Deep Photonics Corp. v. LaChapelleDeep Photonics Corp. v. LaChapelle
Shareholders Joseph LaChapelle and James Field (plaintiffs) brought claims on behalf of Deep Photonics Corporation (DPC) against three of DPC‘s directors (defendants). The case was tried to a jury, which found, among other things, that defendants breached their duty of care to DPC and its shareholders. The Court of Appeals affirmed, holding that the trial court did not err in allowing the claims to be tried to a jury and that the trial court did not abuse its discretion in denying defendants’ midtrial request to raise and rely on a provision in DPC‘s certificate of incorporation to exculpate them from damages for breaches of the duty of care. Held: The case was properly tried to a jury and the trial court did not err in denying defendants’ motion to assert the exculpation defense.
The decision of the Court of Appeals and the limited judgment of the circuit court are affirmed.
En Banc
On review from the Court of Appeals.*
* Appeal from Washington County Circuit Court, Donald R. Letourneau, Judge. 303 Or App 699, 466 P3d 660 (2020).
Kevin H. Kono, Davis Wright Tremaine LLP, Portland, argued the cause and filed the briefs for petitioner on review. Also on the briefs was P. Andrew McStay, Jr., Portland.
Jeff S. Pitzer, Pitzer Law, Portland, argued the cause and filed the brief for respondents on review. Also on the brief was Charles J. Paternoster, Parsons Farnell & Grein, LLP, Portland.
Cody Hoesly, Larkins Vacura Kayser LLP, Portland, argued the cause for respondents on review and filed the brief for amicus curiae Oregon Trial Lawyers Association.
BALMER, J.
The decision of the Court of Appeals and the limited judgment of the circuit court are affirmed.
BALMER,
In this shareholder derivative action, we consider two issues: first, whether the breach of fiduciary duty claims brought by shareholders Joseph LaChapelle and James Field (plaintiffs) on behalf of Deep Photonics Corporation (DPC) against DPC directors Dong Kwan Kim, Roy Knoth, and Bruce Juhola (defendants) were properly tried to a jury, rather than to the court; and, second, whether the trial court erred in denying defendants’ motion, made during trial, to amend their answer to assert an affirmative defense against one of the claims in the complaint based on an “exculpation” provision in DPC‘s certificate of incorporation. For the reasons set out below, we conclude that the case was properly tried to the jury and that the trial court did not err in denying defendants’ motion to assert the exculpation defense. We therefore affirm the decision of the Court of Appeals and the limited judgment of the trial court.
The underlying facts of this dispute among officers, directors, and shareholders of DPC are complicated and were contested at trial. The legal issues before us on review, however, do not require a recitation of DPC‘s corporate history. As relevant here, DPC brought an action against LaChapelle and Field, who had helped found DPC and were officers and shareholders; LaChapelle and Field answered and also filed a third-party complaint against defendants, a corporation controlled by Kim, and others. The third-party complaint included direct claims by plaintiffs and derivative claims that they brought on behalf of DPC. DPC‘s initial claims against LaChapelle and Field were dismissed or otherwise resolved, and the third-party claims by LaChapelle and Field against certain other defendants were dismissed or severed. LaChapelle‘s and Field‘s direct claims against defendants and the corporation controlled by Kim were dismissed before trial. Plaintiffs’ derivative claims on behalf of DPC were tried to a jury, which found in favor of plaintiffs and against defendants Kim, Juhola, and Knoth. The jury awarded plaintiffs $10 million, which it allocated among those defendants, and the trial court entered a limited judgment based on the jury verdict.
Kim appealed the limited judgment, raising a number of assignments of error, and plaintiffs filed a contingent cross-appeal challenging certain trial court rulings. The Court of Appeals affirmed the limited judgment, and, accordingly, did not reach plaintiff‘s cross-appeal. Deep Photonics Corp. v. LaChapelle, 303 Or App 699, 466 P3d 660 (2020). We allowed Kim‘s petition for review of the Court of Appeals decision.
I. RIGHT TO A CIVIL JURY TRIAL
We begin with the dispute over the trial court‘s submission to a jury of plaintiffs’ claim against defendants for money damages.
