Kern v. Kern-Koskela

• Decision Date: 20 June 2017
• Docket Number: No. 330183,330183
• Parties: Frank KERN III, Plaintiff–Appellant/Cross–Appellee, v. Bonnie KERN–KOSKELA, Larry Koskela, Christopher Kelly, Maxitrol Company, and Mertik Maxitrol, Inc, Defendants–Appellees/Cross–Appellants, and David Kall, Michael Latiff, and McDonald Hopkins LLC, Defendants–Appellees.
• Court: Court of Appeal of Michigan — District of US

320 Mich.App. 212

905 N.W.2d 453

Frank KERN III, Plaintiff–Appellant/Cross–Appellee,

v.Bonnie KERN–KOSKELA, Larry Koskela, Christopher Kelly, Maxitrol Company, and Mertik Maxitrol, Inc, Defendants–Appellees/Cross–Appellants,andDavid Kall, Michael Latiff, and McDonald Hopkins LLC, Defendants–Appellees.

No. 330183

Court of Appeals of Michigan.

Submitted June 14, 2017, at Detroit.

Decided June 20, 2017, 9:00 a.m.

Dettmer & Dezsi, PLLC (by Michael R. Dezsi ), for Frank Kern III.

Bowen, Radabaugh & Milton, PC (by Lisa T. Milton ), for Bonnie Kern-Koskela, Larry Koskela, and Christopher Kelly.

McDonald Hopkins PLC (by Michael G. Latiff and Timothy J. Lowe ) for Maxitrol Company.

Maddin Hauser Roth & Heller, PC (by Steven M. Wolock and Harvey R. Heller ), for Michael Latiff and McDonald Hopkins, LLC.

Before: Stephens, P.J., and K. F. Kelly and Murray, JJ.

Per Curiam.

Plaintiff appeals by right a final order reforming a lease contract. However, several issues on appeal relate to the trial court's prior orders dismissing a number of plaintiff's claims and granting summary disposition. Several defendants cross-appeal the final order, arguing that they were entitled to attorney fees and costs. Finding no error warranting reversal, we affirm.

I. BASIC FACTS AND PROCEDURAL HISTORY

Plaintiff, Frank Kern III, and his sister, defendant Bonnie Kern–Koskela, both own a 50 percent interest in Maxitrol

and Mertik Maxitrol. Plaintiff, Kern–Koskela, and Kern–Koskela's husband,¹ Larry Koskela, compose Maxitrol's board of directors. Kern–Koskela serves as the Board's Chair and as the Executive Vice President and Chief Executive Officer of Maxitrol. Koskela serves as the Board's Vice Chair and as President and Chief Operating Officer of Maxitrol. Defendant Christopher Kelly is Maxitrol's Chief Financial Officer and Vice President of Finance. Defendants David Kall, Michael Latiff, and McDonald Hopkins, LLC, served as counsel for the corporate defendants.

In 2012, plaintiff sued the individual defendants and Kelly for shareholder oppression and breach of fiduciary duty, asserting that Kern–Koskela excluded plaintiff from any control or oversight over the corporations and was mismanaging the businesses so as to enrich herself at the expense of the corporations and plaintiff. Plaintiff alleged myriad types of wrongdoing. For purposes of this appeal, the focus is on a lease agreement between Bates Group, LLC, a company wholly owned by the individual defendants, and Maxitrol

—the so-called M–Annex lease. Plaintiff also made claims against corporate counsel defendants, arguing that they owed a fiduciary duty to him as a shareholder in a closely held corporation and breached that duty by performing legal work for Kern–Koskela at the same time they were serving as corporate counsel for Maxitrol.

The trial court granted corporate counsel summary disposition, finding that there was no fiduciary relationship between plaintiff and corporate counsel. Thereafter, Maxitrol

moved for the appointment of a "disinterested person" pursuant to MCL 450.1495 to investigate whether the continuation of plaintiff's derivative suit was in the best interests of the corporation. The trial court appointed attorney Joel H. Serlin to act as a disinterested person under the act and charged him with investigating whether the continuation of plaintiff's suit was in the best interests of the corporation. Serlin's July 7, 2014 report concluded:

As the Disinterested Person, the undersigned has expended considerable time and effort in reviewing and analyzing all of the information, documentation and claims presented. Disputes involving family members of a closely held corporation, where each party is a 50% Shareholder, are among the most difficult to reconcile, and resolve. During the undersigned's lengthy investigation of the issues presented, it was clear that all witnesses, respective counsel, and the submissions presented to the undersigned were done so in a highly professional and forthright manner. After a comprehensive investigation, the undersigned makes the following recommendations:

1. Plaintiff Frank Kern III should be permitted to proceed with a derivative claim related to the M Annex, and the Annex Lease, entered into by and between Bates Group, LLC and Defendant Maxitrol Company, because those transactions may have constituted usurpation of a corporate opportunity and self-dealing.

2. As owners of Bates Group, LLC (the landlord), Defendants Bonnie Kern–Koskela and Larry Koskela, as well as Defendant Maxitrol

Company (the tenant), are necessary parties to the derivative claim.

