Willner v. Syntel, Inc.
OPINION AND ORDER Granting Defendant's 8 Motion to Dismiss. Signed by District Judge Matthew F. Leitman. (HMon)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
Case No. 16-13574
Hon. Matthew F. Leitman
OPINION AND ORDER GRANTING DEFENDANT’S
MOTION TO DISMISS (ECF #8)
In 2016, Defendant Syntel, Inc. asked its shareholders to approve a new incentive
compensation plan for its officers, directors, and employees. In connection with that
request, Syntel issued a proxy statement describing the proposed plan. Plaintiff Philip
Willner, a Syntel shareholder, and his lawyer compared the proxy statement to the terms
of the compensation plan and concluded that the proxy mischaracterized the plan.
Willner’s lawyer sent a letter to Syntel demanding that it supplement the proxy
statement with revised disclosures, and Syntel did so (even though Syntel disagreed
with Willner’s claim that the proxy was inaccurate). In this action, Willner insists that
his counsel’s work conferred a substantial benefit on Sytnel’s shareholders, and he
claims that Syntel must pay him more than $75,000 in attorney fees for that benefit.
But Michigan law does not permit such a fee award under these circumstances.
Therefore, the Court DISMISSES Willner’s Complaint.
Syntel is a publicly-traded “global provider of digital transformation,
information technology, and knowledge process outsourcing services to Global 2000
companies.” (Compl. at ¶2, ECF #1 at Pg. ID 2.) It is headquartered in Troy, Michigan.
(See id.) Willner is a Syntel shareholder and a citizen of New York. (See id. at ¶1.)
At Syntel’s 2016 annual meeting, the company asked its shareholders to approve
a new incentive compensation plan. (See id. at ¶7, ECF #1 at Pg. ID 2.) Prior to that
meeting, Syntel described the compensation plan – and its revised limits on executive
compensation – in a Schedule 14A Definitive Proxy Statement (the “Proxy”). (See id.
at Pg. ID 3.) It filed the Proxy with the Securities and Exchange Commission (the
“SEC”) and issued it to shareholders. (See id.)
Willner compared the Proxy against the compensation plan. He concluded that
the Proxy “falsely represented that the [compensation plan] restricted the amount of
stock awards that [Syntel’s Board of Directors] could grant to an individual participant
during a calendar year.” (Id. at ¶7, ECF #1 at Pg. ID 3.) According to Willner, the
Proxy represented that the compensation plan authorized Syntel’s Board to award
participants “no more than 1,850,000 shares” of stock per year, but under the actual
terms of the plan, that “limit … [was] only applicable to awards that [Syntel’s]
Compensation Committee specifically designate[d] as subject” to Section 162(m) of the
Tax Code. (Id. at ¶27, ECF #1 at Pg. ID 8.) Simply put, Willner contended that the
Proxy falsely told shareholders that the compensation plan contained “participant
annual limits” on stock awards. (Id. at Pg. ID 8-9.) Willner believed that “[a]s a result
of the Board’s affirmative misrepresentations … Syntel shareholders were  misled
about the material terms of the [compensation plan] that they were being asked to
approve.” (Id. at ¶35, ECF #1 at Pg. ID 10.)
On May 10, 2016, Willner’s counsel sent a shareholder demand letter to Syntel
(the “Demand Letter”). (See ECF #1-1.) In the Demand Letter, Willner’s attorney
alleged that the Proxy “misrepresent[ed] material terms of the [compensation plan]”
because it mischaracterized the plan in the manner described above. (Id. at Pg. ID 16;
see also Compl. at ¶7, ECF #1 at Pg. ID 2-3.) Among other things, Willner “demanded
that the Board issue a supplemental disclosure to correct the  Proxy before
shareholders voted [on the compensation plan] at the 2016 Annual Meeting.” (Compl.
at ¶37, ECF #1 at Pg. ID 11.)
Syntel reviewed the Demand Letter and disagreed with Willner’s contention that
the Proxy materially mischaracterized the compensation plan. (See ECF #1-3 at Pg. ID
Syntel nonetheless decided to file a supplemental Schedule 14A Proxy
Statement with the SEC (the “Supplemental Proxy”). (See Compl. at ¶38, ECF #1 at
Pg. ID 11.) In the Supplemental Proxy, Syntel stated that “the previously-disclosed
annual ‘limit’ [on stock awards] would ‘apply only to Section 162(m) Awards under
the [compensation plan] and not to any other awards.’” (Id. at ¶39, ECF #1 at Pg. ID
11, quoting the Supplemental Proxy; internal emphasis removed.)
