Deep Photonics Corp. v. Lachapelle

• Decision Date: 29 April 2020
• Docket Number: A158705
• Citation: 303 Or.App. 699,466 P.3d 660
• Parties: DEEP PHOTONICS CORPORATION, a Delaware corporation, Plaintiff, v. Joseph G. LACHAPELLE et al., Defendants. James Field and Joseph G. LaChapelle, Third-Party Plaintiffs-Respondents Cross-Appellants, v. Dong Kwan Kim, Third Party Defendant-Appellant Cross-Respondent, and Daehong Technew Corporation, a Korean corporation, et al., Third-Party Defendants.
• Court: Oregon Court of Appeals

303 Or.App. 699

466 P.3d 660

DEEP PHOTONICS CORPORATION, a Delaware corporation, Plaintiff,

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

James Field and Joseph G. LaChapelle, Third-Party Plaintiffs-Respondents Cross-Appellants,

v.Dong Kwan Kim, Third Party Defendant-Appellant Cross-Respondent,andDaehong Technew Corporation, a Korean corporation, et al., Third-Party Defendants.

A158705

Court of Appeals of Oregon.

Argued and submitted September 12, 2017.

April 29, 2020

Kevin H. Kono, Portland, argued the cause for appellant-cross-respondent. Also on the briefs were P. Andrew McStay, Jr., and Davis Wright Tremaine LLP.

Jeff S. Pitzer, Portland, argued the cause for respondents-cross-appellants. Also on the joint briefs were Pitzer Law, Charles J. Paternoster, and Parsons Farnell & Grein, LLP.

Before Ortega, Presiding Judge, and Shorr, Judge, and James, Judge.^*

SHORR, J.

This appeal concerns claims brought by shareholders Joseph LaChapelle and James Field (plaintiffs)¹ on behalf of Deep Photonics Corporation (DPC) against three directors of DPC: Dong Kwan Kim, Roy Knoth, and Bruce Juhola (jointly, defendants).² Kim is the only appellant. In the trial court, a jury found, among other things, that defendants breached their duty of care to DPC and its shareholders twice. The jury found that one of the breaches of the duty of care had not resulted in damages but that the other breach had caused DPC and its common stock to decrease in value by $10 million. The jury apportioned the damages between defendants. The trial court entered a judgment reflecting that verdict and making defendants jointly and severally liable for the damages.

On appeal, in eight assignments of error, Kim argues that the trial court erred in (1) denying his motions for directed verdict and judgment notwithstanding the verdict, (2) allowing the claims to be tried to a jury, (3) denying his request, made midtrial, to raise and rely on a provision in DPC's certificate of incorporation that prohibits an award of money damages against a director for breach of the duty of care, and (4) imposing joint and several liability for the awards against the three directors. In a cross-appeal that plaintiffs ask us to address only if we conclude that a new trial is necessary, plaintiffs assign error to the trial court's use of a verdict form indicating that breaches of the duty of loyalty by a majority of the board could be excused by the vote of a single disinterested board member.

At the outset, we reject without further discussion Kim's assignments of error regarding the trial court's denial of his motions for directed verdict and judgment notwithstanding the verdict. As explained below, we also conclude that the trial court did not err in allowing plaintiffs’ shareholder derivative claims to be tried to a jury, that the court did not abuse its discretion in denying defendants’ midtrial request to raise and rely on the exculpation provision in DPC's certificate of incorporation, and that the court did not err in imposing joint and several liability. Accordingly, we affirm, and we do not consider plaintiffs’ cross-appeal.

RIGHT TO A JURY TRIAL

We begin with Kim's seventh assignment of error, in which he contends that the trial court erred in allowing plaintiffs’ shareholder derivative claims to be tried to a jury. DPC is a Delaware corporation and, consequently, the parties agree, its internal affairs are regulated by Delaware law. See ORS 60.714(3) ("This chapter does not authorize this state to regulate the organization or internal affairs of a foreign corporation authorized to transact business in this state.").

Kim argues that, under Oregon law, a shareholder derivative suit is equitable in nature and, consequently, must be tried to a court, not a jury. Alternatively, he contends that, if there is a right to a jury trial under Oregon law, Delaware law should apply because Delaware law is the substantive law that applies in the case and the right to a jury trial is substantive under conflict-of-laws principles. Kim contends, and plaintiffs do not dispute, that there is no right to a jury trial on shareholder derivative claims for breach of fiduciary duty under Delaware law.³

Plaintiffs respond that the nature of the relief sought controls whether a party has a right to a jury trial under Oregon law; they assert that, here, they brought a claim for damages and, thus, they were entitled to a jury trial. In response to Kim's alternative argument, plaintiffs assert that the right to a jury trial is a procedural matter and, thus, under conflict-of-laws principles, it is governed by the law of the forum state, here, Oregon.

