Deep Photonics Corp. v. LaChapelle

• Decision Date: 01 July 2021
• Docket Number: CC C114435CV (SC S067853)
• Court: Oregon Supreme Court
• Parties: DEEP PHOTONICS CORPORATION, a Delaware corporation, Plaintiff, v. Joseph G. LACHAPELLE et al., Defendants. James Field and Joseph G. LaChapelle, Respondents on Review, v. Dong Kwan Kim, Petitioner on Review, and Daehong Technew Corporation, a Korean corporation, et al., Third-Party Defendants.

368 Or. 274

491 P.3d 60

DEEP PHOTONICS CORPORATION, a Delaware corporation, Plaintiff,

v.Joseph G. LACHAPELLE et al., Defendants.

James Field and Joseph G. LaChapelle, Respondents on Review,

v.Dong Kwan Kim, Petitioner on Review,andDaehong Technew Corporation, a Korean corporation, et al., Third-Party Defendants.

CC C114435CV (SC S067853)

Supreme Court of Oregon, En Banc.

Argued and submitted March 18, 2021.

July 1, 2021

Kevin H. Kono, Davis Wright Tremaine LLP, Portland, argued the cause and filed the briefs for petitioner on review. Also on the briefs was P. Andrew McStay, Jr., Portland.

Jeff S. Pitzer, Pitzer Law, Portland, argued the cause and filed the brief for respondents on review. Also on the brief was Charles J. Paternoster, Parsons Farnell & Grein, LLP, Portland.

Cody Hoesly, Larkins Vacura Kayser LLP, Portland, argued the cause for respondents on review and filed the brief for amicus curiae Oregon Trial Lawyers Association.

BALMER, J.

In this shareholder derivative action, we consider two issues: first, whether the breach of fiduciary duty claims brought by shareholders Joseph LaChapelle and James Field (plaintiffs) on behalf of Deep Photonics Corporation (DPC) against DPC directors Dong Kwan Kim, Roy Knoth, and Bruce Juhola (defendants) were properly tried to a jury, rather than to the court; and, second, whether the trial court erred in denying defendants’ motion, made during trial, to amend their answer to assert an affirmative defense against one of the claims in the complaint based on an "exculpation" provision in DPC's certificate of incorporation. For the reasons set out below, we conclude that the case was properly tried to the jury and that the trial court did not err in denying defendants’ motion to assert the exculpation defense. We therefore affirm the decision of the Court of Appeals and the limited judgment of the trial court.

The underlying facts of this dispute among officers, directors, and shareholders of DPC are complicated and were contested at trial. The legal issues before us on review, however, do not require a recitation of DPC's corporate history. As relevant here, DPC brought an action against LaChapelle and Field, who had helped found DPC and were officers and shareholders; LaChapelle and Field answered and also filed a third-party complaint against defendants, a corporation controlled by Kim, and others. The third-party complaint included direct claims by plaintiffs and derivative claims that they brought on behalf of DPC. DPC's initial claims against LaChapelle and Field were dismissed or otherwise resolved, and the third-party claims by LaChapelle and Field against certain other defendants were dismissed or severed. LaChapelle's and Field's direct claims against defendants and the corporation controlled by Kim were dismissed before trial. Plaintiffs’ derivative claims on behalf of DPC were tried to a jury, which found in favor of plaintiffs and against defendants Kim, Juhola, and Knoth. The jury awarded plaintiffs $10 million, which it allocated among those defendants, and the trial court entered a limited judgment based on the jury verdict.

Kim appealed the limited judgment, raising a number of assignments of error, and plaintiffs filed a contingent cross-appeal challenging certain trial court rulings. The Court of Appeals affirmed the limited judgment, and, accordingly, did not reach plaintiff's cross-appeal. Deep Photonics Corp. v. LaChapelle , 303 Or. App. 699, 466 P.3d 660 (2020). We allowed Kim's petition for review of the Court of Appeals decision.

I. RIGHT TO A CIVIL JURY TRIAL

We begin with the dispute over the trial court's submission to a jury of plaintiffs’ claim against defendants for money damages. Article I, section 17, of the Oregon Constitution provides: "In all civil cases the right of Trial by Jury shall remain inviolate."¹ On review, Kim's central argument is that the trial court erred in interpreting Article I, section 17, to require a jury trial on plaintiffs’ claims against him and the other defendants. He asserts that plaintiffs’ shareholder derivative claim is an equitable claim that, at the time Oregon adopted its constitution, would have been tried to the court and not to a jury. He further argues that historical practice in this and other states supports his understanding that the civil jury trial right set out in Article I, section 17, applied only to civil cases that were considered "at law" in 1857, where a jury trial was available, and not to cases that were "in equity," where a jury was not available. Kim asserts that this court's more recent cases continue to adhere to that distinction.

