Ivan Frank v. Joshua Linkner ( 2017 )

Michigan Supreme Court
Lansing, Michigan
Syllabus
Chief Justice: Justices:
Stephen J. Markman Brian K. Zahra
Bridget M. McCormack
David F. Viviano
Richard H. Bernstein
Joan L. Larsen
Kurtis T. Wilder
This syllabus constitutes no part of the opinion of the Court but has been Reporter of Decisions:
prepared by the Reporter of Decisions for the convenience of the reader. Kathryn L. Loomis
FRANK v LINKNER
Docket No. 151888. Argued December 8, 2016 (Calendar No. 4). Decided May 15,
2017.
Ivan Frank, Jeffrey Dwoskin, and others brought a shareholder-oppression action in the
Oakland Circuit Court against Joshua Linkner, Brian Hermelin, and others, alleging that
defendants had wrongfully distributed the proceeds from the sale of ePrize, LLC (ePrize) and
ePrize Holdings, LLC, the limited liability companies in which the parties had varying interests.
The operating agreement governing ePrize had been revised in March 2009 to prioritize the
payment of company proceeds to those members who had acquired “Series C” membership units
by loaning ePrize money in 2007 and 2008. Plaintiffs had not been offered the opportunity to
acquire Series C membership units and, as a result, received nothing when ePrize was sold for
more than $100 million in August 2012. Plaintiffs’ complaint included claims alleging breach of
fiduciary duty, breach of contract, and member oppression in violation of MCL 450.4515, a
provision of the Limited Liability Company Act, MCL 450.4101 et seq. Defendants moved for
summary disposition on several grounds, including that the time periods set forth in MCL
450.4515 and MCL 450.4404 for bringing actions alleging member oppression and breach of
fiduciary duty were statutes of repose rather than statutes of limitations and, as such, barred
plaintiffs’ claims because none of the alleged wrongful acts occurred after the Series C units
were issued in March 2009, more than three years before the complaint was filed. The court,
Colleen A. O’Brien, J., agreed and granted defendants’ motion under MCR 2.116(C)(7),
dismissing all plaintiffs’ claims as untimely under MCL 450.4404 and MCL 450.4515. Plaintiffs
appealed. The Court of Appeals, MARKEY, P.J., and MURRAY and BORRELLO, JJ., reversed,
holding that MCL 450.4404 did not apply, that the three-year limitation period in MCL
450.4515(1)(e) was a statute of limitations rather than a statute of repose, and that plaintiffs’
claims were timely because their claims did not accrue until they suffered a calculable financial
injury when ePrize was sold in August 2012. 310 Mich. App. 169 (2015). The Supreme Court
granted defendants’ application for leave to appeal. 499 Mich. 859 (2016).
In a unanimous opinion by Chief Justice MARKMAN, the Supreme Court held:
MCL 450.4515(1)(e) provides alternative statutes of limitations, one based on the time of
discovery of the cause of action and the other based on the time of accrual of the cause of action.
A cause of action for member oppression within a limited liability company (LLC) accrues at the
time an LLC manager has substantially interfered with the interests of a member as a member,
even if that member has not yet incurred a calculable financial injury. In the instant case,
plaintiffs’ actions accrued when ePrize amended its operating agreement on March 1, 2009, to
subordinate plaintiffs’ common shares and not in 2012 when ePrize sold substantially all of its
assets. As a result, plaintiffs’ actions for damages under MCL 450.4515(1)(e) are barred by the
three-year statute of limitations unless plaintiffs can establish on remand that they are entitled to
tolling pursuant to a mechanism such as MCL 600.5855, the fraudulent-concealment statute.
1. The three-year limitation period set forth in MCL 450.4515(1)(e) constitutes a statute
of limitations, not a statute of repose. A statute of limitations is defined as a statute that
establishes a time limit for suing in a civil case, and it is generally measured from the date the
claim accrues. In contrast, a statute of repose is a statute barring any suit that is brought after a
specified time that is measured from some other particular event, such as the date of the last
culpable act or omission of the defendant. A statute of repose prevents a cause of action from
ever accruing when the injury is sustained after the designated statutory period has elapsed,
while a statute of limitations prescribes the time limits in which a party may bring an action that
has already accrued. Given that the three-year limitation in MCL 450.4515(1)(e) clearly runs
from the date the cause of action has accrued, absent any indication to the contrary, the
Legislature is presumed to have intended the three-year limitation period to constitute a statute of
limitations.
2. MCL 450.4515(1)(e) provides that a plaintiff must bring a claim for damages within
three years of accrual or two years after discovery of the cause of action, whichever occurs first.
Read as a whole, MCL 450.4515(1)(e) provides alternative statutes of limitations. The two-year
limitation period shortens the amount of time within which a plaintiff must bring a claim by
providing only two years after discovery to bring a claim, even if that period terminates sooner
than three years after accrual. Under this provision, a plaintiff cannot bring a claim three years
after accrual of the cause of action, even if he or she did not discover and reasonably would not
have discovered the cause of action during that period. But if the plaintiff can show fraudulent
concealment, he or she will still have two years within which to bring the claim from the time he
or she discovers or reasonably should have discovered the claim, even if that happens more than
three years after accrual.