3. The Disinterested Person finds that all remaining claims asserted by Plaintiff Frank Kern III lack merit, and to proceed with those derivative claims would not be in the best interest of the Companies.

4. The Disinterested Person further finds that Defendant Christopher Kelly has not breached his fiduciary duties or acted improperly, and no derivative claims should proceed against him.

Maxitrol

sought dismissal solely in reliance on Serlin's report. Kern–Koskela, Koskela, and Kelly joined the motion. Plaintiff responded, in part, by challenging the constitutionality of MCL 450.1495 as a violation of the separation-of-powers doctrine as well as an improper delegation of the trial court's constitutionally mandated function to a nonjudicial court-appointed advisory expert. The trial court indicated that the motion was more properly characterized as a motion to dismiss brought under MCL 450.1495 and rejected plaintiff's constitutional claims. In a written opinion read into the record, the trial court concluded that Serlin's determination was made in good faith after conducting a reasonable investigation. Consequently, MCL 450.1495 required dismissal of those claims that Serlin determined should not proceed. The trial court dismissed with prejudice plaintiff's third amended complaint against Mertik and Kelly. It also dismissed plaintiff's third amended complaint "as to Defendants Bonnie Kern–Koskela, Larry Koskela, and Maxitrol Company—with the exception of Plaintiff's claim ‘related to the M Annex, and the Annex Lease, entered into by and between Bates Group, LLC and Defendant Maxitrol Company’—which may proceed to trial."

The jury found that the lease was unfair to Maxitrol

and that Maxitrol was damaged in the amount of $51,015. The trial court denied a number of postjudgment motions.

II. DISMISSALS BASED ON THE DISINTERESTED PERSON'S REPORT

Plaintiff raises constitutional challenges to MCL 450.1495. First, he argues that to the extent the statute dictates a procedure for summary disposition, the statute should be declared unconstitutional as a violation of Michigan's separation of powers doctrine, Const. 1963, art. 3, § 2 ; Const. 1963 art. 6, § 1 ; and Const. 1963 art. 6, § 5. Next, plaintiff argues that the statute is also unconstitutional because it commands the judiciary to delegate its constitutionally mandated function and adopt the findings of a nonjudicial court-appointed disinterested person. Finally, plaintiff maintains that, even assuming that the statute is constitutional, the trial court erred by granting summary disposition when there were numerous questions of fact regarding plaintiff's claims for removing Kern–Koskela and Koskela as corporate officers and for an accounting. We reject each of these challenges.

This Court reviews constitutional questions de novo. In re AMAC , 269 Mich.App. 533, 536, 711 N.W.2d 426 (2006). "[A] statute is presumed to be constitutional unless its unconstitutionality is clearly apparent." McDougall v. Schanz , 461 Mich. 15, 24, 597 N.W.2d 148 (1999).

Plaintiff asserts that MCL 450.1495 violates the separation-of-powers doctrine because the statute impermissibly infringes our Supreme Court's exclusive authority under Const. 1963, art. 6, § 5, to promulgate rules governing procedure by providing a procedural mechanism for summary disposition. As observed in McDougall :

It is beyond question that the authority to determine rules of practice and procedure rests exclusively with this Court. Indeed, this Court's primacy in such matters is established in our 1963 Constitution:

The supreme court shall by general rules establish, modify, amend and simplify the practice and procedure in all courts of this state.

This exclusive rule-making authority in matters of practice and procedure is further reinforced by separation of powers principles. See Const. 1963, art. 3, § 2 ; In re 1976 PA 267 , 400 Mich. 660, 255 N.W.2d 635 (1977). Thus, in Perin v. Peuler (On Rehearing) , 373 Mich. 531, 541, 130 N.W.2d 4 (1964), we properly emphasized that "[t]he function of enacting and amending judicial rules or practice and procedure has been committed exclusively to this Court ...; a function with which the legislature may not meddle or interfere save as the Court may acquiesce and adopt for retention at judicial will."

At the same time, it cannot be gainsaid that this Court is not authorized to enact court rules that establish, abrogate, or modify the substantive law. Shannon v. Ottawa Circuit Judge , 245 Mich. 220, 223, 222 N.W. 168 (1928). Rather, as is evident from the plain language of art. 6, § 5, this Court's constitutional rule-making authority extends only to matters of practice and procedure. Shannon , supra at 222–223, 222 N.W. 168 [ McDougall , 461 Mich. at 26–27, 597 N.W.2d 148.]

This Court need not address plaintiff's constitutional challenge, however, if MCL 450.1495 and MCR 2.116(C)(10) can be construed so as not to conflict. McDougall , 461 Mich. at 24, 597 N.W.2d 148. "When there is no inherent conflict, ‘[w]e are not required to decide whether [the] statute is a legislative attempt to supplant the Court's authority.’ " Id. , quoting People v. Mateo , 453 Mich. 203, 211, 551 N.W.2d 891 (1996) (alterations in McDougall). Moreover, this Court should " ‘not lightly presume that the Legislature intended a conflict, calling into question this Court's authority to control...