Choate v. Landis Tool Co.

• Decision Date: 21 March 1980
• Docket Number: Civ. No. 77-72946.
• Citation: 486 F. Supp. 774
• Parties: Audrey CHOATE and Jack Choate, Plaintiffs, v. LANDIS TOOL COMPANY, a division of Litton Industrial Products, Inc., a corporation, and Wyman-Gordon Company, a corporation, Defendants.
• Court: U.S. District Court — Western District of Michigan

486 F. Supp. 774

Audrey CHOATE and Jack Choate, Plaintiffs, v. LANDIS TOOL COMPANY, a division of Litton Industrial Products, Inc., a corporation, and Wyman-Gordon Company, a corporation, Defendants.

Civ. No. 77-72946.

United States District Court, E. D. Michigan, S. D.

March 21, 1980.

Nicholas J. Rine, Kelman, Loria, Downing, Schneider & Simpson, Detroit, Mich., for plaintiffs.

Mark Shreve, Daniel L. Garan, Garan, Lueow, Miller, Seward, Cooper & Becker, Detroit, Mich., for defendants.

OPINION AND ORDER DENYING MOTION FOR SUMMARY JUDGMENT

I.

COHN, District Judge.

Before the Court is defendant Wyman-Gordon Company's (Wyman-Gordon) motion for summary judgment, claiming that its relationship with Jackson Crankshaft Company (Jackson), an almost wholly owned subsidiary, puts it under Jackson's immunity from suit as provided in § 131 of Michigan's Workers' Disability Compensation Act of 1969, M.C.L.A. § 418.101 et seq. (the Act).¹ Plaintiff, Audrey Choate, and her husband claim separate acts of negligence by defendants Landis Tool Company and Wyman-Gordon for injuries sustained by plaintiff during the course of her employment at Jackson.²

Summary judgment is appropriate if there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. F.R.Civ.P. 56. The burden is on Wyman-Gordon to establish the absence of a genuine issue, while plaintiff has the opportunity to set forth specific facts showing that there is a genuine issue for trial. Smith v. Hudson, 600 F.2d 60 (6th Cir. 1979). When evidence is incomplete or disputed, the matter should not be disposed of summarily, but instead should be left for determination by the trier of fact. However, where only an application of legal principles to undisputed facts gives rise to a question of law it may be decided by the court. Sove v. Smith, 355 F.2d 264 (6th Cir. 1966).

Here there is no dispute as to the underlying facts. The only issue for determination concerns the status of Wyman-Gordon either as an employer, immune from suit under § 131 of the Act, or as a third party, subject to suit under § 827. Based on the record before the Court, it finds that Wyman-Gordon is not plaintiff's employer and therefore the motion for summary judgment is denied.

II.

We start with the principle that in Michigan separate corporate entities will be respected, Belen v. Dawson, 52 Mich.App. 670, 217 N.W.2d 910 (1974), unless they are employed as mere conduits or for purposes of fraud, U. S. v. Certain Parcel of Land, Wayne Cty., Mich., 466 F.2d 1295 (6th Cir. 1972). This of course means that, in general, even though Wyman-Gordon is the parent company of Jackson their separate existence will be respected.

In Boggs v. Blue Diamond Coal Company, 590 F.2d 655 (6th Cir. 1979), the Sixth Circuit, in a well reasoned opinion by Judge Gilbert Merritt, applied this principle of respect when, a majority held that under Kentucky law coal miners working for a subsidiary could sue the parent for claimed acts of negligence of the parent. Judge Merritt explained that a sound approach to the question of a parent corporation's immunity requires an examination of the history and purpose underlying workers' compensation laws.

"The dominant purpose of the movement to adopt workmen's compensation laws in the early decades of this century was not to abrogate existing common law remedies for the protection of workmen. It was to provide social insurance to compensate victims of industrial accidents because it was widely believed that the limited rights of recovery available under the common law at the turn of the century were inadequate to protect them." (Emphasis in original).

590 F.2d 655, 658.

He then pointed out that since the adoption of workers' compensation laws, common law tort principles limiting liability have been gradually modified while the scope of liability has been expanded. Likewise, he said that in this area courts have responded by liberally construing immunity provisions.

Judge Merritt went on to quote from Professor Larson (2A Larson, The Law of Workmen's Compensation ¶ 72.50 at 14-95 (1976)).

"`(T)here is no strong reason of compensation policy for destroying common law rights . . . (and) every presumption should be on the side of preserving those rights, once basic compensation protection has been assured . . . The injured employee has a right to be made whole—not just partly whole . . . (A)ll the reasons for making the wrong-doer bear the costs of his wrongdoings still apply, including the moral rightness of this result as well as the salutary effect it tends to have as an incentive to careful control and safe work practices.'" (Emphasis in original).

