Gallagher v. Persha
| Citation | 315 Mich.App. 647,891 N.W.2d 505 |
| Decision Date | 09 June 2016 |
| Docket Number | Docket Nos. 325471,327840. |
| Parties | GALLAGHER v. PERSHA. Gallagher v. Kaper Properties, Inc. |
| Court | Court of Appeal of Michigan (US) |
Demorest Law Firm, PLLC, Royal Oak (by Mark S. Demorest and Melissa Demorest LeDuc), for Edward and Joan Gallagher.
Bankey Law, PLC, Southfield (by Jill A. Bankey ), for Kathy Persha.
Demorest Law Firm, PLLC, Royal Oak (by Mark S. Demorest and Melissa Demorest LeDuc), for Edward and Joan Gallagher.
Bankey Law, PLC, Southfield (by Jill A. Bankey ), for Kaper Properties and Kathy Persha.
Before: MURRAY, P.J., and STEPHENS and RIORDAN, JJ.
In Docket No. 325471, plaintiffs, Edward Gallagher and Joan Gallagher, appeal as of right an order granting defendant Kathleen Persha's motion for summary disposition pursuant to MCR 2.116(C)(8), on the basis that plaintiffs had failed to state a claim for fraud, and concluding that plaintiffs' sole remaining claim of "piercing the corporate veil" was not viable without an underlying cause of action.
In Docket No. 327840, plaintiffs appeal by leave granted1 an order denying their motion to reinstate a 2012 case against defendants, Kaper Properties, Inc., a Michigan real estate investment corporation ("Kaper"), and Persha, the president and sole shareholder of Kaper. We reverse the order in Docket No. 325471 and dismiss the appeal in Docket No. 327840 as moot.
This case arises from a purchase agreement through which Kaper purchased plaintiffs' home subject to two existing mortgages. Plaintiffs owed more money on the home than it was worth, and agreed to pay Kaper $37,000 to make up the difference between the agreed-upon purchase price and the balance on the mortgages. Kaper, in turn, agreed to pay off the two existing mortgages and release plaintiffs from their debt obligations by August 30, 2012, either through the sale of the home or the refinancing of the mortgages. By August 30, 2012, plaintiffs had transferred the home to Kaper by warranty deed and paid Kaper the $37,000 owed under the purchase agreement.
However, by that time the house had not been sold, Kaper had fallen behind on the mortgage payments, and neither of the existing mortgages had been satisfied as agreed.
Plaintiffs brought a two-count complaint on November 13, 2012, alleging breach of contract against Kaper, and breach of fiduciary duty against Persha. Defendants denied that Persha was ever a party to the purchase agreement, or that Kaper was obligated under the purchase agreement to pay off the existing mortgages by a certain date. After plaintiffs' breach of fiduciary duty claim was dismissed as time barred under the statute of limitations, plaintiffs filed an amended complaint, adding two additional claims against both defendants: one for fraud and misrepresentation and one titled "piercing the corporate veil." A case evaluation panel recommended an award of $290,000 to plaintiffs for the three remaining claims, against defendants jointly and severally. Plaintiffs and Kaper accepted the award, but Persha rejected it. After judgment against Kaper was entered in favor of plaintiffs in the amount of $283,110.88, the parties stipulated to dismissal of plaintiffs' remaining claims against Persha, without prejudice.
On July 25, 2014, plaintiffs filed a three-count complaint against Persha only, raising claims of (1) fraud and misrepresentation, (2) breach of fiduciary duty, and (3) piercing the corporate veil of Kaper based on the facts presented in the 2012 case. The trial court dismissed the breach of fiduciary duty claim based on the dismissal with prejudice of the same claim in the 2012 case, and Persha filed a motion for summary disposition pursuant to MCR 2.116(C)(8) on the two remaining claims. Over plaintiffs' objection, the trial court granted defendant's motion, finding no false statement of fact in the pleadings to support a claim for fraud. The trial court dismissed the veil-piercing claim because it was no longer supported by an underlying cause of action. However, the trial court suggested that plaintiffs might be able to bring a veil-piercing claim based on a cause of action raised in the 2012 case:
It's a dismissal with prejudice as to this action which is a separate cause of action that you cannot have, but I don't think it affects the original case; that if I reopen the original case, I reopen it, is it—it's as if it was not closed, really, so this really doesn't—even this will be without prejudice because you can't have a separate cause of action for piercing the corporate veil. If had of pled [sic], which—and I don't remember the original complain [sic]—if it was pled in the original case, and I reopen the original case, I mean I have to take a look at the pleadings and see. I don't know (indiscernible). This dismissal with prejudice is not necessarily gonna' [sic] affect that.
