Fiduciary duties, derivative suits and oppression claims in Michigan

It depends on who was harmed and who would receive the recovery. The Michigan Supreme Court held in Murphy v Inman that if the corporation suffered the harm and would get the remedy, the claim is derivative and the statutory demand rules apply. If the shareholder suffered the harm independently and would get the remedy, the claim is direct. Murphy allowed a shareholder to sue directly over the directors' handling of a cash-out merger.

Murphy v Inman rests on two points. First, directors owe common-law fiduciary duties directly to the corporation's shareholders, and the Business Corporation Act's statement of directors' duties in MCL 450.1541a did not abolish them. Second, the Court gave a test for the label: ask who suffered the alleged harm and who would receive the benefit of any remedy. If the answer to both is the corporation, the action is derivative. If the shareholder suffers the harm independently of the corporation and would receive the remedy, it is direct.

The case involved a cash-out merger. Once the decision to sell has been made, the Court said directors of the target corporation must disclose to shareholders all material facts about the merger and must work to maximize shareholder value by securing the highest share price reasonably available. The plaintiff alleged an inadequate price, self-dealing in arranging the merger, and a materially incomplete proxy statement. The Court held those allegations injured him directly as a shareholder. The trial court and the Court of Appeals had treated the claim as derivative and dismissed it because he had made no demand under MCL 450.1493a.

That result is specific to the facts. A claim that directors wasted assets, took a corporate opportunity, or mismanaged the business usually harms the company first, which points to a derivative suit with its demand and 90-day wait. Murphy concerned a corporation, and no published decision applying its test to LLC members has been identified. Picking the wrong label can end a case early, so decide it before filing.

Authority: Murphy v Inman, 509 Mich 132 (2022); MCL 450.1541a; MCL 450.1493a. Reviewed Oct. 2026.

You must prove three things: that the defendant owed you a fiduciary duty, that the defendant breached it, and that the breach caused you damages (Highfield Beach). Whether a duty exists is generally a question of law for the court, and trust you placed in the other person has to be reasonable (Prentis). Damages must be proved with reasonable certainty, and a claim can fail on that element alone.

The Court of Appeals stated the elements in Highfield Beach at Lake Michigan v Sanderson: a plaintiff must prove the existence of a fiduciary duty, a breach of that duty, and damages caused by the breach. In Prentis, the court said that whether a duty exists is a question of law for the court, and that placing trust, confidence, and reliance in someone must be reasonable. Some duties come from statute, such as those of corporate directors and officers (MCL 450.1541a) and LLC managers (MCL 450.4404), and some from the relationship itself.

Damages are where many claims fall apart. In Turner v J & J Slavik (2026) the Court of Appeals affirmed a directed verdict on a fiduciary duty claim because, even assuming a breach, the plaintiff could not show what the company or his shares were worth during the period the statute of limitations allowed. Damages cannot be presumed, must rest on an actual present injury, and cannot be speculative, though they need not be proved with mathematical precision. The opinion states that it is subject to revision until final publication.

Timing is the other trap. A claim against a corporate director or officer under MCL 450.1541a, or against an LLC manager under MCL 450.4404, must be brought within 3 years after it accrued or within 2 years after it was or should have been discovered, whichever comes first (MCL 450.1541a(4); MCL 450.4404(6)). Fraudulent concealment can allow suit within 2 years after discovery under MCL 600.5855, though no decision on whether it extends those two statutory periods has been identified.

Authority: Highfield Beach at Lake Michigan v Sanderson, 331 Mich App 636 (2020); Meyer & Anna Prentis Family Foundation, Inc v Barbara Ann Karmanos Cancer Institute, 266 Mich App 39, 43-44 (2005); Turner v J & J Slavik, Inc, ___ Mich App ___ (Docket No. 370564, June 12, 2026) (published; subject to revision until final publication); MCL 450.1541a(4); MCL 450.4404(6); MCL 600.5855. Reviewed Oct. 2026.

Probably, if you actually carried on a business together as co-owners for profit. Michigan's Uniform Partnership Act defines a partnership that way (MCL 449.6(1)), and the Supreme Court held in Byker v Mannes that the test is whether the parties intended to and did carry on as co-owners a business for profit, not whether they meant to form a legal partnership. Partners must account for benefits and profits from partnership transactions or the use of partnership property (MCL 449.21(1)).

Michigan still uses the Uniform Partnership Act of 1917, MCL 449.1 et seq. MCL 449.6(1) defines a partnership as an association of two or more persons to carry on as co-owners a business for profit. Byker v Mannes holds that the focus is on whether the parties intended to carry on, and in fact did carry on, such a business, not on whether they intended a legal partnership. An unwritten arrangement can qualify, and calling it something else does not decide the question.

