Madugula v. Taub

Defendant Benjamin Taub founded Dataspace, Incorporated, in 1994. In 2002, Taub hired plaintiff Rama Madugula as vice president of sales and business development for Dataspace. Around this time, Dataspace also hired an individual named Andrew Flower. Taub was Dataspace's sole shareholder until 2004, when Madugula and Flower became part owners, with Madugula purchasing 29% of the outstanding shares and Flower purchasing 20%. Pursuant to a stockholders agreement, Taub became president, secretary, and treasurer of Dataspace, while Madugula and Flower became vice presidents. After becoming a shareholder, Madugula continued to work for Dataspace. In 2007, Flower exercised his right under the buy-sell agreement and voluntarily withdrew from Dataspace. Taub and Madugula purchased Flower's shares, increasing Madugula's interest to about 36% of the shares. Around this time, with Dataspace allegedly struggling, Taub switched the focus of Dataspace to marketing a new product that it developed called JPAS, a software platform. At the time, Madugula did not object to the new focus. In August 2007, Taub terminated Madugula's employment with Dataspace. Because of his termination, Madugula no longer received a salary from Dataspace, but he maintained his board position and his interest in the company. Madugula sued Taub and Dataspace, asserting: (1) shareholder; (2) breach of the duty of good faith; (3) common-law fraud and misrepresentation; (4) exemplary damages; (5) an appointment of a receiver; and (6) an accounting of Dataspace. Madugula sought damages, the removal of Taub as a director of Dataspace, the appointment of a receiver to protect the value of his stock in Dataspace, an accounting of Dataspace, and all other relief that he was entitled to in equity or law. The circuit court granted summary judgment in favor of Taub and Dataspace, dismissing all counts against them except Madugula's claim of shareholder oppression. After its review, the Supreme Court concluded that the plaint language of Michigan's shareholder-oppression statute, did not afford a claimant a right to a jury trial and, instead, expressed a legislative intent to have shareholder-oppression claims heard by a court of equity. Furthermore, the Court held that violations of a shareholder agreement may constitute evidence of shareholder oppression pursuant to the statute. Because the trial court erred by submitting plaintiff's claim to the jury and allowing it to award an equitable remedy, the Court of Appeals erred by affirming the trial court's judgment in favor of plaintiff. View "Madugula v. Taub" on Justia Law