“claim” brought or “relief” sought is more properly characterized as legal or equitable for purposes of the jury trial right. Plaintiffs argue that our cases support their position that the jury trial right is not limited to those civil actions that were tried to juries in 1857 and that the elimination of the historic procedural distinctions between proceedings in law and equity further undercuts the formalistic application of the traditional divide between actions at law and suits in equity.2 Plaintiffs recognize that certain kinds of proceedings, including shareholder derivative actions, are often said to be “equitable” in nature. They contend, however, that under the proper construction of
A. This Court‘s Decision in Miramontes
Both parties contend that this court‘s decision in Miramontes essentially resolves this case in their favor. We agree that Miramontes provides helpful guidance as to the application of the civil jury trial right, but it does not answer the specific question presented in this case. Miramontes involved a new statutory cause of action, id. at 407, rather than a common-law claim of long standing like the one at issue here. Additionally, as the parties’ arguments demonstrate, some key terms in Miramontes have multiple possible meanings that did not make a difference in that case but that are salient in resolving this dispute. For that reason, we begin by reviewing Miramontes to understand the extent to which it directs our analysis of the jury trial right in this case.
In Miramontes, the plaintiff brought an action under the anti-stalking statute,
the statute. Id. The trial court issued a protective order against the defendant and also awarded the plaintiff money damages. Id. No party disputed that the plaintiff‘s request for a protective order enjoining the defendant from engaging in certain conduct towards her was properly a matter for the court. Id. at 414 (parties agree that stalking protective order is a form of injunctive relief and therefore “equitable in nature” and not subject to jury trial right). The defendant, however, argued that he had a constitutional right to a jury trial on the plaintiff‘s related claim for damages for lost sick and annual leave, lost wages, and counseling expenses.
This court agreed with the defendant. Following earlier Oregon cases, the court rejected the plaintiff‘s argument that the jury trial right could not apply to a claim for damages under the anti-stalking statute because
In
that the plaintiff‘s request for a money judgment raised an issue that was unquestionably legal.” Miramontes, 352 Or at 417 (emphasis added) (citing Dairy Queen, 369 US at 477-80). In Miramontes, we read Dairy Queen as holding that, even if equitable issues are the “basic” issues in the case, the parties “had a right to a jury trial on the legal issue.” Miramontes, 352 Or at 417. Consistent with Dairy Queen, we rejected the idea that “a court should decide the right to jury trial based on an historical analysis of whether the case as a whole would have been tried at law or in equity when the constitution was enacted.” Miramontes, 352 Or at 418.
In light of the elimination of the procedural distinctions between law and equity in 1979, and consistent with Oregon cases decided since that time, Miramontes held that it was “neither necessary nor advantageous to courts or litigants to decide the substantive question of whether a party is entitled to a jury trial based on whether a case is ‘essentially’ equitable in nature.” Id. at 425. Rather, as the Supreme Court had held in Dairy Queen, the right to a jury trial turns on whether the “claims or requests for relief” or the “nature of a claim or request for relief” are such that the particular “claim” or “request for relief” would have been “tried to a court without a jury at common law” or, instead, would have been tried to a jury. Miramontes, 352 Or at 425. Moreover, the court reaffirmed its holding in Studebaker that the constitutional right to a civil jury trial was not limited to claims that had existed before the adoption of the constitution, but “extended to cases of like nature,” Miramontes, 352 Or at 409, including the claim for money damages created by the anti-stalking statute, id. at 426. Based on that analysis, this court had little trouble concluding that the plaintiff‘s claim for compensatory money damages sought “relief that is legal, as opposed to equitable, in nature and that the constitutional right to jury trial therefore extends to that claim.” Id.
B. The Parties’ Arguments Based on Miramontes
Kim argues that Miramontes does not support plaintiffs’ argument that they had a right to a jury trial on their derivative claim for breach of fiduciary duties and, indeed, that Miramontes is consistent with Kim‘s proposed
“bright-line rule that no right to jury trial exists as to equitable claims tried to the court when the constitution was adopted, irrespective of the nature of the relief sought.” The premise of Kim‘s argument is incorrect. Although Miramontes did not address the precise question here, the opinion clearly rejected the narrow application of the jury trial right that Kim advocates.