3. An action for LLC member oppression accrues not when a plaintiff incurs a calculable
financial injury, but when a plaintiff incurs the actionable harm under MCL 450.4515. Under
MCL 600.5827, a period of limitations runs from the time the claim accrues, and the claim
accrues at the time the wrong upon which the claim is based was done, regardless of the time
when damage results. The date of the “wrong” referred to in MCL 600.5827 is the date on which
the defendant’s breach harmed the plaintiff, as opposed to the date on which the defendant
breached his or her duty. Therefore, in order to determine when a plaintiff’s cause of action for
LLC member oppression accrued, a court must determine the date on which the plaintiff first
incurred the harms asserted. Under MCL 450.4515, a court may grant relief to a member of an
LLC if the member can show that the managers’ actions are illegal or fraudulent or constitute
willfully unfair and oppressive conduct toward the limited liability company or the member.
“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 member as a
member. Thus, the harm that is actionable under MCL 450.4515 is the substantial interference
with the interests of the member as a member. Plaintiffs argue that their claims did not accrue
until they first incurred a calculable financial injury after ePrize sold substantially all of its assets
in 2012. However, plaintiffs’ argument conflates monetary damages with harm. The actionable
harm for a member-oppression claim under MCL 450.4515 consists of actions taken by the
managers that substantially interfere with the interests of the member as a member, and monetary
damages constitute just one of many potential remedies for that harm. Accordingly, even if
plaintiffs did not incur a calculable financial injury until 2012, their actions could still have
accrued at an earlier date if their interests as members had been the subject of substantial
interference.
4. The alleged substantial interference with plaintiffs’ interests as members in this case
took place when their shares were subordinated in 2009. At that point, plaintiffs could have
sought a remedy under MCL 450.4515(1), including cancellation of provisions of the operating
agreement, prohibition of enforcement of those provisions, or a buyout. The subsequent
liquidation that occurred was only relevant to the extent plaintiffs could recover monetary
damages. Additional damages resulting from the same harm do not reset the accrual date or give
rise to a new cause of action. Because plaintiffs’ actions accrued on March 1, 2009, the three-
year limitation period in MCL 450.4515(1)(e) on claims for monetary damages expired before
plaintiffs filed suit on April 19, 2013. Accordingly, plaintiffs’ claims for monetary damages are
barred unless they can show on remand under MCL 600.5855 that defendants fraudulently
concealed the existence of the claim or the identity of any person who is liable for the claim.
The trial court should determine on remand whether plaintiffs are entitled to tolling of their
claims for damages under this provision.
Court of Appeals judgment affirmed in part and reversed in part; case remanded to the
trial court for further proceedings.
©2017 State of Michigan
Michigan Supreme Court
Lansing, Michigan
OPINION
Chief Justice: Justices:
Stephen J. Markman Brian K. Zahra
Bridget M. McCormack
David F. Viviano
Richard H. Bernstein
Joan L. Larsen
Kurtis T. Wilder
FILED May 15, 2017
STATE OF MICHIGAN
SUPREME COURT
IVAN FRANK, JEFFREY DWOSKIN,
PHILLIP D. JACOKES, ROY
KRAUTHAMER, BLAKE ATLER, MATT
KOVALESKI, JAMES BRUNK, and IJF
HOLDINGS, LLC,
Plaintiffs-Appellees,
v No. 151888
JOSHUA LINKNER, BRIAN HERMELIN,
CRACKERJACK, LLC, formerly known as
EPRIZE, LLC, CRACKERJACK
HOLDINGS, LLC, formerly known as
EPRIZE HOLDINGS, LLC, DAVID
KATZMAN, GARY SHIFFMAN,
ARTHUR WEISS, CAMELOT-EPRIZE,
LLC, BH ACQUISITIONS, LLC, DANIEL
GILBERT, and JAY FARNER,
Defendants-Appellants.
BEFORE THE ENTIRE BENCH
MARKMAN, C.J.
This case involves a cause of action for member oppression within a limited
liability company (LLC) under MCL 450.4515. Specifically, this Court granted leave to
appeal to consider: “(1) whether MCL 450.4515(1)(e) constitutes a statute of repose, a
statute of limitations, or both; and (2) when the plaintiffs’ cause of action accrued.”
Frank v Linkner, 499 Mich. 859 (2016). We hold that MCL 450.4515(1)(e) provides
alternative statutes of limitations, one based on the time of discovery of the cause of
action and the other based on the time of accrual of the cause of action. We further hold
that a cause of action for LLC member oppression accrues at the time an LLC manager
has substantially interfered with the interests of a member as a member, even if that
member has not yet incurred a calculable financial injury. Accordingly, plaintiffs’
actions accrued here when ePrize LLC (ePrize) amended its operating agreement on
March 1, 2009, to subordinate plaintiffs’ common shares and not in 2012 when ePrize
sold substantially all of its assets. We affirm in part and reverse in part the judgment of
the Court of Appeals and remand to the trial court for further proceedings consistent with
this opinion.