Once there is a partnership, MCL 449.21(1) requires every partner to account to the partnership for any benefit, and hold as trustee any profits derived without the consent of the other partners, from a transaction connected with the formation, conduct, or liquidation of the partnership or from use of its property. In Urbain v Beierling the Court of Appeals described partners' fiduciary duties as strict, with a general duty of full and frank disclosure of material information.

The duty has limits. Urbain also held that a partner's fiduciary relationship arises through the partnership contract, so dissolving a partnership at will under MCL 449.31(1)(b), where no definite term or undertaking was specified, could not itself be a breach of fiduciary duty. Quoting Gilroy v Conway, Urbain added that a partner cannot maintain a tort action against a partner who, by an arbitrary or bad faith breach of the partnership contract, caused the partnership to end.

Authority: MCL 449.6(1); MCL 449.21(1); MCL 449.31(1)(b); Byker v Mannes, 465 Mich 637 (2002); Urbain v Beierling, 301 Mich App 114, 125-126 (2013). Reviewed Oct. 2026.

Yes, but the insider has to carry the burden. Under MCL 450.1545a, an interested transaction cannot be enjoined, set aside, or support damages or sanctions in a shareholder or derivative proceeding if the interested director or officer establishes that it was fair to the corporation when entered into, or that it was approved after disclosure by disinterested directors, or by the shareholders entitled to vote. Meeting one of those tests does not bar every other claim.

MCL 450.1545a(1) gives the interested person three ways to protect a transaction. The first is showing the transaction was fair to the corporation at the time it was entered into. The second is showing the material facts and the person's interest were disclosed or known to the board, a committee, or the independent directors, and that body authorized, approved, or ratified it. The third is the same disclosure to the voting shareholders and their approval. Under subsection (2), board approval means the affirmative vote of a majority of the directors who had no interest, even if that is less than a quorum, or all independent directors with no interest; the vote of an interested director does not affect validity. Under subsection (3), shareholder approval means a majority of the votes cast by holders of shares with no interest in the transaction.

The statute puts the burden on the person with the interest to establish one of the three. The Court of Appeals applied it in Camden v Kaufman, where it rejected an argument that a breach of fiduciary duty claim fell outside the section, saying that irrespective of the type of action, a transaction will not be set aside if one of the three criteria is present.

The statute is not a complete shield. Subsection (4) says satisfying subsection (1) does not preclude other claims about the transaction, which are judged under the principles for transactions without an interest. Director pay has its own rule: it is protected unless shown to be unreasonable when established. The deadline for a duty claim under MCL 450.1541a is 3 years after accrual or 2 years after discovery, whichever is first (MCL 450.1541a(4)).

Authority: MCL 450.1545a; MCL 450.1541a(4); Camden v Kaufman, 240 Mich App 389, 395-398 (2000). Reviewed Oct. 2026.

Not if it belongs to the company. In Production Finishing Corp v Shields, the Court of Appeals held that an officer and director breached fiduciary duties by diverting a corporate opportunity for personal gain without full disclosure to the corporation, and quoted a test that looks at whether the opportunity was in the company's line of business and one it could finance and had an interest or reasonable expectancy in. Partners and LLC managers must also account for profits from company transactions (MCL 449.21(1); MCL 450.4404(5)).

Production Finishing Corp v Shields involved a president and director who pursued a customer's polishing business and bought its equipment for his own gain while still serving, without full disclosure to the corporation. The Court of Appeals held that this was an actionable breach of fiduciary duty. It quoted this rule: if a business opportunity is presented to an officer or director that the corporation is financially able to undertake, that is in the line of the corporation's business and of practical advantage to it, and in which it has an interest or reasonable expectancy, and the person's self-interest would conflict with the corporation's by taking it, the law will not permit the person to seize it, and the corporation may claim the benefit of the transaction.

The cases identified on this doctrine are Court of Appeals decisions. In Rapistan Corp v Michaels the court applied Delaware's corporate opportunity cases because the parties agreed Delaware law controlled, so it is not a ruling on a Michigan test.

Outside corporations, the statutes point the same way. A partner must account to the partnership for any benefit, and hold as trustee any profits derived without the other partners' consent, from a transaction connected with the partnership or from use of its property (MCL 449.21(1)). Unless the operating agreement or a member vote under MCL 450.4502(4) and (7) provides otherwise, an LLC manager must account for profit or benefit from a transaction connected with the company or from personal use of its property (MCL 450.4404(5)). That means an operating agreement that allows outside ventures can change the result, so read it.

