Ross v. Auto Club Group
| Decision Date | 07 May 2008 |
| Docket Number | Docket No. 130917.,Calendar No. 2. |
| Citation | 481 Mich. 1,748 N.W.2d 552 |
| Court | Michigan Supreme Court |
| Parties | Randall L. ROSS, Plaintiff-Appellee, v. AUTO CLUB GROUP, Defendant-Appellant. |
Olsman Mueller, P.C. (by Jules B. Olsman and Donna M. MacKenzie), Berkley, for the plaintiff.
Schoolmaster, Hom, Killeen, Siefer, Arene & Hoehn (by David R. Tuffley) and John A. Lydick, Mt. Clemens, Bingham Farms, for the defendant.
Willingham & Coté, P.C. (by John A. Yeager, Torree J. Breen, and Leon J. Letter), East Lansing, for Farm Bureau Mutual Insurance Company of Michigan.
Miller Johnson (by Stephen R. Ryan and Salvatore W. Pirrotta), Grand Rapids, for the Coalition Protecting Auto No-Fault.
Hall, Render, Killian, Heath & Lyman, P.L.L.C. (by John L. Lowes and Leah Voigt Romano), Troy, for the Michigan Health and Hospital Association.
This case arises out of a dispute over no-fault benefits. Plaintiff Randall Ross was injured in an automobile accident and submitted a claim for work-loss benefits to defendant Auto Club Group, his no-fault insurer. Defendant denied plaintiff's claim, prompting him to file this lawsuit. The trial court not only awarded plaintiff benefits, but also awarded attorney fees. The Court of Appeals affirmed.
We granted defendant's application for leave to appeal. We hold that the trial court properly awarded plaintiff work-loss benefits. But it clearly erred when deciding that defendant's refusal to pay benefits was not based on a legitimate question of statutory interpretation. As a consequence, we affirm the Court of Appeals judgment that plaintiff is entitled to work-loss benefits, but reverse its affirmance of the award of attorney fees.
Plaintiff was injured in an automobile accident. At the time of the accident, he was the sole shareholder and sole employee of Michigan Packing Company, Inc. Plaintiff had incorporated this entity under the Business Corporation Act (BCA)1 and, for federal tax purposes, had filed an election under subchapter S of the Internal Revenue Code.2
As a result of his injuries, plaintiff was unable to work. He made a claim to defendant for work-loss benefits. In support of his claim, plaintiff provided defendant with W-2 forms showing that Michigan Packing had paid plaintiff wages in 2001 through 2003.3
Defendant denied plaintiff's claim. It relied on the benefit-calculation methodology set forth by the Court of Appeals in Adams v. Auto Club Ins. Ass'n.4 Defendant concluded that plaintiff had failed to establish a claim for lost income because Michigan Packing operated at a loss during the years at issue.5
Plaintiff filed this lawsuit on May 6, 2004. The trial court granted his motion for summary disposition, ruling that he was entitled to work-loss benefits based on his wages. The court also awarded attorney fees under MCL 500.3148(1), the no-fault act's attorney-fee provision. It found that defendant had unreasonably delayed making payment to plaintiff. Defendant moved for reconsideration. The trial court denied the motion, and defendant appealed in the Court of Appeals.
The Court of Appeals affirmed in a published opinion.6 It held that the trial court had properly rejected the benefit-calculation methodology proposed by defendant and had correctly granted benefits based on plaintiff's wages.7 The Court of Appeals also held that the trial court had not clearly erred by awarding attorney fees.8 It found defendant's denial unreasonable because defendant had relied on a case having facts dissimilar to those of this case. Moreover, plaintiff had supplied W-2 forms supporting his claim.9 The Court denied defendant's motion for reconsideration.
