RICHARD OLIVER V MICHAEL G PERRY
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STATE OF MICHIGAN
COURT OF APPEALS
RICHARD OLIVER,
UNPUBLISHED
June 7, 2011
Plaintiff-Appellant/Cross-Appellee,
v
No. 296871
Wayne Circuit Court
LC No. 08-126798-CZ
MICHAEL G. PERRY, LINDA PERRY,
RIVERTOWN CONSTRUCTION
MANAGEMENT, L.L.C., and MPC LAND,
L.L.C.,
Defendants-Appellees/CrossAppellants,
and
SPACE PLACE, INC., d/b/a ISLAND STOW-AWAY, INC.,
Defendant-Appellee.
Before: SERVITTO, P.J., and HOEKSTRA and OWENS, JJ.
PER CURIAM.
Plaintiff Richard Oliver brought this action against individual defendants Michael Perry
and Linda Perry, and corporate defendants Rivertown Construction Management, L.L.C.,
(“Rivertown”) and Space Place, Inc.(“Space Place”), alleging that defendants were liable for a
default judgment in the amount of $768,257 that plaintiff previously obtained against M. G.
Perry Construction Company (“Perry Construction”). The trial court granted Michael and Linda
Perry’s motion for summary disposition pursuant to MCR 2.116(C)(10). Thereafter, following a
bench trial, the court directed a verdict for defendant Space Place and awarded plaintiff a
judgment against defendant Rivertown on plaintiff’s theories of successor liability and de facto
merger. Plaintiff appeals as of right, challenging the trial court’s summary disposition and
directed verdict decisions, and defendants cross appeal, challenging the judgment against
Rivertown. We reverse the trial court’s summary disposition decision and affirm its directed
verdict decisions and the judgment against Rivertown.
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In a prior case, plaintiff obtained a default judgment against Perry Construction in the
amount of $768,257. This Court affirmed that judgment on appeal. MG Perry Constr Co v
Oliver, unpublished opinion per curiam of the Court of Appeals, issued May 23, 2006 (Docket
No. 265791). While that case was pending, Michael Perry formed Rivertown, using his builder’s
license to obtain a license for Rivertown. In early 2006, Linda Perry obtained her own builder’s
license and became president and sole owner of Rivertown. Relevant to the instant matter,
Rivertown and a building materials supplier, N.A. Manns Lumber, worked out an arrangement
whereby N.A. Manns would extend credit to Rivertown, but instead of granting Rivertown the
usual ten percent discount for contractors, ten percent of Rivertown’s payments were to be
applied toward Perry Construction’s outstanding debt to N.A. Manns. Michael Perry transferred
95 percent of his ownership interest in another corporation, Space Place, to Linda Perry. Space
Place executed a mortgage to secure Perry Construction’s debt to N.A. Manns. Plaintiff alleges
that these transactions were made to allow Perry Construction to avoid its judgment debt to
plaintiff.
In this action, plaintiff sought to enforce the prior default judgment against Rivertown
under theories of successor liability and de facto merger. Plaintiff asserted a claim against Space
Place under the Uniform Fraudulent Transfer Act (“UFTA”), MCL 566.31 et seq. Plaintiff also
asserted a claim against Michael and Linda Perry, alleging that they should be personally liable
for the debt because they disregarded corporate formalities in their scheme to prevent plaintiff
from collecting his judgment against Perry Construction.
The trial court granted summary disposition in favor of Michael and Linda Perry with
respect to plaintiff’s attempt to pierce the corporate veil. At the conclusion of a bench trial, the
court granted Space Place’s motion for a directed verdict, finding that the evidence did not
support a valid claim under the UFTA. However, the court awarded plaintiff a judgment against
Rivertown based on theories of successor liability and de facto merger.
I. PLAINTIFF’S APPEAL
Plaintiff argues that the trial court erroneously granted Michael and Linda Perry’s motion
for summary disposition, thereby dismissing his claim to pierce the corporate veil.
This Court reviews de novo a trial court’s decision on a motion for summary disposition.
