NINOWSKI WOOD & MCCONNELL INC V MNP CORP
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STATE OF MICHIGAN
COURT OF APPEALS
NINOWSKI WOOD & MCCONNELL
MANUFACTURERS REPRESENTATIVES,
INC.,
UNPUBLISHED
April 26, 2002
Plaintiff-Appellant,
v
No. 227850
Oakland Circuit Court
LC No. 99-013453-CB
MNP CORPORATION,
Defendant-Appellee.
Before: Whitbeck, C.J., and Wilder and Zahra, JJ.
PER CURIAM.
Plaintiff appeals as of right an order granting summary disposition in favor of defendant.
We affirm.
I. Basic Facts And Procedural History
Sombur Machine & Tool, Inc., also known as SMTC, Inc. (“Sombur”), was a tool and die
maker that manufactured fasteners and cold-headed products used in the automotive industry.
Defendant supplied the steel to Sombur that it needed for manufacturing. Plaintiff was Sombur’s
manufacturer’s representative. During the first part of the 1990s, Sombur began having business
problems and became unable to pay creditors, one of which was plaintiff. Defendant, one of
Sombur’s largest creditors, later purchased all of Sombur’s personal property and name at a
foreclosure sale, subject to prior secured interests. Plaintiff did not bid on Sombur’s assets at the
sale, otherwise object to the sale, nor attempt to attach Sombur’s real property excluded from the
foreclosure sale.
In 1994, plaintiff sued Sombur for breaching the manufacturer’s representative agreement
into which both had entered. Following a trial in May 1996, plaintiff obtained a judgment
against Sombur for $165,821.06. The trial court, in this first action, entered the judgment on
July 2, 1996. Plaintiff then began a garnishment proceeding to collect the amount of the
judgment. Defendant was served as a garnishee, but responded that it owed nothing to Sombur
given Sombur’s debt to it. Defendant and other secured creditors also intervened in the
garnishment proceeding because they objected to other creditors paying plaintiff through the
lower priority garnishments before they were repaid their secured debts. Essentially, defendant
and a number of other Sombur creditors objected to plaintiff collecting Sombur’s accounts
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receivable from the three major automotive manufacturers: General Motors, Ford, and Chrysler.
Plaintiff, however, contended that defendant, secured creditor Comerica, and Sombur’s majority
owner, whom Sombur also owed a secured debt, were working together to make Sombur
judgment proof while still operating the business.
When considering whether to dispose of the garnishment proceeding summarily, the trial
court articulated the issue as whether a prior perfected security interest in collateral has priority
over a subsequent named judgment creditor. The trial court decided the issue on two separate
grounds. First, relying on UCC 9-301(4), MCL 440.9301(4), and case law, the trial court held
that, because plaintiff did not present any evidence refuting defendant’s prior perfected security
interests, plaintiff’s interest in the collateral as a judgment creditor was subordinate to the prior
perfected secured creditors, like defendant. Second, the trial court held that
MNP stated in its disclosure that no amount was owed to Defendant Sombur.
And because Plaintiff’s [sic] failed to serve interrogatories or Notice a Deposition,
the fact that MNP owed no amount to Sombur must be accepted as true pursuant
to MCR 3.101(M)(2). Therefore, no genuine issue as to any material fact exists in
this case, and that MNP is entitled to the same relief afforded to the garnishee
defendant as was in the Alyas [v Illinois Employers Ins of Wausau, 208 Mich App
324; 527 NW2d 548 (1995)] case.[1]
Thus, the trial court granted defendant’s motion for summary disposition and dissolved the
garnishments.
Defendant acquired Sombur’s remaining asset, its real property, in 1998 through another
foreclosure sale. In March 1999, in an attempt to collect the judgment entered against Sombur
on July 2, 1996, plaintiff filed this third action alleging that defendant was Sombur’s alter ego.
Plaintiff argued that, as of January 1995, there was a complete identity between Sombur and
defendant, and that defendant used its control of Sombur to “fraudulently and/or wrongfully
prevent [plaintiff] to be paid.” At issue was whether defendant, along with Comerica, had
arranged to use a number of bank accounts and a revolving line of credit to collect money owed
to Sombur, but to control which creditors Sombur paid. Needless to say, plaintiff had not
received payment for its judgment and was upset that other creditors, including allegedly
creditors with lower priority, were being paid with this so-called lock box arrangement.
