John Madden v. Joseph a Avila
326716
| Mich. Ct. App. | Oct 20, 2016Background
- ECD, a Delaware corporation with principal place of business in Michigan, issued convertible bonds in 2008 with a share-lending agreement that allegedly facilitated short-selling and reduced market protections.
- In 2009 defendants (ECD directors) expanded credit to and then acquired Solar Integrated Technologies, Inc. (SIT); plaintiff alleges these transactions concealed losses and harmed ECD.
- Plaintiff also alleges defendants hired conflicted financial advisors (some who were underwriters for ECD offerings) in 2009–2011, which accelerated stock decline and contributed to bankruptcy.
- ECD filed bankruptcy on February 14, 2012; the trustee (plaintiff) filed this derivative suit on February 14, 2014 asserting breach of fiduciary duty and breach of care claims against former directors.
- Defendants moved for summary disposition under MCR 2.116(C)(7), arguing plaintiff’s claims are time‑barred by MCL 450.1541a(4); the trial court agreed and dismissed; plaintiff appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does Michigan’s BCA (MCL 450.1541a(4)) apply to a Delaware corporation doing business in Michigan? | BCA applies only to Michigan domestic corporations, not Delaware corporations like ECD. | BCA applies to foreign corporations transacting business in Michigan; ECD is a foreign corp doing business here. | BCA applies to ECD; Michigan law governs limitations analysis. |
| Which limitations period governs accrual/tolling—MCL 450.1541a(4) (2-yr discovery/3-yr accrual) or MCL 600.5805(10)? | MCL 600.5805(10) applies (longer/general civil limitations). | MCL 450.1541a(4) is the BCA-specific period for director/officer claims. | MCL 450.1541a(4) governs these director/officer claims. |
| Were plaintiff’s claims tolled by fraudulent concealment or adverse domination? | Tolling doctrines apply because defendants controlled ECD and concealed breaches (e.g., SIT acquisition) so discovery was prevented. | No tolling: board actions were within scope, so ECD had constructive knowledge; statutory scheme does not provide adverse-domination tolling. | Fraudulent-concealment tolling rejected because ECD (through its board) had knowledge; adverse-domination tolling rejected under statutory scheme. |
| Were claims time‑barred based on when ECD knew or should have known? | Discovery rule delays accrual until ECD knew or reasonably should have known of breach; genuine issues exist about timing for some advisor hires. | Knowledge of board members imputes to corporation; many alleged breaches occurred before Feb 14, 2010 and are time‑barred. | Claims based on SIT acquisition and advisor hires before Feb 14, 2010 are time‑barred; claims tied to advisor hiring after that date (e.g., possible Lazard retention) survive summary disposition. |
Key Cases Cited
- Walsh v. Taylor, 263 Mich. App. 618 (trial‑court summary disposition standard)
- Castro v. Goulet, 312 Mich. App. 1 (C)(7) pleadings and documentary evidence review)
- Holmes v. Mich. Capital Med. Ctr., 242 Mich. App. 703 (statute‑of‑limitations summary disposition)
- Pohutski v. City of Allen Park, 465 Mich. 675 (statutory interpretation principles)
- Gordon v. Sel‑Way, Inc., 177 Mich. App. 116 (knowledge of officers/agents imputed to corporation)
- Estes v. Idea Eng’g & Fabricating, Inc., 250 Mich. App. 270 (elements for BCA director liability)
- Meyer & Anna Prentis Family Foundation v. Karmanos Cancer Inst., 266 Mich. App. 39 (accrual under discovery rule)
- Frank v. Linkner, 310 Mich. App. 169 (discussion distinguishing statutes of repose vs limitations)
- Pontiac Packing Co. v. Hancock, 257 Mich. 45 (historic adverse‑domination discussion)
- Trentadue v. Buckler Lawn Sprinkler, 479 Mich. 378 (limits on applying equitable tolling against statutory schemes)
- Hall v. Gen. Motors Corp., 229 Mich. App. 580 (choice‑of‑law interest analysis)