FCRA; (2) violation of fiduciary duties and
oppression of minority shareholder by controlling shareholder pursuant to MCL 450.1489;
(3) fraud; and (4) “injunctive relief against Defendant Clark.”
On March 1, 2012, Defendant filed a motion for summary judgment. On June 28, 2012,
the district court granted Defendant’s motion. First, the district court determined that Plaintiff
failed to establish a fraud claim because there was no evidence that Defendant had a bad faith
intent to break the alleged promise made to Plaintiff to allow Plaintiff to return to his position
following retirement. Second, the district court found that Plaintiff failed to establish a violation
of the FCRA because Plaintiff did not present any evidence showing that Defendant or anyone at
Defendant’s direction obtained Plaintiff’s credit report. Third, the district court determined that
Plaintiff failed to establish a minority shareholder oppression claim because Plaintiff did not
demonstrate any actions by Defendant that interfered with his interests as a shareholder.
On appeal, Plaintiff only challenges the district court’s finding with respect to the
dismissal of his claim for oppression of a minority shareholder by a controlling shareholder
pursuant to MCL § 450.1489. Thus, the only issue is whether the district court’s order granting
summary judgment in favor of Defendant with respect to Plaintiff’s shareholder oppression claim
pursuant to MCL § 450.1489 was proper.
B. Factual Background
1. Formation of LOOK!
Plaintiff and Defendant are co-founders of LOOK! Insurance (“LOOK!”). LOOK! is an
insurance agency formed in 1993 to market and sell Michigan No-Fault insurance to residents
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No. 13-1952, Wolding v. Clark
ineligible to purchase insurance from a general carrier. After its formation, LOOK! eventually
became a franchise with approximately 70 insurance agencies doing business under the name
LOOK! Insurance. LOOK! Insurance Agencies, Inc. (“LIA”) is the operational unit of the
business. However, the business is also compromised of five other entities: Sheldon Road
Corporation (“SRC”), A Cherry Hill Corporation (“ACH”), LOOK! Advertising Fund (“LAF”),
LIAC, Inc., and LOOK! Printing, Inc. Each of these entities does business under the name of
LOOK! and was formed to sell sub-standard high risk automobile insurance and perform other
related functions. Since the formation of LOOK!, Plaintiff and Defendant have been equal
shareholders and directors of the entities. Additionally, from the formation of LOOK! until
Plaintiff’s retirement, Plaintiff and Defendant shared the positions of co-chairman, co-director,
co-president, co-treasurer, and co-secretary.
2. Plaintiff’s Retirement
In 2007, Plaintiff retired from LOOK! as an officer-employee of the corporation;
however, he remained an equal shareholder and member of the board of directors. On January 3,
2008, Plaintiff and Defendant entered into an agreement regarding Plaintiff’s retirement. The
agreement provided:
A motion was made and seconded to accept the retirement of John
A. Wolding from Look Insurance Agencies, Inc and Look No-
Fault Insurance Agency Inc. John A. Wolding has retired as of July
01, 2007 and is drawing social security. John A. Wolding has
resigned from his position as Co-President. John A. Wolding will
remain on the Board of Directors and is still a Shareholder.
Richard D. Clark will receive John A. Wolding’s salary until
Richard D. Clark retires. John A. Wolding and Richard Clark will
continue receiving dividends. John A. Wolding and Richard D.
Clark accepted.
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A motion was made and accepted that Richard D. Clark will hold
the positions of Chairman, President, Director, Treasurer, and
Secretary. John A. Wolding and Richard D. Clark accepted.
(Approval of Shareholder Minutes at p. 3, Dist. Ct. Dkt., ECF No. 53-14.)
3. Plaintiff’s Request for Access to LOOK! Books and Records
After Plaintiff’s retirement on July 27, 2009, Plaintiff sent a letter to Defendant
requesting, as a shareholder and director, full access to all company records, including
newsletters sent to the agents. On August 7, 2009, David B. Walters (“Walters”), general
counsel for LOOK! responded to Plaintiff’s request, forwarding copies of the balance sheet and
income statement for the most recent fiscal year, as well as copies of the board of directors’ and
shareholders’ minutes. Walters also notified Plaintiff that his status as a shareholder or director
of LOOK! would not entitle him to copies of the company newsletters. Additionally, Walters
asked Plaintiff to refrain from communicating with officers and employees of LOOK!.
