Phoenix Energy Sales Co. v. Goodman, Civil Action No. 96-40391.
| Decision Date | 31 March 1997 |
| Docket Number | Civil Action No. 96-40391. |
| Citation | 960 F.Supp. 1253 |
| Parties | PHOENIX ENERGY SALES CO., Plaintiff, v. Rand GOODMAN, et al, Defendants. |
| Court | U.S. District Court — Eastern District of Michigan |
Cheryl B. Lord, Plunkett & Clooney, Detroit, MI, Plaintiff.
Henry J. Mittelstaedt, III, Shermeta, Chimko & Kilpatrick, Rochester Hills, MI, for Randy Goodman, James Carmody.
Stephen Shefman, Southfield, MI, for William Greig.
OPINION AND ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION FOR SUMMARY JUDGMENT
On November 5, 1996, Phoenix Energy Sales Company ("Phoenix"), previously known as "Energy Sales Company," a supplier of natural gas, filed a two count complaint with this court. Count I alleges breach of certain agreements dated June 1, 1995 through May 31, 1996 to purchase natural gas on account in an amount totaling $863,879.87, exclusive of interest and costs. Count I names the following as defendants: (1) Clinton Gas Marketing, Inc. ("CGMI"), a broker of natural gas, (2) Clinton Gas Marketing ("Clinton Gas Marketing") (3) Randy Goodman ("Goodman"), President of CGMI, (4) James Carmody ("Carmody"), Vice-President of CGMI, (4) Natgo, Inc., a corporation owned solely by Goodman and Carmody with an office located at the same location as CGMI's office, and (5) Natgo.1 Count II alleges that defendant William Greig ("Greig") guaranteed collection of sums due to Phoenix prior to September 30, 1995 and seeks a judgment of $43,062.74 plus costs and interest against Greig. This matter is currently before this court on a motion for summary judgment filed by Goodman and Carmody on January 24, 1997. For the following reasons, the motion will be granted in part and denied in part.
The following facts are relevant to the Goodman/Carmody motion for summary judgment. On May 13, 1987, CGMI was deemed incorporated under the laws of the State of Michigan. Under Section 911 Michigan Business Corporation Act, Mich.Comp. Laws § 450.1911, CGMI was required each year of its existence to file an annual report and filing fee prior to May 15. In 1993, CGMI failed to file its annual report and fee. On or after February 28, 1995, CGMI submitted its 1993 annual report with a fee of $20.00. This amount did not include the sum owed as a penalty for late filing pursuant to Section 921 of the Michigan Business Corporation Act, Mich.Comp.Laws § 450.1921. Thus, on July 15, 1995 (two years and sixty days after the 1993 deadline for filing an annual report and fee), CGMI was automatically dissolved pursuant to Section 922 of the Michigan Business Corporation Act, Mich. Comp.Laws § 450.1922(1). Section 922 reads in relevant part as follows:
If a domestic corporation neglects or refuses to file any annual report or pay any annual filing fee or a penalty added to the fee required by law, and the neglect or refusal continues for a period of 2 years from the date on which the annual report or filing fee was due, the corporation shall be automatically dissolved.
On December 30, 1996, the State of Michigan renewed the corporate existence of CGMI under Section 925 of the Michigan Business Corporation Act, Mich.Comp.Laws § 450.1925, which reads in pertinent part, as follows:
(1) A domestic corporation which has been dissolved under subsection (1) of section 922 ... may renew its corporate existence ... by filing the reports and paying the fees for the years for which they were not filed and paid, and for every subsequent intervening year, together with the penalties provided by section 921.
Prior to the date of renewal of CGMI's corporate charter by the State of Michigan, Phoenix filed the instant action against, among others, Goodman and Carmody to collect sums owed pursuant to written sales agreements entered into between June 1, 1995 and May 31, 1996. Goodman and Carmody insist that the only entity which entered into said contracts with Phoenix was CGMI. They further contend that while they may have been liable to Phoenix for CGMI's debts during its state of dormancy, their liability has since ceased due to renewal of CGMI's corporate charter.
Once again, defendants Goodman and Carmody insist that they should be dismissed from this lawsuit. As they read the complaint, Phoenix is only suing them for acting as general partners operating under the name of CGMI during the period of CGMI's corporate dissolution. Carmody and Goodman assert that such a partnership theory of liability is no longer possible in light of CGMI's renewal of corporate existence.
