Franchino v. Franchino

Decision Date29 September 2004
Docket NumberNo. 244878.,244878.
Citation687 N.W.2d 620,263 Mich. App. 172
PartiesRobert A. FRANCHINO, Plaintiff-Appellant, v. Richard FRANCHINO, Defendant-Appellee, and Franchino Mold & Engineering Co. Intervening Defendant-Appellee.
CourtCourt of Appeal of Michigan — District of US

James D. Adkins and Warner Norcross & Judd LLP (by John J. Bursch) Lansing, Grand Rapids, for the plaintiff.

Dietrich & Cuzydlo, PLLC (by Robert W. Dietrich and Charles R. Cuzydlo), East Lansing, for the defendant.

Before: ZAHRA, P.J., and SAAD and SCHUETTE, JJ.

PER CURIAM.

Plaintiff Robert A. Franchino appeals the trial court's grant of summary disposition under MCR 2.116(C)(8) and (C)(10) in favor of his father, defendant Richard Franchino, and intervening defendant Franchino Mold and Engineering Company (FMEC). Plaintiff also appeals the trial court's denial of his motion to amend the complaint. This case raises an issue of first impression under Michigan law: Whether MCL 450.1489 creates a cause of action for a shareholder in a close corporation when the shareholder is removed from the corporation's board of directors and his employment with the close corporation is terminated. We conclude that MCL 450.1489 does not protect a shareholder from removal from the corporate board or guarantee his employment with the corporation. MCL 450.1489 only protects a shareholder's interest as a shareholder. Defendant's decision to fire plaintiff and remove him from the board of directors did not affect plaintiff's interests as a shareholder under MCL 450.1489. Therefore, the trial court properly dismissed plaintiff's cause of action and did not abuse its discretion in concluding that the claims in the proposed amended complaint were either futile or prejudicially delayed. We affirm.

I. Facts And Procedural History

In 1974, plaintiff began his employment at FMEC. Four years later, plaintiff and defendant signed an employment contract in which the parties agreed that plaintiff could only be terminated by the unanimous agreement of FMEC's board of directors. From 1978 until 2001, plaintiff and defendant were the only members of the board of directors as well as the only shareholders, with plaintiff holding thirty-one percent and defendant holding sixty-nine percent.1

Plaintiff and defendant were also parties to two stock purchase agreements (also referred to as the "buy-sell" agreements) signed in the early 1980s, one of which related to a family-owned company called Franchino, Inc., the other of which related to FMEC. Under the FMEC buy-sell agreement, defendant was required to offer his shares first to the corporation, then to plaintiff, before the shares could be offered to anyone else, including defendant's daughters. The Franchino, Inc. buy-sell agreement required defendant to offer his shares to his children in proportion to their current holdings.

According to FMEC employees, the relationship between plaintiff and defendant deteriorated over the years they worked together. Arguments over equipment and personnel became more frequent, and witnesses testified that they heard defendant fire plaintiff more than once. Lois Franchino confirmed that defendant had talked about firing plaintiff in recent years and testified that she had begged defendant not to take action against plaintiff until their mother passed away, which she did in September 2000.

In early 2001, defendant became concerned that his estate would be "cannibalized" by estate taxes if the buy-sell agreements remained in place. To address this concern, attorney Robert Dietrich suggested forming Franchino Holdings in January 2001. On May 7, 2001, plaintiff received a letter from Dietrich stating that defendant sought to set aside the 1982 buy-sell agreement for Franchino, Inc., and that if plaintiff was unwilling to set the agreement aside, defendant was prepared to have it set aside by operation of law. A second letter explained that defendant desired the agreement set aside "for estate planning purposes," specifically, to achieve a "more equitable distribution of his estate" in light of changes in the tax structure and business assets since the agreement was signed. According to Dietrich's letter, defendant wanted "unrestricted freedom to redistribute his shares among [the] family" and planned to "merge Franchino Inc. into a new entity" if the agreement was not set aside by mutual consent.

Defendant and his two daughters filed articles of incorporation for Franchino Holdings, Inc., on July 6, 2001. On August 1, 2001, defendant gave notice that a special shareholder meeting for shareholders in Franchino, Inc., would be held on August 14, 2001, with the stated purpose being to "discuss the merger of Franchino, Inc. with Franchino Holdings, Inc."