On August 7, 2009, S. Thomas Padgett (“Padgett”), counsel for Wolding, replied to the
letter from Walters, demanding that books and records for each LOOK! entity be produced for
inspection by Wolding on September 8, 2009, and September 9, 2009, at the LOOK! offices in
Monroe, Michigan. The books and records requested included: all minutes of director and
shareholder meetings for 2008 and 2009; all payroll records for 2008 and 2009, state and federal
quarterly and annual tax returns for 2008 and 2009; monthly and annual profit loss statements for
each month during 2008 and 2009, and annually for 2008 and 2009; the general ledger for each
month and annually for 2008 and 2009; and checkbook registers and bank statements for all
accounts for 2008 and 2009.
On August 13, 2009, Walters responded to Padgett’s demand for inspection of books and
records, providing Wolding with the following: shareholder and director minutes or consents in
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No. 13-1952, Wolding v. Clark
lieu of meetings for 2008; audited financial statements for 2008; unaudited balance sheet and
income statements for 2008 and 2009; and income tax returns for 2008. On August 26, 2009,
Padgett responded to Walters’s letter, stating that previously requested books and records were
not produced with the August 13, 2009 letter, including: payroll records for 2008 and 2009; state
and federal quarterly returns for 2008 and 2009; a general ledger for each month during 2008 and
2009; and checkbook registers and bank statements for all accounts for each month during 2008
and 2009. Additionally, Padgett requested copies of documents relating to LOOK!’s
communication with, hiring of, and payment to Walters and Bodman LLP, Walters’s law firm.
On September 15, 2009, Walters partially responded to Padgett’s August 28, 2009 letter
by producing 1,199 pages of checkbook registers and bank statements for all accounts for each
LOOK! entity for each month of 2008 and 2009. Additionally, Walters indicated that additional
documents would be produced by September 24, 2009. Accordingly, on September 24, 2009,
Walters fully responded to Padgett’s August 28, 2009 letter, by producing: payroll records for
2008 and 2009; federal and state quarterly employment related tax returns for 2008 and 2009;
general ledger for 2008 and 2009; 2009 documents related to correspondence between LOOK!
and Bodman LLP, and the retainer agreement between LOOK! and Bodman LLP.
On November 12, 2009, Padgett wrote to Walters, indicating that some previously
requested documents were not produced, including bills from Bodman LLP to LOOK! and
documents relating to communications between Bodman LLP and Defendant or any other
employee of LOOK!. On November 13, 2009, Walters responded to the November 12, 2009
letter, informing Padgett that he had not previously requested invoices from Bodman LLP to
LOOK!, but had requested only evidence of payment to Bodman LLP. Walters further
responded that LOOK! had complied with the request for evidence of payment to Bodman LLP
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No. 13-1952, Wolding v. Clark
by producing all check registers and bank statements that would provide evidence of all
payments made by LOOK!. Additionally, Walters notified Padgett that he had previously
requested communications between Bodman LLP and Defendant and had not requested
memoranda or communications between Bodman LLP and other LOOK! employees. However,
Walters stated that he would request that any communications between Bodman LLP and
LOOK! employees be produced. Subsequent to each of the before-mentioned communications
regarding Plaintiff’s request for LOOK! books and records, Plaintiff testified in deposition, “I
have been provided with a delayed record of the companies’ performance, which would be
adequate if given to me in a timely fashion.” (Tr. at 12, Jan. 25, 2012, Dist. Ct. Dkt., ECF No.
53-9.)
4. Plaintiff’s Attempt to Return to Active Employment at LOOK!
On August 26, 2009, Plaintiff notified Defendant of his desire to return to active
employment at LOOK!. Plaintiff also gave notification that he was nominating himself to serve
as President, Treasurer, Secretary, Chairman, and any other elected position of LOOK!.
Additionally, Plaintiff gave notice that he would modify his nomination to serve as Co-President,
Co-Treasurer, Co-Secretary, Co-Chairman, and jointly to any other elected position of LOOK!.
On November 16, 2009, Plaintiff again wrote Defendant stating his desire to come out of
retirement and serve with Defendant as Co-President and Co-Director of LOOK!. On November
18, 2009, Defendant responded to Plaintiff and denied his request to return to active employment
at LOOK!.
