Dissolution of Esquire Products Intern., Inc. (On Remand), Matter of, Docket No. 85839

• Decision Date: 11 December 1985
• Docket Number: Docket No. 85839
• Citation: 377 N.W.2d 356,145 Mich.App. 106
• Parties: In the Matter of Gerald Kalen, For the DISSOLUTION OF ESQUIRE PRODUCTS INTERNATIONAL, INC. (ON REMAND). 145 Mich.App. 106, 377 N.W.2d 356
• Court: Court of Appeal of Michigan — District of US

Page 356

377 N.W.2d 356

In the Matter of Gerald Kalen, For the DISSOLUTION OF ESQUIRE PRODUCTS INTERNATIONAL, INC. (ON REMAND).

Docket No. 85839.

145 Mich.App. 106, 377 N.W.2d 356

Court of Appeals of Michigan.

Submitted June 28, 1985.

Decided Aug. 19, 1985.

Released for Publication Dec. 11, 1985.

[145 MICHAPP 108] Harry H. Awdey, Mount Clemens, for plaintiff-appellee.

Merrill, Tatham & Rosati, P.C. by A.D. Rosati, Southfield, for defendant-appellant.

Before DANHOF, C.J., and T.M. BURNS and CYNAR, JJ.

ON REMAND

DANHOF, Chief Judge.

The facts of this case are set forth in In re Dissolution of Esquire Products International, Inc., 136 Mich.App. 492, 357 N.W.2d 77 (1984), and are not recited here. We revisit this case by virtue of a remand from the Supreme Court "for reconsideration in light of MCR 3.611(E)". 422 Mich. 928, 368 N.W.2d 873 (1985). At issue here is the propriety of the lower court's injunction prohibiting T.A.S. from continuing its lawsuit against Esquire after Esquire's majority stockholder, Gerald Kalen, initiated voluntary dissolution proceedings pursuant to M.C.L. Sec. 600.3501 et seq.; M.S.A. Sec. 27A.3501 et seq.; GCR 1963, 778 (presently MCR 3.611). While neither party addressed this court rule in its brief to this Court, our express consideration of MCR 3.611(E) does not mandate a different result and, accordingly (as before), we affirm the decision of the lower court.

MCR 3.611 specifies its applicability to voluntary dissolution proceedings brought under M.C.L. Sec. 600.3501 et seq.; M.S.A. Sec. 27A.3501 et seq., and prescribes the contents of a complaint seeking such dissolution. MCR 3.611(C), (D) and (E) then provide as follows:

"(C) Notice of Action. Process may be served as in [145 MICHAPP 109] other actions, or, on the filing of the complaint, the court may order all persons interested in the corporation to show cause why the corporation should not be dissolved, at a time and place to be specified in the order, but at least 28 days after the date of the order. Notice of the contents of the order must be served by mail on all creditors and stockholders at least 28 days before the hearing date, and must be published once each week for 3 successive weeks in a newspaper designated by the court.

"(D) Hearing. At a hearing ordered under subrule (C), the court shall hear the allegations and proofs of the parties and take testimony relating to the property, debts, credits, engagements, and condition of the corporation. After the hearing, the court may dismiss the action, order the corporation dissolved, appoint a receiver, schedule further proceedings, or enter another appropriate order.

"(E) Suits by Receiver. An action may be brought by the receiver in his or her own name and may be continued by the receiver's successor or coreceiver. An action commenced by or against the corporation before the filing of the complaint for dissolution is not abated by the complaint or by the judgment of dissolution, but may be prosecuted or defended by the receiver. The court in which an action is pending may on motion order substitution of parties or enter another necessary order." (Emphasis added.)

Subrule (E) of this part parallels M.C.L. Sec. 450.1834(f); M.S.A. Sec. 21.200(834)(f), which states that "[a]n action brought against the corporation before its dissolution does not abate because of the dissolution". M.C.L. Sec. 450.1801 et seq.; M.S.A. Sec. 21.200(801) et seq., the dissolution provisions of the Business Corporation Act, which set forth grounds for dissolution in addition to those provided in M.C.L. Sec. 600.3501 et seq.; M.S.A. Sec. 27A.3501 et seq. and prescribe the appropriate procedures, are also applicable in this case.

Rules of practice and procedure are governed by [145 MICHAPP 110] principles of statutory construction when ascertaining the intent of the Supreme Court in promulgating such rules. Issa v. Garlinghouse, 133 Mich.App. 579, 581, 349 N.W.2d 527 (1984). Indeed, because the Supreme Court is "truly cognizant of these doctrines" of statutory construction we are especially guided by them in this instance. People v. Lange, 105 Mich.App. 263, 266-267, 306 N.W.2d 514 (1981). Moreover, these rules are to be interpreted in light of, and consistent with, the general purpose sought to be served thereby. Issa, supra, 133 Mich.App. p. 582, 349 N.W.2d 527. Inasmuch as MCR 3.611 was expressly designed to apply to dissolution proceedings, the general purpose of the statutory provisions relating to dissolution must also be examined. ¹