I. FACTS AND HISTORY
Defendant ePrize was founded by defendant Joshua Linkner in 1999 as a Michigan
LLC specializing in online sweepstakes and interactive promotions. Plaintiffs are former
employees of ePrize who acquired ownership units in ePrize. Plaintiffs allege Linkner
orally promised them that their interests in ePrize would never be diluted or subordinated.
In 2005, plaintiffs’ shares in ePrize were converted into shares in ePrize Holdings, LLC
2
(ePrize Holdings), whose sole assets were its ownership units in ePrize. 1 In 2007, ePrize
ran into financial difficulties and required an infusion of cash. To remedy this problem,
ePrize obtained $28 million in loans in the form of “B Notes” from various defendant-
members of ePrize and other investors; plaintiffs were not invited to participate in these
investments. In 2009, ePrize remained struggling to meet its loan obligations and
therefore issued new “Series C Units.” These units were offered to various investors,
including those who had obtained B Notes. 2 In exchange for the Series C Units, investors
were required, among other things, to make capital contributions, guarantee a portion of a
$14.5 million loan from Charter One Bank, and convert their B Notes into “Series B
Units.”
On March 1, 2009, ePrize executed its fifth operating agreement (the Operating
Agreement). Pursuant to the Operating Agreement, both the Series C and Series B Units
carried distribution priority over the common units held by plaintiffs. The Operating
Agreement further provided that if the company were ever sold, Series C Units would
receive the first $68.25 million of any available distribution. On August 20, 2012, ePrize
sold substantially all of its assets and, pursuant to the Operating Agreement, distributed
1
Plaintiff Ivan Frank worked at ePrize from 2001–2010, serving as ePrize’s senior vice
president beginning in 2005. As part of his employment, Frank obtained approximately
1% of all shares in ePrize and ePrize Holdings. Accordingly, unlike the other plaintiffs,
Frank maintained shares in ePrize after 2005.
2
With the exception of Frank, who invested approximately $4,200 in exchange for Series
C Units, none of the plaintiffs was invited to purchase Series C Units.
3
nearly $100 million in net proceeds to the holders of Series C and Series B Units. 3
Plaintiffs received nothing for their common shares.
On April 19, 2013, plaintiffs brought various claims against defendants, including
claims for LLC member oppression, breach of contract, and breach of fiduciary duty.
The trial court granted defendants’ motion for summary disposition, concluding that
plaintiffs’ claims were untimely. The Court of Appeals reversed. Frank v Linkner, 310
Mich. App. 169; 871 NW2d 363 (2015). The Court of Appeals first determined that the
“gravamen” of plaintiffs’ claims was for member oppression under MCL 450.4515 and
analyzed the timeliness of their claims accordingly. 4 Id. at 181-182. Next, the Court held
that the three-year limitation period in MCL 450.4515(1)(e) constitutes a statute of
limitations, rather than a statute of repose, because the limitation period refers to the
duration of time within which a plaintiff may bring a claim after the cause of action has
accrued. Id. at 183-186. Finally, the Court held that plaintiffs’ claims did not accrue
until 2012, when ePrize sold substantially all of its assets, because until that sale plaintiffs
had not incurred a calculable financial injury and any damage claim before that time
would have been “speculative.” Id. at 188-190. Accordingly, the Court concluded that
3
It is unclear from the record exactly how much ePrize received in exchange for the sale
of these assets. Plaintiffs claim ePrize was sold for $140 million, while the Court of
Appeals states that it was sold for $120 million. However, the exact amount of the sale is
largely immaterial, as it is undisputed that after paying its debts ePrize possessed
approximately $100 million for distribution to its investors and plaintiffs received
nothing for their common shares.
4
Neither party contests this conclusion, so we decline to address the issue.
4
plaintiffs’ claims were timely filed before the expiration of the three-year limitation
period. Id. at 172.
II. STANDARD OF REVIEW
Pursuant to MCR 2.116(C)(7), a party may move to dismiss a claim on the
grounds that the claim is barred by the applicable statute of limitations. “The question
whether a cause of action is barred by the applicable statute of limitations is one of law,
which this Court reviews de novo. This Court also reviews de novo a trial court’s
decision regarding a summary disposition motion.” Seyburn, Kahn, Ginn, Bess, Deitch
and Serlin, PC v Bakshi, 483 Mich. 345, 354; 771 NW2d 411 (2009). “In reviewing
whether a motion under MCR 2.116(C)(7) was properly decided, we consider all
documentary evidence and accept the complaint as factually accurate unless affidavits or
other appropriate documents specifically contradict it.” Kuznar v Raksha Corp, 481
Mich. 169, 175-176; 750 NW2d 121 (2008). An issue of statutory interpretation is a
question of law that is subject to review de novo. Putkamer v Transamerica Ins Corp,
454 Mich. 626, 631; 563 NW2d 683 (1997).
III. ANALYSIS
A. THREE-YEAR LIMITATION PERIOD
The first issue presented is whether the three-year limitation period set forth in
MCL 450.4515(1)(e) constitutes a statute of limitations or a statute of repose. 5 How it is
properly characterized is relevant because the Court of Appeals has held that the latter,
5
Neither party argues that the two-year limitation period also set forth in MCL
450.4515(1)(e) constitutes a statute of repose.
