Do New Rules for Shareholder Oppression Claims Apply to LLCs?

Last month, we discussed the Michigan Supreme Court’s decision in Madugula v. Taub, 2014 Mich. LEXIS 1281 (July 15, 2014), in which the Court held that shareholder oppression claims, including those seeking damages, can only be tried before judges sitting as courts of equity. This month, we focus on one of the strategic implications of that decision: does Madugula apply to limited liability companies, too?
When businesses are organized they face a founding question: will they be a corporation or a limited liability company? Different statutes govern these different forms of business organization and different rules apply to their governance. In the Madugula case, the Court applied the statute governing business corporations to hold that claims against business corporations for shareholder oppression could not be tried to a jury. But the question remains open for now as to whether the Madugula decision also applies to claims brought under the Limited Liability Company Act. That is, can a claim for oppression brought under MCL 450.4515 be tried to a jury or must it also be tried to the court.
While that question was not answered by the Madugula Court, it is reasonable to conclude that oppression suits for damages or any other relief brought by limited liability company members can likewise only be tried as bench trials. That is because MCL 450.4515 (creating a claim for minority member oppression against limited liability companies) is virtually identical to MCL 450.1489 (creating a claim for shareholder oppression against corporations). The two statutory provisions only differ in that MCL 450.1489 provides an extra remedy (i.e., that the court may direct or prohibit an act of the corporation or its shareholders or others who are party to the action). However, based on the Supreme Court’s reasoning in Madugula, it is very likely that this would be a distinction without a difference.
Thus, whether the company involved in a lawsuit is a corporation or a limited liability company, claims against it for oppression of a shareholder of member are now decided by a judge and not a jury.
For more information regarding shareholder oppression claims and limited liability companies, please contact Kenneth Neuman directly at [email protected].