Syntel’s shareholders approved the compensation plan at the company’s 2016
annual meeting. (See id. at ¶41, ECF #1 at Pg. ID 12.) Willner thereafter sought “a
reasonable attorneys’ fee” from Syntel. (Id. at ¶11, ECF #1 at Pg. ID 4.) Syntel declined
to pay Willner any fee. (See id.)
On October 16, 2016, Willner filed this action. Willner’s sole count seeks more
than $75,000 in legal fees and expenses in connection with the Demand Letter. (See id.
at ¶¶ 3, 46, ECF #1 at Pg. ID 2, 13.) Willner claims that he is entitled to his fees under
“the common or corporate benefit doctrine” – a doctrine that authorizes an award of
attorney fees and expenses to “representative plaintiffs and their counsel … for
producing a benefit to a represented class.” (Id. at ¶10, ECF #1 at Pg. ID 4.) Willner
says that the doctrine applies here because his efforts benefitted Syntel’s shareholders.
In Willner’s words, he “conferred [a benefit] on [Syntel’s] shareholders by means of a
pre-suit demand that caused corrective action to be taken and enabled shareholders to
render a fully-informed vote on [the compensation plan].” (Id. at ¶6, ECF #1 at Pg. ID
2; see also id. at ¶10, ECF #1 at Pg. ID 3, in which Willner claims that he is entitled to
fees based on the “substantial benefit he conferred on the [Syntel’s] shareholders.”)
Willner maintains that “[w]ere it not for his counsel’s investigation and review of
[Syntel’s] voluminous SEC filings, and the resulting Demand [Letter], shareholders
would have been deprived of their fundamental right to an informed vote at the 2016
Annual Meeting.” (Id. at ¶10, ECF #1 at Pg. ID 4.)
Syntel filed a motion to dismiss Willner’s claim for attorney fees on November
18, 2016. (See ECF #8.) The Court held a hearing on Syntel’s motion on April 12,
Syntel moves to dismiss Willner’s claim for attorney fees under Rule 12(b)(6) of
the Federal Rules of Civil Procedure. “To survive a motion to dismiss” under Rule
12(b)(6), “a complaint must contain sufficient factual matter, accepted as true, to ‘state
a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007)). A claim
is facially plausible when a plaintiff pleads factual content that permits a court to
reasonably infer that the defendant is liable for the alleged misconduct. See id. When
assessing the sufficiency of a plaintiff’s claim, a district court must accept all of a
complaint's factual allegations as true. See Ziegler v. IBP Hog Mkt., Inc., 249 F.3d 509,
512 (6th Cir. 2001). “Mere conclusions,” however, “are not entitled to the assumption
of truth. While legal conclusions can provide the complaint's framework, they must be
supported by factual allegations.” Iqbal, 556 U.S. at 664. A plaintiff must therefore
provide “more than labels and conclusions,” or “a formulaic recitation of the elements
of a cause of action.” Twombly, 550 U.S. at 556. “Threadbare recitals of the elements
of a cause of action, supported by mere conclusory statements, do not suffice.” Iqbal,
556 U.S. at 678.
The Court has subject matter jurisdiction over this action based upon the parties’
diversity of citizenship and the amount in controversy. See 28 U.S.C. 1332(a)(1). In a
diversity action like this one, the Court must apply Michigan law as determined by the
Michigan Supreme Court. See Erie R.R. v. Tompkins, 304 U.S. 64, 78 (1938).
Willner does not dispute that Michigan law governs his claim for attorney fees,
but he nonetheless urges the Court to consult Delaware law in resolving his claim.
Willner argues that “on unresolved corporate law issues such as [the one before the
Court], ‘Michigan courts commonly refer to Delaware law….’” (Willner Resp. Br.,
ECF #11 at Pg. ID 246 quoting Consumers Power Co. Deriv. Litig., 132 F.R.D. 455,
461 (E.D. Mich. 1990)).
For several reasons, the Court declines Willner’s invitation to rely on Delaware
law. First, the issues before this Court are not “unresolved” under Michigan law. On
the contrary, as described below, there is a substantial body of Michigan case law
addressing and resolving the questions presented.
