Dewitt v. Sealtex Company, Inc., No. 273387 (Mich. App. 6/5/2008)
| Decision Date | 05 June 2008 |
| Docket Number | No. 273390,No. 275931,No. 273387,No. 274255,273387,273390,274255,275931 |
| Parties | JAMES DEWITT, Plaintiff-Appellant, v SEALTEX COMPANY, INC., LLOYD KONING, and MARLA KONING, Defendants, and LS MOLD, INC., SEALTEX CUSTOM MOLDING, L.L.C., LARRY KONING, and DAVID KONING, Defendants-Appellees. JAMES DEWITT, Plaintiff-Appellee, v SEALTEX COMPANY, INC., LS MOLD, INC., LLOYD KONING, and MARLA KONING, Defendants, and SEALTEX CUSTOM MOLDING, L.L.C., LARRY KONING, and DAVID KONING, Defendants-Appellants. GERALD PITCHER and DORIS PITCHER, Plaintiffs-Appellees, v. SEALTEX COMPANY, INC., LS MOLD, INC., SEALTEX CUSTOM MOLDING, L.L.C., LLOYD KONING, and MARLA KONING, Defendants, and LARRY KONING and DAVID KONING, Defendants-Appellants. JAMES DEWITT, Plaintiff-Appellant, v SEALTEX COMPANY, INC., SEALTEX CUSTOM MOLDING, L.L.C., LARRY KONING, DAVID KONING, LLOYD KONING, and MARLA KONING, Defendants, and LS MOLD, INC., Defendant-Appellee. |
| Court | Court of Appeal of Michigan — District of US |
Before: O'Connell, P.J., and Hoekstra and Smolenski, JJ.
In these consolidated cases, plaintiff James DeWitt appeals as of right from the trial court's judgment of no cause of action entered in favor of defendant LS Mold on the counts of successor liability, alter ego/piercing corporate veil, fraudulent conveyance and civil conspiracy (Docket No. 273387). In Docket Nos. 273390 and 274255, defendants Larry and David Koning appeal the trial court's holding them personally liable under piercing the corporate veil and director liability/breach of fiduciary duty theories to plaintiff DeWitt and plaintiffs Pitcher, and holding Sealtex Custom Molding (SCM) liable for Sealtex Company's debt under the successor liability doctrine. The trial court entered final judgment in DeWitt's favor in the amount of $195,081.97 and in the Pitchers' favor in the amount of $346,396.01.
In Docket No. 275931, plaintiff DeWitt appeals the trial court's award of $255,749.52 in offer of judgment sanctions to LS Mold, including costs awarded LS Mold for defendants' expert, Professor Elliot Spoon.
We affirm in Docket No. 273387. In Docket Nos. 273390 and 274255, we vacate the judgments entered in plaintiffs' favor. In Docket No. 275931, we affirm the award of costs for defendants' expert, but otherwise vacate the award of offer of judgment sanctions and remand to the trial court.
The facts are set forth in the trial court's lengthy opinion, which followed a bench trial, and will not be repeated here.
Plaintiff DeWitt filed suit against Sealtex on August 25, 2003, and amended his complaint to add LS Mold as a defendant on September 29, 2003. Through additional amended complaints, plaintiff added SCM and the four individual Konings as defendants. Through the offer of judgment process, DeWitt's claims against Lloyd and Marla Koning were settled before trial. Sealtex defaulted and judgment was entered against it.
Plaintiffs Gerald and Doris Pitcher, the parents of Sealtex employee Mike Pitcher (who later, with defendants Koning, purchased Sealtex from DeWitt and served as its president), filed suit against all defendants in October 2004. Sealtex defaulted and judgment was entered against it. Through case evaluation, judgments of no cause of action were entered in favor of SCM, LS Mold, and Lloyd and Marla Koning. Plaintiffs Pitcher proceeded to trial against Larry and David Koning only.
The trial court consolidated the cases for trial purposes. Following a 12-day bench trial, the court found:
• LS Mold — Judgment of no cause of action as to all counts in DeWitt and Pitcher cases
• SCM — Judgment in DeWitt's favor on successor liability and alter ego counts; no cause of action as to all DeWitt's remaining counts
• Larry and David Koning — Judgment in favor of DeWitt and the Pitchers on director liability and piercing the corporate veil; no cause of action as to all remaining counts
These appeals ensued.
Plaintiff DeWitt asserts that the trial court erred in finding that LS Mold did not have successor liability. We disagree.
We review de novo the application of successor liability doctrine because it is derived from equitable principles. Craig v Oakwood Hosp, 471 Mich 67, 77; 684 NW2d 296 (2004).