Until a lawyer sorts out which period applies, calendar the shorter limit: 3 years after accrual or 2 years after discovery, whichever is first (MCL 450.1541a(4); MCL 450.4404(6)).

Authority: Production Finishing Corp v Shields, 158 Mich App 479, 485-486 (1987); Rapistan Corp v Michaels, 203 Mich App 301, 306-307 (1994); MCL 449.21(1); MCL 450.4404(5); MCL 450.4404(6); MCL 450.1541a(4). Reviewed Oct. 2026.

Courts are reluctant to second-guess business decisions. Under the business judgment rule, as the Court of Appeals described it in Franks v Franks, courts refrain from interfering with directors' or officers' business judgment unless they are guilty of willful abuse of their discretionary powers or act in bad faith. The rule does not protect fraud or misconduct, and a shareholder who proves the elements of an oppression claim under MCL 450.1489 overcomes it.

The Supreme Court stated the rule in Reed v Burton: so long as directors control a corporation's affairs within the limits of the law, matters of business judgment and discretion are not subject to judicial review, and a court steps in only for willful abuse of discretionary powers, bad faith, neglect of duty, perversion of the corporation's purpose, fraud, or breach of trust. The Court of Appeals applied it in Franks v Franks, citing Reed and In re Butterfield Estate for the point that courts generally will not substitute their judgment for the directors' on dividend policy absent evidence the policy was fraudulent or in bad faith.

The rule has an edge. Franks noted it applies only where there has been no fraud, misconduct, or abuse of discretion by the officers and directors. The plaintiffs there did not ask the court to review the soundness of business decisions; they alleged and offered evidence that the decisions were made to defraud or oppress them as shareholders. The court held that a shareholder who presents evidence establishing the elements of an oppression claim under MCL 450.1489 necessarily overcomes the rule, so the court can look at a dividend policy or a buyout offer in the totality of the evidence.

The statutory standard still applies: good faith, ordinary prudent care, and a reasonable belief that the action serves the corporation's interests (MCL 450.1541a(1)). For LLC managers the parallel standard is MCL 450.4404(1). No published decision on how the business judgment rule applies to LLC managers has been identified. The practical lesson is that a bad result alone is rarely enough; evidence of conflict, concealment, or a decision made for the wrong reason is what moves these cases.

Authority: Reed v Burton, 344 Mich 126, 130-131 (1955); Franks v Franks, 330 Mich App 69 (2019); MCL 450.1489; MCL 450.1541a(1); MCL 450.4404(1). Reviewed Oct. 2026.

Yes, but only after following the statute. An LLC member must make a written demand on the managers or members with authority and wait 90 days, unless the demand is rejected sooner or waiting would cause irreparable injury to the company (MCL 450.4510). A corporate shareholder faces the same demand and 90-day rule (MCL 450.1493a). Because the claim belongs to the company, a recovery generally goes to the company, not to you.

A derivative suit enforces the company's claim, not yours. For an LLC, MCL 450.4510 sets these conditions. The company's managers must have sole authority to sue (or, in a member-managed company, you must lack that authority under the operating agreement). You must have made a written demand, and 90 days must have passed unless the demand was rejected earlier or waiting would cause irreparable injury. You must have been a member when the act happened, or have received your status from someone who was. You must fairly and adequately represent the company's interests. And you must remain a member until judgment, with a narrow exception if the company ended your membership without your agreement and you made the demand first.

For a corporation, MCL 450.1492a sets similar standing rules and MCL 450.1493a requires the written demand and the 90-day wait, with the same two exceptions.

The company can answer back. Under MCL 450.4512 the court must dismiss an LLC derivative case, on the company's motion, if a qualifying disinterested group, or a court-appointed panel, decides in good faith after a reasonable investigation that the suit is not in the company's interests. MCL 450.1495 gives a corporation a parallel route when a group of disinterested directors or a court-appointed panel makes the same finding about the corporation. MCL 450.4511 lets the court stay the case during the company's investigation. When the case ends, MCL 450.4514 lets the court order the plaintiff to pay defendants' fees for a suit brought in bad faith or without reasonable cause, or order the company to pay the plaintiff's reasonable expenses if the suit substantially benefited it.

Skipping the demand can end a case: in Murphy v Inman the trial court dismissed a shareholder's claim as derivative for lack of demand, though the Supreme Court later held the claim was direct. The statutes do not say the demand period pauses a limitations period, so keep the underlying deadline in view, for example MCL 450.4404(6) or MCL 450.1541a(4).