Second, that body of law is
inconsistent with the Delaware rule cited by Willner. Finally, the question before the
Court – whether Willner’s fee request falls within an exception to the common law rule
that attorney fees are not ordinarily recoverable – is unlike the questions of corporate
law on which courts applying Michigan law have looked to Delaware law. See, e.g.,
Plaza Sec. Co. v Fruehauf Corp., 643 F.Supp. 1535, 1543 (E.D. Mich. 1986) (looking
to Delaware law for guidance concerning scope of directors’ fiduciary duties). Willner
has not cited any decisions in which Michigan courts have treated Delaware law as
especially persuasive in fee disputes like the one before the Court. The Court need not
look any further than Michigan common and statutory law to resolve the questions
“For better or worse, the common-law tradition in Michigan follows what is
sometimes called the ‘American Rule’ regarding attorney fees.” Popma v. Auto Club
Ins. Ass’n., 521 N.W.2d 831, 837 (Mich. 1994). “Under this rule, attorney fees are not
ordinarily recoverable unless a statute, court rule, or common-law exception provides
to the contrary.” Id. Exceptions to this rule “are construed narrowly” under Michigan
law. Burnside v. State Farm Fire and Cas. Co., 528 N.W.2d 749, 751 (Mich. App.
One “generally-recognized exception to the common-law prohibition against
awarding attorney fees” is the so-called “common fund” exception. Pompa, 521
N.W.2d at 838. Under this exception, a court may award attorney fees “out of a fund
See also Association Research and Development Corp. v. CAN Financial Corp.,
333 N.W.2d 206, 209 (Mich. App. 1983) (holding that jury award of attorney fees
was “improper” because “[n]o special circumstances [warranting award] existed,”
and noting that “only in unusual circumstances” should courts deviate from the
general rule prohibiting the award of fees) (emphasis added).
under the control of [the] court … to persons who have been successful in a suit
concerning it, resulting in a benefit to all interested in the fund….” In re Attorneys Fees
of Kelman, Loria, Downing, Schneider & Simpson, 280 N.W.2d 457, 460 (Mich.
1979).2 This exception “is based on equitable principles: ‘[t]o allow the others to obtain
the full benefit from the plaintiff’s efforts without contributing equally to the litigation
expenses would be to enrich the others unjustly at the plaintiff’s expense.” Abston v.
Aetna Cas. & Sur. Co., 346 N.W.2d 63, 65 (Mich. App. 1983) (quoting In re Kelman,
280 N.W.2d at 460)).
“While [the common fund] exception is recognized in Michigan, it generally
only applies when a prevailing party creates or protects a common fund that benefits
itself as well as others.” Popma, 521 N.W.2d at 838 (citing In re Kelman, 280 N.W.2d
at 460). And the prevailing party must create the fund through litigation – through the
“successful” prosecution of “a suit.” In re Kelman, 280 N.W.2d at 460 (quoting Sant v.
Perronville Shingle Co., 146 N.W. 212, 217-18 (Mich. 1914)). Indeed, “one of the
requisites for a fee award” under the common fund exception “is successful
maintenance of the suit by the plaintiff.” Cicelski v. Sears, Roebuck & Co., 348 N.W.2d
685, 692 (Mich. App. 1984).
For ease of reference, the Court will refer to this decision as “In re Kelman.”
Some courts have recognized an additional exception to the American Rule
known as the “common or substantial benefit” exception. This exception “grew out of
and is closely related to the common fund exception.” 10 Moore’s Federal Practice 3d
(2017 ed.) §54.171[b][i]. This exception authorizes a court to award attorney fees
where a party “successfully maintain[s] a suit” that substantially “benefits a group of
others in the same manner as himself,” even if the “suit” does not result in the creation
of a common fund. Mills v. Elec. Auto-Lite Co., 396 U.S. 375, 393 (1970). “Like the
common fund exception, [the common or substantial benefit] exception is based on the
equitable notion that persons benefitting from a suit should pay their proportionate share
of the cost of the litigation.” 10 Moore’s Federal Practice 3d at §54.171[b][iii].
As construed by the United States Supreme Court (as a matter of federal law),
the common or substantial benefit exception allows a shareholder to recover his
attorney fees from a corporation where his litigation efforts confer a benefit upon the
corporation’s shareholders. In Mills, for instance, the Supreme Court held that a
corporation could be required to pay the attorney fees of a shareholder who obtained a
court order requiring the corporation to correct a misrepresentation in a proxy statement.