5. Reduction of Shareholder Distributions
On November 18, 2009, Defendant sent a letter to Plaintiff notifying him that it may be
necessary to temporarily reduce cash flow distributions from LOOK! due to the downturn of the
economy, reduced commission rates, and an unanticipated increase in operating costs. Then, in
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No. 13-1952, Wolding v. Clark
2011, LOOK! did not declare its annual year-end special dividend. Defendant testified in
deposition that he made the decision not to pay the year-end special dividend in order “to protect
the company from going under.” (Clark Tr. at 242, Jan. 16, 2012, Dist. Ct. Dkt., ECF No. 60-6.)
Additionally, Defendant sent a letter to Plaintiff in December 19, 2011, explaining that for the
first three months of 2012, he had decided to lower monthly dividends by $8,000 each and put
the dividends in escrow because he was worried about the company.
6. Opening of Company Stores
In 2010, LOOK! opened two company-owned stores. Plaintiff was not informed of the
plan to open the two stores prior to their opening. The opening was also not authorized by the
Board of Directors. Instead, Defendant authorized the opening. Upon authorization by
Defendant, $30,000 in start-up expenses were provided by LOOK! Insurance to SRC to open the
stores. Additionally, since the opening of the stores, cash from LOOK! has been used to support
the stores.
On June 7, 2011, at a special meeting of the Board of Directors of LOOK!, Plaintiff
asked why the Company chose to own a store and why franchises were not available for
purchase. Henry Beausejour (“Beausejour”), Vice President of Marketing, informed Plaintiff
that a competitor had closed a number of locations in the area and the expansion was an
opportunity to have a presence in the area, during a time when competition was at a minimum.
Beausejour also explained that franchisees were reluctant to invest in the area because there
would be a high cost to maintain security. Beausejour also indicated that a short-term reduction
in dividends may be necessary for the expansion, but that such a reduction may have been
necessary even without the expansion, as competition was increasing in the Michigan market.
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No. 13-1952, Wolding v. Clark
7. Decision to Cease Sale of Franchises
The parties disagree about whether LOOK! ceased offering franchises for sale in
Michigan. LOOK!’s website on March 9, 2011, stated that “Michigan Franchise Sales have
ceased. Information coming soon on expansion into other States.” Plaintiff interprets this
statement to mean that LOOK! ceased offering franchise sales in Michigan. Defendant states that
no decision was made for LOOK! not to offer franchises in Michigan. Instead, he stated that in
an effort to protect the company, a decision was made not to sell franchises to certain people
because there had been bad agents approaching LOOK! with offers to purchase franchises.
Additionally, Defendant and Beausejour contend that this announcement was made because a
competitor of LOOK!, LA, was attempting to purchase a franchise. Defendant contends that
LOOK! is not refusing to sell franchises in Michigan, but instead is only willing to sell to
qualified individuals.
8. Prepayment of Expenses
In 2012, Defendant decided to increase LOOK!’s prepayment of expenses by
approximately $200,000. This resulted in approximately $500,000 of prepaid expenses. These
expenses included employee salaries, health insurance, and rent. Catherine Edel, Chief Financial
Officer of LOOK!, testified that the increased prepayment of expenses was due to the current
litigation between Plaintiff and Defendant.
II. STANDARD OF REVIEW
An order granting summary judgment is subject to de novo review. Waters v. City of
Morristown, 242 F.3d 353, 358 (6th Cir. 2001). In reviewing summary judgment motions, the
district court must view the evidence in the light most favorable to the non-moving party to
determine whether a genuine dispute as to any material fact exists. See Matsushita Elec. Indus.
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No. 13-1952, Wolding v. Clark
Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986). “Summary judgment is appropriate if
the pleadings, depositions, answers to interrogatories, and admissions on file, together with any
affidavits, show that there is no genuine issue as to any material fact such that the movant is
entitled to a judgment as a matter of law.” Villegas v. Metro. Gov’t of Nashville, 709 F.3d 563,
568 (6th Cir. 2013) (internal quotation marks omitted); see Fed.R.Civ.P. 56(a), (c). The moving
party has the burden of showing the absence of a genuine dispute of material fact. Celotex Corp.
v. Catrett, 477 U.S. 317, 323 (1986). “Credibility judgments and weighing of the evidence are
prohibited during the consideration of a motion for summary judgment.” Ahlers v. Scheibil,
188 F.3d 365, 369 (6th Cir. 1999) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249
(1986)).