First, as noted, the decision makes it plain that the jury trial right applies not just to common-law actions that were tried to a jury in 1857, but also to “cases of like nature.” Id. at 409. That includes new statutory claims, such as the forfeiture statute in Studebaker and the right to seek compensatory damages under the anti-stalking statute in Miramontes. Kim seeks to distinguish those cases on the ground that the shareholder derivative claim here is not a “new” claim, but rather was a common-law claim that existed at the time of statehood. Nothing in Miramontes, however, purports to limit the further elaboration or expansion by the Oregon courts of common-law claims that existed in one form or another in 1857 or suggests that the jury trial right would not
Miramontes, 352 Or at 425. Rather, based on earlier decisions and, critically, the merger of “law” and “equity” jurisdiction in 1979, the right to jury trial “must depend on the nature of the relief requested.” Id. Third, contrary to Kim‘s assertion, Miramontes explicitly embraced the idea that the right to a jury trial on a particular issue often may turn on the nature of the relief that a party seeks. Id. This court there agreed with the parties that if the “plaintiff had sought only injunctive relief, her claim would have been equitable in nature, and the constitution would not provide a right to jury trial.” Id. at 414. It was only the plaintiff‘s separate claim for money damages—a claim that the court, agreeing with Dairy Queen, described as “unquestionably legal,” Miramontes, 352 Or at 417—that triggered the defendant‘s right to a jury trial on that claim. Id. at 426.
But Kim is correct in pointing out that neither in Miramontes nor in any other case has this court suggested that a party can bring its action within the civil jury trial right of
Much of the dispute between the parties boils down to what this court meant in earlier cases when it used the word “claim” or “claims” to describe the issues that can be
decided by a court and those that are subject to the jury trial right. As noted, Kim argues that plaintiffs’ shareholder derivative “claims” originated as equitable “claims” and were tried to the court at the time that the constitution was adopted and, therefore, that the trial court erred in allowing those claims to go to a jury. In his view, this was a “single equitable suit that cannot be separated into ‘legal and equitable’ claims.” Plaintiffs counter that Miramontes adopted the Supreme Court‘s “issue by issue” approach set out in Dairy Queen and that that approach is to consider separately the different “claims for relief” or “requests for relief” in the action to
Kim‘s argument draws some plausibility from a passage in Miramontes where this court stated that no jury trial right attaches to “claims or requests for relief that, standing alone, are equitable in nature and would have been tried to a court without a jury at common law.” 352 Or at 425. But the word “claim” is used in several different ways in our cases and rules. Sometimes “claim” is used to refer to the substantive legal basis for a cause of action, regardless of the relief sought. See
But other common uses of the word “claim” are more closely tied to a particular remedy or “claim for relief,” not just to the statutory or common-law basis for a cause of action, and may require specification of the remedy being requested.
written statements by the parties of the facts constituting their respective claims” (emphasis added), clearly assuming that, as used in that rule, the word “claims” subsumes and requires a statement of the “demand of the relief that the party claims,” required by
The foregoing indicates that “claim” can have the narrower definition of the substantive legal basis for a cause of action, apart from any particular relief being sought, as Kim argues. But it also shows that we routinely use “claim” interchangeably with “claim for relief” and “request for relief.” Thus, in the Oregon Rules of Civil Procedure and in our cases, such as Miramontes, the word “claim” can mean the legal basis for a cause of action or the particular relief that a party seeks—or it can mean both the legal basis and the relief sought, together. In Miramontes, this court held that “the right to jury trial must depend on the nature of the relief requested.” 352 Or at 425 (emphasis added). If the “claims or requests for relief” seek only equitable remedies, the case will be tried to the court, but the constitution guarantees a jury trial on ”claims or requests that are properly categorized as ‘civil’ or ‘at law.‘” Id. (emphasis added). The court in that case plainly used the term “claim” not only in the narrower sense of the legal basis for the action that Kim focuses on, but also as including requests for different forms of relief. And when the “claim seek[s] monetary damage for injury inflicted,” and is “properly categorized as ‘civil’ or ‘at law[,]‘” id. at 426, that claim is subject to a jury trial because such relief is “unquestionably legal,” id. at 417.
More to the point, this court could not have reached the result that it did in Miramontes if it had adopted the position taken by Kim here. There, the plaintiff brought a “claim” under the anti-stalking statute, but she sought, as relevant here, two forms of relief: a protective order and an award of compensatory damages. Id. at 403.
