H JOHN SCHIMKE V LIQUID DUSTLAYER INC
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STATE OF MICHIGAN
COURT OF APPEALS
H. JOHN SCHIMKE,
UNPUBLISHED
September 24, 2009
Plaintiff/Counter-DefendantAppellee,
v
LIQUID DUSTLAYER, INC., WENDY STEEL,
Trustee of the RICHARD C. RADEMAKER
TRUST, and TINA L. RADEMAKER,
No. 282421
Manistee Circuit Court
LC No. 01-010606-CK
Defendants/Counter-PlaintiffsAppellants.
Before: Meter, P.J., and Murray and Beckering, JJ.
PER CURIAM.
Defendants Liquid Dustlayer, Inc., Wendy Steel, as Trustee of the Richard Rademaker
Trust,1 and Tina L. Rademaker (Tina) appeal as of right from a judgment, following a bench
trial, awarding plaintiff $769,600 for the value of his minority interest in Liquid Dustlayer. We
affirm.
Plaintiff, a minority shareholder of Liquid Dustlayer, a closely held corporation, brought
this action for willfully unfair and oppressive conduct, contrary to § 489 of the Michigan
Business Corporation Act, MCL 450.1489, in connection with a proposed plan by Richard
Rademaker (Rademaker), the sole director of Liquid Dustlayer, to have Liquid Dustlayer redeem
his stock on terms not made available to plaintiff.
I. Pretrial Motion for Summary Disposition and Injunction
Defendants first argue that the trial court erred in denying their motion for summary
disposition and in enjoining the proposed redemption of Rademaker’s shares. We disagree.
1
Richard Rademaker was originally named as a defendant, but died during the pendency of this
action. The trust was thereafter substituted in his place.
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A. Summary Disposition
A trial court’s decision on a motion for summary disposition is reviewed de novo.
Maiden v Rozwood, 461 Mich 109, 118; 597 NW2d 817 (1999). When reviewing a motion
brought under MCR 2.116(C)(10), a court must examine the documentary evidence presented
and, drawing all reasonable inferences in favor of the nonmoving party, determine whether a
genuine issue of material fact exists and whether the moving party is entitled to judgment as a
matter of law. Quinto v Cross & Peters Co, 451 Mich 358, 361-362; 547 NW2d 314 (1996). A
question of fact exists when reasonable minds could differ with regard to the conclusions to be
drawn from the evidence. See Glittenberg v Doughboy Recreational Industries (On Rehearing),
441 Mich 379, 398-399; 491 NW2d 208 (1992); see also Quinto, supra at 367, 371-372.
Questions of statutory interpretation are also reviewed de novo. Heinz v Chicago Rd Investment
Co, 216 Mich App 289, 295; 549 NW2d 47 (1996).
At all relevant times, § 489 provided:
(1) 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. 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.
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(2) No action under this section shall be brought by 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.
(3) 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.
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.
Although there are four published decisions addressing this statute, Franchino v
Franchino, 263 Mich App 172; 687 NW2d 620 (2004), Estes v Idea Engineering & Fabricating,
Inc, 250 Mich App 270; 649 NW2d 84 (2002) (Estes II), Estes v Idea Engineering &
Fabricating, Inc, 245 Mich App 328, 338-346; 631 NW2d 89 (2001) (Estes I), vacated in part
245 Mich App 801 (2001), and Baks v Moroun, 227 Mich App 472; 576 NW2d 413 (1998),
overruled in part by Estes II, only Franchino and Estes II remain good law with regard to § 489.
In Estes II, supra at 271-272, a special panel of this Court was convened under MCR
7.215(J)2 to resolve a conflict between Estes I and Baks with respect to whether § 489 creates a
cause of action. This Court resolved the conflict in favor of Estes I and against Baks by holding
that § 489 creates a cause of action, rather than simply being a venue provision. Estes II, supra
at 278-279. In Franchino, supra at 173-174, this Court held that § 489 only protects a
shareholder’s interest as a shareholder, not as a member of a board of directors or as an
employee of a corporation.3
Defendants argue that plaintiff failed to demonstrate that there were questions of material
fact for trial and, therefore, the trial court should have granted defendants’ motion for summary
disposition. We note, however, that in his response to defendants’ motion, plaintiff did not claim
that there existed issues of material fact for trial, but rather argued that he, not defendants, was
entitled to judgment as a matter of law. Defendants now argue that they were entitled to
judgment as a matter of law for various reasons. We disagree.
Defendants argue that plaintiff failed to establish a violation of § 489 because he failed to
show a pattern of “willfully unfair and oppressive conduct.” However, § 489(3) defines
“willfully unfair and oppressive conduct” 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” (emphasis added). Thus, “willfully unfair and oppressive conduct” may be
2
The rule applicable in Estes II was at that time found in MCR 7.215(I).