III. ANALYSIS
Plaintiff argues that the district court erred in granting Defendant’s motion for summary
judgment because there was substantial evidence that Defendant engaged in conduct that violated
Plaintiff’s shareholder rights. Plaintiff contends that this evidence includes the following
conduct by Defendant: (1) denying Plaintiff access to corporate books and records;
(2) preventing Plaintiff from returning to employment at LOOK!; (3) failure to pay the normal
year end distribution; (4) opening two company stores against the company’s best interest;
(5) halting the sale of Michigan franchises; and (6) prepaying expenses.
Defendant argues that MCL § 450.1489, the statute under which Plaintiff brought his
claim, protects only Plaintiff’s interest as a shareholder rather than as a director or an officer of
the corporation, and does not apply to the conduct he has alleged. Defendant also contends that
the district court correctly found that Defendant did not interfere with Plaintiff’s shareholder
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No. 13-1952, Wolding v. Clark
interest through “illegal, fraudulent, or willfully unfair and oppressive” conduct and, therefore,
the district court decision should be affirmed.
Section 489 of the Michigan Business Corporations Act, MCL § 450.1489(1), provides
that “[a] shareholder may bring an action ... 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.” Under the statute, “willfully unfair and oppressive conduct”
is defined as:
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.
MCL § 450.1489(3).
Additionally, the statute “only gives rise to a cause of action where a shareholder suffered
oppression in his or her capacity as a shareholder.” Arevelo v. Arevalo, Nos. 285548, 286742,
2010 WL 1330636, at *6 (Mich. Ct. App. Apr. 6, 2010) (citing Franchino v. Franchino, 687
N.W.2d 620 (Mich. Ct. App. 2004)) (“[A] shareholder may not sue under the statute for
oppression suffered in his capacity as a director or an employee.”). The rights of a shareholder
typically include “voting at shareholder’s meetings, electing directors, adopting bylaws,
amending charters, examining the corporate books, and receiving corporate dividends.”
Franchino, 687 N.W.2d at 628.
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No. 13-1952, Wolding v. Clark
A. Denial of Access to Corporate Books and Records
Plaintiff argues that Defendant violated his shareholder rights by denying him access to
the corporate books and records. Defendant contends that the district court’s holding which
granted summary judgment in favor of Defendant on Plaintiff’s corporate records claim should
be upheld because Plaintiff fails to show that he did not receive access to all records to which he
was entitled prior to filing of the lawsuit. Defendant further contends that Plaintiff’s request for
records was overbroad and did not comply with the requirements of MCL § 450.1487.
Section 487 of the Michigan Business Corporation Act, MCL § 450.1487(2), gives
shareholders the right to examine corporate books and records. The statute provides that:
Any shareholder of record, in person or by attorney or other agent,
shall have the right during the usual hours of business to inspect
for any proper purpose the corporation’s stock ledger, a list of its
shareholders, and its other books and records, if the shareholder
gives the corporation written demand describing with reasonable
particularity his or her purpose and the records he or she desires to
inspect, and the records sought are directly connected with the
purpose. A proper purpose shall mean a purpose reasonably related
to such person’s interest as a shareholder. The demand shall be
delivered to the corporation at its registered office in this state or at
its principal place of business. In every instance where an attorney
or other agent shall be the person who seeks to inspect, the demand
shall be accompanied by a power of attorney or other writing
which authorizes the attorney or other agent to act on behalf of the
shareholder.
MCL § 450.1487(2).
We agree with Defendant that the district court correctly granted summary judgment in
favor of Defendant because Plaintiff does not argue that there are any remaining books or
records to which he has been denied access. Additionally, we agree that Plaintiff’s initial request
for access to books and records was overbroad and did not comply with MCL § 450.1487.
Plaintiff sent his initial request for documents to Defendant on July 27, 2009, requesting full
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No. 13-1952, Wolding v. Clark
access to all company records, including newsletters sent to the agents. Plaintiff stated that the
purpose of his request was that he “may again become and stay informed.” (E-Mail Ex. 65, Dist.
Ct. Dkt., ECF No. 60-3.) The court finds that this request was overbroad, as Plaintiff did not
narrow his request to any specific books and records of the company. (Id.) Instead, he requested
“full access to all company records.” (Id.) Despite this overbroad request, the court finds that
Defendant, on August 7, 2009, sent Plaintiff copies of the balance sheet and income statement
for the most recent fiscal year, as well as copies of board and shareholder minutes. Furthermore,
the court finds that once Plaintiff limited his request to specific books and records of the
company, Defendant continued to supply Plaintiff with additional books and records of the
company, resulting in Plaintiff gaining access to all requested documents.
