894 N.W.2d 574
Mich.2017Background
- ePrize and ePrize Holdings were LLCs in which plaintiffs (former employees) held common membership units; in 2009 the Operating Agreement was amended to create Series B/C units that received distribution priority over plaintiffs’ common units.
- Series C units (largely issued to investors who provided loans/guarantees) were given the first $68.25 million on any sale; plaintiffs (except one small investor) were not offered Series C units.
- ePrize sold substantially all assets in August 2012 and distributed nearly $100 million to Series B/C holders; plaintiffs received nothing.
- Plaintiffs sued in April 2013 alleging LLC member oppression (MCL 450.4515), breach of contract, and breach of fiduciary duty; trial court dismissed as time-barred under MCL 450.4515/MCL 450.4404.
- Court of Appeals reversed, holding accrual was at sale (2012) and the 3-year text was a statute of limitations. Michigan Supreme Court granted leave and addressed (1) whether MCL 450.4515(1)(e) is a statute of repose or limitations and (2) when the cause of action accrued.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Characterization of MCL 450.4515(1)(e) (3‑year rule): statute of limitations or statute of repose? | Frank: It's a statute of limitations (or at least accrual should be at liquidation). | Defs: The 3‑year rule functions as a repose period; it cannot be tolled by fraudulent concealment. | The 3‑year rule is a statute of limitations; the provision contains two alternative limitations (3 years after accrual or 2 years after discovery, whichever comes first). |
| When does an MCL 450.4515 member‑oppression claim accrue? | Frank: Accrual occurs when plaintiff first suffers a calculable monetary injury — here at the 2012 sale. | Defs: Accrual occurs when members’ interests were substantially interfered with — here when shares were subordinated in 2009. | Accrual is when the actionable harm (substantial interference with member interests) occurs — here March 1, 2009, when the Operating Agreement subordinated plaintiffs’ shares. |
| Effect of discovery‑based 2‑year rule vs. 3‑year accrual rule (potential redundancy) | Frank: If 3‑year runs from accrual, the 2‑year discovery clause makes the 3‑year period redundant because discovery will always trigger first. | Defs: The 3‑year accrual limit should be treated as a repose‑type cap preventing late suits. | Court: The two operate as alternative statutes of limitations; the 2‑year discovery period begins when the member discovers the claim, but the 3‑year accrual cap still limits suits unless tolled by doctrines like fraudulent concealment (MCL 600.5855). |
| Availability of tolling (fraudulent concealment) | Frank: Tolling applies because plaintiffs could not have known their claim until liquidation. | Defs: If 3‑year is repose, fraudulent‑concealment tolling does not apply. | Court: Because 3‑year is a statute of limitations, plaintiffs may attempt to show tolling under MCL 600.5855; remand to determine applicability of tolling. |
Key Cases Cited
- Connelly v Paul Ruddy’s Equipment Repair & Service Co, 388 Mich. 146 (Mich. 1971) (accrual requires all elements of a tort action be present for personal injury claims)
- Moll v Abbott Laboratories, 444 Mich. 1 (Mich. 1994) (the "wrong" accrues when defendant’s breach harmed the plaintiff)
- Trentadue v Buckler Automatic Lawn Sprinkler Co, 479 Mich. 378 (Mich. 2007) (courts may not apply an extrastatutory discovery rule to delay accrual)
- Detroit Gray Iron & Steel Foundries, Inc. v Martin, 362 Mich. 205 (Mich. 1960) (statutory limitation running from date of delinquency illustrates repose‑type measures)
- O’Brien v Hazelet & Erdal, 410 Mich. 1 (Mich. 1980) (distinguishing statute of limitations from statute of repose)