We begin by considering whether plaintiffs had a right to a jury trial under Oregon law. To evaluate whether a party is entitled to a jury trial on a given claim, we employ a two-step process: First we consider whether the legislature has provided a jury trial by statute; second, if it has not, we consider whether the constitution provides a right to a jury trial. Goodyear Tire & Rubber Co. v. Tualatin Tire & Auto , 322 Or. 406, 414, 908 P.2d 300 (1995), modified on recons. , 325 Or. 46, 932 P.2d 1141 (1997) ; see also Foster v. Miramontes , 352 Or. 401, 404, 287 P.3d 1045 (2012) (engaging in the same two-step analysis).

Here, because the parties agree that the substance of the claims at issue comes from Delaware law, they have cited no relevant Oregon statutory provisions governing the claims. To the extent that Delaware law might be relevant to our statutory analysis under Oregon law (which neither party argues that it is), no Delaware statute provides for a right to a jury trial on shareholder derivative claims because, as noted above, 303 Or. App. at 702 n. 3, those claims are heard in Delaware in a separate court of chancery, where there is no jury procedure at all. See Preston Hollow Capital LLC v. Nuveen LLC , 216 A.3d 1, 12 n. 64 (Del. Ch. 2019) ("[T]o the extent a jury in the Court of Chancery is not extinct [because, historically, the court could empanel an advisory jury], it is a vestigial structure."). Accordingly, for purposes of this opinion, we assume that no statute provides a right to a jury trial on these shareholder derivative claims.

We turn to the second step in the analysis. Article I, section 17, of the Oregon Constitution provides that, "[i]n all civil cases the right of Trial by Jury shall remain inviolate."⁴ The Supreme Court "has emphasized that ‘the constitutional right of trial by jury is not to be narrowly construed.’ " State v. N. R. L. , 354 Or. 222, 225, 311 P.3d 510 (2013) (quoting State v. 1920 Studebaker Touring Car et al. , 120 Or. 254, 263, 251 P. 701 (1926) ). "Rather, Article I, section 17, guarantees a right to jury trial for all civil claims or requests for relief, absent a showing that the nature of the particular claim or request at issue is such that it would have been tried to a court without a jury at common law." Id. at 226, 311 P.3d 510 (citing Miramontes , 352 Or. at 425, 287 P.3d 1045 ). Moreover, "[t]he fact that a particular claim or request was not judicially recognized at the time that the constitution was adopted or that such a claim or request was created by the legislature thereafter does not necessarily mean that Article I, section 17, does not apply; it is the nature of the claim or request that is determinative." Id. ; see also 1920 Studebaker Touring Car et al. , 120 Or. at 263, 251 P. 701 ("[T]he constitutional right of trial by jury is not to be narrowly construed, and is not limited strictly to those cases in which it had existed before the adoption of the Constitution, but is to be extended to cases of like nature as they may hereafter arise.").

Below, the trial court concluded that, in light of the Oregon Supreme Court's reasoning in Miramontes , the parties are entitled to a jury trial on shareholder derivative claims under that constitutional provision. As explained below, we agree.

In Miramontes , the Oregon Supreme Court considered, and ultimately found persuasive, the United States Supreme Court's mode of analysis for jury trial rights under the Seventh Amendment to the United States Constitution. 352 Or. at 415-25, 287 P.3d 1045. Under that mode of analysis, which the United States Supreme Court adopted in light of the merger of law and equity in the federal system under the Federal Rules of Civil Procedure (FRCPs), a court focuses on the nature of the relief requested to determine whether a case presents a legal—as opposed to equitable—issue. Id. at 416-17, 287 P.3d 1045 (summarizing Dairy Queen v. Wood , 369 U.S. 469, 82 S. Ct. 894, 8 L. Ed. 2d 44 (1962) ). If it does, the parties are entitled to a jury trial on the legal issue, "even if the evident equitable issues [are] the ‘basic’ issues or the legal issue could be characterized as ‘incidental’ to the equitable issues." Id. (quoting Dairy Queen , 369 U.S. at 470, 82 S.Ct. 894 ). Thus, under the Seventh Amendment, the right to a jury trial " ‘depends on the nature of the issue to be tried rather than the character of the overall action.’ " Id. at 418 n. 15, 287 P.3d 1045 (quoting Ross v. Bernhard , 396 U.S. 531, 538, 90 S. Ct. 733, 24 L. Ed. 2d 729 (1970) ).

After summarizing the federal approach, the Oregon Supreme Court considered its case law from before and after 1979, when the Oregon Rules of Civil Procedure (ORCPs) dispensed with the procedural distinctions between law and equity in Oregon. The court concluded, "before the merger of law and equity, this court cited various reasons for upholding an equity court's exercise of jurisdiction over what could otherwise be considered legal claims," including the need for separate trials on the law and equity sides of the courts and "the notion that a plaintiff who improperly joined equitable and legal claims had waived the right of jury trial." Id . at 424-25, 287 P.3d 1045. After the merger of law and equity, however, those reasons no longer justify trying legal claims or...