Defendant applied for leave to appeal in this Court. Initially, we denied the application, but later granted defendant's motion for reconsideration. On March 7, 2007, this Court heard oral argument concerning whether "the Court of Appeals correctly affirmed the trial court's award of attorney fees to plaintiff pursuant to MCL 500.3148(1)."10 After hearing argument on the application, we granted leave to appeal to consider both the attorney-fee issue and the benefits issue.11
This case requires us to decide whether the lower courts properly interpreted the no-fault act in determining that plaintiff is entitled to work-loss benefits. Issues of statutory interpretation are reviewed de novo.12
We also review the award of attorney fees. The no-fault act provides for attorney fees when an insurance carrier unreasonably withholds benefits.13 The trial court's decision about whether the insurer acted reasonably involves a mixed question of law and fact. What constitutes reasonableness is a question of law, but whether the defendant's denial of benefits is reasonable under the particular facts of the case is a question of fact.14
Whereas questions of law are reviewed de novo, a trial court's findings of fact are reviewed for clear error.15 A decision is clearly erroneous when "the reviewing court is left with a definite and firm conviction that a mistake has been made."16
The issue concerning work-loss benefits is one of first impression. It is whether someone can recover work-loss benefits under MCL 500.3107(1)(b) if he or she is the sole employee and shareholder of a subchapter S corporation that lost more money than it paid in wages. Defendant contends that plaintiff, who is such a person, is not entitled to benefits. Defendant points out that a subchapter S corporation's profits and losses pass through to the shareholders for tax purposes. Accordingly, it argues, plaintiff should be treated like an unincorporated sole proprietor, which means that, when his income is calculated, his gross receipts must be reduced by his business expenses. The Court of Appeals rejected this argument.
In holding that the corporation's losses were irrelevant to computing plaintiff's work-loss benefits, the Court of Appeals stated:
In this case, there is no dispute that (1) plaintiff received wages as an employee of the corporation and (2) plaintiff's remuneration from the corporation was not determined on the basis of the annual net income of the corporation. Plaintiff did not assert a work-loss claim based on the lost profits of the corporation. These facts distinguish this case from Adams. We reject defendant's argument that plaintiff's self-employment status dictates a calculation of the gross receipts of the corporation less the corporate expenses to determine plaintiff's net income. We emphasize that plaintiff as an individual received wages and was not remunerated on the basis of the gross receipts of the corporation. Defendant presents no evidence to justify the disregard of the long-held rule that "`[t]he corporate entity is distinct although all its stock is owned by a single individual or corporation.'" Moreover, "[a corporation's] separate existence will be respected, unless doing so would subvert justice or cause a result that would be contrary to some other clearly overriding public policy." Because plaintiff received wages from the corporation, and because defendant has presented no evidence to the contrary, the business expenses of the corporation are irrelevant in calculating plaintiff's wage loss, and plaintiff is treated as being in no different position than an employee of any other corporation operating at a loss. The trial court correctly determined that plaintiff was entitled to work-loss benefits and properly granted his motion for summary disposition.[17]
We conclude that the Court of Appeals reached the right result for the right reasons. Accordingly, we affirm its decision and hold that plaintiff is entitled to work-loss benefits based on his wages.
Justice Corrigan argues in her partial dissent that defendant has created a factual question regarding the amount of plaintiff's loss of income from work. This ignores the legitimate distinction between a shareholder and the corporate entity that is established by Michigan law. What Justice Corrigan says about the nature of a subchapter S corporation is true: for federal income taxation purposes, the income and losses of a subchapter S corporation pass through to the individual shareholders as if the income and losses belonged to the members of a partnership. But her "income" analysis errs by suggesting that the blurring of corporate and shareholder identities for federal taxation purposes also blurs the separate legal identities created for those entities by the BCA. Indeed, the authority she relies on made clear that, for federal taxation purposes alone, a subchapter S corporation is merely analogous to a partnership or a sole proprietorship.
There is no authority for Justice Corrigan's proposition that the distinct corporate identity created by Michigan law may be ignored. The corporation's income or losses are not the shareholder's income or losses for purposes of the no-fault act's work-loss-benefits provision. Neither the BCA nor the no-fault act supports her analysis. Thus, her statement that "plaintiff and his wife had no taxable income in 2001, 2002, and 2003"18 entirely misses the central point: regardless of whether he was subject to taxation under federal law, plaintiff indisputably received actual income in the form of W-2 wages in those years. Justice Corrigan seems to ignore the import of her own observation that "plaintiff's work as the sole employee of his corporation resulted in no income—but only overall losses—to the corporation."19 The losses ultimately belonged to the corporation, not to plaintiff.
At its core, Justice Corrigan's position would accomplish a de facto piercing of the corporate veil. It would do this even though the shareholder had not engaged in fraudulent or wrongful conduct that would justify a court's ignoring the corporate form. It would punish plaintiff for filing an election under subchapter S, a legitimate...
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