C. Article I, Section 17, and Plaintiffs’ Claims
With that background, we return to the issue before us: whether the trial court erred in sending the claim for money damages in this shareholder derivative action to the jury. Kim‘s first argument is that shareholder derivative claims were first recognized in courts of equity and are still seen as essentially equitable; for that reason, he maintains, the civil jury trial right in
Here, plaintiffs brought a derivative claim on behalf of DPC against certain officers and directors, arguing that they had breached their fiduciary duties to DPC in various ways. Plaintiffs sought money damages. Kim argues that shareholder derivative claims are equitable in origin and
would have been treated as equitable in Oregon at the time of statehood and not subject to a jury trial. But Miramontes instructs us instead to look at the “claims” and “requests for relief,” and if the relief sought is in the nature of a “legal” claim—as was the request for money damages for injury inflicted in Miramontes and the request for money damages here—the parties have a right to a jury trial. We see no obvious difference between the claim for money damages here and the claim for money damages in Miramontes.
Kim is correct that shareholder derivative claims arose in courts of equity to allow a shareholder to bring a breach of fiduciary duty claim against directors—a claim that properly belonged to the corporation—because the law courts would not permit an action by a shareholder on behalf of the corporation. But that point does not further Kim‘s position. First, that argument essentially ignores the directive in Miramontes that we examine the “pleadings to ascertain the nature of the relief that [the] plaintiff requested” and determine whether that relief “is legal, as opposed to equitable, in nature and that the constitutional right to jury trial therefore extends to that claim.” Id. at 425-26 (emphasis added). Second, it is difficult to see why the derivative nature of the shareholder‘s claim should make any difference in whether a common-law breach of fiduciary duty claim is tried to the court or to a jury. The actual holder of the claim was the corporation, and, if the corporation had brought the claim itself, it would have been entitled to a jury trial. The Supreme Court said exactly that more than 50 years ago in Ross v. Bernhard, 396 US 531, 532-33, 90 S Ct 733, 24 L Ed 2d 729 (1970):
“We hold that the right to jury trial attaches to those issues in derivative actions as to which the corporation, if it had been suing in its own right, would have been entitled to a jury.”4
Finally, Kim argues that we should not follow Dairy Queen, Ross, or other decisions that, since the merger of law and equity, have held that constitutional jury trial rights, federal or state, permit jury trials in shareholder derivative cases seeking money damages. Kim quotes this court‘s statement that “whatever the right to a jury trial in a civil case meant in 1857, it has the same meaning today.” Lakin v. Senco Products, Inc., 329 Or 62, 69, 987 P2d 463, clarified, 329 Or 369, 987 P2d 476 (1999), overruled on other grounds by Horton, 359 Or 168. Relatedly, Kim asserts that it is improper for the court to “fragment” the common-law breach of fiduciary duty action into legal and equitable issues, based on the relief that a plaintiff seeks.
Both of those arguments contain a kernel of legitimate concern about constitutional interpretation and the development of the common law, but they assume a static
view of the law that is inconsistent with longstanding practice and the role of the judiciary. As to constitutional interpretation, the originalist statement in Lakin notwithstanding, we have in recent years adopted a more nuanced approach. In Couey v. Atkins, 357 Or 460, 490, 355 P3d 866 (2015), for example, we explained it this way:
“[O]ur purpose is not to freeze the meaning of the state constitution to the time of its adoption, but is instead to identify, in light of the meaning understood by the framers, relevant underlying principles that may inform our application of the constitutional text to modern circumstances.”
(Internal quotation marks omitted.) See also Horton, 359 Or at 187 (“remedy” clause in
Kim is correct that stability and consistency are critical aspects of constitutional interpretation and common-law decision-making. Our adherence to principles of stare decisis in both constitutional interpretation and common-law decision-making reflects those values. See Farmers Ins. Co. v. Mowry, 350 Or 686, 697-98, 261 P3d 1 (2011) (“[S]tare decisis is not mechanistic. Rather, stare decisis is a prudential doctrine that is defined by the competing needs for stability and flexibility in Oregon law.“); Couey, 357 Or at 485 (“Stare decisis does not permit this court to revisit a prior decision merely because the court‘s current members may hold a different view than its predecessors about a particular issue. At the same time, stare decisis is not absolute.“).