5
unlike the former, cannot be tolled pursuant to the fraudulent-concealment statute, MCL
600.5855. Baks v Moroun, 227 Mich. App. 472, 486-490; 576 NW2d 413 (1998),
overruled in part on other grounds by Estes v Idea Engineering & Fabricating, Inc, 250
Mich. App. 270 (2002).
The Michigan Limited Liability Company Act, MCL 450.4515(1), provides:
A member of a limited liability company may bring an action . . . to
establish that acts of the managers or members . . . are illegal or fraudulent
or constitute willfully unfair and oppressive conduct . . . . If the member
establishes grounds for relief, the circuit court may issue an order or grant
relief as it considers appropriate, including, but not limited to, an order
providing for any of the following:
* * *
(e) An award of damages to the limited liability company or to the
member. 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 member discovers or reasonably should have
discovered the cause of action under this section, whichever occurs first.
Defendants contend that the three-year limitation period constitutes a statute of repose
while the two-year limitation period constitutes a statute of limitations. The Court of
Appeals rejected this contention, concluding instead that MCL 450.4515(1)(e) contains
two alternative statutes of limitations, one predicated upon discovery of the cause of
action and the other predicated upon accrual of the cause of action. We agree with the
Court of Appeals.
A “statute of limitations” is a “law that bars claims after a specified period;
specif[ically], a statute establishing a time limit for suing in a civil case, based on the date
when the claim accrued.” Black’s Law Dictionary (10th ed) (emphasis added). In
contrast, a “statute of repose” is a “statute barring any suit that is brought after a specified
6
time since the defendant acted . . . .” Id. (emphasis added). That is, a statute of
limitations is generally measured from the date a claim accrues, while a statute of repose
is measured from some other particular event, such as “the date of the last culpable act or
omission of the defendant.” CTS Corp v Waldburger, 573 US ___; 134 S. Ct. 2175, 2182;
189 L. Ed. 2d 62 (2014). Moreover, a statute of repose cuts off the liability of a defendant,
and it may thereby “prevent[] a cause of action from ever accruing.” O’Brien v Hazelet
& Erdal, 410 Mich. 1, 15; 299 NW2d 336 (1980). In sum, “[a] statute of repose prevents
a cause of action from ever accruing when the injury is sustained after the designated
statutory period has elapsed. A statute of limitation[s], however, prescribes the time
limits in which a party may bring an action that has already accrued.” Sills v Oakland
Gen Hosp, 220 Mich. App. 303, 308; 559 NW2d 348 (1996), citing O’Brien, 410 Mich. at
15.
MCL 450.4515(1)(e) provides in part, “An action seeking an award of damages
must be commenced within 3 years after the cause of action under this section has
accrued . . . .” (Emphasis added.) “When the language of a statute is clear, it is
presumed that the Legislature intended the meaning expressed therein.” Epps v 4
Quarters Restoration LLC, 498 Mich. 518, 529; 872 NW2d 412 (2015). Given that the
three-year limitation in MCL 450.4515(1)(e) clearly runs from the date the cause of
action has accrued, absent any indication to the contrary, we presume the Legislature
intended the three-year limitation period to constitute a statute of limitations.
Defendants argue that this Court’s decision in Detroit Gray Iron & Steel
Foundries, Inc v Martin, 362 Mich. 205; 106 NW2d 793 (1961), supports their argument
that the three-year limitation period in MCL 450.4515(1)(e) constitutes a statute of
7
repose. In our judgment, however, Detroit Gray Iron calls into question this argument
and provides an apt illustration of the distinction between a statute of limitations and a
statute of repose. In Detroit Gray Iron, this Court addressed a provision in the Michigan
general corporation act (MGCA) that provided:
“No director or directors shall be held liable for any delinquency
under this section after 6 years from the date of such delinquency, or after 2
years from the time when such delinquency is discovered by one
complaining thereof, whichever shall sooner occur.” [Id. at 215 (citation
omitted).]
The plaintiffs in Detroit Gray Iron argued that the limitation periods in this provision
applied only to a director’s fiduciary obligations as set forth in the MGCA and not to the
enforcement of other common-law rights; therefore, the statute of limitations for suits
alleging a director’s breach of a common-law duty could be tolled pursuant to the
fraudulent-concealment statute. Id. at 213-214. We rejected that argument, holding that
the limitation periods in the MGCA applied to these claims and noting that under the act
a plaintiff “must sue within 2 years of its discovery of the wrong or within 6 years of its
occurrence, whichever sooner occurs, or forever bear the loss.” Id. at 218.
