Michigan Supreme Court Clarifies Application Of The Statute Of Limitations To Shareholder Oppression Claims

In the recent case of Frank v Linkner, ___ Mich ___; ___ NW2d ___ (2017), the Michigan Supreme Court clarified that a claim for member oppression under Michigan's Limited Liability Company Act ("LLCA"), MCL 450.4101 et seq., accrues at the time the defendant interferes with the plaintiff's interests as a member, even if the plaintiff has not yet incurred a "calculable financial injury."

The Facts

The plaintiffs in Frank were former employees of ePrize who held ownership units in the company. The plaintiffs claimed that they were "orally promised that their interests in ePrize would never be diluted or subordinated."

In 2009, ePrize's operating agreement was amended to give distribution priority to newly-created "Series B" and "Series C" units. Then, in 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." The plaintiffs, meanwhile, "received nothing for their common shares."

In 2013, the plaintiffs brought claims for LLC member oppression. The circuit court dismissed the claims, finding that they were untimely under the applicable three-year statute of limitations. The Court of Appeals reversed, holding that the three-year limitations period did not begin to run until 2012 when ePrize was sold, and that the plaintiffs' claims were therefore timely.

The Supreme Court's Decision

In a unanimous opinion, the Supreme Court held that the Court of Appeals erred in determining when the plaintiffs' claims accrued. The Court explained that the plaintiffs' claims accrued when they were first "harmed," and that the relevant harm for purposes of the statute of limitations was when the defendants interfered with the plaintiffs' interests as members of ePrize. The Court concluded that this harm occurred in 2009 when the company's operating agreement was amended to subordinate their shares. Although the plaintiffs may not have incurred "calculable financial injury" until 2012 when ePrize was sold, the Court reasoned that the Court of Appeals' focus on financial injury "conflates monetary damage with 'harm.'" The plaintiffs suffered harm, the Court explained, once...