3
Section 489(3) was amended by 2006 PA 68, effective March 20, 2006, to add that “[w]illfully
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.” Thus, it appears that this
portion of Franchino has been legislatively overruled.
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established by proof of either (1) a continuing course of conduct, (2) a significant action, or (3) a
series of actions. Accordingly, a single significant action that substantially interferes with a
shareholder’s interests as a shareholder is sufficient to support a cause of action under § 489.
Defendants also argue that they were entitled to summary disposition because the
proposed redemption never took place. However, § 489 does not require that an act be
completed before a court may intervene. Indeed, § 489(1)(c) allows a court to issue an
“injunction against a resolution or other act of the corporation.” Similarly, § 489(1)(d) allows a
court to “prohibit[] . . . an act of the corporation or of shareholders, directors, officers, or other
persons party to the action.” Therefore, the fact that the contemplated redemption had not yet
occurred did not entitle defendants to judgment as a matter of law.
Defendants also argue that plaintiff failed to show that the proposed redemption would
diminish the value of his stock. However, § 489 does not require a showing that oppressive
conduct diminished the value of the shareholder’s stock. Rather, § 489(3) requires a showing
that the misconduct “substantially interferes with the interests of the shareholder as a
shareholder.” In this case, the plan to redeem Rademaker’s stock did not include plaintiff. To
the extent that defendants were willing to consider redeeming plaintiff’s stock, it was at a much
lower price. This discrepancy affected the value of plaintiff’s shareholder interest in Liquid
Dustlayer and was sufficiently indicative of a substantial interference with plaintiff’s rights as a
shareholder.
For these reasons, the trial court did not err in denying defendants’ motion for summary
disposition.
B. Temporary Restraining Order (TRO)
Defendants argue that the trial court erred in sua sponte enjoining the proposed stock
redemption, without a showing of imminent or irreparable harm.
MCR 3.310(B)(1)(a) requires a showing of immediate and irreparable harm before a
TRO may be issued without advance notice to the other party. In this case, the trial court sua
sponte issued a TRO, without prior notice to defendants and without discussing the requirements
of MCR 3.310(B)(1)(a). However,
an error or defect in anything done or omitted by the court or by the parties is not
ground for granting a new trial, for setting aside a verdict, or for vacating,
modifying, or otherwise disturbing a judgment or order, unless refusal to take this
action appears to the court inconsistent with substantial justice. [MCR 2.613(A).]
At trial, Rademaker testified that he had voluntarily refrained from implementing the
redemption pending the outcome of this lawsuit. He also took the position that the redemption
was merely a hope or a dream that had not been finalized, not a real plan. Once the trial court
decided the matter on the merits and ascertained the value of plaintiff’s stock, it lifted the
injunction and allowed Liquid Dustlayer to redeem Rademaker’s shares on the same terms as
plaintiff’s. Under the circumstances, any error in issuing the TRO was harmless. Failure to
grant appellate relief would not be inconsistent with substantial justice.
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II. Finding of Willful and Oppressive Conduct
Defendants argue that the trial court erred in concluding that the proposed redemption
plan was sufficient to establish willful and oppressive conduct under § 489. We disagree.
A trial court’s findings of fact at a bench trial are reviewed for clear error. Sands
Appliance Service, Inc v Wilson, 463 Mich 231, 238; 615 NW2d 241 (2000). Regard is given to
the trial court’s special opportunity to evaluate the credibility of witnesses who appeared before
it. See Morris v Clawson Tank Co, 459 Mich 256, 271; 587 NW2d 253 (1998). A finding is
clearly erroneous when, although there is evidence to support it, the appellate court is left with a
definite and firm conviction that a mistake has been made. Arco Inds Corp v American
Motorists’ Ins Co, 448 Mich 395, 410; 531 NW2d 168 (1995), overruled in part on other grounds
Frankenmuth Mut Ins Co v Masters, 460 Mich 105, 116-117 n 8; 595 NW2d 832 (1999).
Questions of law are reviewed de novo. See Sands, supra at 238.