Our holding here, however, is not foreclosed by any prior constitutional or common-law case from this court, and, indeed, to reach the result that Kim seeks would require us
to disavow or severely limit several aspects of our decision in Miramontes. We decline to do so, not only out of respect for precedent, but because Miramontes adopts an approach to determining when remedies sought by a party will be tried to a jury or to the court that respects the different roles of those institutions and is reasonably straightforward to apply. The differences between what constitutes “equitable” and “legal” relief and the question of when a party is entitled to a jury trial under
II. EXCULPATION DEFENSE
We turn next to the issue of the exculpation provision found in DPC‘s certificate of incorporation as a Delaware corporation. There are two questions for us to address related to that provision: first, whether the exculpation provision is an affirmative defense that had to be raised in defendants’ answer and, second, whether the trial court abused its discretion in denying defendants’ motion to amend their answer to raise that defense. Kim argues that the exculpation provision did not have to be pleaded as an affirmative defense and that, if it did, the trial court abused its discretion in denying his motion to file an amended answer that would include such a defense.
A. Background
Under Delaware corporation law—which the parties agree applies here—corporate directors “have a triad of primary fiduciary duties: due care, loyalty, and good faith.” Emerald Partners v. Berlin, 787 A2d 85, 90 (Del 2001). Delaware statutes permit a corporation to include in its certificate of incorporation a “provision eliminating or limiting
the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director * * *.”
DPC‘s certificate of incorporation contained an exculpation provision eliminating the liability of its directors for monetary damages “to the fullest extent permissible under the Delaware General Corporations Law.” It is undisputed that that provision protected DPC‘s directors from being held personally liable for monetary damages for a
We briefly outline the conclusions reached by the courts below regarding the exculpation provision before reviewing in more detail the proceedings in the trial court that lead to our conclusion that Kim‘s arguments in this court are not well taken. Before the trial court, Kim argued that because DPC‘s certificate of incorporation contained an exculpation provision, plaintiffs could not recover monetary damages from defendants for their breach of fiduciary duty. As noted, the trial court rejected that argument, holding that reliance on the provision was an affirmative defense that defendants were required to assert in their answer and
as to which they had the burden of proof. Because they had failed to raise that defense in their answer, the trial court determined that they could not rely on the provision. When defendants filed a motion during trial to amend their answer to add that defense, the trial court denied the motion on the ground that it would be prejudicial to plaintiffs. The Court of Appeals affirmed those rulings. Deep Photonics, 303 Or App at 715-19. We agree with the Court of Appeals.7
B. Proceedings Below
The issues on review regarding the exculpation provision turn on when and how defendants sought to rely on that defense during the litigation. Underlying the timeliness issue is when defendants were on notice that plaintiffs were relying on defendants’ alleged breaches of the duty of care, which could have been subject to the exculpation defense.
Plaintiffs’ second amended third-party complaint, filed on October 21, 2013, was the operative pleading at trial and contained the following allegation:
“[N]ot only did the corporation not actually benefit from the acts of [third-party defendants], the corporation was never intended to benefit from those acts. Rather, the actions were expressly designed to benefit the third-party defendants personally. The interested directors failed to exercise due care and committed corporate waste * **.”
(Emphasis added.) Other allegations in the complaint set out specific acts and omissions by defendants; asserted that defendants, “in addition to their lack of disinterest,” made “grossly negligent decisions” because they did not “fully inform themselves” of various relevant facts; and claimed that those acts constituted “breaches of [defendants‘] fiduciary duties.”
In their answer to the second amended complaint, filed on October 31, 2013, defendants did not assert the exculpatory provision as an affirmative defense. Trial was scheduled to begin some 10 months later, on September 3, 2014. Defendants filed a motion for summary judgment as to plaintiffs’ claim for breach of fiduciary duty on July 3, 2014. Defendants argued that the actions at issue fell under the business judgment rule, which generally protects corporate directors from liability when they make business decisions in good faith and do so in the reasonable belief that they are acting in the best interests of the corporation and its shareholders. Emerald Partners, 787 A2d at 90-91. They argued that plaintiffs had not produced sufficient evidence to demonstrate gross negligence or fraud. Again, defendants raised no issue regarding
“At times [plaintiff] LaChapelle appears to conflate the duty of loyalty with the duty of care. DPC‘s articles expressly waive monetary duty of care claims unless they rise to the level of bad faith. Such waivers are expressly permitted under Delaware law.” (Citation omitted.)
Two days before trial, on September 1, 2014, defendants filed a motion in limine, seeking, among other things, to exclude evidence regarding any breaches of the duty of care:
“Defendants move to exclude any evidence suggesting that the business decisions at issue here were made without due care, negligently, or through gross negligence under
OEC 402 and403 as irrelevant and confusing to the jury.”