To begin, neither the language of the court rule nor the statute mandates that a pending action be continued. The language that, "an action * * * is not abated" (or "does not abate") merely instructs that the action may survive. Generally, "a dissolved corporation is a dead person, so much so that, in the absence of statute and revival, even pending actions by or against it would abate". U.S. Truck Co. v. Pennsylvania Surety Corp., 259 Mich. 422, 426, 243 N.W. 311 (1932). See also, 16A Fletcher Cyclopedia Corporations, Sec. 8147, p. 366; Walder v. Paramount Publix Corp., 132 F.Supp. 912, 917 (S.D.N.Y.1955); In re International Reinsurance Corp., 29 Del.Ch. 34, 43 A.2d 529, 541 (1946); Esquire, supra, 136 Mich.App. p. 498, 357 N.W.2d 77. Thus, Sec. 834 of the Business Corporation Act and MCR 3.611 are necessary to permit an action to continue. In their absence, [145 MICHAPP 111] abatement would follow as a matter of course (and as a matter of law). MCR 3.611 must be read in context. We do not believe that a provision negating automatic abatement can be extrapolated so as to require continuance of the action.

That these provisions are permissive in the sense that they allow (without requiring) continuance is further borne out in the language of MCR 3.611 that a pending action "may be prosecuted or defended by the receiver". (Emphasis added.) The Supreme Court, being cognizant of the principles of construction, employed the permissive "may" in providing for the continuance of an action pending at the time of dissolution. ² Additionally, the final sentence of MCR 3.611(E) serves to bolster this conclusion in that it provides that the court "in which an action is pending may on motion order substitution of parties or enter another necessary order ". Along these same lines, M.C.L. Sec. 600.3501(1); M.S.A. Sec. 27A.3501(1) states that "[s]uch actions (for voluntary dissolution) are equitable in nature". The power of injunction is wholly consistent with this notion, as well as with the "necessary order" language of MCR 3.611. Consequently, MCR 3.611 does not preclude the enjoining of the pending action. The question of the propriety of the lower [145 MICHAPP 112] court's action in this regard is not resolved by resort to this rule. ³ Having concluded that MCR 3.611 does not change our previous disposition of this case, we take this opportunity to clarify our prior decision.

Chapter 8 of the Business Corporation Act, M.C.L. Sec. 450.1801 et seq.; M.S.A. Sec. 21.200(801) et seq., is patterned substantially after the statutory scheme prevailing in New Jersey. Compare N.J.Rev.Stats. Sec. 14A:12-1 et seq.; see also Michigan Law Revision Commission (1970), 5th Annual Report, Business Corporation Act Supplement. In this connection, the New Jersey courts have stated that the primary purpose of the provisions relating to dissolution is to protect the rights of all creditors by providing for the payment of debts "ratably", and to prevent individual creditors from procuring a preferment by pursuing independent action to the detriment of other creditors. Indeed, the New Jersey courts have recognized the propriety of enjoining a separate action under circumstances similar to the instant case. See Trustees of Sea Isle City Realty Co. v. First National Bank of Ocean City, 87 N.J.Eq. 84, 99 A. 929 (1917); Camden Mortgage Guaranty & Title Co. v. Haines, 110 N.J.Eq. 461, 160 A. [145 MICHAPP 113] 413 (1932). These decisions were based on the court's equitable powers in such matters.

Furthermore, M.C.L. Sec. 600.3501(2); M.S.A. Sec. 27A.3501(2) contemplates that all creditors be involved in the dissolution proceedings, ⁴ as does M.C.L. Sec. 450.1841(2); M.S.A. Sec. 21.200(841)(2), which defines "creditor" to include all persons to whom the corporation is indebted, including secured and unsecured creditors. These provisions evince an intent to compel all creditors to pursue their claims as provided in the Business Corporation Act and to discourage preferment of claims by allowing separate suits which may exhaust the corporation's assets to the detriment of other creditors.

Finally, we noted in our previous decision that Sec. 842(2) evinced a like intent by providing that failure to file a claim pursuant to the act "barred [all creditors] from suing on the claim". We stated that "filing a claim under Sec. 842 of the Business Corporation Act would seem to be the exclusive remedy for a creditor of a corporation seeking dissolution." 136 Mich.App. 498. By this we do not mean to imply that all pending suits must be enjoined and claims must then be made pursuant to that section. Rather, where such action is enjoined, the creditor must follow the provisions of the act. Similarly, Sec. 842 is the exclusive remedy for creditors who have no claims pending at the time of dissolution. But to the extent that a claim is pending at the time of dissolution and the action is permitted pursuant to MCR 3.611(E), or to the extent that good cause may be shown under Sec. 851 (discussed below), Sec. 842 is not the exclusive remedy. Its purpose is, however, "to compel all creditors who may reasonably be expected to file their claims to do so within the prescribed time and to [145 MICHAPP 114] * * * [bar] * * * the claim upon failure to do so". Commissioner's Comment, 1972 Amendments to N.J.Rev.Stats. Sec. 14A:12-13.

We also stated that the language in Sec. 842(2), that "this section does...