Attorneys Patrick Hall and Ava Ortner joined the Troy law firm of Stark Reagan, P.C., in 2003. At the time, Hall was 55 years and Ortner was 49. They became shareholders in the firm on January 1, 2004; Hall, Ortner, and the other eight partners each owned 10 percent of the firm’s shares and had the same voting rights.
In 2005, the firm’s 10 partners entered into a shareholder agreement governing their ownership rights and obligations in the law firm; the agreement deals with such matters as disposing of and valuing firm stock in the event of a partner’s resignation, death, or retirement. The agreement includes an arbitration clause, which requires the parties to submit to binding arbitration “[a]ny dispute regarding interpretation or enforcement of any of the parties’ rights or obligations hereunder.” The agreement also states that “[p]roceeding to arbitration and obtaining an award thereunder shall be a condition precedent to the bringing or maintaining of any action in any court with respect to any dispute arising under this Agreement, except for the institution of a civil action of a summary nature where the relief sought is predicated on there being no dispute with respect to any fact.” The agreement specifically provides that it is subject to the laws of the state of Michigan.
At a January 8, 2009 shareholders’ meeting, firm president and partner R. Keith Stark either proposed or announced that the firm was terminating its relationship with Hall and Ortner. The parties dispute what was said at this meeting; Hall and Ortner claim that Stark and another attorney made comments indicating that Hall and Ortner were being terminated because the firm wanted younger attorneys to bring in new clients. At a meeting on January 12, Hall and Ortner announced that they would retain their own lawyers and fight their forced separation from the firm because it “constituted illegal age discrimination.”
Ultimately, on February 25, 2009, the shareholders met and formally voted Hall and Ortner out of the firm effective March 1. Just days before, partners Joseph Ahern and Jeffrey Fleury had resigned from the firm and opened their own law office, so they were no longer present or voting on February 25.
In April, Hall and Ortner sued their former law firm, including the six current partners and former partners Ahern and Fleury, in Oakland County Circuit Court. Hall and Ortner charged that the defendants had violated Michigan’s Elliott-Larsen Civil Rights Act by discriminating against them based on age. Hall and Ortner also claimed that the defendants retaliated against them after they retained counsel, and had conspired to violate the Civil Rights Act. The defendants moved for summary disposition, arguing that the court should dismiss the plaintiffs’ lawsuit because, the defendants contended, Hall and Ortner were bound to arbitrate their claims under the shareholders’ agreement rather than take those claims to court. The defendant also argued that, as shareholders and part owners of the firm, Hall and Ortner lacked the capacity to sue under the civil Rights Act. In addition, Ahern and Fleury argued that they should be dismissed from the lawsuit because they had left the firm before the February 25 meeting and took no part in the formal vote to end the plaintiffs’ relationship with the firm.
Hall and Ortner responded that the arbitration provision in the shareholders’ agreement did not include civil rights violations. The plaintiffs also claimed that, although they were formally equal partners in the firm, in reality they were employees of the firm, lacking the same authority and influence as the other shareholders.
But the circuit court disagreed, granting summary disposition to the defendants and sending the matter to arbitration. The court found that the plaintiffs’ civil rights claim was “also subject to the arbitration clause”; the defendants’ other arguments “are moot here and can be raised before the Arbitrator,” the court said.
In a 2-1 published decision, the Court of Appeals reversed and remanded the case to the circuit court for further proceedings. The two judges in the majority concluded that the plaintiffs’ age discrimination claim was not covered by the arbitration provision, because the shareholders’ agreement pertains only to “various forms of entitlement to stock ownership and restrictions attending stock transfer” and not workplace discrimination or other statutory civil rights claims. The majority observed, “To include an age discrimination action within the scope of an arbitration provision expressly limited to the ‘interpretation or enforcement’ of ‘rights or obligations’ concerning corporate stock would expand the clause’s reach beyond that intended by the parties.”
Moreover, the majority said, Hall and Ortner could bring a claim under the Civil Rights Act, despite being partners in the firm. “Defendants have not challenged that Hall’s and Ortner’s age discrimination claims assert an adverse employment action,” the majority wrote. “And even assuming that Hall and Ortner cannot be characterized as Stark Reagan ‘employees,’ we nevertheless find that their pleadings state a claim under the CRA.” The majority cited McClements v Ford Motor Co, 473 Mich 373 (2005), amended 474 Mich 1201 (2005). In Clements, the Supreme Court stated in part that “the key to liability under the CRA is not simply the status of an individual as an ‘employee’; rather, liability is contingent upon the employer’s affecting or controlling that individual’s work status. Accordingly, an employer can be held liable under the CRA for discriminatory acts against a nonemployee if the nonemployee can demonstrate that the employer affected or controlled a term, condition, or privilege of the nonemployee’s employment.” Based on Clements, the Court of Appeals majority said that, even if Hall and Ortner were not employees of the firm, “we interpret the CRA as permitting their age discrimination claim against defendants in light of the record evidence that defendants’ actions ‘affected or controlled a term, condition, or privilege’ of Hall’s and Ortner’s employment.”
The dissenting judge would have held that the shareholders’ agreement did cover the plaintiffs’ claims and that the matter should be arbitrated. “The relevant question is whether plaintiffs’ CRA claims are on its face, or arguably within, the Agreement’s arbitration clause,” the dissenting judge wrote. “I would conclude that it is. The arbitration clause clearly and unambiguously declares that it applies to ‘[a]ny dispute regarding interpretation or enforcement of any of the parties’ rights or obligations hereunder.’ The word “any” is defined as “every; all.” . . . By its very terms, the Agreement is also ‘subject to’ and ‘governed by’ the laws of Michigan … Because Michigan law prohibits the discrimination of an employee on the basis of age, MCL 37.2202(1)(a), the arbitration clause in the Agreement clearly applies. Moreover, engaging in illegal discrimination can hardly be said to be conducive to ‘the continuous, harmonious and effective management’ of the firm which is a key purpose of the Agreement.”
As to whether the plaintiffs were “employees” of the firm, or were “partners” only in a formal sense, the dissent said that the shareholders’ agreement would be at issue. “The claim that plaintiffs were marginalized as shareholders directly affects their rights and responsibilities under the Agreement,” said the dissenting judge. Moreover, the arbitration clause specifically states that “any” dispute about application of the agreement must go to arbitration, and it does not exempt actions under the Civil Rights Act – as it does civil actions of a summary nature, the dissent said. “Distilled to its essence, plaintiffs are contesting the involuntary redemption of shares, which was allegedly the result of unlawful discrimination. The Shareholders’ Agreement is inextricably linked to plaintiffs’ claim, which cannot be maintained without reference to the Agreement. Plaintiffs’ claim is, therefore, subject to arbitration.”
The defendants appealed. In an order dated April 4, 2012, the Supreme Court granted leave to appeal, ordering the parties to address in their briefs “(1) whether the parties’ shareholder agreement arbitration clause encompasses claims arising under the Civil Rights Act (CRA), MCL 37.2101 et seq., and (2) whether the plaintiffs, as mutual equal shareholders of the law firm, have a legally cognizable claim against the defendants under the CRA.”