Plaintiffs respond that Oregon cases interpreting Article I, section 17, have examined the nature of a plaintiff's "claim" against a defendant and of the "relief" that the plaintiff seeks in order to determine whether the specific "claim" brought or "relief" sought is more properly characterized as legal or equitable for purposes of the jury trial right. Plaintiffs argue that our cases support their position that the jury trial right is not limited to those civil actions that were tried to juries in 1857 and that the elimination of the historic procedural distinctions between proceedings in law and equity further undercuts the formalistic application of the traditional divide between actions at law and suits in equity.² Plaintiffs recognize that certain kinds of proceedings, including shareholder derivative actions, are often said to be "equitable" in nature. They contend, however, that under the proper construction of Article I, section 17, set out in M. K. F. v. Miramontes , 352 Or. 401, 287 P.3d 1045 (2012), their shareholder derivative claim for money damages resulting from defendants’ breach of fiduciary duty comes well within the scope of the jury trial right.

A. This Court's Decision in Miramontes

Both parties contend that this court's decision in Miramontes essentially resolves this case in their favor. We agree that Miramontes provides helpful guidance as to the application of the civil jury trial right, but it does not answer the specific question presented in this case. Miramontes involved a new statutory cause of action, id. at 407, 287 P.3d 1045, rather than a common-law claim of long standing like the one at issue here. Additionally, as the parties’ arguments demonstrate, some key terms in Miramontes have multiple possible meanings that did not make a difference in that case but that are salient in resolving this dispute. For that reason, we begin by reviewing Miramontes to understand the extent to which it directs our analysis of the jury trial right in this case.

In Miramontes , the plaintiff brought an action under the anti-stalking statute, ORS 30.866. 352 Or. at 403, 287 P.3d 1045. Based on the defendant's knowing and repeated unwanted sexual conduct towards the plaintiff, she sought both a stalking protective order and money damages as permitted under the statute. Id . The trial court issued a protective order against the defendant and also awarded the plaintiff money damages. Id. No party disputed that the plaintiff's request for a protective order enjoining the defendant from engaging in certain conduct towards her was properly a matter for the court. Id. at 414, 287 P.3d 1045 (parties agree that stalking protective order is a form of injunctive relief and therefore "equitable in nature" and not subject to jury trial right). The defendant, however, argued that he had a constitutional right to a jury trial on the plaintiff's related claim for damages for lost sick and annual leave, lost wages, and counseling expenses.

This court agreed with the defendant. Following earlier Oregon cases, the court rejected the plaintiff's argument that the jury trial right could not apply to a claim for damages under the anti-stalking statute because ORS 30.866 was "a newly created statutory claim, providing entirely new remedies," rather than a common-law claim that existed when the Oregon Constitution was adopted in 1857. The court held that cases such as State v. 1920 Studebaker Touring Car et al. , 120 Or. 254, 251 P. 701 (1927), had established that "the relevant inquiry is not whether a newly created statutory claim existed at common law, but whether, because of its nature, it falls ‘within the guarantee of the Constitution’ to a jury trial." Miramontes , 352 Or. at 409, 287 P.3d 1045 (internal citation omitted). Similarly, the court rejected the plaintiff's contention that the dispositive question was whether the anti-stalking statute had established a claim that was, "in essence, a claim in equity" that, had it existed in 1857, would have been tried to the court without a jury. Id. at 425, 287 P.3d 1045.

In reaching those conclusions, the court reviewed in detail its earlier cases, the historical origins of the division between law and equity, the challenge to courts in resolving cases that had both legal and equitable claims or that sought both legal and equitable relief, and the "merger" of law and equity in Oregon in 1979 with the adoption of the Oregon Rules of Civil Procedure, id. at 409-25, 287 P.3d 1045, which eliminated "[a]ll procedural distinctions between actions at law and suits in equity," id. at 421, 287 P.3d 1045. The court followed the approach taken by the United States Supreme Court in Dairy Queen, Inc. v. Wood , 369 U.S. 469, 82 S. Ct. 894, 8 L. Ed. 2d 44 (1962), which "focused on the nature of the relief requested and recognized that the plaintiff's request for a money judgment raised an issue that was unquestionably legal." Miramontes , 352 Or. at 417, 287 P.3d 1045 (emphasis added) (citing Dairy Queen , 369 U.S. at 477-80, 82 S.Ct. 894 ). In Miramontes , we read Dairy Queen as holding that, even if equitable issues are the "basic" issues in the case, the parties "had a right to a jury trial on the legal issue." 352 Or. at 417, 287 P.3d 1045. Consistent with Dairy Queen , we rejected the idea that "a court should decide the right...