Frank v. Linkner

• Decision Date: 15 May 2017
• Docket Number: Docket No. 151888,Calendar No. 4
• Citation: 500 Mich. 133,894 N.W.2d 574
• Parties: Ivan FRANK, Jeffrey Dwoskin, Phillip D. Jacokes, Roy Krauthamer, Blake Atler, Matt Kovaleski, James Brunk, and IJF Holdings, LLC, Plaintiffs–Appellees, v. 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.
• Court: Michigan Supreme Court

500 Mich. 133

894 N.W.2d 574

Ivan FRANK, Jeffrey Dwoskin, Phillip D. Jacokes, Roy Krauthamer, Blake Atler, Matt Kovaleski, James Brunk, and IJF Holdings, LLC, Plaintiffs–Appellees,

v.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.

Docket No. 151888

Calendar No. 4

Supreme Court of Michigan.

Argued December 8, 2016

Decided May 15, 2017

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, 876 N.W.2d 551 (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 (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 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 N.W.2d 363 (2015). The Court of Appeals first determined that the "gravamen" of plaintiffs’ claims was member oppression under MCL 450.4515 and analyzed the timeliness of their claims accordingly.⁴ Id . at 181–182, 871 N.W.2d 363. 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, 871 N.W.2d 363. 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, 871 N.W.2d 363. Accordingly, the Court concluded that plaintiffs’ claims were timely filed before the expiration of the three-year limitation period. Id . at 172, 871 N.W.2d 363.

II. STANDARD OF REVIEW

Pursuant to MCR 2.116(C)(7), a party may move to dismiss a claim on the ground 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, P.C. v. Bakshi , 483 Mich. 345, 354, 771 N.W.2d 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 N.W.2d 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 N.W.2d 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, 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 N.W.2d 413 (1998), overruled in part on other grounds by Estes v. Idea Engineering & Fabricating, Inc. , 250 Mich.App. 270, 649 N.W.2d 84 (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 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 U.S. ––––, 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 N.W.2d 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 N.W.2d 348 (1996), citing O'Brien , 410 Mich. at 15, 299 N.W.2d 336.

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 N.W.2d 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...