Teel v Meredith, 284 Mich App 660, 662; 774 NW2d 527 (2009). A motion under MCR
2.116(C)(10) tests the factual sufficiency of the complaint, and is granted when the proffered
evidence fails to establish a genuine issue regarding any material fact and the moving party is
entitled to judgment as a matter of law. Ward v Titan Ins Co, 287 Mich App 552, 554; 791
NW2d 488 (2010), lv pending. On review of a motion under MCR 2.116(C)(10), a court must
examine the documentary evidence presented and, drawing all reasonable inferences in favor of
the nonmoving party, determine whether a genuine issue of material fact exists. Dextrom v
Wexford Co, 287 Mich App 406, 415-416; 789 NW2d 211 (2010). “A question of fact exists
when reasonable minds could differ as to the conclusions to be drawn from the evidence.” Id. at
416.
In the context of plaintiff’s claims against Michael and Linda Perry, there is little
substantive distinction between a claim for fraudulent conveyance and a claim to pierce the
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corporate veil to reach the Perrys’ individual assets. Corporations are generally regarded as
legally distinct from their shareholders, even if a single shareholder owns all the stock. Dep’t of
Consumer Indus Servs v Shah, 236 Mich App 381, 393; 600 NW2d 406 (1999). However,
equitable principles enable a court to look beyond the legal entity of corporate existence and
pierce the corporate veil when necessary to correct fraud, illegality, or injustice. Id. Each case
involving disregard of the corporate entity must be decided according to its own particular facts.
Id. “The traditional basis for piercing the corporate veil has been to protect a corporation’s
creditors where there is a unity of interest of the stockholders and the corporation and where the
stockholders have used the corporate structure in an attempt to avoid legal obligations.”
Foodland Distrib v Al-Naimi, 220 Mich App 453, 456; 559 NW2d 379 (1996). In Foodland
Distrib, id. at 457, this Court quoted SCD Chem Distrib, Inc v Medley, 203 Mich App 374, 381;
512 N.W.2d 86 (1994), as requiring the following elements be established to pierce the corporate
veil:
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.
The UFTA defines fraudulent transfers as follows:
(1) A transfer made or obligation incurred by a debtor is fraudulent as to a
creditor, whether the creditor's claim arose before or after the transfer was made
or the obligation was incurred, if the debtor made the transfer or incurred the
obligation in either of the following:
(a) With actual intent to hinder, delay, or defraud any creditor of the
debtor.
(b) Without receiving a reasonably equivalent value in exchange for the
transfer or obligation, and the debtor did either of the following:
(i) Was engaged or was about to engage in a business or a transaction for
which the remaining assets of the debtor were unreasonably small in relation to
the business or transaction.
(ii) Intended to incur, or believed or reasonably should have believed that
he or she would incur, debts beyond his or her ability to pay as they became due.
[MCL 566.34(1).]
Here, the substance of plaintiff’s claim is based on piercing the corporate veil. Plaintiff
never alleged that either Michael or Linda Perry incurred a debt. Rather, he alleged that they
transferred or incurred debts through their corporate entities for fraudulent and unlawful
purposes. Accordingly, the only means for plaintiff to establish individual liability on Michael
and Linda Perry is to pierce the corporate veil. Plaintiff adequately pleaded a claim for piercing
the corporate veil by alleging that the Perrys ignored and disregarded corporate formalities in
their transactions to continue Perry Construction’s business as Rivertown. Moreover, plaintiff
introduced evidence that Rivertown loaned $23,000 to Perry Construction, and that there is no
documentation or explanation for this loan. The evidence established a question of fact with
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respect to the Perrys’ personal liability under a theory of piercing the corporate veil.
Accordingly, the trial court erred in granting summary disposition of plaintiff’s claim against
Michael and Linda Perry.
Plaintiff also argues that the trial court erred in granting Space Place’s motion for a
directed verdict. We review a trial court’s decision regarding a motion for a directed verdict de
novo. Genna v Jackson, 286 Mich App 413, 416; 781 NW2d 124 (2009). This Court must view
the evidence in the light most favorable to the nonmoving party and affirm the directed verdict if
there is no factual question upon which reasonable minds could differ. Id. at 416-417.
