Frank Kern III v. Bonnie Kern-Koskela
330183
| Mich. Ct. App. | Jun 20, 2017Background
- Frank Kern III (plaintiff) and Bonnie Kern-Koskela each own 50% of Maxitrol and Mertik Maxitrol; Kern-Koskela and her husband Larry Koskela are officers/directors; Christopher Kelly is CFO.
- Plaintiff brought a multi-count complaint alleging shareholder oppression, breach of fiduciary duty, and related claims, focusing chiefly on the M-Annex lease between Bates Group, LLC (owned by the individual defendants) and Maxitrol.
- The court appointed a disinterested person under MCL 450.1495 (Joel Serlin) to investigate whether parts of the derivative suit should continue; Serlin recommended allowing only the claim related to the M-Annex lease to proceed and dismissing other derivative claims.
- The trial court dismissed claims consistent with Serlin’s report, granted corporate counsel summary disposition (no fiduciary duty to plaintiff), and denied disqualification and bias claims; the jury later found the lease unfair to Maxitrol and awarded $51,015 in damages.
- The trial court reformed the lease equitably to conform with the jury verdict and denied requests for attorney fees and taxable costs to all parties; this appeal followed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Validity of MCL 450.1495 under separation of powers / rulemaking authority | MCL 450.1495 impermissibly intrudes on the Supreme Court’s exclusive rulemaking authority and procedural power | Statute and court rule address different stages; no inherent conflict with MCR 2.116(C)(10); statute is procedural and permissible | Statute does not inherently conflict with court rule and is constitutional in this application |
| Delegation / judicial function under MCL 450.1495 | Statute unlawfully delegates judicial power to a non-judicial appointee (disinterested person) | Disinterested person acts on behalf of the corporation (business judgment); court only reviews process (good faith, reasonable investigation) | No unconstitutional delegation; court may defer to disinterested person’s business judgment if process adequate |
| Summary disposition for claims dismissed based on Serlin’s report | Even if statute valid, factual disputes (officer removal, accounting) precluded dismissal | Serlin’s report was a good-faith, reasonable investigation; statute permits dismissal of derivative claims not in corporation’s best interest | Dismissal under MCL 450.1495 was proper; trial court applied statute (not MCR 2.116(C)(10)) |
| Fiduciary duty claim against corporate counsel (Fassihi-based) | Corporate counsel owed Kern a fiduciary duty and summary disposition was premature | Corporate counsel represent the corporation, not shareholder; no evidence Kern reposed reasonable trust/confidence | Summary disposition proper: no reasonable factual basis that Kern reposed trust in corporate counsel |
| Judicial bias / disqualification | Judge’s comments (e.g., “removal wasn’t going to happen,” threat to throw out case) show bias | Comments were tied to Serlin’s report and case posture; judge presided fairly at trial | No disqualifying bias; remarks did not show deep-seated favoritism or make fair judgment impossible |
| Attorney fees and taxable costs entitlement | Plaintiff / defendants sought fees under various corporate statutes and bylaws | Statutes (MCL 450.1497, 1562, 1563, 1564b) confer discretion and require showing (substantial benefit, success in defense, good faith); bylaws limit indemnity and preclude unauthorized-initiated suits | Court did not abuse discretion in denying all fee and taxable-cost awards; no mandatory entitlement shown |
Key Cases Cited
- McDougall v. Schanz, 461 Mich. 15 (discussing rulemaking authority and statute/rule conflict)
- Beaty v. Hertzberg & Golden, P.C., 456 Mich. 247 (standard for when nonclient shareholder may repose trust in corporate counsel)
- Fassihi v. Sommers, Schwartz, Silver, Schwartz & Tyler, 107 Mich. App. 509 (corporate counsel represents corporation, not shareholders)
- Prentis Family Foundation, Inc. v. Karmanos Cancer Center, 266 Mich. App. 39 (when a fiduciary relationship exists as a matter of law)
- Caperton v. A.T. Massey Coal Co., 556 U.S. 868 (due process / judicial bias principles)
- Thomas v. Satfield Co., 363 Mich. 111 (equitable reformation of an unfair lease)