590 F.2d 655, 660.

Lastly, Judge Merritt suggested that in the absence of any compelling statutory language or social policy justification, common law rights of recovery should be preserved when possible. 590 F.2d 655, 660.

In holding that the parent in Boggs could not avoid the corporate structure involved in order to claim immunity from liability under Kentucky's workers' compensation law, Judge Merritt concluded that separate corporate entities are to be disregarded only when the structure is used to "defraud creditors, create a monopoly, circumvent a statute or for other similar reasons." 590 F.2d 655, 662.

"The owners may take advantage of the benefits of dividing the business into separate corporate parts, but principles of reciprocity require that courts also recognize the separate identities of the enterprises when sued by an injured employee." Id.

Nothing has been presented which suggests that Michigan law is in any significant way different than Kentucky law or that the relationship between Wyman-Gordon and Jackson is any different than the relationship between Blue Diamond and its subsidiary. There is nothing in the record to even remotely suggest that the separate corporate identities of Wyman-Gordon and Jackson should be disregarded as a consequence of fraud, abuse of corporate privilege, or an attempt to circumvent a statute or frustrate public policy.

III.

Wyman-Gordon argues that its status as plaintiff's employer is clearly dictated by the economic reality test which Michigan courts now use in determining employer-employee relationships in workers' compensation matters. This test first surfaced in the dissenting opinion in Powell v. Employment Security Commission, 345 Mich. 455, 462, 75 N.W.2d 874 (1956). Justice Talbot Smith, objecting to the majority's finding that women engaged by a photography studio for the purpose of retouching negatives in their homes were independent contractors, said:

"The test employed is one of economic reality. It looks at the task performed, whether or not it is a part of a larger common task, `a contribution to the accomplishment of a common objective'. . . . The test, . . ., looks at the workmen, to see whether or not their work can be characterized `as a part of the integrated unit of production,' . . and whether `the work done, in its essence, follows the usual path of an employee.'"

345 Mich. at 455, 478-79, 75 N.W.2d at 886.

The economic reality test to determine an employment relationship for the purpose of deciding entitlement to benefits was subsequently adopted by the Michigan Supreme Court in Tata v. Muskovitz, 354 Mich. 695, 94 N.W.2d 71 (1959), laying to rest the "control test" that Justice Smith found so repugnant.³ The economic reality test has since been used on numerous occasions and has come to require the consideration of several factors when evaluating an employment relationship for purposes of determining entitlement. These include the control of a worker's duties; the payment of wages; the right to hire, fire or discipline; and the performance of duties as an integral part of the employer's business toward the accomplishment of a common goal. Askew v. Macomber, 398 Mich. 212, 247 N.W.2d 288 (1976). The test concerns itself with the realities of the work performed and requires that the described elements be viewed as a whole, assigning primacy to no single one. Schulte v. American Box Board Co., 358 Mich. 21, 99 N.W.2d 367 (1959).

IV.

In support of its claim to immunity Wyman-Gordon asserts that:

1) Wyman-Gordon owns all but 12 of Jackson's 195,000 outstanding shares of stock.

2) An interlocking directorate and management exists between Wyman-Gordon and Jackson.

3) Jackson's 1975 UAW contract was signed by Wyman-Gordon personnel thereby placing the responsibility of workers' duties, and hiring and firing with Wyman-Gordon.

4) The Wyman-Gordon logo is a recognized part of Jackson's name since it appears on the cover of the union contract as well as on plaintiff's paycheck.

5) Wyman-Gordon purchased an insurance policy in 1975 from Liberty Mutual Insurance Company covering liability and workmen's compensation insurance for all of its subsidiaries, including Jackson.

In light of these inter-relationships, Wyman-Gordon argues that the economic realities of this situation clearly show that Wyman-Gordon is plaintiff's employer.

In reaching this conclusion Wyman-Gordon relies on several Michigan cases in which it claims there runs a "common thread" regarding "control of the subsidiary operations and most importantly a single insurance coverage of all operations" as the key factors to examine when determining common employment between the parent and subsidiary.⁴ These cases by and large deal with claims for compensation by an injured worker and, in keeping with the liberal construction afforded workers' compensation laws, i. e., expand coverage and narrow liability, Boggs v. Blue Diamond Coal Co., supra, illustrate an almost uniform construction favorable to the workers' circumstances. Where the holding is against the worker the decision is almost invariably premised on the inability of the court to bring the worker within the statutory scheme of benefits or a clear statutory prohibition on the worker's...