Assuming arguendo that Detroit Gray Iron can be interpreted as holding that the
six-year limitation period in the MGCA constitutes a statute of repose, this holding does
not support defendants’ position that the three-year limitation period in MCL
450.4515(1)(e) constitutes a statute of repose. The six-year limitation period in the
MGCA ran from the date of delinquency, which refers to the date on which defendant’s
“violation of a law or duty” occurred. Black’s Law Dictionary (10th ed). Because the
limitation period ran from the date of a particular wrongful act by a defendant, it
8
constituted a statute of repose. CTS Corp, 573 US at ___; 134 S. Ct. at 2182. In contrast,
the three-year limitation period in MCL 450.4515(1)(e) runs from the date of “accrual” of
the cause of action and therefore constitutes a statute of limitations. Sills, 220 Mich. App.
at 308. Accordingly, defendants’ reliance on this Court’s decision in Detroit Gray Iron is
misplaced. 6
Defendants also argue that despite the use of the word “accrue,” the three-year
limitation period constitutes a statute of repose. They note that an LLC member-
oppression claim is distinct from other claims in that it can arise out of a series of actions,
rather than just a single action. See MCL 450.4515(2) (“ ‘[W]illfully 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 member as a
member.”) (emphasis added). Accordingly, they argue that in order to create a statute of
repose for a claim that matures only after a sequence of events, the limitation period must
necessarily be understood to commence upon “accrual” of the action.
This is simply not so. If the Legislature had intended to make the three-year
period a statute of repose, it could have defined a period that runs from a defendant’s
final act of “illegal or fraudulent or . . . willfully unfair and oppressive conduct toward
6
Defendants also rely on the Court of Appeals’ decision in Baks, 227 Mich. App. 472,
overruled in part on other grounds by Estes, 250 Mich. App. 270. In Baks, the Court of
Appeals characterized an analogous provision in MCL 450.1541a as a statute of repose.
Id. at 480, 485, 486. The Court of Appeals in the instant case held that Baks’
characterization was “conclusory” and therefore that it was not bound by it. Frank, 310
Mich. App. at 186-188. Because this Court is not bound by Baks, we need not opine on
whether it constituted binding precedent upon the Court of Appeals.
9
the [LLC] or the member.” MCL 450.4515(1). Instead, the three-year period runs from
the date the cause of action “accrues.” MCL 450.4515(1)(e). The Legislature is
“presumed to understand the meaning of the language it enacts into law . . . . Each word
of a statute is presumed to be used for a purpose . . . . The Court may not assume that the
Legislature inadvertently made use of one word or phrase instead of another.” Robinson
v Detroit, 462 Mich. 439, 459; 613 NW2d 307 (2000). Because the three-year period runs
from “accrual,” rather than from a wrongful act of the defendant, we must presume the
Legislature intended it to constitute a statute of limitations. See CTS Corp v Waldburger,
473 US at ___; 134 S. Ct. at 2182.
Finally, defendants argue that considering the two-year limitation period in
conjunction with the three-year limitation period in MCL 450.4515(1)(e) indicates that
the latter constitutes a statute of repose. MCL 450.4515(1)(e) provides that a plaintiff
must bring a claim for damages within three years of accrual or two years after discovery
of the cause of action, whichever “occurs first.” Thus, the two-year limitation period
shortens the amount of time within which a plaintiff must bring a claim by providing only
two years after discovery to bring a claim, even if that period terminates sooner than three
years after accrual. Therefore, defendants contend, if the three-year limitation period
constitutes a statute of limitations, it is rendered nugatory, as that limitation period will
never apply given that the two-year limitation period will always occur first. MCL
450.4515(1)(e); Johnson v Recca, 492 Mich. 169, 177; 821 NW2d 520 (2012) (“[C]ourts
must give effect to every word, phrase, and clause in a statute and avoid an interpretation
that would render any part of the statute surplusage or nugatory.”) (quotation marks and
citation omitted).
10
This argument presumes that if the three-year limitation period constitutes a
statute of limitations, it is necessarily subject to the common-law discovery rule. That
rule provides that “a claim does not accrue until a plaintiff knows, or objectively should
know, that he has a cause of action and can allege it in a proper complaint.” Trentadue v
Buckler Automatic Lawn Sprinkler Co, 479 Mich. 378, 389; 738 NW2d 664 (2007).
Similarly, the two-year limitation period in MCL 450.4515(1)(e) commences only when
a plaintiff “discovers or reasonably should have discovered the cause of action under this
section[.]” Thus, if the three-year limitation period is subject to the common-law
discovery rule, the action would accrue at the same time the member discovered or
reasonably should have discovered the cause of action. Accordingly, the three-year and
two-year limitation periods would always commence at the same time and the former
would obviously never apply, because the two-year limitation period would always
“occur[] first.” MCL 450.4515(1)(e).
However, Trentadue held that “courts may not employ an extrastatutory discovery
rule to toll accrual . . . .” Trentadue, 479 Mich. at 391-392. Accordingly, defendants’
initial assumption that the common-law discovery rule would necessarily apply to the
three-year limitation period if it constituted a statute of limitations is without grounding.
Instead, accrual of the three-year limitation period is governed by statutory law. MCL
600.5827 provides that a claim generally accrues “at the time the wrong upon which the
claim is based was done . . . .” This Court has held that the “wrong” in MCL 600.5827 is
“the date on which the defendant’s breach harmed the plaintiff, as opposed to the date on
which defendant breached his duty.” Moll v Abbott Laboratories, 444 Mich. 1, 12; 506
NW2d 816 (1993), citing Connelly v Paul Ruddy’s Equip Repair & Serv Co, 388 Mich.