Plaintiff does not contend that he has not been given access to all of the books and
records he requested. Instead, he simply argues that he was “provided with a delayed record of
the companies’ performance, which would be adequate if given to [him] in a timely fashion.”
Therefore, because Plaintiff agrees that he was eventually provided with all the books and
records he requested, there is not a genuine dispute of material fact regarding whether Plaintiff
was denied access to the company books and records. See Nagia v. Chota, No. 229311, 2002 WL
1308335, at *3 (Mich. Ct. App. June 14, 2002) (holding that plaintiffs failed to meet their burden
of establishing a factual dispute to prevent summary judgment where defendants provided
plaintiffs with documents since the initiation of the suit and plaintiffs failed to identify any
documents to which they were entitled that defendants failed to produce).
B. Preventing Plaintiff from Returning to Employment at LOOK!
Plaintiff argues that Defendant violated his shareholder rights by preventing him from
returning to employment at LOOK! Plaintiff argues that preventing him from returning to
employment is equivalent to removing a minority shareholder from a position in management.
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No. 13-1952, Wolding v. Clark
Defendant contends that the district court correctly held that Defendant did not violate Plaintiff’s
shareholder rights by declining to re-employ him after retirement because shareholders do not
have a right to employment.
Shareholders do not have a right to employment with the company. Franchino,
687 N.W.2d at 628. However, MCL § 450.1489(3) does allow a minority shareholder to assert a
claim for willfully unfair and oppressive conduct, including “termination of employment or
limitations on employment benefits to the extent the actions interfere with distributions or other
shareholder interests disproportionately as to the affected shareholder.” MCL § 450.1489(3); see
also Berger v. Katz, Nos. 291663, 293880, 2011 WL 3209217, at *5 (Mich. Ct. App. July 28,
2011) (“MCL 450.1489(3) now allows a minority shareholder to claim willfully unfair and
oppressive conduct as a result of reductions in salary or other employment benefits.”).
Plaintiff does not allege that his employment with LOOK! was terminated or that he
incurred a reduction in his salary or employee benefits. Also, there is no dispute that Plaintiff
voluntarily retired from employment at LOOK!. The record indicates that Plaintiff and
Defendant entered into an agreement on January 3, 2008, which stated that Plaintiff retired as of
July 1, 2007, resigned from his position as Co-President, and that Defendant would receive
Plaintiff’s salary until Defendant’s retirement. Furthermore, Plaintiff does not allege that he was
forced to assent to this agreement, fired, or forced out of the company. Furthermore, the term
“willfully unfair and oppressive conduct” specifically excludes “conduct or actions that are
permitted by an agreement, the articles of incorporation, the bylaws, or a consistently applied
written corporate policy or procedure.” MCL § 450.1489(3). Therefore, Plaintiff cannot now
claim that Defendant’s conduct was “willfully unfair and oppressive” when Plaintiff voluntarily
retired from LOOK! pursuant to a valid agreement. See Langrill v. Diversified Fabricators, Inc.,
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No. 13-1952, Wolding v. Clark
Nos. 225001, 225002, 2002 WL 1375902, at *1 (Mich. Ct. App. June 25, 2002) (finding that
plaintiff’s consent to a stock transfer agreement disposes of his oppression claims under MCL §
450.1489). Additionally, because shareholders’ rights do not include a right to employment with
the company, and Plaintiff does not have a right to re-employment with the company under any
agreement, the court finds that it was not willfully unfair and oppressive for Defendant to refuse
to rehire Plaintiff. Consequently, the court finds that there is no genuine dispute of material fact
regarding whether it was willfully unfair and oppressive for Defendant to refuse to rehire
Plaintiff.
C. Failure to Declare Dividends
Plaintiff argues that Defendant diverted $500,000 in cash to prepay expenses instead of
paying the normal year-end distribution. Plaintiff also argues that Defendant has eliminated
dividend distributions and lowered dividends for the first three months of 2012 without
consulting his fellow board members, citing business conditions as the reason. Plaintiff further
contends that Defendant’s cited reason for lowering dividends was a pretext. Plaintiff contends
that the reason that less cash was available has nothing to do with a downturn in business;
instead, it is because Defendant diverted cash to prepay 2012 expenses. Defendant argues that
even if the prepayment of expenses reduced the distributions, “LOOK! had no duty to maximize
short-term distributions at the expense of other business interests.” Defendant also argues that,
as a shareholder, Plaintiff had a right to his proportional share of distributions, and it is
undisputed that Defendant also did not receive a year-end distribution.