Defendant responded on April 21, 1999, denying all allegations. Defendant raised several
affirmative defenses, including collateral estoppel, and demanded that plaintiff join all claims
that it had against defendant in this action. Plaintiff responded on May 3, 1999, denying
defendant’s affirmative defenses as untrue.
Defendant subsequently filed a motion for summary disposition, arguing that no issue of
disputed material fact existed because plaintiff’s allegations were insufficient to support an alter
ego claim2 and collateral estoppel barred plaintiff from raising questions that had already been
1
Emphasis added.
2
MCR 2.116(C)(10).
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determined against it in a previous proceeding.3 Further, defendant claimed, public policy
concerns should bar plaintiff’s claim. Plaintiff responded that it had appropriately pleaded and
had sufficient evidence to maintain an alter ego claim against defendant and that collateral
estoppel did not bar the action because the alter ego claim was never litigated or decided.
The trial court was scheduled to hear oral arguments on May 3, 2000, but, because
plaintiff did not appear at the hearing, the trial court did not hear any argument. After a
recitation of the relevant facts and the parties’ arguments, the court concluded that in plaintiff’s
previous garnishment claim against defendant, the other trial court
determined the superiority of MNP’s security interest over NWM in regards [sic]
to Sombur’s accounts receivable. In order to dismiss the garnishment against
MNP, the court necessarily determined that MNP did not have control of any of
Sombur’s property, and, thus, the alter ego claim is precluded from being
relitigated by collateral estoppel. It does seem that to be relitigated would do it all
over again.
Therefore, the court granted defendant’s motion for summary disposition, evidently under MCR
2.116(C)(7) because it rested its decision on the collateral estoppel issue.
Plaintiff now argues that summary disposition was inappropriate because collateral
estoppel did not bar its current alter ego claim, through which it attempted to collect a money
judgment entered on July 2, 1996. At issue is whether the previous litigation between the parties
involving garnishment issues barred this claim.
II. Standard Of Review
As with the general question whether collateral estoppel bars a claim,4 we review de novo
a trial court’s order granting a motion for summary disposition.5
III. Legal Standards
MCR 2.116(C)(7) permits a trial court to dispose of a claim summarily if “[t]he claim is
barred because of . . . assignment or other disposition of the claim before commencement of the
action,” including claims barred by collateral estoppel.6 MCR 2.116(G)(2) allows, but does not
require, a party moving for summary disposition under subsection (C)(7) or a party opposing
such a motion to submit documentary evidence in support of the party’s position.7 However, if
the grounds for the motion “do not appear on the face of the pleadings,” the party moving for
3
MCR 2.116(C)(7).
4
See Minicuci v Scientific Data Management, Inc, 243 Mich App 28, 34; 620 NW2d 657 (2000).
5
See Spiek v Dep’t of Transportation, 456 Mich 331, 337; 572 NW2d 201 (1998).
6
See, generally, Alterman v Provizer, Eisenberg, Lichtenstein & Pearlman, PC, 195 Mich App
422, 423; 491 NW2d 868 (1992).
7
See Patterson v Kleiman, 447 Mich 429, 432; 526 NW2d 879 (1994).
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summary disposition must submit supporting documentary evidence, including affidavits,
depositions, and admissions.8 Once the trial court receives any documentary evidence in support
of or opposing the motion, it must9 consider the evidence “to the extent that the content or
substance would be admissible as evidence to establish or deny the grounds stated in the
motion.”10 “If the pleadings show that a party is entitled to judgment as a matter of law, or if the
affidavits or other proofs show that there is no genuine issue of material fact, the court shall
render judgment without delay.”11
With respect to a motion for summary disposition under MCR 2.116(C)(10), this Court
considers the affidavits, pleadings, depositions, admissions, and documentary evidence
submitted by the parties in the light most favorable to the nonmoving party.12 Nevertheless, the
party opposing summary disposition has an obligation to respond to the motion with its own
documentary evidence and “may not rest upon the mere allegations or denials of his or her
pleading. . . .”13 A trial court may grant a motion for summary disposition under MCR
2.116(C)(10) if there is no genuine issue of material fact in dispute, entitling the moving party to
judgment as a matter of law.14
IV. Collateral Estoppel
As this Court explained in Ditmore v Michalik:15
Collateral estoppel . . . precludes relitigation of an issue in a subsequent,
different cause of action between the same parties or their privies when the prior
proceeding culminated in a valid final judgment and the issue was actually and
necessarily determined in the prior proceeding.