11
146; 200 NW2d 70 (1982). However, the running of a statutory period of limitations
may be tolled pursuant to the fraudulent-concealment statute, MCL 600.5855, which
provides:
If a person who is or may be liable for any claim fraudulently
conceals the existence of the claim or the identity of any person who is
liable for the claim from the knowledge of the person entitled to sue on the
claim, the action may be commenced at any time within 2 years after the
person who is entitled to bring the action discovers, or should have
discovered, the existence of the claim or the identity of the person who is
liable for the claim, although the action would otherwise be barred by the
period of limitations.
Allowing a plaintiff to toll the running of the three-year limitation period under MCL
600.5855 does not render the three-year limitation period nugatory. Although similar,
there is a consequential difference between the commencement of the two-year limitation
in MCL 450.4515(1)(e) and the period of tolling pursuant to MCL 600.5855. As
discussed earlier, the two-year limitation period commences when a plaintiff “discovers
or reasonably should have discovered the cause of action under this section[.]” By
contrast, tolling pursuant to MCL 600.5855 requires a plaintiff to show that the defendant
“fraudulently conceal[ed] the existence of the claim or the identity of any person who is
liable for the claim[.]” Accordingly, while the two-year limitation period does not
commence until a plaintiff discovered or reasonably should have discovered the cause of
action, the running of the three-year limitation period can only be tolled if a plaintiff did
not discover and reasonably would not have discovered the cause of action and the
plaintiff can “prove that the defendant committed affirmative acts or misrepresentations
that were designed to prevent subsequent discovery.” Sills, 220 Mich. App. at 310.
12
Considering these limitation periods in tandem, characterizing the three-year
limitation period as a statute of limitations does not render it nugatory. A plaintiff has
two years from the time he or she “discovers or reasonably should have discovered the
cause of action” to bring a claim. MCL 450.4515(1)(e). However, a plaintiff cannot
bring a claim three years after accrual of the cause of action, even if he or she did not
discover and reasonably would not have discovered the cause of action during that
period. MCL 600.5855. But if the plaintiff can show fraudulent concealment, he or she
will still have two years within which to bring the claim from the time he or she discovers
or reasonably should have discovered the claim, even if that happens more than three
years after accrual. Id. In other words, the three-year limitation period bars a claim if the
defendant did not fraudulently conceal the claim and no other tolling mechanism applies,
even if the plaintiff did not discover and reasonably would not have discovered the cause
of action during that period. 7 As a result, concluding that the three-year limitation period
constitutes a statute of limitations does not render it nugatory. Rather, a plaintiff must
bring a claim within two years after he or she discovers or reasonably should have
discovered a claim or within three years after accrual, whichever occurs first.
In sum, because the three-year limitation period in MCL 450.4515(1)(e) runs from
the date the cause of action accrues, it is properly understood as a statute of limitations. 8
7
The trial court can determine on remand the applicability of tolling mechanisms such as
the fraudulent-concealment statute.
8
We note that this conclusion is consistent with two federal court opinions addressing
this same issue, although they do not constitute binding authority. See Techner v
Greenberg, 553 Fed Appx 495, 502-506 (CA 6, 2014); Virginia M Damon Trust v
Mackinaw Fin Corp, unpublished opinion of the United States District Court for the
13
Read as a whole, MCL 450.4515(1)(e) provides alternative statutes of limitations,
requiring a plaintiff to bring a claim seeking monetary damages for LLC member
oppression within two years after discovery of the cause of action or three years after
accrual of the cause of action, whichever occurs first.
B. ACCRUAL
The second issue presented concerns when plaintiffs’ causes of action for LLC
member oppression accrued. As discussed earlier, the relevant statute, MCL 600.5827,
provides:
Except as otherwise expressly provided, the period of limitations
runs from the time the claim accrues. The claim accrues at the time
provided in [MCL 600.5829 to MCL 600.5838], and in cases not covered
by these sections the claim accrues at the time the wrong upon which the
claim is based was done regardless of the time when damage results.
This Court has held that the date of the “wrong” referred to in MCL 600.5827 is “the date
on which the defendant’s breach harmed the plaintiff, as opposed to the date on which
defendant breached his duty.” Moll, 444 Mich. at 12, citing Connelly, 388 Mich. 150
(1982). Therefore, in order to determine when plaintiffs’ actions for LLC member
oppression accrued, this Court must determine the date on which plaintiffs first incurred
the harms they assert. The relevant “harms” for that purpose are the actionable harms
alleged in a plaintiff’s cause of action.
Western District of Michigan, issued January 2, 2008 (Case No. 2:03-cv-135), pp 9-10.
14
Plaintiffs allege that defendants engaged in “member oppression” pursuant to
MCL 450.4515, which provides that a court may grant relief to a member of an LLC if
the member can show:
(1) . . . [t]he acts of the managers or members in control of the
[LLC] are illegal or fraudulent or constitute willfully unfair and oppressive
conduct . . . . If the member establishes grounds for relief, the circuit court
may issue an order or grant relief as it considers appropriate, including, but
not limited to, an order providing for any of the following:
(a) The dissolution and liquidation of the assets and business of the
limited liability company.