Plaintiff contends that Space Place’s execution of a mortgage to secure Perry
Construction’s debt qualifies as fraudulent under MCL 566.34(1) because it was made by a
debtor, i.e., Perry Construction, with the intent to defraud plaintiff, a judgment creditor. MCL
566.34(2) provides:
In determining actual intent under subsection (1)(a), consideration may be
given, among other factors, to whether 1 or more of the following occurred:
(a) The transfer or obligation was to an insider.
(b) The debtor retained possession or control of the property transferred
after the transfer.
(c) The transfer or obligation was disclosed or concealed.
(d) Before the transfer was made or obligation was incurred, the debtor
had been sued or threatened with suit.
(e) The transfer was of substantially all of the debtor’s assets.
(f) The debtor absconded.
(g) The debtor removed or concealed assets.
(h) The value of the consideration received by the debtor was reasonably
equivalent to the value of the asset transferred or the amount of the obligation
incurred.
(i) The debtor was insolvent or became insolvent shortly after the transfer
was made or the obligation was incurred.
(j) The transfer occurred shortly before or shortly after a substantial debt
was incurred.
(k) The debtor transferred the essential assets of the business to a lienor
who transferred the assets to an insider of the debtor.
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The trial court granted a directed verdict for Space Place on the ground that no benefit
transferred to Space Place. The trial court also noted that a debt was taken away from Perry
Construction. The court concluded that the transaction was not a fraudulent transfer to prevent
plaintiff from collecting his judgment, but rather a negotiation with N. A. Manns to protect its
interest and continue to do business with Rivertown.
We agree that Space Place’s granting of a mortgage to secure Perry Construction’s debt
does not constitute a fraudulent conveyance under MCL 566.34. It is not an obligation incurred
by a debtor. Assuming, arguendo, that Space Place’s exposure to foreclosure in the event of
Perry Construction’s default constitutes a “transfer made . . . by a debtor” within the meaning of
MCL 566.34(1), there was no evidence that the transfer was made with an actual intent to hinder,
delay, or defraud plaintiff. Space Place’s exposure to mortgage liability did not put plaintiff in a
worse position with respect to collecting the judgment from Perry Construction. Indeed, given
plaintiff’s theory that Rivertown was formed to continue Perry Construction’s business, plaintiff
could actually be in a better position to collect his judgment, because the mortgage enabled
Rivertown to remain in business. Plaintiff’s attempt to collect the judgment debt from
Rivertown pursuant to a fraudulent conveyance theory (or to collect from Michael and Linda
Perry under a piercing of the corporate veil theory) would be futile if Rivertown could not
purchase the supplies it needed to function.
This Court’s decision in Foodland Distrib, 220 Mich App 453, does not compel a
different result. That case involved a complex series of transactions in which an individual,
Amir Al-Naimi, restructured his debt and his businesses’ debts to avoid foreclosure on a
mortgage interest loan to Michigan National Bank. The restructuring included an arrangement in
which New Metro, a business nominally owned by Al-Naimi’s relatives, but owned and operated
de facto by Al-Naimi, increased its secured debt from $233,000 to $625,000 without receiving
consideration.
Al-Naimi and his wife’s personal indebtedness were reduced without
consideration as part of this restructuring. Id. at 467-469. The plaintiff, Foodland Distributors,
was a wholesale grocery distributor that sold groceries to Al-Naimi and his entities to be sold in
party stores and supermarkets that they owned and operated. Id. at 466-467. Foodland brought
an action against New Metro, Al-Naimi, and other entities and individuals associated with AlNaimi, to collect the debts that New Metro had incurred for grocery shipments. Id. at 469-470.
Foodland Distributor’s action against New Metro was dismissed, and the case proceeded to trial
against the three individual defendants under theories of piercing New Metro’s corporate veil.
Id. at 470.
One issue in Foodland’s action was whether the transfer of debt to New Metro constituted
a fraudulent conveyance. The trial court concluded that it was not, because Foodland
Distributors failed to show that it was adversely affected by the restructuring agreement,
inasmuch as the transaction did not result in any preferential or fraudulent payments to Michigan
National Bank at Foodland’s expense. Id. at 476. On appeal, this Court observed:
In a “typical” fraudulent conveyance, the debtor conveys certain property
(i.e., an item of positive value) to another party and receives in exchange therefor
insufficient consideration. See, e.g., MCL 566.14 et seq. In this case, rather than
conveying property with a positive value, Amir conveyed a debt to New Metro,
without any attendant benefit to New Metro. The question whether conveyance
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of a debt could be a fraudulent conveyance raises interesting questions of first
impression in our state. [Id. at 477.]