Authority: MCL 450.4510; MCL 450.4511; MCL 450.4512; MCL 450.4514; MCL 450.1492a; MCL 450.1493a; MCL 450.4404(6); MCL 450.1541a(4); Murphy v Inman, 509 Mich 132 (2022); MCL 450.1495. Reviewed Oct. 2026.

Sometimes. MCL 450.1762 lets a shareholder of a Michigan corporation dissent from certain actions, such as a merger, a share exchange, a conversion, or a sale of substantially all the assets outside the usual course of business, and obtain payment of the fair value of the shares. Unless the articles, bylaws, or a board resolution say otherwise, there is no right to dissent as to shares listed on a national securities exchange, or from a merger, share exchange, or conversion in which shareholders receive only cash, listed shares, or both. A cash sale of substantially all assets is covered unless it is made under a plan of dissolution that distributes substantially all net assets to shareholders within 1 year after closing. To keep the right you must give written notice of intent before the vote and not vote in favor (MCL 450.1765).

This answer covers corporations under the Business Corporation Act. This answer does not cover dissent rights for LLC members, and an LLC member's exit rights start with the operating agreement.

Under MCL 450.1762(1), covered actions include a merger requiring shareholder approval, a share exchange in which the corporation's shares are acquired, a sale of all or substantially all property outside the usual course of business, a conversion, and certain amendments to the articles. The exceptions in subsection (2) matter a great deal in a private company. Unless the articles, bylaws, or a board resolution say otherwise, there is no right to dissent as to shares listed on a national securities exchange, or from a merger, share exchange, or conversion in which shareholders receive only cash, listed shares, or a mix of the two. A sale of substantially all assets for cash still carries the right unless it is part of a plan of dissolution that distributes substantially all net assets to shareholders within 1 year after closing (MCL 450.1762(2)).

The steps are short and strict. Before the vote, deliver written notice that you intend to demand payment, and do not vote your shares in favor; without that you are not entitled to payment (MCL 450.1765). After the action, the corporation must send a dissenters' notice within 10 days, setting a date for receiving your payment demand that is 30 to 60 days after the notice is delivered (MCL 450.1766). You must demand payment, certify when you acquired beneficial ownership, and deposit your certificates as the notice directs, or you lose the right (MCL 450.1767). If you believe the payment or offer is below fair value, you must say so in writing within 30 days after the corporation made or offered payment, or you waive that demand (MCL 450.1772).

A dissenter generally cannot challenge the corporate action itself unless it is unlawful or fraudulent as to the shareholder or the corporation (MCL 450.1762(3)). In Murphy v Inman the Supreme Court allowed a direct fiduciary claim about a cash-out merger and noted that whether the plaintiff had dissenters' rights was not before it.

The dates come from the notices you receive, so read them the day they arrive.

Authority: MCL 450.1762; MCL 450.1765; MCL 450.1766; MCL 450.1767; MCL 450.1772; Murphy v Inman, 509 Mich 132 (2022). Reviewed Oct. 2026.

The statutes say the court may order a purchase at fair value, but neither defines fair value. For a corporation, the Court of Appeals held in Franks v Franks that the trial court may value the shares in any way that is appropriate under the totality of the circumstances, and that it may, but need not, value them without discounts. The LLC statute uses the same fair-value wording (MCL 450.4515(1)(d)), and no published decision applying Franks to an LLC interest has been identified.

Both buyout provisions use the same words. MCL 450.1489(1)(e) allows an order that the corporation or the officers, directors, or other shareholders responsible for the wrongful acts purchase a shareholder's shares at fair value. MCL 450.4515(1)(d) allows the same for a member's interest. Neither statute defines fair value.

In Franks v Franks the Court of Appeals read the Legislature's grant of authority broadly: the court must order an appropriate remedy, which may be a purchase at fair value or at any other value it finds appropriate under the totality of the circumstances. The trial court there had authority to value the shares without discounts but was not required to, and it erred to the extent it felt compelled to skip discounts.

The remedy is discretionary to begin with. The Supreme Court held in Madugula v Taub that a shareholder oppression claim under MCL 450.1489 is equitable and tried to the court, and that the court may grant the relief it considers appropriate. In Turner v J & J Slavik, a published Court of Appeals decision from June 2026, the court upheld a buyout at the shareholder's original purchase price plus simple interest, where the defendants' refusal to provide records and destruction of financial data left no better evidence of value. That opinion states that it is subject to revision until final publication.

No published decision carrying Franks over to an LLC interest has been identified. The valuation date, the evidence of value, and whether discounts apply are where these cases are often decided, which is one reason to get the company's books early.

