ABBOTT LABORATORIES CORP V F S PATHOLOGICAL LABORATORY INC
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STATE OF MICHIGAN
COURT OF APPEALS
ABBOTT LABORATORIES CORPORATION,
UNPUBLISHED
March 4, 1997
Plaintiff-Appellee,
v
No. 189844
Oakland Circuit Court
LC No. 94-438882
F S PATHOLOGICAL LABORATORY, INC.,
Defendant-Appellee,
and
FAWZI B. SHAYA and MARY SHAYA,
Proposed Intervening
Defendants-Appellants
Before: Corrigan, C.J., and Doctoroff and R.R. Lamb,* JJ.
PER CURIAM.
Fawzi and Mary Shaya appeal by leave granted from the April 18, 1995, order denying their
motion to intervene. We reverse.
The Shayas owned and operated F S Pathological Laboratory, Inc. (F S). In March of 1993,
F S transferred all of its assets to Universal Standard Medical Laboratory (Universal). In partial
consideration for the transfer, Universal executed a promissory note to F S, which F S later assigned to
the Shayas in consideration for money they had loaned to F S and for five years of deferred
compensation owed to them by F S.
In August of 1992, plaintiff filed suit against F S seeking payment for goods delivered and
services rendered. The trial court entered judgment in favor of plaintiff. The Shayas were not parties to
this action.
* Circuit judge, sitting on the Court of Appeals by assignment.
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After judgment was entered, plaintiff brought garnishment proceedings against the Shayas and
Universal. Plaintiff filed a motion to order Universal to stop paying the Shayas on the note, and to
instead pay plaintiff in satisfaction of the judgment. The trial court granted the motion. The Shayas
moved to intervene and to set aside the motion to pay, arguing that as assignees of the note from
Universal to F S, they were necessary parties to any action regarding the payment of the note proceeds.
The trial court denied the motion, finding that there was no basis to grant the motion, and that the
Shayas were guilty of laches because they knew of the proceedings against F S, yet took no action.
The decision whether to grant a motion to intervene is within the trial court’s discretion. Black v
Dep’t of Social Services, 212 Mich App 203, 204; 537 NW2d 456 (1995). The rule should be
liberally construed to allow intervention where the applicant’s interest may be inadequately represented.
Id.
The Shayas argue that they are necessary parties to the action under MCR 2.205(A), which
provides that:
Persons having such interest in the subject matter of an action that their presence in the
action is essential to permit the court to render complete relief must be made parties and
aligned as plaintiffs or defendants in accordance with their respective interests.
They also argue that they were entitled to intervene in the action as of right under MCR 2.209(A)(3)
because, as holders of a promissory note, the proceeds of which were garnished to satisfy the judgment,
they had an interest relating to the subject of the litigation which was not adequately represented. Under
MCR 2.209(A)(3), there are three elements that must be satisfied before a party may intervene as of
right: (1) timely application, (2) the parties’ interests are inadequately represented by existing parties,
and (3) disposition of the action may as a practical matter impair or impede the applicant’s ability to
protect his interests. Oliver v Dep’t of State Police, 160 Mich App 107, 113; 408 NW2d 436
(1987). In the present case, the trial court denied the Shayas’ motion to intervene, holding that,
because they knew of plaintiff’s suit against F S and took no action, they were barred by laches from
intervening in the suit.
The requirement of timely application means that “an intervenor must be diligent, and any
unreasonable delay after knowledge of the action will justify a denial of the intervention where no
satisfactory excuse is shown for the delay.” Prudential Ins Co of America v Oak Park School Dist,
142 Mich App 430, 434; 370 NW2d 20 (1985). As a general rule, the right to intervene should be
asserted within a reasonable time. Laches or unreasonable delay by the interevenor is a proper reason
to deny intervention. American States Ins Co v Albin, 118 Mich App 201, 209; 324 NW2d 574
(1982). “There should be considerable reluctance on the part of the courts to allow intervention after
an action has gone to judgment and a strong showing must be made by the applicant.” Dean v Dep’t
of Corrections, 208 Mich App 144, 150; 527 NW2d 529 (1994). However, the Michigan Supreme
Court has held that, in some cases, intervention may be proper even after judgment has been entered:
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The question sometimes arises whether an intervention may be after final
judgment. If it does not relate to the merits of the question, as where it is a proceeding
to determine the validity of an attachment or whether specified property is subject
thereto, the intervention need not delay the main action nor necessarily unsettle any
judgment rendered therein. Hence, in such case there is no reason why an intervention
may not be after, as well as before, final judgment. Even in other cases, unless
restrained by some statute, the court may authorize an intervention after final judgment,
wherein, notwithstanding such judgment, some relief may still be granted in furtherance
of justice without violating the rules of res judicata, but generally the discretion of the
court will be exercised against granting so tardy an application, and if so exercised, will
not be reviewed by the appellate court. [School Dist of the City of Ferndale v Royal
Oak Twp School Dist No 8, 293 Mich 1, 11; 291 NW 199 (1940), quoting 123 Am
St Rep 294, citations omitted.]