The tensions between the parties worsened in the middle of August 2001 after plaintiff yelled obscenities at FMEC employee Timothy Vascillion2 for not having the correct paperwork before beginning a welding project. On August 17, 2001, defendant orally fired plaintiff, then sent a letter four days later confirming that his firing would be effective September 16, 2001, and instructing plaintiff to return any FMEC property he had in his possession.

Defendant maintained that his decision to fire plaintiff was the result of disagreements over equipment purchases; plaintiff's refusal to listen to, talk to, or take direction from defendant; plaintiff repeatedly walking out of FMEC meetings; and plaintiff's desire to fire what defendant considered to be some of FMEC's most valuable employees. Defendant stated that the Vascillion incident was the "straw that broke the camel's back." However, two FMEC employees testified that defendant had threatened to fire plaintiff if he pursued his plan to sue defendant, and one employee testified that defendant had said he wanted to fire plaintiff in order to terminate the buy-sell agreement and reconfigure his estate plan.

On August 20, 2001, plaintiff filed suit to prevent defendant from merging Franchino, Inc., with Franchino Holdings, and the trial court granted a preliminary injunction prohibiting the merger. On September 5, 2001, defendant sent a follow-up letter confirming that plaintiff had been fired, demanding that plaintiff vacate FMEC premises by noon of that day, and instructing him to return only once before September 16, 2001, to return company property. The letter indicated that plaintiff would continue to receive his salary until September 16, 2001.

On September 10, 2001, plaintiff filed a one-count complaint alleging that defendant breached his fiduciary duties to FMEC by terminating plaintiff's employment in retaliation for plaintiff having sued defendant over the buy-sell agreement. FMEC moved to intervene, and the trial court granted the motion.

On September 15, 2001, with the aid of his attorneys Robert Dietrich and Charles Cuzydlo, defendant held a special shareholder meeting to remove plaintiff from the board of directors and to amend FMEC's bylaws. Defendant appointed Cuzydlo to act as secretary, then he appointed as proxies Dietrich's wife, Lynn Dietrich, and Cuzydlo's friend, Jonathan Harmon.

Working from a script Cuzydlo prepared, Harmon moved to remove plaintiff from FMEC's board of directors, then moved to amend FMEC's bylaws to allow between one and five directors, who need not be shareholders and who would be elected to specific terms, and also to specify that all shareholder meetings would be chaired by FMEC's president. Lynn Dietrich seconded these motions and all three were adopted. On September 20, 2001, defendant held a board of directors meeting at which he moved to fire plaintiff, seconded his own motion, and "unanimously adopted" the motion himself.

In January 2002, plaintiff amended the complaint to include allegations of willfully unfair and oppressive conduct, wrongful discharge, intentional interference with contractual relations, and negligent interference with contractual relations. Plaintiff also sought to have defendant removed from the board of directors. After the amended complaint was filed, a conflict panel of this Court decided Estes v. Idea Engineering & Fabricating, Inc., 250 Mich.App. 270, 649 N.W.2d 84 (2002), which held that MCL 450.1489 created a separate, independent cause of action for minority shareholder oppression in closely held corporations. Thereafter, the trial court allowed plaintiff to file a second amended complaint that alleged a cause of action for minority shareholder oppression under MCL 450.1489, and plaintiff voluntarily dismissed the other claims.

The second amended complaint alleged that defendant "used his position as the majority shareholder" of FMEC "in a willfully unfair and oppressive manner" by terminating plaintiff's employment in violation of the employment contract, removing plaintiff from the board of directors, and amending the bylaws of the corporation. Plaintiff alleged that these actions "destroyed the harmonious management of the corporation's affairs and defeated Plaintiff's reasonable expectations" of remaining employed, being on the board of directors, and continuing to share in the corporation's earnings.

Both defendant and intervening defendant moved for summary disposition under MCR 2.116(C)(8) and (C)(10), and argued at the motion hearing that plaintiff had ignored that portion of MCL 450.1489(3) that defines oppressive conduct as that which affects the interests of the shareholder as a shareholder, not as an employee or board member. Plaintiff responded that because shareholders in close corporations have reasonable expectations of participating in management and of receiving their share of corporate dividends through their salary, defendant's oppression of these interests did affect him in his capacity as a shareholder.

After hearing the arguments, the trial court clarified that the only theory of liability plaintiff had put...

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