See Mills, 396 U.S. at 396-97. The Supreme Court explained that the trial court could
“assess fees against all of the shareholders [who benefitted from the corrected proxy
statement] through an award against the corporation.” Id. at 395 (emphasis added).3
The Delaware Chancery Court has arguably taken the common or substantial
benefit exception one step further. That court has suggested that a court may require a
corporation to pay a shareholder-plaintiff’s attorney fees where the shareholder’s
demand letter alone confers a benefit on the corporation’s shareholders. For example,
in Raul v. Astoria Fin. Corp., 2014 WL 2795312, at **1, 7-8 (Del. Ch. 2014), that court
suggested that a shareholder could recover his attorney fees from a corporation if (1)
the shareholder’s demand letter presented to the corporation a meritorious claim
concerning the insufficiency of certain disclosures filed with the SEC and (2) the
corporation corrected the disclosures in response to the demand. Thus, at least in the
Delaware Chancery Court, a shareholder-plaintiff whose demand letter induces a
corporation to correct a materially misleading proxy statement may be able to recover
fees from the issuing corporation – even without filing a civil action challenging the
See also Ramey v. Cincinnati Enquirer, Inc., 508 F.2d 1188, 1194-95 (6th Cir.
1974) (affirming order requiring a corporate defendant to pay a shareholderplaintiff’s attorney fees where the plaintiff’s civil action led the corporation to amend
a proxy statement issued in advance of an important shareholder vote).
It does not appear that the Delaware Supreme Court has ever adopted this rule. The
leading Delaware Supreme Court decision addressing the common or substantial
benefit exception is Tandycrafts, Inc. v. Initio Partners, 562 A.2d 1162 (Del. 1989).
The court in Tandycrafts linked the common or substantial benefit exception to
benefits obtained through litigation. See id. at 1163 (holding that “under certain
circumstances, counsel fees may be awarded to an individual shareholder whose
If and to the extent that the common or substantial benefit exception to the
American Rule exists under Michigan law, it is narrower than the versions of that
exception recognized under the federal and Delaware law described above. Indeed, the
leading decisions of the Michigan Supreme Court concerning the exception make clear
that it does not allow a shareholder to recover attorney fees from a corporation where
he has conferred a benefit upon the corporation’s shareholders (rather than upon the
corporation itself). Moreover, a second line of cases establishes that the exception does
not authorize an award of fees for a benefit conferred through a demand letter alone
(i.e., for a benefit conferred in the absence of litigation).
The Michigan Supreme Court’s view of the common or substantial benefit
exception is set forth in two decisions in the same case: Merkel v. Long, 125 N.W.2d
284 (Mich. 1963) (hereinafter, “Merkel I”), rev’d on rehearing in Merkel v. Long, 134
N.W.2d 179 (Mich. 1965) (hereinafter, “Merkel II”). In the definitive Merkel II
decision, the Michigan Supreme Court rejected a claim for fees under this exception.
As described below, Merkel II makes clear that a shareholder may not recover his legal
litigation effort confer[red] a benefit upon the corporation, or its shareholders,
notwithstanding the absence of a class or derivative component”) (emphasis added).
Thus, it may not be firmly established under Delaware law that the common or
substantial benefit exception authorizes a fee award to a shareholder based upon
benefits conferred through a demand letter alone.
fees from a corporation where he confers a benefit upon the corporation’s shareholders
(rather than upon the corporation itself).
Merkel II adopted the analysis set forth by Justice Theodore Souris in his Opinion
in Merkel I. Thus, a detailed analysis of the two Merkel decisions is essential.
The Merkel cases arose out of proceedings under Michigan’s “so-called Dodge
Act.” Merkel I, 125 N.W.2d at 285 (Opinion of Sharp, C.J.). The Dodge Act created a
procedure under Michigan law for parties to obtain, among other things, judicial
sanction for agreements related to the interpretation and administration of wills and
trusts. The Dodge Act proceedings in Merkel ended with the trial court approving “an
agreement that resolve[d] an alleged ambiguity” in a will and related trust documents.
Id. at 290 (Opinion of Souris, J.).