The Shayas argue that their application was timely because they filed it as soon as they became
aware that their interest would be affected by the disposition of the action, and they did not receive this
notice until the post-judgment garnishment proceedings when the trial court entered the order to pay.
The Shayas argue that the trial court erroneously found that they should have intervened earlier and
were guilty of laches.
The Shayas assert that they had no reason to intervene before the entry of the order to pay
because (1) they were not parties to the original lawsuit, (2) they submitted a garnishee disclosure form,
as required by MCR 3.101(H), which indicated that they were not indebted to F S, and (3) there was
never a finding that the assignment of a promissory note from F S to the Shayas was invalid or that the
corporate veil should be pierced to reach the Shayas’ assets. By entering the order to pay, which
directed garnishee defendant Universal to pay the proceeds of the note to plaintiffs rather than to the
Shayas, the trial court effectively invalidated the assignment of the note to them, or the court determined
that the corporate veil should be pierced to reach the Shayas’ assets. The Shayas argue that this was
inappropriate because, in the absence of an evidentiary hearing, the promissory note was an asset of
theirs and not of defendant’s. We agree.
MCR 3.101(M)(1) provides:
If there is a dispute regarding the garnishee’s liability or if another person claims
an interest in the garnishee’s property or obligation, the issue shall be tried in the same
manner as other civil actions.
In this case, the Shayas were not given an opportunity to litigate their interest in the proceeds, as
permitted by MCR 3.101(M)(1). Furthermore, the trial court failed to establish the priority of the
parties claiming entitlement to the proceeds of the promissory note issued by Universal to F S and
assigned to the Shayas. See Blue Water Fabricators, Inc v New Apex Co, Inc, 205 Mich App 295,
301; 517 NW2d 319 (1994).
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In the present case, the trial court entered an order on March 22, 1995, directing Universal to
pay to plaintiff the proceeds of a promissory note it had issued to F S and F S had assigned to the
Shayas. On April 5, 1995, the Shayas filed a motion to intervene, to set aside the order to pay, and for
an evidentiary hearing, which the trial court denied. On this record, it appears that the Shayas moved to
intervene in the suit between plaintiff and F S as soon as they became aware that their interests were
affected. We find that it would be unjust to deny the Shayas the opportunity to intervene in this action.
See SND Bank and Trust v Kensey, 145 Mich App 765; 378 NW2d 594 (1985).
The Shayas also argue that the trial court abused its discretion in denying their motion to
intervene without conducting a hearing to determine whether defendant’s assignment of a promissory
note to them was valid, or whether to pierce the corporate veil. We agree. Generally, the law treats a
corporation and its shareholders as separate entities, even where one person owns all of the
corporation’s stock. Kline v Kline, 104 Mich App 700, 702; 305 NW2d 297 (1981). However, a
court may pierce the corporate veil to avoid fraud or injustice, or where the community of interest
between corporation and shareholders is so great that, to meet the purposes of justice, they should be
considered as one and the same. Id, at 702-703.
In the present case, the trial court ordered the judgment owed by F S to plaintiff to be satisfied
out of the assets of the Shayas, the sole shareholders of F S. In so ordering, the trial court disregarded
the corporate form, and effectively held that F S, and its shareholder, Fawzi Shaya, should be treated as
one entity. The trial court did this without any findings of fact on the record that the corporate form was
being used to defeat public convenience, justify a wrong, protect fraud, or defend crime, or that the
interest of justice would in any way be served by disregarding the corporate form in this case.
Therefore, the trial court abused its discretion in denying the motion to intervene, to set aside the order
to pay, and for an evidentiary hearing. Kline, supra at 703.
Plaintiff argues that, even if the Shayas had been allowed to intervene, they would not have been
able to prevent the garnishment of the proceeds of the promissory note because plaintiff was first to
perfect its interest in the proceeds and, therefore, has priority over them. The Shayas argue that they
have priority in the proceeds of the note because the assignment of the note predates plaintiff’s
judgment. Because this issue was not raised in the trial court, it is not properly preserved for appellate
review. Garavaglia v Centra, Inc, 211 Mich App 625, 628; 536 NW2d 805 (1995).
Reversed and remanded. We do not retain jurisdiction.
/s/ Maura D. Corrigan
/s/ Martin M. Doctoroff
/s/ Richard R. Lamb
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