In response, Phoenix argues that the general partnership theory remains a viable cause of action, notwithstanding the renewal of CGMI's corporate charter. Moreover, Phoenix contends that it is not suing Goodman and Carmody only under a general partnership theory. In addition to their liability as general partners, Phoenix maintains that Goodman and Carmody are also liable to Phoenix as (1) individuals, and (2) as individuals trading and doing business as CGMI, Clinton Gas Marketing, Natgo, and Natgo, Inc. This court will address the merits of each of these three theories of liability against Goodman and Carmody in turn.
According to Phoenix, Carmody and Goodman are liable to Phoenix for payment of the gas because they operated their corporations and other entities, i.e. CGMI and Natgo, Inc., as one business with the purpose of avoiding creditors. In essence, Phoenix is attempting to pierce the corporate veils of CGMI and Natgo, Inc.2 on the grounds that these two defendants, as officers and shareholders, engaged in a shell game with their assets in a bald attempt to circumvent their obligation to Phoenix. In Michigan, this practice of piercing the corporate veil has long been upheld. Ordinarily, however, "a corporate veil will not be pierced absent fraud, sham or other improper use of the corporate form." Williams v. American Title Ins. Co., 83 Mich.App. 686, 697, 269 N.W.2d 481 (1978) (citations omitted).3
Carmody and Goodman argue that the complaint contains no allegations of fraud, and hence does not put them on notice of Phoenix's intention of piercing the corporate veil. Phoenix alleges that the following paragraphs of the complaint put Carmody and Goodman on notice that they were being sued in their individual capacity for such misconduct:
2. Defendant Randy Goodman ("Goodman") is an individual residing at 244 N. Broadway, Lake Orion, Michigan 48362, acting individually and trading and doing business as "Clinton Gas Marketing" and/or "Clinton Gas Marketing, Inc.," "Natgo" and/or "Natgo, Inc."
3. Defendant James Carmody ("Carmody") is an individual residing at 510 Cherry Blossom Lane, Rochester Hills, Michigan 48306, acting individually and trading and doing business as "Clinton Gas Marketing," "Clinton Gas Marketing, Inc.," "Natgo," and/or "Natgo,Inc."
4. Defendant Clinton Gas Marketing, Inc. and/or Clinton Gas Marketing ("Clinton Gas") was, from May 13, 1987 until July 15, 1995, a Michigan corporation with its principle offices located at 120 Peabody Road, Birmingham, Michigan 48011. On July 15, 1995, the corporate status and corporate shield of Clinton Gas was automatically dissolved pursuant to the law of the State of Michigan, specifically the provisions of Section 922(1), Act 284, Public Acts of 1972, as amended.
5. Defendants Goodman and Carmody were the sole shareholders of Clinton Gas until the corporation was automatically dissolved.
7. It is believed and therefore averred that in late 1995, Defendant Natgo, Inc. ("Natgo") was a Michigan corporation with its principle offices located at 120 Peabody Road, Birmingham, Michigan 48011. Defendant Natgo's corporate status and corporate shield were thereafter automatically dissolved pursuant to the law of the State of Michigan, specifically the provisions of Section 922(1), Act 284, Public Acts of 1972, as amended, on July 15, 1996.
8. Defendants Goodman and Carmody were the sole shareholders of Natgo until the corporation was automatically dissolved.
(emphasis added).
This court finds that the aforementioned paragraphs of the complaint contain no allegations of fraud, sham or other improper use of the corporate form which would apprise Carmody or Goodman of Phoenix's attempt at piercing the corporate veil. Indeed, a review of the entire complaint reveals not even so much as one fact hinting at such impropriety on the part of these two defendants. The Federal Rules of Civil Procedure, Rule 8, mandates that Phoenix "give the defendant[s] [Carmody and Goodman] fair notice of what the plaintiff's [Phoenix's] claim is and the grounds upon which it rests." Conley v. Gibson, 355 U.S. 41, 47, 78 S.Ct. 99, 103, 2 L.Ed.2d 80 (1957) The complaint must contain "either direct or inferential allegations respecting all the material elements to sustain a recovery under some viable legal theory," Allard v. Weitzman, 991 F.2d 1236, 1240 (6th Cir.1993) (citations omitted). It need not, however, set forth an intricately detailed description of the asserted basis for relief. Here, without any allegations of fraud, it cannot be said that Carmody or Goodman were on notice that Phoenix is attempting to utilize the doctrine of "piercing the corporate veil" as a basis of liability against them. Therefore, this court finds that plaintiff's complaint sets forth no claims against defendants Carmody and Goodman on the basis of fraud, sham or other improper use of the corporate form which would permit plaintiff to "pierce the corporate veil."
Plaintiff's second theory of liability is that Carmody and Goodman are liable for the sums owed Phoenix because they purchased natural gas as individuals trading and doing business as Clinton Gas Marketing, CGMI, Natgo, and Natgo, Inc. (...
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