After the trial court in Merkel approved the agreement, the attorneys who
represented beneficiaries under the trusts petitioned the court to award them attorney
fees to be paid out of the corpus of the trusts. The attorneys argued that they were
entitled to such a fee award “on the theory that the services rendered and monies [they]
expended … operated to the benefit of all parties found to have an interest in the
trusts….” Id. at 286 (Opinion of Sharp, C.J.). The trustees of the trusts opposed the fee
requests and filed motions to dismiss the fee petitions. The trustees argued “that as a
legal proposition the payments requested could not properly be made from estate
funds.” Id. at 285-86. The trial court denied the trustees’ motions to dismiss, and the
trustees appealed to the Michigan Supreme Court. In Merkel I, the Michigan Supreme
Court – which then consisted of eight Justices – split 4-4, thereby affirming the trial
court’s refusal to dismiss the fee petitions by that equally divided vote.
Chief Justice Sharp wrote for the four justices in Merkel I who voted to allow the
fee petitions to proceed. The Chief Justice explained that it “is generally recognized
that under appropriate circumstances parties realizing a common benefit out of
proceedings taken to establish their rights may be required by equity to contribute to
the payment of compensation for services so rendered and expenses incurred.” Id. at
286. The Chief Justice determined that under this principle – which he gleaned from a
survey of several state and federal decisions – the requested fees could be paid from the
corpus of the trusts because the trusts’ beneficiaries received a benefit from the
attorneys’ efforts. See id. at 287-90.
Justice Souris sharply disagreed in an Opinion he wrote for himself and three
other members of the court. Justice Souris said that “there is neither statutory authority
nor case precedent in this State to support” the fee award requested by the beneficiaries’
attorneys. Id. at 291 (Souris, J.). In a critical passage of Justice Souris’ Opinion, he
explained that a court may order attorney fees to be paid out of a fund or trust only
where the legal services directly benefit the fund/trust, not where the services benefit
those who have an interest in the fund/trust:
There is one circumstance, however, in which courts of
chancery sometimes have drawn upon their reservoir of
inherent powers to award reasonable expenses to a party in
litigation. In those rare cases when a fiduciary charged with
responsibility for a fund beneficially owned by others abuses
his trust, neglects the fund or somehow is incapacitated from
acting in its behalf and a beneficiary, or perhaps a creditor,
steps forth and institutes derivative litigation for the benefit
of the fund in the place and stead of the fiduciary, such
plaintiff's reasonable expenses sometimes are ordered
reimbursed from the fund for the benefit of which he has
acted. The theory upon which reasonable expenses of
derivative litigation are ordered paid from the fund is that
the objectives of litigation are for the primary benefit of the
fund itself, as distinguished from its beneficiaries' interests
therein, and, therefore, the fund equitably should bear the
costs of such litigation….
Id. at 291 (Souris, J.) (first and third emphasis added; second emphasis in original).
Justice Souris further stressed that “our own cases … emphasize that the sole basis for
such an allowance of litigation expenses, absent statutory authority, is the direct benefit
accruing to the fund involved as distinguished from any benefit which might incidentally
flow to those who normally would participate in the fund.” Id. at 293 (emphasis added).
Justice Souris then highlighted the Michigan Supreme Court’s earlier decision in
Sant, supra, as an example of how this principle works in the context of shareholder
litigation. In Sant, minority shareholders of a corporation prevailed in a derivative
action, and the litigation resulted in a substantial payment to the corporation. The
Michigan Supreme Court held that the trial court properly required the corporation to
pay the shareholders’ attorney fees because “[t]he plaintiffs were successful in
recovering for the corporation substantial sums….” Sant, 146 N.W. at 217-18
In Merkel I, Justice Souris stressed that the “emphasis in Sant was on the benefit
to the corporation and not to its stockholders individually.” Merkel I, 125 N.W.2d at
294 (Souris, J.) (emphasis added). Justice Souris underscored that “[t]he plaintiffs
recovered their attorney fees in Sant because the corporation as an entity had been
benefitted by the litigation….” Id. (emphasis added). He then repeated that “the fact of
the benefit to the corporation in Sant … control[led] the decision whether plaintiffs’
litigation expenses were to be reimbursed.” Id. (emphasis added).
Justice Souris then applied the principle from Sant to the attorney fee claim in
Merkel. He concluded that the beneficiaries’ attorneys were not entitled to a fee award
because their legal work did not directly “benefit the trusts themselves, as distinguished
from some or even all of their beneficiaries.” Id. at 292. Justice Souris concluded the
trial court should have dismissed the fee petitions.