A shareholder may not sue under Section 489 of the Michigan Business Corporations Act
for oppression suffered in his capacity as a director of the company. Arevelo, 2010 WL
1330636, at *6. Additionally, exclusion from corporate governance is not recognized as
minority oppression under this statute. Hofmesiter Family Trust v. FGH Indus., LLC, No. 06-cv-
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No. 13-1952, Wolding v. Clark
13984-DT, 2007 WL 1106144, at * 5 (E.D. Mich. Apr. 12, 2007). Therefore, there is no cause
of action under § 489 allowing Plaintiff to contest Defendant’s unilateral decision to eliminate
the 2011 year-end dividend and reduce monthly dividends for the first three months of 2012.
However, shareholders’ rights include receiving corporate dividends. Franchino,
687 N.W.2d at 628. Thus, Plaintiff may state a claim under § 489 for violation of his right to
receive dividends. Refusal to declare dividends can be considered willfully unfair and
oppressive conduct under § 450.1489. Bromley v. Bromley, No. 05-71798, 2006 WL 2861875,
at *5 (E.D. Mich. Oct. 4, 2006). However, in the absence of bad faith or fraud, courts will not
interfere with the discretion of the directors in deciding whether to declare a dividend. Matter of
Estate of Butterfield, 341 N.W.2d 453, 458 (Mich. 1983). (Courts will not interfere with the
decision of management not to declare a dividend “unless it is clearly made to appear that [the
directors] are guilty of fraud or misappropriation of the corporate funds, or refuse to declare
dividends when the corporation has a surplus of net profits which it can without detriment to its
business, divide among its stockholders, and when a refusal to do so would amount to such an
abuse of discretion as would constitute fraud, or breach of that good faith which [directors] are
bound to exercise toward shareholders.”). Thus, a court will only interfere with the director’s
decision whether to declare dividends if the refusal to declare dividends amounts to a breach of
its fiduciary duty. Id. at 458-59.
We do not find that Defendant breached a fiduciary duty by refusing to declare the 2011
year-end distributions or by reducing the monthly distributions for the first three months of 2012.
Plaintiff fails to demonstrate any fraud or bad faith with respect to Defendant’s conduct. The
record indicates that on November 18, 2009, Defendant sent a letter to Plaintiff notifying him
that it may be necessary to temporarily reduce cash flow distributions from LOOK! due to the
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No. 13-1952, Wolding v. Clark
downturn of the economy, reduced commission rates, and an unanticipated increase in operating
costs. Then, in 2011, Defendant maintains he decided not to make the annual year-end special
dividend to protect the company from going under. Defendant also asserts he reduced monthly
dividends for the first three months of 2012 by $8,000 each, and put the dividends in escrow
because he was worried about the company. Plaintiff offers no evidence to contest the fact that
Defendant made these decisions to reduce or eliminate dividends to protect the company.
Instead, Plaintiff argues that Defendant’s cited reasons are only a pretext and that Defendant only
made it appear that less cash was available by prepaying $500,000 in expenses in 2012 and
opening two new company stores that were unprofitable.
Assuming that Plaintiff is correct and Defendant eliminated and reduced dividends in
order to prepay expenses and to cover the expenses of opening two unprofitable company stores,
he has not shown that these decisions were fraudulent or made in bad faith. Furthermore,
Plaintiff has not shown a surplus of net profits that Defendant could have distributed to
shareholders without detriment to the business, or that the failure to do so constituted fraud or a
breach of good faith. See id. at 458. (Plaintiff must show a surplus of dividends and that refusal
to declare a dividend amounts to fraud or a breach of good faith for a court to interfere with the
discretion of the directors of the corporation not to declare a dividend.) Nor has Plaintiff shown
that the failure to declare dividends affected him disproportionately as a minority shareholder.
Therefore, we find that there is no genuine dispute of material fact regarding whether it was
willfully unfair and oppressive for Defendant to refuse to declare the year-end dividend and
reduce monthly dividends.