Authority: MCL 450.1489(1)(e); MCL 450.4515(1)(d); Franks v Franks, 330 Mich App 69 (2019); Madugula v Taub, 496 Mich 685 (2014); Turner v J & J Slavik, Inc, ___ Mich App ___ (Docket No. 370564, June 12, 2026) (published; subject to revision until final publication). Reviewed Oct. 2026.

Usually not on the oppression claim itself. Michigan follows the American rule, under which attorney fees are not recoverable unless a statute, court rule, or recognized exception allows them, and neither the shareholder oppression statute (MCL 450.1489) nor the LLC statute (MCL 450.4515) mentions fees. In Turner v J & J Slavik (2026) the Court of Appeals upheld a trial court's refusal to award fees on an oppression claim. Fee-shifting does exist in related settings, such as a court-ordered records inspection (MCL 450.1487(5)).

In Turner the trial court declined to award attorney fees on the oppression claim, and the Court of Appeals affirmed. That opinion states that it is subject to revision until final publication. The court restated the rule that Michigan courts follow the American rule: fees and costs are ordinarily not recoverable unless a statute, court rule, or common-law exception allows them, and exceptions are narrowly construed. The plaintiff cited no statute or court rule and relied on the defendants' conduct. The court recognized a limited exception for legal expenses incurred because of another party's fraudulent or unlawful conduct, but held the trial court did not abuse its discretion in declining to apply it, even though the defendants' behavior was less than ideal. Neither MCL 450.1489 nor MCL 450.4515 contains a fee provision.

Some nearby statutes do shift fees. If a court orders inspection of a corporation's records under MCL 450.1487(3) or (4), the court shall also order the corporation to pay the shareholder's or director's costs, including reasonable attorney fees, unless the corporation proves it refused in good faith because it had a reasonable basis to doubt the right to inspect (MCL 450.1487(5)). In an LLC derivative suit, MCL 450.4514 allows the court to order the company to pay the plaintiff's reasonable expenses, including attorney fees, if the suit resulted in a substantial benefit to the company. The LLC records statute, MCL 450.4503, has no fee provision.

Check your operating agreement, shareholder agreement, and any buy-sell agreement for a fee clause; this answer does not address whether such a clause would be enforced. Plan on carrying your own fees unless one of these routes applies.

Authority: MCL 450.1489; MCL 450.4515; MCL 450.1487(5); MCL 450.4514; MCL 450.4503; Turner v J & J Slavik, Inc, ___ Mich App ___ (Docket No. 370564, June 12, 2026) (published; subject to revision until final publication). Reviewed Oct. 2026.

For a corporation, intent matters. In Franks v Franks the Court of Appeals held that a shareholder must prove the controlling owners took acts that substantially interfered with the shareholder's interests as a shareholder and did so with the intent to interfere, so a legitimate business reason can defeat the claim. The Supreme Court held in Madugula v Taub that a breach of a shareholder agreement may be evidence of oppression. The LLC statute is worded similarly, but no published LLC decision adopting either point has been identified.

MCL 450.1489(1) lets a shareholder challenge acts of the directors or those in control that are illegal, fraudulent, or willfully unfair and oppressive. Franks v Franks spells out what a plaintiff must allege and prove: that they were shareholders, that the defendants were directors or in control, that the defendants engaged in acts, and that the acts were illegal, fraudulent, or willfully unfair and oppressive. For the last category, the court read the word willfully to require proof that the acts were a continuing course of conduct or a significant action or series of actions that substantially interfered with the shareholder's interests as a shareholder, and that the defendants acted with the intent to interfere with those interests. A defendant can raise a fact question by showing a legitimate business reason.

The statute excludes conduct permitted by an agreement, the articles, the bylaws, or a consistently applied written policy (MCL 450.1489(3)). The other side of that coin is Madugula v Taub, where the Supreme Court held that violations of a stockholders' agreement may be evidence of shareholder oppression. In Turner v J & J Slavik (2026), citing Madugula, the Court of Appeals listed examples of actionable interference with statutory rights, including voting, receiving dividends, inspecting corporate records, and electing directors. That opinion states that it is subject to revision until final publication.

MCL 450.4515(2) defines willfully unfair and oppressive conduct for LLCs in nearly the same words, but no published Michigan decision applying Franks's intent holding or Madugula's agreement point to an LLC has been identified. Read your agreements and gather the correspondence that shows why each decision was made.

Authority: MCL 450.1489(1); MCL 450.1489(3); MCL 450.4515(2); Franks v Franks, 330 Mich App 69 (2019); Madugula v Taub, 496 Mich 685 (2014); Turner v J & J Slavik, Inc, ___ Mich App ___ (Docket No. 370564, June 12, 2026) (published; subject to revision until final publication). Reviewed Oct. 2026.