(b) The cancellation or alteration of a provision in the articles of
organization or in an operating agreement.
(c) The direction, alteration, or prohibition of an act of the limited
liability company or its members or managers.
(d) The purchase at fair value of the member’s interest in the limited
liability company, either by the company or by any members responsible
for the wrongful acts.
(e) An award of damages to the limited liability company or to the
member. . . .
(2) 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 member as a
member. . . . The term does not include conduct or actions that are
permitted by the articles of organization, an operating agreement, another
agreement to which the member is a party, or a consistently applied written
company policy or procedure.
In summary, MCL 450.4515(1) provides a cause of action for members of an LLC when
the managers’ actions are “illegal or fraudulent or constitute willfully unfair and
oppressive conduct toward the limited liability company or the member.” “ ‘[W]illfully
unfair and oppressive conduct’ means a continuing course of conduct or a significant
15
action or series of actions that substantially interferes with the interests of the member as
a member.” MCL 450.4515(2). Once a plaintiff has “establishe[d] grounds for relief” by
proving that a defendant has engaged in one of these prohibited behaviors, “the circuit
court may issue an order or grant relief as it considers appropriate, including, but not
limited to,” monetary damages. MCL 450.4515(1). Thus, the “harm” that is actionable
under MCL 450.4515 is the “substantial[] interfer[ence] with the interests of the member
as a member.” The statute then enumerates a variety of remedies that a court might
provide to a plaintiff once he or she has shown that the defendant substantially interfered
with the plaintiff’s interests as a member.
Plaintiffs argue that their claims did not accrue until they first incurred a
calculable financial injury after ePrize sold substantially all of its assets in 2012. They
cite this Court’s decision in Connelly, 388 Mich. at 151, in support of the argument that
their actions did not accrue until they incurred a calculable financial injury. In Connelly,
the plaintiff brought an action for damages for personal injury resulting from an industrial
accident. Id. at 148. This Court held that “[i]n the case of an action for damages arising
out of tortious injury to a person, the cause of action accrues when all of the elements of
the cause of action have occurred and can be alleged in a proper complaint,” including
monetary damages. Id. at 150-151. In the instant case, plaintiffs argue that no monetary
damages occurred before 2012 when the company was liquidated, and therefore their
causes of action for member oppression did not accrue until 2012.
However, plaintiffs’ argument conflates monetary damages with “harm.” While
the actionable harm in a claim for tortious injury to a person typically consists of some
personal injury inflicted by another that is remedied by monetary damages, see, e.g.,
16
Connelly, 388 Mich. at 150-151-- the actionable harm for a member-oppression claim
under MCL 450.4515 consists of actions taken by the managers that “substantially
interfere with the interests of the member as a member,” and monetary damages
constitute just one of many potential remedies for that harm. MCL 450.4515(1) (“If the
member establishes grounds for relief, the circuit court may issue an order or grant relief
as it considers appropriate, including, but not limited to, an order providing for any of the
following . . . .”). 9 Accordingly, unlike an action for tortious injury to a person, an action
for LLC member oppression does not necessarily accrue when a plaintiff incurs a
calculable financial injury. Instead, it accrues when a plaintiff incurs the actionable harm
under MCL 450.4515, i.e., when defendants’ actions allegedly interfered with the
interests of a plaintiff as a member, making the plaintiff eligible to receive some form of
relief under MCL 450.4515(1).
The Court of Appeals erred by focusing on the availability of monetary damages,
rather than on when plaintiffs incurred “harm.” MCL 600.5827 states that, unless
otherwise provided by statute, “the claim accrues at the time the wrong upon which the
claim is based was done regardless of the time when damage results.” And, as explained
previously, “the term ‘wrong’ . . . specifie[s] the date on which the defendant’s breach
harmed the plaintiff . . . .” Moll, 444 Mich. at 12. Once a plaintiff proves that a manager
engaged in an action or series of actions that substantially interfered with his or her
interests as a member, the “harm” has been incurred, and therefore the claim has accrued.
9
Other potential remedies include the dissolution of the LLC, the cancellation or
alteration of a provision of the operating agreement, and the direction, alteration, or
prohibition of an act by the LLC or its managers. MCL 450.4515(1)(a) through (c).
17
Under MCL 600.5827, this is true regardless of the time when monetary damages result.
Thus, even if plaintiffs did not incur a calculable financial injury until 2012, their actions
could still have accrued at an earlier date if their interests as members had been the
subject of substantial interference.
To the extent that the Court of Appeals believed that an action for monetary
damages has a different accrual date than an action involving another remedy under MCL
450.4515(1), the language of MCL 450.4515(1)(e) refutes this notion. MCL
450.4515(1)(e) provides in part: “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 member discovers or reasonably should have discovered the
cause of action under this section, whichever occurs first.” (Emphasis added.) That is, a
cause of action “under this section” accrues when a manager has substantially interfered
with a member’s interests as a member. Had the Legislature intended to create an accrual
date for a claim for monetary damages that was distinct from the accrual date for other
forms of relief, the three-year and two-year limitation periods would run when a cause of
action “seeking an award of damages” has accrued or been discovered. Plaintiffs’ claims
for monetary damages accrued at the same time as plaintiffs’ claims for other forms of
relief, at the time defendants’ conduct substantially interfered with their interests as
members.