D. Prepaying Expenses
Plaintiff argues that Defendant engaged in oppressive conduct violating shareholder
rights by diverting $500,000 to prepay expenses when the amount of prepaid expenses in prior
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No. 13-1952, Wolding v. Clark
years was $300,0001. Plaintiff argues that this diversion deprived him of his share of dividends,
which would have been at least $173,000. Plaintiff further argues that prepaying these expenses
was fraudulent, and that the purpose was to prevent him from realizing the value of his
investment in the company. Defendant contends that the expenses were legitimate business
expenses owed to third parties and that prepayment became an asset of the company. Defendant
also contends that due to business challenges that arose at the end of 2011, he decided to prepay
$200,000 in expenses to guard against additional anticipated business challenges. Additionally,
Defendant argues that Plaintiff agrees that the goal of LOOK! at year-end is to “zero out”
accounts to avoid taxes and that prepaying expenses accomplishes this goal. Defendant further
argues that even if the pre-paid expenses reduced distributions for the year, “LOOK! had no duty
to maximize short-term distributions at the expense of other business interests.”
The court does not find that Defendant’s diversion of $500,000 to prepay expenses in
2012 instead of paying a year-end distribution was oppressive to Plaintiff. Plaintiff has an
interest in receiving dividends of the corporation. However, for Defendant’s conduct to be
actionable under § 489, it must be “illegal, fraudulent, or willfully unfair and oppressive.”
Plaintiff must demonstrate “a continuing course of conduct or a significant action or series of
actions that substantially interfered with his interests as a shareholder.” Forsberg v. Forsberg
Flowers, Inc., No. 253762, 2006 WL 3500897, at *7 (Mich. Ct. App. Dec. 5, 2006) (citing MCL
§ 450.1489(3)). Michigan courts have held that when addressing shareholder oppression claims,
“the focus is on the majority’s conduct, rather than the minority’s expectations.” Bromley, 2006
WL 2861875, at *5 (citing Franchino, 687 N.W.2d at 630.).
1
Plaintiff incorrectly states in his brief that the normal prepaid expenses were $30,000 annually, however, the
deposition testimony of Edel indicates that the normal amount of annual prepaid expenses for LOOK! was
$300,000. (Edel Tr. at 116, Jan. 18, 2012, Dist. Ct. Dkt., ECF No. 60-7.)
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Plaintiff argues that it was fraudulent for Defendant to divert company funds to prepay
expenses and that Defendant prepaid these expenses in order to prevent him from realizing his
investment in the corporation. However, Plaintiff has presented no evidence that Defendant’s
conduct of prepaying expenses was fraudulent or willfully unfair and oppressive. The only
evidence Plaintiff points to in support of his contention is Catherine Edel’s testimony that the
company prepaid expenses “to protect the company because of this litigation and not knowing
which way things were going to happen.” (Edel Tr. at 114, Jan. 18, 2012, Dist. Ct. Dkt., ECF
No. 60-7.) Plaintiff does not contend that the expenses which Defendant prepaid were not
legitimate expenses of the corporation. Thus, we do not find that Defendant’s conduct was
fraudulent.
Furthermore, Plaintiff does not demonstrate that Defendant’s conduct substantially
interfered with his interests as a shareholder. As a shareholder, Plaintiff does not have a right to
direct how company funds are utilized or how company expenses are paid. While Plaintiff does
have a right to dividend distribution under appropriate circumstances, he has not demonstrated
that prepaying legitimate company expenses interfered with that right. Additionally, assuming
prepaying the expenses did interfere with Plaintiff’s right to receive a dividend, he has not
demonstrated that Defendant’s decision to prepay expenses rather than pay a distribution was
fraudulent or made in bad faith. See Matter of Estate of Butterfield, 341 N.W.2d at 458 (absent
bad faith or fraud, courts will not interfere with the discretion of the directors in deciding
whether to declare a dividend). Nor has Plaintiff shown that prepayment of expenses
disproportionately affected him as a minority shareholder. Thus, we do not find that Defendant’s
conduct was willfully unfair or oppressive to Plaintiff’s rights as a shareholder. Consequently,
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the court finds that there is no genuine dispute of material fact regarding whether it was willfully
unfair and oppressive for Defendant to increase the amount of prepaid expenses in 2012.
E. Opening Company Stores
Plaintiff argues that Defendant engaged in conduct that violated his shareholder rights by
opening two company stores that are investments which are not in the corporation’s best interest.