Defendants argue that the proposed redemption plan was merely an inchoate dream and,
therefore, was not actionable under § 489. We disagree. The evidence presented at trial showed
that Rademaker repeatedly indicated that he wanted Liquid Dustlayer to redeem his stock and
that he was not willing to redeem plaintiff’s shares immediately, or at the same price. Even after
transferring some of his stock to his daughter Tina, Rademaker controlled a majority of the
shares. Rademaker had his attorney draft closing documents for the company-financed
redemption of his remaining stock, at $15,000 a share. Rademaker also proposed scheduling a
shareholders’ meeting on the issue, but stated that the meeting could be held on the same day as
the closing, thus suggesting that whatever happened at the meeting was unlikely to affect
Rademaker’s plans. In light of the evidence on the entire record, the trial court did not clearly err
in finding that Rademaker had a well-formed imminent plan to cause Liquid Dustlayer to redeem
his remaining shares of stock, but not plaintiff’s shares, for $15,000 a share. As discussed
previously, §§ 489(1)(c) and (d) contemplate that oppressive conduct that has not yet been
completed is actionable under the statute.
Defendants argue that the redemption plan was mere speculation and could not support
an award of damages or the trial court’s decision to interfere with the officers’ discretion.
However, § 489 contemplates that in a closely held corporation, directors may sometimes
exercise their discretion in a willful and oppressive manner, to the disadvantage of minority
shareholders. As indicated, § 489 allows a court to intervene before an action is finalized.
Further, § 489(1)(e) specifically authorizes a court to order a corporation to purchase a plaintiff’s
shares of stock.
Defendants next observe that MCL 450.1261(i) and (m) authorize a corporation to buy
and sell shares, but we note that plaintiff here never claimed that the proposed redemption plan
was ultra vires.
Defendants also argue that plaintiff failed to prove a continuing pattern of oppressive
conduct, but, as explained previously, a single “significant action” is sufficient to show willful
and oppressive conduct under § 489(3).
Defendants argue that a violation of § 489 was not established because the evidence
showed that plaintiff’s retirement interests were being considered. They contend that Rademaker
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did not intend to divert so much money that he would hurt Liquid Dustlayer, and thereby his
daughter or plaintiff, and that the proposed price of $15,000 a share was simply a “talking point.”
They also assert that Rademaker intended to obtain an appraisal of Liquid Dustlayer and that no
witness analyzed the proposed terms or the effect of the inchoate redemption plan. Thus,
defendants argue, plaintiff failed to prove that he had a “right” to unlock the value of his stock or
that he would have been hurt if Liquid Dustlayer redeemed Rademaker’s stock.
As previously explained, the evidence at trial showed that the proposed redemption was
imminent. While defendants claim that plaintiff’s retirement interests would be protected, the
evidence showed that Rademaker offered plaintiff approximately one third of what Rademaker
was demanding for his shares, and Rademaker had voting control of Liquid Dustlayer. In the
meantime, Rademaker and Tina remained steadfast in refusing to pay dividends, despite Liquid
Dustlayer’s substantial cash reserves, essentially preventing plaintiff from receiving any benefit
whatsoever from his nearly one-third ownership of Liquid Dustlayer. The trial court did not
clearly err in finding that defendants engaged in “willfully unfair and oppressive conduct,”
entitling plaintiff to relief under § 489.
III. Remedy of Redemption
Defendants next argue that the trial court erred in ordering Liquid Dustlayer to redeem
plaintiff’s stock. We again disagree.
“An inquiry into the nature, scope, and elements of a remedy is a question of law that is
reviewed de novo.” Auto-Owners Ins Co v Amoco Production Co, 468 Mich 53, 57; 658 NW2d
460 (2003). However, a trial court’s choice among available remedies is reviewed for an abuse
of discretion. See, generally, Rasheed v Chrysler Corp, 445 Mich 109, 122; 517 NW2d 19
(1994).
Section 489(1) provides that “[i]f 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 . . . .” Thus, § 489 grants a court broad
discretion to fashion a remedy it “considers appropriate.”
In Estes II, supra at 280, this Court recognized that in a closely held corporation, such as
this one, “a shareholder . . . is unable to escape an oppressive situation by dispensing of his
shares of ownership in the public arena” (internal citation, quotation marks, and emphasis
omitted). The Court also recognized that “the relationship among those in control of a closely
held corporation requires a higher standard of fiduciary responsibility, a standard more akin to
partnership law.” Id. at 281 (internal citation and quotation marks omitted). Accordingly,
§ 489(1)(e) specifically authorizes a court to order the purchase of a plaintiff’s shares. Section
489(1)(a) also allows a court to order “[t]he dissolution and liquidation of the assets and business
of the corporation.”
In the present case, the continuing injunction prevented Liquid Dustlayer from redeeming
Rademaker’s shares. However, the evidence showed that Rademaker continued drawing a salary
from Liquid Dustlayer, as well as substantial bonuses. Tina was similarly paid a generous salary
and bonuses. Liquid Dustlayer had never paid dividends to its shareholders, and Rademaker and
Tina opposed the idea of doing so. Plaintiff held nearly a one-third interest in Liquid Dustlayer,
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but received no dividends (and no salary), and he had no voting influence. Thus, Rademaker and
Tina continued receiving a benefit from their stock ownership, while plaintiff received nothing.