However, this doctrine “applies only when the basis of the prior judgment can be clearly,
definitely, and unequivocally ascertained”16 because this information is necessary to determine
whether the issue being litigated in the present action is “identical” to the issue in the previous
suit and whether that issue was essential to the resulting judgment and, therefore, “necessarily
determined.”17
8
MCR 2.116(G)(3)(a).
9
MCR 2.116(G)(5).
10
MCR 2.116(G)(6).
11
MCR 2.116(I)(1).
12
Morales v Auto-Owners Ins, 458 Mich 288, 294; 582 NW2d 776 (1998).
13
MCR 2.116(G)(4).
14
Morales, supra at 294.
15
Ditmore v Michalik, 244 Mich App 569, 577; 625 NW2d 462 (2001).
16
Id. at 578.
17
See Bd of Co Road Comm’rs for the Co of Eaton v Schultz, 205 Mich App 371, 376-377; 521
NW2d 847 (1994).
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Courts generally honor the "fiction" of the corporation as a distinct entity to serve the
ends of justice, but may ignore this identity when justice would be subverted, such as when a
corporation is attempting to avoid paying its creditors.18 A three-prong test determines whether
it is appropriate to pierce this corporate veil, as plaintiff contends must occur so that it may
collect the judgment entered in its favor in 1996. “‘First, the corporate entity must be a mere
instrumentality of another entity or individual. Second, the corporate entity must be used to
commit a fraud or wrong. Third, there must have been an unjust loss or injury to the
plaintiff.’”19
This action is a subsequent, different cause of action between the same parties, and the
prior garnishment proceeding culminated in a valid, final judgment, namely an order summarily
disposing of the garnishment action. The basis of the previous judgment can be clearly,
definitely, and unequivocally ascertained.20 The garnishment proceeding as a whole concerned
the details of the debts owed to Sombur, which plaintiff could then attempt to collect to satisfy
the judgment in its favor, such as the accounts receivable the automobile manufacturers owed
Sombur. The trial court’s holding in the garnishment proceeding established that plaintiff could
not collect from defendant because defendant’s secured interest was superior to plaintiff’s
interest in these debts as a judgment creditor, and because defendant “owed no amount to
Sombur.”
Defendant attempts to interpret the trial court’s statement in the garnishment action, that
it did not owe Sombur any money, to mean that it did not hold any of Sombur’s property and,
therefore, could not control Sombur. However, while defendant did not owe Sombur any money,
it had purchased Sombur’s assets and name at the foreclosure sale and, allegedly, had taken over
the company’s daily operations. Similarly, defendant emphasizes its superior position as one of
Sombur’s secured creditors in comparison to plaintiff, factors that came out in the garnishment
action. Yet, this does not resolve whether defendant controls Sombur. As we understand it,
plaintiff’s theory is that defendant may occupy this position as a secured creditor with high
priority and, in fact, be exploiting it to deny plaintiff an opportunity to collect the judgment
entered in its favor. Neither case law nor logic inescapably holds that the corporate form must be
respected simply because the allegedly controlling corporation is also a creditor of the
corporation being controlled. Rather, the evidence of the asset purchase and further operation of
Sombur to avoid liquidation is relevant to the control element.