C. APPLICATION
The alleged substantial interference with plaintiffs’ interests as members in this
case took place when their shares were subordinated in 2009. Plaintiffs allege that
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defendants’ subordination of their shares violated MCL 450.4515 because defendants had
promised that their shares would not be subordinated and defendants subsequently
engaged in secretive self-dealing to ensure they profited at the expense of plaintiffs. The
act of subordinating plaintiffs’ shares constitutes the alleged “willfully unfair and
oppressive act” that interfered with plaintiffs’ interests as members. At that point
plaintiffs could have sought a remedy under MCL 450.4515(1), including cancellation of
provisions of the operating agreement, prohibition of enforcement of those provisions, or
a buyout. MCL 450.4515(1)(b) through (d). The subsequent liquidation that occurred
was only relevant to the extent plaintiffs could recover monetary damages. Additional
damages resulting from the same harm do not reset the accrual date or give rise to a new
cause of action. See Connelly, 388 Mich. at 151; Larson v Johns-Manville Sales Corp,
427 Mich. 301, 315; 399 NW2d 1 (1986). Accordingly, plaintiffs’ actions accrued in
2009 at the point at which they could first have sought a remedy under MCL 450.4515
based on the substantial interference with their interests as members, not in 2012 when
they first incurred a calculable financial injury.
Plaintiffs argue that they are alleging a “series of actions” that substantially
interfered with their rights. Although the amendment of the Operating Agreement
constituted one action in interference with plaintiffs’ rights, the “series of actions” was
incomplete until the shares were ultimately sold. Thus, plaintiffs assert, because the
“series of actions” that substantially interfered with their interests as members did not
culminate until the company was eventually liquidated, that liquidation was when their
claims accrued.
19
Plaintiffs are correct that “willfully unfair and oppressive conduct” means either
“a significant action or series of actions that substantially interferes with the interests of
the member as a member.” MCL 450.4515(2) (emphasis added). However, the alleged
substantial interference with plaintiffs’ interests as members consists of the subordination
of their shares, not the ultimate sale of ePrize and the distribution of the proceeds of that
sale. The distribution of the proceeds of the sale was done in conformity with the
Operating Agreement and would not have breached plaintiffs’ interests as members
absent the prior subordination of their shares. See MCL 450.4515(2) (stating that
willfully unfair and oppressive conduct “does not include conduct or actions that are
permitted by . . . an operating agreement”). Accordingly, defendants allegedly
substantially interfered with plaintiffs’ interests as members when the Operating
Agreement was amended on March 1, 2009, to subordinate their shares, and plaintiffs’
actions thus accrued on that date, even if they did not incur a calculable financial injury
until 2012.
Because plaintiffs’ actions accrued on March 1, 2009, the three-year limitation
period in MCL 450.4515(1)(e) on claims for monetary damages expired before plaintiffs
filed suit on April 19, 2013. 10 Accordingly, plaintiffs’ claims for monetary damages are
10
Plaintiffs argue that their claims for nonmonetary relief are not governed by MCL
450.4515(1)(e), but rather by a six-year statute of limitations. See Estes, 250 Mich. App.
at 284 n 9; MCL 600.5813. Additionally, defendants argued in their original motion for
summary disposition that certain individual plaintiffs lacked standing to bring suit
because they only held interests in ePrize Holdings rather than ePrize. Because these
issues were not addressed by the trial court or the Court of Appeals, we decline to address
them here and instead leave them for the trial court to address on remand.
20
barred unless they can show on remand that defendants “fraudulently conceal[ed] the
existence of the claim or the identity of any person who is liable for the claim[.]” MCL
600.5855. The trial court should determine on remand whether plaintiffs are entitled to
tolling of their claims for damages under this provision.
IV. CONCLUSION
We hold that MCL 450.4515(1)(e) prescribes alternative statutes of limitations,
one based on accrual of the action and the other on discovery of the action. We further
hold that a cause of action for LLC member oppression accrues when a manager has
substantially interfered with the interests of the member as a member, even if that
member has not yet incurred a calculable financial injury. Because defendants here
allegedly substantially interfered with plaintiffs’ interests as members on March 1, 2009,
when the company amended its Operating Agreement to subordinate plaintiffs’ shares,
this is the date on which plaintiffs’ actions accrued. Accordingly, plaintiffs’ actions for
damages under MCL 450.4515(1)(e) are barred by the three-year statute of limitations
unless plaintiffs are entitled to tolling, e.g., pursuant to MCL 600.5855. Therefore, we
affirm in part and reverse in part the judgment of the Court of Appeals and remand to the
trial court for further proceedings consistent with this opinion.
Stephen J. Markman
Brian K. Zahra
Bridget M. McCormack
David F. Viviano
Richard H. Bernstein
Joan L. Larsen
Kurtis T. Wilder
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