In that motion, defendants argued that the duties of care and loyalty are distinct and well-defined and that any introduction of evidence relating to the duty of care would confuse the jury without adding any probative value.
The court heard arguments on the motion in limine on the first day of trial, and plaintiffs raised two arguments in opposition to the motion. First, plaintiffs argued that
the exculpatory provision was an affirmative defense that defendants were required to, and had not, raised in their answer. Second, they argued that the exculpation provision does not preclude a plaintiff‘s claim against a director for a violation of the duty of care and a determination that the director violated that duty, but only a director‘s “personal liability * ** for monetary damages” for such a violation. Plaintiff further argued that it is for the jury to “determine[] where on the spectrum of fiduciary duty a particular action falls“—whether a breach of the duty of loyalty or the duty of care. The mere existence of the exculpation provision in the certificate of incorporation, in plaintiffs’ view, did not preclude them from presenting evidence of breaches of the duty of care or even a finding of liability for such breaches, but would prevent only an award of damages for such a breach. Plaintiffs argued:
“So if we are arguing that a particular action was a breach of the duty of loyalty or the breach of the duty of care, which is sometimes considered a subset of—of loyalty, but it was also a breach of the—of the duty of due care. This *** becomes an issue that the jury really has to—has to decide.
“We‘re going to say it was a breach of the duty of—of loyalty. They‘re going to say it‘s a breach of the duty of care. And so ** * it‘s not something that damages can be awarded for, but it—it doesn‘t mean that there isn‘t liability. It just means there‘s no—there‘s no damages. But, again, this has been waived.”
The court deferred a ruling on defendants’ motion. Later, on September 15, 2014, the trial court denied the aspects of defendants’ summary judgment motion that are relevant here but did not rule on the motion in limine.
On the last day of plaintiffs’ case-in-chief, September 16, 2014, defendants sought to introduce DPC‘s certificate of incorporation as evidence. The following exchange occurred:
“[DEFENDANTS:] *** I want to offer *** the articles and amended articles of incorporation. It goes to the exculpatory clause issue.
“[PLAINTIFFS:] I guess I don‘t technically have an objection, although I‘m not sure this is an issue for the jury. The exculpation clause is something that we‘re talking
about in terms of the instructions and then what would happen if they were to find breach of duty and due care.
“[DEFENDANTS:] I just want them to be in the record, Judge.
“THE COURT: That‘s fine. Well, right now, it‘s premature, ‘cause we haven‘t resolved—
“[PLAINTIFFS:] Right.
THE COURT: —the legal dispute. But whether or not I‘m—you know, I understand the plaintiff—you guys may plea bargain the—
“[PLAINTIFFS:] Right.
“THE COURT: —jury instructions and it may all be proper game, but we‘ll hold off until that‘s done, so— “[PLAINTIFFS:] Right.
“THE COURT: Right—right now your affirmative—that affirmative—that defense, affirmative or otherwise, isn‘t pled. Remember?
“[DEFENDANTS:] Sure, Judge. So we‘re going to—
“THE COURT: *** The articles of incorporation might be relevant for some other purpose, but not for the exculpation clause yet, unless you guys have negotiated that away, that issue that we talked about on Friday.
“[PLAINTIFFS:] We‘ve been talking about that.
“THE COURT: I‘m sorry.
“[PLAINTIFFS:] But I think it is premature.
“THE COURT: Let‘s hold off on that until we get through that—that portion of it.
“[PLAINTIFFS:] Yeah.”
(Emphasis added.)
Later that day, at the close of plaintiffs’ case, defendants moved for a directed verdict. In that motion, they argued that defendants were “entitled to [a] directed verdict to the extent [that] they seek damages for breach of the duty of care.” Specifically, defendants contended that:
“It is undisputed that the Deep Photonics articles contain [an exculpation] provision. As a result, plaintiffs cannot assert any claim for breach of the duty of care. To the extent plaintiffs seek to assert such a claim, defendants are entitled to a directed verdict.”