Simplified, the garnishment proceeding can be envisioned as plaintiff’s attempt to cut to
the head of the long line of Sombur’s creditors to collect any of Sombur’s remaining assets,
including a failed attempt to collect from defendant. However, this case is different. Plaintiff is
not attempting to establish its rank among the creditors to collect from third parties, but to
attempt to collect from the entity that now owns Sombur’s assets and, purportedly, controlled
how its assets were managed or diverted while still in business. Thus, we cannot say that the
18
See Foodland Distrib v Al-Naimi, 220 Mich App 453, 456; 559 NW2d 379 (1996).
19
Id., quoting SCD Chemical Distributors, Inc v Medley, 203 Mich App 374, 381; 512 NW2d 86
(1994).
20
Schultz, supra at 376-377.
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issue of control was actually and necessarily determined in the prior proceeding.21 There was a
new and unrelated issue of control for the parties to litigate. Summary disposition under MCR
2.116(C)(7) was, therefore, inappropriate.
V. Alter Ego
Nevertheless, defendant also challenged the evidence that plaintiff could use to pierce its
corporate veil to collect the judgment against Sombur, arguing that there was insufficient proof
that it, defendant, had abused this corporate distinction. We agree with defendant that a plaintiff
attempting to pierce the corporate veil under an alter ego theory must demonstrate more than that
the defendant merely controlled the other corporation.22 If control, alone, were enough to prove
an alter ego claim, there would be no market for assets sold in foreclosure because it would
expose all purchasers to the seller’s liability. However, by demonstrating wrongdoing involving
the corporate form, the law avoids this problem; only those individuals and entities that use the
corporate form to “subvert justice or perpetuate fraud” have the equities weighted so heavily
against them that courts pierce the corporate veil.23
In this case, the lock-box account at Comerica presents an interesting question regarding
actual control and potentially fraudulent manipulation of Sombur’s assets and credit. The
problem with this argument, however, is the complete absence of supporting evidence in the
record. We have searched the trial court record in this case and can find no affidavits, deposition
testimony, or other documentary evidence concerning the complex arrangement surrounding the
accounts and credit with Comerica and whether the creditors defendant and Comerica allegedly
paid actually had lower priority than plaintiff. Nor is there any evidence of a whistleblower who
has come forward to reveal details about the defendant’s financial arrangements as a purposeful
attempt to subvert plaintiffs’ rights to be paid the judgment in its favor. Plaintiff does refer to an
answer to an interrogatory that defendant submitted as proof of defendant’s control over Sombur
and its allegedly improper denial of payment on the judgment in plaintiff’s favor. However, the
interrogatory refers only to facts that others might testify to if called at trial. The record does not
include an affidavit or deposition testimony from any of these individuals, and none of the
individuals mentioned in the answer to the interrogatory signed it. Rather than serving as
evidence, the answer to this interrogatory consisted merely of additional allegations that might be
proved at trial, which is insufficient to defeat a motion for summary disposition under MCR
2.116(C)(10).24 In contrast, a signed affidavit from Sombur’s former vice-president who went to
work for defendant suggests that defendant’s efforts to rehabilitate Sombur were honest,
intended to save employee jobs, and designed to improve the company’s financial situation,
which would have benefited all Sombur creditors. As far as we can tell from the record, this
attempt to revive Sombur failed, which was as much to defendants’ detriment as a secured
creditor as it was detrimental to plaintiff as a judgment creditor.
21
Ditmore, supra at 578.
22
See, generally, Bitar v Wakim, 456 Mich 428, 431; 572 NW2d 191 (1998) (Brickley, J.).
23
Id.
24
See Maiden v Rozwood, 461 Mich 109, 120-121; 597 NW2d 817 (1999).
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On the basis of the limited record we have, there is insufficient evidence to conclude that
a disputed issue of material fact exists concerning whether defendant subverted Sombur’s
corporate form to perpetrate a fraud or commit an injustice in denying plaintiff the ability to
collect the money Sombur owed it on the judgment, meriting summary disposition under MCR
2.116(C)(10). The trial court correctly granted summary disposition, which we will not reverse
even though the trial court articulated an incorrect reason for reaching this result.25
Affirmed.
/s/ William C. Whitbeck
/s/ Kurtis T. Wilder
/s/ Brian K. Zahra
25
See Detroit v Presti, 240 Mich App 208, 214; 610 NW2d 261 (2000).
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