The even split in Merkel I created uncertainty with respect to the existence and
scope of the common or substantial benefit exception in Michigan. If the Chief Justice’s
Opinion had “become an authoritative statement of the law, Michigan would have
adopted a broad common ‘benefit’ exception….” Lloyd C. Anderson, Equitable Power
to Award Attorney’s Fees: The Seductive Appeal of ‘Benefit, 48 S.D. L. Rev. 217, 237
(2003) (hereinafter, “Equitable Power”). But the Chief Justice’s view “did not become
the law.” Id. Instead, “[w]hat did become the law was the view of Justice Souris.” Id.
That happened when the Michigan Supreme Court agreed to rehear Merkel I and
issued a new decision, Merkel II, in 1965. Merkel II broke the court’s earlier deadlock.
It was heard before seven Justices, and Justice Souris wrote the Opinion of the Court
for a four-justice majority.5 Justice Souris reiterated his view from Merkel I that “absent
any benefit to the trusts as such,” the trusts could not be compelled to pay the attorney
fees incurred by the beneficiaries. Merkel II, 134 N.W.2d at 182-83. And Justice Souris
squarely rejected the argument (made by the dissenting justices) that requiring the
beneficiaries to pay their own fees in proceedings that benefitted them was somehow
“inequitable.” Id. at 183. He emphasized that “those parties who engaged counsel to
initiate this proceeding would and should satisfy their individually contracted
obligations for attorney fees from their own private funds, as do other private
Under Justice Souris’ approach, adopted by the Michigan Supreme Court in
Merkel II, a court may not require a corporation to pay fees for a benefit conferred on
its shareholders (rather than upon the corporation itself). As noted above, Justice Souris
stressed that the “sole basis for such an allowance of litigation expenses, absent
statutory authority, is the direct benefit accruing to the fund involved as distinguished
from any benefit which might incidentally flow to those who normally would participate
in the fund.” Merkel I, 125 N.W.2d at 293 (emphasis added). While Justice Souris was
addressing a fee request made by trust beneficiaries, his extensive reliance on Sant made
Justice Kelly did not participate in the decision. See Merkel II, 134 N.W.2d at 219.
Thus, Justice Souris and his three concurring Justices represented the majority of the
clear that this same principle applies in the context of a plaintiff-shareholder’s fee
request. Under Justice Souris’ approach and Merkel II, then, a court may not order a
corporation to pay a shareholder’s attorney fees unless the legal work that generated the
fees resulted in a direct benefit to the corporation.
The Court is separately persuaded by two sources of Michigan law that a
shareholder may recover his attorney fees under the common or substantial benefit
exception only if he has conferred a benefit through litigation. The first source is the
line of Michigan Supreme Court decisions concerning the common fund exception.
These decisions inform the Court’s analysis of the common or substantial benefit
exception because, as noted above, that exception “grew out of, and is closely related
to,” the common fund exception. 10 Moore’s Federal Practice 3d at §54.171[b][i].
The Michigan Supreme Court has consistently linked the common fund
exception to successful litigation. See, e.g., In Re Kelman, 280 N.W.2d at 503 (quoting
Mills, 396 U.S. at 391-92) (common fund exception applies “where a plaintiff has
successfully maintained a suit”); Sant, 146 N.W. at 217-18 (same); Popma, 521 N.W.2d
at 838 (common fund exception authorizes fee award to “a prevailing party”); Nemeth
v. Abonmarche Dev. Co., 576 N.W.2d 641, 651 n.11 (1998) (same). Likewise, the
Michigan Court of Appeals has explained that “one of the requisites for a fee award
[under the common fund exception] is successful maintenance of suit by plaintiff.”
Cicelski, 348 N.W.2d at 692 (emphasis added). The Court has not found any Michigan
decisions holding (or even suggesting) that the common fund exception applies outside
of the litigation context.
Given the close relationship between the common fund exception and the
common or substantial benefit exception, Michigan courts would likely limit the latter
exception to benefits conferred through litigation, just as they have done with the
Indeed, Michigan courts construe all exceptions to the American Rule
“narrowly,” Burnside, 528 N.W.2d at 751, and there is no reason to believe that they
would broaden the common or substantial benefit exception well beyond the common
fund exception by allowing a recovery for a benefit conferred without litigation.