As a result of the trial court's comments in the 2014 case, plaintiffs filed a motion to reinstate the 2012 case against Persha only, asking the trial court to reopen the prior lawsuit to enable them to pierce Kaper's corporate veil and hold Persha individually responsible for Kaper's judgment. The trial court denied plaintiffs' motion, explaining that it would not entertain the veil-piercing claim without an underlying cause of action because, under Michigan law, "there is no independent cause of action for a claim for piercing the corporate veil."
As noted earlier, in Docket No. 325471 plaintiffs challenge the trial court's order granting Persha's motion for summary disposition in the 2014 case. According to plaintiffs, the trial court erred when it concluded that piercing the corporate veil cannot be brought as a separate cause of action. We agree with the general principle that piercing the corporate veil is an equitable remedy rather than a cause of action, but we conclude that the rule does not apply to this case. Accordingly, for the reasons explained below, we reverse the trial court's order granting defendant's motion for summary disposition and remand for further proceedings.
This Court reviews de novo a trial court's decision on a motion for summary disposition. Willett v. Waterford Charter Twp., 271 Mich.App. 38, 45, 718 N.W.2d 386 (2006). A party may move for summary disposition under MCR 2.116(C)(8) to challenge whether the opposing party has stated a claim on which relief can be granted. Henry v. Dow Chem. Co., 473 Mich. 63, 71, 701 N.W.2d 684 (2005). A motion under MCR 2.116(C)(8) tests the legal sufficiency of the complaint based on the pleadings alone. Maiden v. Rozwood, 461 Mich. 109, 119–120, 597 N.W.2d 817 (1999). Summary disposition under that court rule is appropriate only when the claims are "so clearly unenforceable as a matter of law that no factual development could possibly justify recovery." Wade v. Dep't of Corrections, 439 Mich. 158, 163, 483 N.W.2d 26 (1992).
As has been said many times before today, Michigan law respects the corporate form, and our courts will usually recognize and enforce separate corporate entities.
See, e.g., Wells v. Firestone Tire & Rubber Co., 421 Mich. 641, 650–651, 364 N.W.2d 670 (1985), and Seasword v. Hilti, Inc. (After Remand), 449 Mich. 542, 547, 537 N.W.2d 221 (1995) ().2 But "usually" means not always, and when the requisite evidence establishes that the corporate form has been abused, the corporate form will be pierced so that creditors (and sometimes others) can seek payment of a corporate debt (like the judgment in this case) from a responsible corporate shareholder. See Florence Cement Co. v. Vettraino, 292 Mich.App. 461, 468–469, 807 N.W.2d 917 (2011). Consequently, piercing the veil of a corporate entity is an equitable remedy sparingly invoked to cure certain injustices that would otherwise go unredressed in situations "where the corporate entity has been used to avoid legal obligations...." Wells, 421 Mich. at 651, 364 N.W.2d 670. It is therefore a remedy, and not a separate cause of action, something which the federal courts applying Michigan law have previously recognized. See In re RCS Engineered Prod. Co., Inc., 102 F.3d 223, 226 (C.A.6, 1996), and Aioi Seiki, Inc. v. JIT Automation, Inc., 11 F.Supp.2d 950, 953–954 (E.D.Mich., 1998).
But this case is not controlled by that principle, for what is at issue here is how a judgment-plaintiff procedurally pursues the piercing remedy once it is established that the corporate entity cannot pay the judgment, and there is some evidence or reason to believe that the corporate form has been abused to avoid legal obligations. We know that supplementary proceedings under MCR 2.621 and MCL 600.6104(5)cannot be utilized, see Green v. Ziegelman, 282 Mich.App. 292, 303–304, 767 N.W.2d 660 (2009) (Green I ), but must the remedy be pleaded as part of the original case or forever be barred? Or can a new case be filed to enforce the outstanding judgment against responsible shareholders if the facts allow piercing of the corporate veil even if no separate cause of action has been pleaded? We now turn to that dispositive issue.
Plaintiffs do not challenge the trial court's order granting summary disposition in favor of Persha on their 2014 fraud and misrepresentation claim. Instead, plaintiffs argue only that, because they filed an action to pursue piercing the corporate veil of Kaper based upon the pre-existing judgment against it, the trial court's dismissal of their complaint was erroneous. Plaintiffs principally rely on Green I and Green v. Ziegelman, 310 Mich.App. 436, 873 N.W.2d 794 (2015) (Green II ), in support of their assertion that a plaintiff may pursue an action to pierce the corporate veil of a judgment debtor and reach a responsible individual.
In Green I, the circuit court allowe...
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