Plaintiffs responded that a directed verdict was not the proper means to address that issue, and that it could be dealt with in the jury instructions instead. The court denied the motion for a directed verdict on the issue of damages for defendants’ breach of the duty of care. The court explained that, despite notice of plaintiffs’ allegation, defendants had failed to plead exculpation as an affirmative defense:
“[Defendants] said it wasn‘t pled, the duty of care wasn‘t pled. That was one of your arguments. That‘s why you said you didn‘t raise [the exculpatory provision] as timely as you might have. I reread the pleadings. To me, it‘s obvious that a duty of care is pled. * * *
“* * * * *
“*** I‘m convinced that the duty of care is pled. That gets to the timeliness, which we haven‘t addressed. So we couldn‘t possibly be a directed verdict ‘cause we haven‘t even gotten—you haven‘t even—I think it is an affirmative defense.
“* * * * *
“And I reread the stuff and the definition of affirmative defense is you have to prove something. And you have to prove something, so it‘s an affirmative defense.”
(Emphases added.)
The next day, September 17, 2014, defendants filed a motion to amend their answer to assert the following affirmative defense:
“Deep Photonics Corporation‘s articles of incorporation exonerate directors from any liability for money damages for violation of the duty of care and, pursuant to that provision of the articles and
8 Del Code § 102(b)(7) , third-party defendants cannot be held liable in this action for such damages.”
Defendants argued that plaintiffs had not previously alleged a breach of the duty of care and, for that reason, their invocation of the exculpatory provision had not been necessary
earlier. They contended that the September 16 statement by the trial court, quoted above, was the first time that they became aware that the court intended to treat the claims at issue as allegations of breach of the duty of care, and that they filed their motion to amend as soon as possible following that revelation.
The court denied the motion to amend on September 18, 2014, stating:
“Obviously, timeliness is a factor. It‘s not the only factor. But the later it is, the less likely it is to be granted. It is true that it should be granted liberally as a general proposition, especially if it doesn‘t affect—if it doesn‘t prejudice the other side.
“The problem is, the timeliness does tend to affect the prejudice analysis. Now, not the discovery. I—I understand that. But the trial strategy and the manner of presentation are valid factors for the trial Court to consider. “And I accept counsel‘s representation that it would have changed at least the tone of the presentation and the manner of which questions were asked, which ones weren‘t asked and how you frame the whole case.
“And so I—basically, I just think it‘s too late and those are the reasons. I‘m thinking there‘s a prejudice. And it—and, you know, it could affect negotiations. As a (indiscernible), I don‘t think this case would have settled, no matter what, but—so I‘ll say that for the record, but I think at least in theory, it—it isn‘t a factor that should—should impact negotiations.
“It appears the parties were at loggerheads. And I can‘t imagine how you could settle this case. I‘ll just say that for the record, because of the parties’ hatred for each other, quite frankly, and their posturing and postures, I should say anyway. All right. So good—for good or bad, that‘s my ruling ***.”
The case was eventually submitted to the jury, which found that defendants had violated both the duty of loyalty and the duty of care and awarded money damages to plaintiffs on their derivative claim for defendants’ breaches of fiduciary duty.
On appeal, defendant Kim assigned error to the denial of defendants’ motion to amend their answer to add the exculpation provision as an affirmative defense, arguing—as relevant here—that the trial court erred in concluding that the exculpation provision was an affirmative defense that needed to be pleaded. The Court of Appeals disagreed, holding that “an exculpation provision functions like an affirmative defense,” Deep Photonics, 303 Or App at 715, and that it therefore must be pleaded before it can be relied upon at trial, id. at 716. As to the trial court‘s denial of defendants’ motion to amend their answer to add the exculpatory defense, the Court of Appeals applied
“The trial court found that plaintiffs would have strategized about, shaped, and presented their case differently if defendants had actually raised the exculpation provision early in the case, rather than merely indicating a desire to rely on it, and the record supports that understanding. Even if this is a case in which the court could properly have exercised its discretion to allow a very late amendment, the court did not abuse its discretion by deciding not to allow it.”
C. The Exculpatory Provision as Affirmative Defense and the Motion to Amend
On review, Kim argues that “pleading application of an ‘exculpation’ provision is not required because an exculpatory provision addresses damages—an element of plaintiffs’ claim—and plaintiffs thus must plead non-exculpated claims.” As to the motion to amend, he asserts that “[a] trial court must
We begin with the question of whether defendants were required to plead exculpation as an affirmative defense. Under the Oregon Rules of Civil Procedure, “[e]very defense, in law or fact, to a claim for relief in any pleading, whether a complaint, counterclaim, cross-claim or third party claim, shall be asserted in the responsive pleading thereto[.]”
