491 P.3d 60
Or.2021Background
- Plaintiffs Joseph LaChapelle and James Field brought shareholder derivative claims on behalf of Deep Photonics Corporation (DPC) against directors Dong Kwan Kim, Roy Knoth, and Bruce Juhola for breaches of fiduciary duty; the jury found breaches of both duty of loyalty and duty of care and awarded $10 million.
- DPC is a Delaware corporation; its certificate of incorporation contained a Section 102(b)(7)-style exculpation clause that insulates directors from personal monetary liability for breaches of the duty of care to the fullest extent permitted by Delaware law, but not for breaches of loyalty or bad-faith conduct.
- Two issues were presented on appeal to the Oregon Supreme Court: (1) whether the derivative money-damages claim had to be tried to the court or to a jury under Article I, § 17 of the Oregon Constitution, and (2) whether the trial court erred in denying a midtrial request to amend defendants’ answer to assert the exculpation provision as an affirmative defense.
- The exculpation clause was first raised substantively by defendants in a reply brief and in a motion in limine shortly before trial; defendants did not plead the clause as an affirmative defense in their answer and moved to amend midtrial (after plaintiffs rested) to add the defense.
- The trial court held the exculpation clause was an affirmative defense that had to be pleaded, denied the midtrial amendment as untimely and prejudicial, and submitted the damage claim to the jury; the Court of Appeals affirmed, and the Oregon Supreme Court likewise affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Article I, § 17 guarantees a jury trial for plaintiffs’ derivative money-damages claim for breach of fiduciary duty | LaChapelle/Field: Article I, § 17 protects a jury trial on legal relief; their derivative claim sought money damages (a legal remedy) and therefore must be tried to a jury. | Kim: Derivative suits are historically equitable; the constitutional jury right should be limited to actions "at law" in 1857, so an essentially equitable derivative action should be tried to the court. | Held: The court follows Miramontes/Dairy Queen approach — analyze the nature of the relief requested. A derivative claim seeking money damages is legal in nature and entitled to a jury trial. |
| Whether the exculpation provision had to be pleaded as an affirmative defense and whether denial of a midtrial amendment was an abuse of discretion | Plaintiffs: Exculpation is an affirmative defense requiring pleading; defendants waived it by failing to plead and amendment midtrial would be prejudicial. | Defendants: Exculpation addresses damages (an element), so it need not be pleaded as affirmative defense; if it is required, the court should allow a late amendment unless undue prejudice is shown. | Held: Under Oregon and Delaware law the Section 102(b)(7)-style exculpation is an affirmative defense that must be pleaded. The trial court did not abuse its discretion in denying the midtrial amendment because it was untimely and prejudicial. |
Key Cases Cited
- M. K. F. v. Miramontes, 287 P.3d 1045 (Or. 2012) (adopts issue-by-issue approach: jury right depends on nature of relief requested; money damages are "legal").
- Dairy Queen, Inc. v. Wood, 369 U.S. 469 (1962) (federal model: separate legal issues seeking money damages are for jury even if other equitable issues exist).
- Ross v. Bernhard, 396 U.S. 531 (1970) (in derivative actions, issues that the corporation could have tried to a jury if it sued in its own right are jury issues).
- Emerald Partners v. Berlin, 787 A.2d 85 (Del. 2001) (Section 102(b)(7) exculpation bars monetary recovery for duty-of-care claims and is in the nature of an affirmative defense).
- Malpiede v. Townson, 780 A.2d 1075 (Del. 2001) (exculpation under Section 102(b)(7) must be affirmatively raised by defendant directors).
- C.O. Homes, LLC v. Cleveland, 460 P.3d 494 (Or. 2020) (trial-court discretion to permit pleadings amendments turns on undue prejudice; the further a case proceeds, the less likely amendment should be allowed).