In addition, Michigan’s statutes concerning shareholder derivative proceedings
further persuade the Court that a shareholder may recover fees under the common or
substantial benefit exception, if at all, only where the shareholder confers the benefit
through litigation. These statutes contemplate that shareholders may serve demand
letters on corporations, see, e.g., Mich. Comp. Laws § 450.1493, but the statutes do not
authorize an award of attorney fees for a benefit that results from a demand letter.
Instead, the statutes authorize Michigan courts to award attorney fees only where a
shareholder has prosecuted a derivative “proceeding [that] has resulted in a substantial
benefit to the corporation,” Mich. Comp. Laws § 450.1497(b) (emphasis added), and
the statutes further define a “proceeding” as “a civil suit.” Mich. Comp. Laws §
450.1491a (emphasis added).
Thus, to the extent the Michigan Legislature has
recognized the common or substantial benefit exception, it has limited that exception to
benefits conferred through litigation. Applying the exception to the demand letter
context would be in tension with the Michigan Legislature’s considered judgment
regarding the proper scope of the exception. The Court declines to create that tension.
The Michigan law concerning the common or substantial benefit exception set
forth above is fatal to Willner’s claim for attorney fees in two respects.
First, Justice Souris’ approach to the common or substantial benefit exception,
as adopted in Merkel II, bars this Court from granting Willner’s claim for attorney fees
because, as Willner insists, his demand letter conferred a primary and direct benefit
upon Syntel’s “shareholders” (Compl. at ¶¶ 6, 10, ECF #1 at Pg. ID 3-4; emphasis
added), not upon Syntel. At the hearing before the Court, Willner offered three
arguments as to why his fee request survives Merkel II, but the Court rejects those
Willner initially contended that Merkel II did not adopt Justice Souris’ approach
from Merkel I. Willner argued that, instead, Merkel II did only two things: it recognized
the broad equitable powers of Michigan courts to award attorney fees and concluded
only that there was nothing inequitable about denying fees on the specific circumstances
of that case. As support for this argument, Willner cited Justice Souris’ statement in
Merkel II that he “agree[d]” that “to avoid an ‘inequitable result,’ equity would have
the inherent power to require payment of [a beneficiary’s] fees out of the funds of [a]
trust.” Merkel II, 134 N.W.2d at 183.
However, the language from Merkel II cited by Willner was “dicta” because the
requested “award of attorneys’ fees was denied.” Petition of State Farm Mutual Auto.
Ins. Co., 212 N.W.2d 821, 824-25 (Mich. App. 1973) (describing this precise language
from Merkel II). Indeed, Willner has not cited, and this Court has not found, any postMerkel II Michigan decisions holding (or even suggesting) that Michigan courts have
broad equitable powers to award attorney fees in order to avoid inequitable results. Nor
has Willner cited any post-Merkel II decisions affirming an award of attorney fees
entered pursuant to such powers. And the post-Merkel II decisions cited above in
section IV(B) – delineating strict requirements for the common fund exception and
highlighting that exceptions to the American Rule are narrowly construed under
Michigan law – confirm that Merkel II did not establish that Michigan courts have wideranging equitable powers to award fees.
Moreover, as explained above, Justice Souris’ Opinion for the Court in Merkel
II incorporated and rested upon his core assertion from Merkel I: that a fee award
against a trust is not permitted “absent any benefit to the trust as such.” Merkel II,
134 N.W.2d at 182-83 (emphasis added). And Justice Souris’ Opinion in Merkel II was
joined by the same three Justices who joined his Opinion in Merkel I. For these reasons,
scholars have concluded – and this Court agrees – that Justice Souris’ approach from
Merkel I “did become the law” in Merkel II. Equitable Power, 48 S.D.L.Rev. at 237.
Willner next argued that Michigan law would follow the federal rule described
above which allows a trial court to “assess fees against all of the shareholders through
an award against the corporation.” Mills, 396 U.S. at 395 (emphasis added). But the
Souris approach to fee awards, as explained in Merkel I and adopted in Merkel II, is not
consistent with the federal rule. Justice Souris stressed that requiring a corporation to
pay shareholders’ attorney fees is permissible solely where the benefits of litigation
flow “to the corporation and not to its stockholders individually.” Merkel I, 125 N.W.2d
at 294-95 (Souris, J.) (describing the earlier decision in Sant) (emphasis added). Justice
Souris further emphasized that the “fact of benefit to the corporation … controls [the]
decision whether [a shareholder’s] litigation expenses are to be reimbursed” by the
corporation.” Id. (emphasis added). Simply put, Justice Souris’ approach draws a bright
line between corporations and shareholders and between benefits to each, and,
accordingly, that approach does not allow a court to assess fees against the shareholders
through an award against the corporation. In other words, Justice Souris’ approach is
flatly inconsistent with the federal approach proposed by Willner.