The Delaware Supreme Court has addressed the nature of and proper procedure for pleading an exculpatory provision a number of times. In Emerald Partners, that court explained that “the adoption of a charter provision, in accordance with
claim that is based exclusively upon establishing a violation of the duty of care.” 787 A2d at 91. And the court went on to describe numerous cases holding that “exculpation afforded by a
As the Court of Appeals stated below, “[t]he requirement of pleading the exculpation provision is even clearer under Oregon law.” Deep Photonics, 303 Or App at 717.
necessary to be established by plaintiff.’ Accordingly, it had to be pleaded.” Deep Photonics, 303 Or App at 717 (alteration in original; internal citation omitted).
Having concluded that the defendants’ reliance at trial on the exculpation provision constituted an affirmative defense that defendants were required to plead in their answer, we turn to the issue of defendants’ motion to amend.
“[T]he gravamen of the inquiry is whether allowing a pretrial amendment would unduly prejudice the opposing party. *** In evaluating whether such prejudice exists, a court considers factors such as whether the party opposing the motion had a reasonable opportunity to research appropriate law, move against the pleading, avail himself or herself of discovery procedures, and prepare requested instructions. Generally, the further a case proceeds, the more reluctant the courts are to permit amendments. Another important consideration in assessing prejudice is whether the proposed amendment would change the claim for relief. A court may allow a motion to amend if there is no prejudice to the defendant and no material change in the substance of the complaint. By the same token, if a proposed amendment would change the claim for relief and prejudice the opposing party, a court may deny a motion to amend.”
366 Or at 216-17 (internal citations, quotation marks, and alterations omitted).
As noted, the Court of Appeals here relied on case law from that court in determining whether defendants’ motion to amend should have been allowed. It cited Sanford
v. Hampton Resources, Inc., 298 Or App 555, 447 P3d 1192, rev den, 366 Or 64 (2019). Sanford, in turn, followed a test originally articulated in Ramsey v. Thompson, 162 Or App 139, 145, 986 P2d 54 (1999), rev den, 329 Or 589 (2000), where the Court of Appeals identified four factors that should be considered in applying
In this case, however, we need not determine whether the various Ramsey factors or the Ramsey test itself conflict with C.O. Homes. Applying this court‘s decision in C.O. Homes, we conclude that the trial court did not abuse its discretion in denying defendants’ motion to amend. Kim is incorrect in arguing that the trial court predicated its decision on the timing of the motion to amend, without adequately considering prejudice. Kim points to the trial court‘s statement—“I just think it‘s too late“—to support his argument that the trial court failed to consider prejudice adequately. In doing so, however, Kim takes the trial court‘s comment out of context, as demonstrated in the trial court‘s explanation of the reasons for its ruling that we set out above.
Immediately following the lateness comment, the court found explicitly that there was prejudice to the party opposing the motion—plaintiffs—in that the exculpation issue would likely have impacted trial preparation
“The trial court found that plaintiffs would have strategized about, shaped, and presented their case differently if defendants had actually raised the exculpation provision early in the case, rather than merely indicating a desire to rely on it, and the record supports that understanding.”
Deep Photonics, 303 Or App at 719. Moreover, the trial court viewed the timeliness issue as directly implicating prejudice as well: because of the length of the proceedings, the broad discovery, and the extensive trial court record, the fact that defendants did not raise this affirmative defense until after the close of plaintiffs’ evidence meant that plaintiffs had no opportunity to modify their theory of the case or their presentation of evidence based on the new affirmative defense. That rationale is entirely consistent with this court‘s observation in C.O. Homes (with apparent approval) that, “[g]enerally, the further a case proceeds, the more reluctant the courts are to permit amendments.” 366 Or at 216. The trial court did not abuse its discretion in concluding that the untimeliness of a defense motion made midtrial contributed to the key inquiry regarding prejudice to the party opposing the motion.
Kim‘s argument that the trial court blindly applied the Ramsey test and that the resulting denial of his motion to amend is inconsistent with C.O. Homes is not supported by the record. The trial court properly considered the prejudicial effect of the motion to amend, exercised its discretion, and denied the motion. We cannot say that the trial court abused its discretion in reaching that decision.
The decision of the Court of Appeals and the limited judgment of the circuit court are affirmed.