Extending the injunction, without ordering the purchase of plaintiff’s stock, would merely have
perpetuated this inequitable status quo. Under the circumstances, the trial court did not abuse its
discretion in ordering Liquid Dustlayer to redeem plaintiff’s stock.
IV. Valuation of Plaintiff’s Stock
Defendants next argue that the trial court erred by failing to discount the value of
plaintiff’s minority shares. We disagree.
An award of damages following an evidentiary hearing is reviewed for clear error.
Woodman v Miesel Sysco Food Service Co, 254 Mich App 159, 190; 657 NW2d 122 (2002);
Jansen v Jansen, 205 Mich App 169, 170-171; 517 NW2d 275 (1994). “A trial court has great
latitude in determining the value of stock in closely held corporations,” and no clear error will be
found where the court’s valuation is “within the range established by the proofs.” Id. at 171.
Section 489(1)(e) authorizes a court to order “[t]he 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” (emphasis added). The trial court’s order for the parties to
obtain a normalized valuation of plaintiff’s stock must be viewed in the context of the statute.
Defendants received the report of David Richards, a certified business evaluator, in January
2007, and failed to produce any contrary evidence at the valuation hearing.
As defendants observe, MCL 450.1761(d) states that
“[f]air value,” with respect to a dissenter’s shares, means the value of the shares
immediately before the effectuation of the corporate action to which the dissenter
objects, excluding any appreciation or depreciation in anticipation of the
corporate action unless exclusion would be inequitable.
Michigan has not adopted the requirement that fair value be ascertained without a discount for
lack of marketability or minority status. Conversely, the definition contained in § 761 does not
require a court to discount the value of minority shares. The trial court correctly recognized this
principle.
In the present case, Rademaker owned 37.78 percent of Liquid Dustlayer, Tina owned
33.33 percent of Liquid Dustlayer, and plaintiff owned 28.89 percent. Thus, the parties held
similar ownership interests.4 Richards testified that “the ownership percentages were so close
together that I just – a huge discount . . . would not be appropriate.” Richards later testified that
it was appropriate to take into account no discount in this case. Under the circumstances, the
4
As noted by the trial court, during his employment, plaintiff contributed greatly to the success
and profitability of Liquid Dustlayer.
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trial court did not err in declining to discount the value of plaintiff’s shares; its decision was
supported by the proofs.
V. Interest
Defendants lastly argue that the trial court erred in awarding plaintiff prejudgment
interest on the purchase price of his stock.
Generally, a decision whether to award prejudgment interest is reviewed de novo.
Griswold Properties, LLC v Lexington Ins Co, 275 Mich App 543, 569; 740 NW2d 659 (2007),
superceded in part on other grounds 276 Mich App 551 (2007). However, “[t]his Court reviews
an award of interest in equity for an abuse of discretion.” Olson v Olson, 273 Mich App 347,
349; 729 NW2d 908 (2006).
Under MCL 600.6013(8), a plaintiff is entitled to prejudgment interest accruing from the
date a complaint is filed through the date the judgment is satisfied. In this case, however, the
trial court did not award interest from the filing of the complaint, nor did it cite § 6013 as
authority for its award of interest. Further, an order directing the purchase of minority stock is
an equitable remedy, not a money judgment. See, generally, Olson, supra at 354, n 6; see also
Moore v Carney, 84 Mich App 399, 404-406; 269 NW2d 614 (1978). Therefore, § 6013 does
not apply.
However, an award of interest on an equitable remedy “may be appropriate pursuant to
the trial court’s discretion under its equitable powers.” Olson, supra at 354. “An equitable
award of interest . . . is not intended to serve the purpose of compensating a party for the lost use
of funds.” Id. at 354-355 (internal citation and quotation marks omitted). Rather, it “prevents
the delinquent party from realizing a windfall and assures prompt compliance with court orders.”
Id. at 355 (internal citation and quotation marks omitted); see also In re Forfeiture of $176,598,
465 Mich 382, 388 n 12; 633 NW2d 367 (2001).
In the present case, the evidentiary hearing to determine damages was held in July 2007,
18 months after the case was initially decided, and the judgment was not entered until November
20, 2007. In the meantime, defendants continued to operate Liquid Dustlayer and had full use of
its assets, while plaintiff received no dividends or other benefit from his ownership interest. If
equitable interest had not been ordered, defendants would have received a windfall from the
delay. Therefore, the trial court did not abuse its discretion in ordering defendants to pay
equitable interest on the judgment.
Affirmed.
/s/ Patrick M. Meter
/s/ Christopher M. Murray
/s/ Jane M. Beckering
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