Finally, Willner argued that the Supplemental Proxy did confer a benefit on
Syntel (over and above the benefit conferred upon the shareholders), and he contends
that the Court may require Sytnel to pay his fees under Merkel II on that basis. Syntel
benefitted, Willner said, because without the corrected disclosures, actions taken by
Syntel under the compensation plan could have been ripe for challenge by a
shareholder. He asserted that that the corrected disclosures reduced the potential that
Syntel would be dragged into costly litigation attacking action taken under the plan.
But this theory does not match the allegations in Willner’s Complaint. As
described above, Willner’s Complaint highlights benefits that he claims to have
conferred on Syntel’s shareholders, not on the corporation. (See Compl. at ¶¶ 6, 10,
ECF #1 at Pg. ID 3-4.) Moreover, Willner carefully noted in his Complaint that the
claims in the Demand Letter seeking a correction of the Proxy “were not derivative
claims [asserted on behalf of Syntel], but rather direct claims possessed by [him] and
other Syntel shareholders.” (Id. at ¶41 n.4, ECF #1 at Pg. ID 12.)
More importantly, Justice Souris rejected a benefit argument just like Willner’s.
He concluded that trusts should not be compelled to pay attorney fees for legal work
that reduced the possibility of future litigation involving the trusts because that alleged
benefit was too “tenuous”:
If any benefit did inure to the trusts as a result the settlement
agreement [negotiated by the beneficiaries’ attorneys and
approved by the trial court in the Dodge Act proceedings], it
was conjectural and quite different in essential nature from
that benefit referred to in [a case relied upon by the
beneficiaries’ counsel]. The agreement probably lessened,
if it did not entirely eliminate, the possibility that at the time
for distribution of the corpus of each trust some of the heirs
of the settlor or of any of the three life beneficiaries might
sue, claiming that they and not some other claimants were
entitled to the corpus, or a greater share therein thereby
requiring the trustees to incur legal expenses in behalf of the
trusts. Reduction or elimination of such expenses probably
is of some benefit to the trusts…. If such tenuous benefit as
is claimed for the trusts in this case is to be regarded as
sufficient to justify charging legal fees and expenses to the
[settlor’s] trusts, then I see no end to the circumstances in
which such legal fees and expenses can be charged to trusts
and estates whenever they are involved in litigation.
Merkel I, 125 N.W.2d at 292-93 (Souris, J.) The litigation-avoidance benefit to Sytnel
identified by Willner is just as “tenuous” as the benefit to the trusts in Merkel I that
Justice Souris deemed insufficient to support a fee award. Id. And Willner has not
identified any other benefits to Sytnel that would be sufficiently definite to support a
fee award against Sytnel under Justice Souris’ approach. Accordingly, the Court rejects
Willner’s argument that he is entitled to a fee award because he conferred a benefit
Second, Willner is not entitled an award of attorney fees because the benefit that
he claims to have conferred did not result from litigation. While there may be sound
policy reasons that may at some point convince the Michigan Supreme Court and/or the
Michigan Legislature to permit a fee award for a benefit conferred without litigation, as
described fully above in section IV(B), the current state of Michigan law does not
permit such an award.
The issue in this action is not whether, as a matter of sound policy, a shareholder
should be permitted to recover his attorney fees from a corporation where he sends a
demand letter that results in a benefit for the corporation’s shareholders. Willner has
advanced many reasonable arguments as to why it may be both sensible and fair to
permit a fee award under these circumstances. The sole question before this Court is
whether Michigan law permits such a fee award. It does not. Therefore, the Court
GRANTS Syntel’s motion to dismiss (ECF #12) and DISMISSES Willner’s
Complaint (ECF #1).
IT IS SO ORDERED.
/s/Matthew F. Leitman
MATTHEW F. LEITMAN
UNITED STATES DISTRICT JUDGE
Dated: May 2, 2017
I hereby certify that a copy of the foregoing document was served upon the parties
and/or counsel of record on May 2, 2017, by electronic means and/or ordinary mail.
s/Holly A. Monda
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?