Preview:

STATE OF MICHIGAN COURT OF APPEALS

IGOR BERGER, a/k/a GERALD BERGER, Plaintiff/Counter-DefendantAppellee, V ALLA KATZ and PAUL KATZ, Defendants/Counter-PlaintiffsAppellants.

UNPUBLISHED July 28, 2011

No. 291663 Wayne Circuit Court LC No. 07-707413-CZ

IGOR BERGER, a/k/a GERALD BERGER, Plaintiff-Appellant, V ALLA KATZ and PAUL KATZ, Defendants-Appellees. No. 293880 Wayne Circuit Court LC No. 07-707413-CZ

Before: WILDER, P.J., and SAAD and DONOFRIO, JJ. PER CURIAM. Plaintiff and defendants are the owners of IPAX Cleanogel, Inc., a corporation that sells industrial cleaners.1 Plaintiff owns a one-third interest and defendants together own the remaining two-thirds interest in the corporation. Plaintiff filed this action in 2007, alleging willfully unfair and oppressive conduct by defendants, as the majority shareholders, contrary to

1

Throughout the bulk of our opinion we refer to plaintiff/counter-defendant merely as "plaintiff," and defendants/counter-plaintiffs merely as "defendants" for the sake of efficiency. However, with regard to our discussion of Case Evaluation Sanctions, for the sake of clarity, where necessary, we use their designations as counter parties.

-1-

MCL 450.1489, and alleging additional common-law claims for breach of fiduciary duty, breach of contract, and promissory estoppel. Defendants filed a counterclaim against plaintiff for breach of fiduciary duty. The common-law claims were tried before a jury, which awarded plaintiff $22,000 against each defendant for breach of fiduciary duty. The jury also determined that plaintiff breached a fiduciary duty to defendants, but did not award any damages for the breach. The trial court thereafter conducted a bench trial on plaintiff's statutory claim and found that defendants violated MCL 450.1489 by engaging in willfully unfair and oppressive conduct as majority shareholders. As a remedy for the violation, the court prescribed a buyout procedure whereby one side could purchase the fair value of the other side's shares in the corporation. If that was not possible, the court would appoint a receiver to liquidate the corporation. The trial court also ordered defendants to "reimburse the corporation the amount of legal fees and costs that the corporation paid out for Defendants [sic] willful misconduct in this case." In addition, the court ordered that, during the interim, plaintiff was to be paid $2,000 a month and receive other benefits until the corporation changed hands or was sold. After the trial court entered its final judgment, plaintiff filed a motion for case evaluation sanctions. The trial court determined that plaintiff was not entitled to sanctions and denied the motion. Defendants now appeal as of right in Docket No. 291663, and plaintiff appeals as of right in Docket No. 293880, challenging the denial of case evaluation sanctions. Because the only error established on this record is the trial court's refusal to award plaintiff case evaluation sanctions, we affirm the judgments for plaintiff, but reverse the trial court's order denying case evaluation sanctions and remand for a determination of sanctions. This action arises from a strained business relationship between plaintiff and defendants. The parties together established IPAX Cleanogel, Inc. ("IPAX"), to create and market environmentally friendly cleaning products to various industries. The parties also formed API, L.L.C. ("API"), as a holding company for the warehouse and manufacturing facility that it leased to IPAX for its operations. The parties cooperatively operated IPAX for many years, during which time they equally divided the profits and equally participated in decisions affecting the company. In 2006, plaintiff moved to California and was no longer involved in the day-to-day operations of the business, although he claimed that he continued to be involved in developing business opportunities for the company. Not long thereafter, defendants stopped making distributions to plaintiff and stopped consulting with him on matters involving the company. Plaintiff complained and, following substantial negotiations, the parties agreed to an interim arrangement whereby, pending a final agreement, plaintiff was paid $2,000 a month as advance distributions on profits from IPAX and $2,000 a month as his share of rental income from API, subject to reconciliation at the end of the year. The parties were never able to formally resolve their dispute and they disagreed on the financial condition of the company. Defendants eventually stopped making payments to plaintiff, claiming that the company was losing business and was no longer profitable. Plaintiff claimed that defendants resorted to tactics designed to benefit themselves personally and to artificially lower the corporation's profits to avoid paying him his fair share of his one-third interest in the corporation. I. DIRECTED VERDICT AND JUDGMENT NOTWITHSTANDING THE VERDICT

-2-

Defendants first argue that the trial court erred in denying their trial motion for a directed verdict with respect to plaintiff's breach of fiduciary duty claim, and in denying their post-trial motion judgment notwithstanding the verdict ("JNOV"). This Court reviews de novo a trial court's ruling on a motion for a directed verdict or JNOV. Sniecinski v Blue Cross & Blue Shield of Michigan, 469 Mich 124, 131; 666 NW2d 186 (2003). This Court must review the evidence and all legitimate inferences arising from the evidence in the light most favorable to the nonmoving party. The motion should be granted only if the evidence fails to establish a claim as a matter of law. Id. If reasonable minds could differ regarding the evidence, the issue is for the jury and a directed verdict or JNOV is improper. McPeak v McPeak (On Remand), 233 Mich App 483, 490; 593 NW2d 180 (1999). We disagree with defendants' argument that plaintiff could not prevail on his breach of fiduciary duty claim because plaintiff admitted on cross-examination that he was suing defendants for amounts that he claimed were due from IPAX and API. Although plaintiff agreed that IPAX and API were directly liable for any corporate distributions, plaintiff's theory of the case was that defendants used their control as majority shareholders to manipulate the corporation's financial condition and to divert corporate profits to themselves, to either minimize or foreclose the availability of distributions to plaintiff. Majority shareholders in a corporation owe "the utmost good faith in its control and management as to the minority and it is the essence of this trust that it must be so managed so as to produce to each shareholder, the best possible return upon his investment." Salvador v Connor, 87 Mich App 664, 675; 276 NW2d 458 (1978), quoting 6 Callaghan's Michigan Civil Jurisprudence (2d ed),

Download IGOR BERGER V ALLA KATZ.pdf

Michigan Law