The traditional rule of successor liability examines the nature of the transaction between predecessor and successor corporations. If the acquisition is
accomplished by merger, with shares of stock serving as consideration, the successor generally assumes all its predecessor's liabilities. However, where the purchase is accomplished by an exchange of cash for assets, the successor is not liable for its predecessor's liabilities unless one of five narrow exceptions applies. The five exceptions are as follows:
(1) where there is an express or implied assumption of liability; (2) where the transaction amounts to a consolidation or merger; (3) where the transaction was fraudulent; (4) where some of the elements of a purchase in good faith were lacking, or where the transfer was without consideration and the creditors of the transferor were not provided for; or (5) where the transferee corporation was a mere continuation or reincarnation of the old corporation.
[Foster v Cone-Blanchard Machine Co, 460 Mich 696, 702-703; 597 NW2d 506 (1999) (internal quotes and citations omitted).]
In the seminal case of Turner v Bituminous Casualty Co, 397 Mich 406; 244 NW2d 873 (1976), a products liability case, the plaintiff was injured using a press manufactured and sold by a corporation that had been dissolved several years earlier. Id. at 411. The name, good will and assets of the manufacturing corporation had been sold in a cash sale, however, and the plaintiff sued the new company in tort seeking recovery for the injury. Id. at 411-412. The purchasing corporation "defended on the basis that it was a corporate stranger to the manufacturer and hence not liable." Id. at 411. The Supreme Court applied the doctrine of successor liability in this products liability case and reversed the circuit court's grant of summary disposition to the defendant (this Court had denied leave to appeal), noting:
Products liability law is a fast-developing area. All the rules have not yet been formulated and products liability law, as it matures has to shake off various impediments associated with traditional concepts, which, while relevant to other problems, are inappropriate for this new area.
* * *
For the same reasons, defendants' reliance on the so-called "general rule of non-liability" whereby, with certain limited exceptions, the purchasing corporation is not liable for obligations of the transferor corporation, is inapposite. That rule developed not in response to products liability problems, but largely in the areas of creditors' protection, and of tax assessments, or, in the case of the de facto merger, in the context of shareholder rights. [Id. at 417-418 (citations omitted; emphasis added).]
After Turner, supra, and Foster v Cone Blanchard Machine Co, 460 Mich 696; 597 NW2d 506 (1999), both products liability cases, the Supreme Court revisited the successor liability doctrine in Craig, supra, a medical malpractice case. The Craig Court reversed this Court's affirmance of the trial court's finding of successor liability, noting:
We recently described the scope of successor liability in Foster v Cone Blanchard Machine Co. There, we observed the "traditional rule" that successor liability requires an examination of "the nature of the transaction between predecessor and successor corporations." In a merger in which stock is exchanged as consideration, the successor corporation "generally assumes all its predecessor's liabilities." When the successor purchases assets for cash, however, the successor corporation assumes its predecessor's liabilities only
(1) where there is an express or implied assumption of liability; (2) where the transaction amounts to a consolidation or merger; (3) where the transaction was fraudulent; (4) where some of the elements of a purchase in good faith were lacking, or where the transfer was without consideration and the creditors of the transferor were not provided for; or (5) where the transferee corporation was a mere continuation or reincarnation of the old corporation. [Id. at 96-97.]
The Craig Court noted "we have never applied successor liability in the medical malpractice context," went on to apply the Turner/Foster requirements, and concluded that the plaintiff "has adduced no reason why we should do so [apply successor liability in the medical malpractice context] in this case":
Not only are the Turner/Foster requirements not met here but, more important, the policies that justify the imposition of successor liability are noticeably inapplicable here. We stated in Foster that
[t]he thrust of the decision in Turner was to provide a remedy to an injured plaintiff in those cases in which the first corporation "legally and/or practically becomes defunct." . . . The underlying rationale for the Turner Court's decision to disregard traditional corporate law principles was to provide a source of recovery for injured plaintiffs.
Here, plaintiff has already sought and obtained a judgment from Drs. Gennaoui and Kittur, from Associated Physicians, P.C., and from Oakwood Hospital. Because plaintiff obtained a judgment against other sources, there was no need to impose successor liability on Henry Ford, even if the Turner/Foster factors had justified such liability. The trial court erred in imposing successor liability on Henry Ford and the Court of Appeals erroneously affirmed this ruling. [Id. at 99.]
The trial court in the instant case concluded that Craig, supra, left open the possibility that the successor liability doctrine could apply in a purely commercial context such as the instant case.1 We do not disagree. However, during the pendency of this case this...
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