Shareholder oppression; MCL 450.1489(1)(f); “Shareholder”; MCL 450.1109(2); Shareholder rights; Madugula v Taub; “Willfully unfair & oppressive conduct”; MCL 450.1489(3); Franks v Franks; Distinguishing Murphy v Inman; “Manipulation” of shareholder debt

The court held that the trial court (1) did not err by failing to consider the standard articulated in Murphy, or by declining to hold defendants to the standard of producing a return for shareholders and issuing distributions, but (2) did err by failing to address whether the “manipulation” of shareholder debt plaintiff was owed constituted shareholder oppression. The parties were corporate directors and shareholders of defendant-company (TLC), which was formed in the early 1980s for the purpose of holding several parcels of land. Eventually, the parties began to disagree about the issuance and transfer of shares, amount of shareholder debt, and use of TLC’s property. Plaintiff sued defendants after he was removed as TLC’s president. The trial court found defendants engaged in shareholder oppression when they took actions adverse to plaintiff’s status as a shareholder of TLC. It found no cause of action as to “plaintiff’s other allegations of shareholder oppression.” On appeal, the court first noted that “[w]hile it is true that corporate directors owe a duty to produce returns for shareholders, this is in relation to a director’s fiduciary duties. Thus, the caselaw on which plaintiff relies [Murphy] applies to claims for breach of fiduciary duties, not shareholder oppression, are thus inapplicable to this case.” As such, “the trial court did not err by failing to consider this standard. For this same reason, plaintiff’s argument that the trial court erred ‘by not holding [defendants] to the standard of producing a return for shareholders,’ and issuing distributions, also fails, because . . . the duty to produce a return for shareholders applies to claims for breach of fiduciary duties, not shareholder oppression.” However, the court agreed with plaintiff that the trial court erred by failing to address whether the “manipulation” of shareholder debt he was owed constituted shareholder oppression. It was unclear as to what records were “used when determining the ‘corrected’ amount of outstanding shareholder loans. It is also unclear how the accountant allocated the loans to the individual shareholders when determining the amount of shareholder debt owed to each individual for the 2022 tax year. Moreover, the parties disputed the outstanding debt owed to the individual shareholders only two months before trial.” Because the trial court failed to “address this issue in its judgment, it must determine whether the changes made to the shareholder loans in the 2022 tax return constitute shareholder oppression.” Affirmed but remanded.