Plaintiff further argues that Defendant diverted company funds from SRC to cover the expenses
associated with building and opening the two company stores. Defendant contends that the
decision to build two company stores was a strategic business opportunity. Defendant also
contends that corporate governance is not a shareholder right and is therefore not actionable
under § 489 of the Michigan Business Corporations Act. Additionally, Defendant argues that
Plaintiff offers no evidence that opening the two stores impacted distributions. Defendant further
argues that even if opening the two stores impacted distributions, § 489 of the Michigan Business
Corporations Act “does not require management to pursue short term maximization of
shareholder distributions in lieu of all other corporate objectives” or empowers shareholders to
second guess management’s business decisions.
A shareholder may not sue under § 489 of the Michigan Business Corporations Act for
oppression suffered in his capacity as a director of the company. Arevelo, 2010 WL 1330636, at
*6. Additionally, exclusion from corporate governance is not recognized as minority oppression
under this statute. Hofmesiter Family Trust, 2007 WL 1106144, at * 5. Therefore, Plaintiff has
no cause of action under § 489 to contest the decision to build two company stores simply
because he did not participate in this decision and believes it was not in the best interest of the
corporation.
Furthermore, we reject Plaintiff’s claim that the opening of the company stores affected
his interests as a shareholder because Defendant diverted company funds, making less cash
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available for the year-end distribution. Plaintiff does have an interest in receiving dividends of
the corporation. However, for Defendant’s conduct to be actionable under § 489, it must be
“illegal, fraudulent, or willfully unfair and oppressive,” and Plaintiff must demonstrate “a
continuing course of conduct or a significant action or series of actions that substantially
interfered with his interests as a shareholder.” Forsberg, 2006 WL 3500897, at *7 (citing MCL
§ 450.1489(3)).
The record indicates that the two company stores were opened because a competitor
closed a number of locations in the area, and the expansion was an opportunity to have a
presence in the area during a time when competition was at a minimum. Additionally, the record
indicates that the stores were opened by the company instead of by franchisees because
franchisees were reluctant to invest in the area due to the high costs to maintain security in the
area. Plaintiff does not dispute that these were the reasons the company stores were opened.
Additionally, Plaintiff does not demonstrate how opening the two company stores impacted his
year-end distributions or interfered with his rights as a minority shareholder. Accordingly, there
is no genuine dispute of material fact regarding whether it was willfully unfair and oppressive for
Defendant to open two company stores.
F. Halting the Sale of Michigan Franchises
Plaintiff argues that Defendant’s conduct in halting the sale of Michigan franchises
violated his rights as a shareholder because it constitutes diverting or interfering with corporate
opportunities. Plaintiff did not make this argument to the district court. Therefore, it has been
waived. However, even if the argument was not waived, it is still not well-taken. The record
indicates that Defendant testified in deposition that no decision had been made by LOOK! to
stop offering franchises in Michigan. Instead, he stated that a decision was made not to sell
franchises to certain people in an effort to protect the company because there had been bad
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agents approaching LOOK! with offers to purchase franchises. Additionally, the record indicates
that the website announcement regarding LOOK! ceasing to sell franchises in Michigan was
made because a competitor of LOOK!, LA, was attempting to purchase a franchise.
Again, § 489 does not allow Plaintiff to sue for conduct oppressive to him in his capacity
as a director of the company. Arevelo, 2010 WL 1330636, at *6. Also, exclusion from corporate
governance is not recognized as minority oppression under § 489. Hofmesiter Family Trust, 2007
WL 1106144, at *5. Therefore, Plaintiff has no cause of action under § 489 to contest the
alleged decision to cease selling Michigan franchises simply because he did not participate in
this decision and believes it was not in the best interest of the corporation. Additionally, while it
is true that a director has a fiduciary duty not to divert a business opportunity of the corporation
for his own personal gain, there is no evidence, and Plaintiff does not contend, that Defendant
diverted a business opportunity for his own personal gain. See Prod. Finishing Corp. v. Shields,
405 N.W.2d 171, 174 (Mich. Ct. App. 1987). Thus, we find that Defendant did not violate
Plaintiff’s shareholder rights by diverting a corporate opportunity for his own gain. Accordingly,
there is no genuine dispute of material fact regarding whether it was willfully unfair and
oppressive for Defendant to cease selling franchises in Michigan. In reaching this conclusion,
we do not opine on whether the decisions made by the Defendant were the very best or whether
if they were repeated over time, they would constitute a violation of Plaintiff’s rights. However,
for the reasons indicated above, summary judgment is appropriate.
IV. CONCLUSION
For the foregoing reasons, we affirm the district court’s granting of summary judgment in
favor of Defendant.
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