The Court considered the UFTA’s predecessor, the Uniform Fraudulent Conveyance Act, MCL
566.11 et seq. The Court noted that former MCL 566.14 provided:
Every conveyance made and every obligation incurred by a person who is
or will be thereby rendered insolvent is fraudulent as to creditors without regard
to his actual intent if the conveyance is made or the obligation is incurred without
a fair consideration.
The Court stated:
Central to the analysis here is whether New Metro’s assumption of debt,
for no consideration, can be a fraudulent conveyance, even though no “asset” was
transferred from New Metro to any entity. MCL 566.11 states that a
“‘[c]onveyance]’ includes every payment of money, assignment, release . . . and
also the creation of any lien or incumbrance.” (Emphasis added.) Thus, while
saddling a corporation with a debt for no consideration is not a “traditional”
conveyance, it appears that the definitions in the statute are broad enough to
encompass such a “reverse” conveyance.
There is also some support for this interpretation in SCD Chemical
Distributors, Inc v Medley, 203 Mich App 374, 378-379; 512 NW2d 86 (1994),
where this Court was attempting to determine whether inventory, customers, and
goodwill were “assets” within the meaning of the UFCA. The Court looked to
two non-Michigan cases: one case held that the UFCA applied to any property
that has value; the other held that the act does not cover property that has no
value. Following this logic in the instant case, a debt has negative value, but
value nonetheless. I thus conclude that incurring a debt for no consideration
could constitute a fraudulent conveyance. [Foodland Distrib, 220 Mich App at
480-481.]
The Court concluded that the increase of New Metro’s debt from $233,000 to $625,000 as a
result of the restructure agreement, which was incurred without any consideration, constituted a
fraudulent conveyance because New Metro was insolvent before, or as a result of, incurring the
obligation. Id. at 482.
The instant case is distinguishable from Foodland Distrib. In Foodland Distrib, New
Metro was the debtor owing an obligation to the plaintiff-creditor, Foodland Distributors. The
basis of Foodland Distributor’s action against New Metro and its principals was that New
Metro’s incurrence of the debt from Al-Naimi was a fraudulent conveyance to itself (or
incurrence of an obligation), without consideration, that left New Metro insolvent. If Space
Place’s granting of a mortgage is considered a conveyance from Perry Construction, it is not a
conveyance that caused the debtor, Perry Construction, to incur debts beyond its ability to pay as
they became due. MCL 566.34(1)(b)(ii). Accordingly, the trial court did not err in directing a
verdict for Space Place.
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II. DEFENDANTS’ CROSS APPEAL
Defendants argue that the trial court erred as a matter of law in entering a judgment
against Rivertown because successor liability is not available to a judgment creditor. We review
a trial court’s conclusions of law de novo. Chelsea Investment Group, LLC v City of Chelsea,
288 Mich App 239, 250-251; 792 NW2d 781 (2010).
“[A] corporate successor may be liable for its predecessor’s defective products if the
totality of the acquisition demonstrates a basic continuity of the enterprise between the
predecessor and successor corporations.” Foster v Cone-Blanchard Machine Co, 460 Mich 696,
702; 597 NW2d 506 (1999), citing Turner v Bituminous Cas Co, 397 Mich 406, 417 n 3; 244
NW2d 873 (1976). The Court in Foster noted that the traditional rule of successor liability
focused on the nature of the transaction between the predecessor and successor corporation, and
imposed successor liability where the acquisition was accomplished by merger, with shares of
stock serving as consideration. Foster, 460 Mich at 702. The traditional rule did not impose
liability where the purchase was accomplished by an exchange of cash for assets, unless one of
five narrow exceptions applied. Id. The five exceptions are:
“(1) where there is an express or implied assumption of liability; (2) where
the transaction amounts to a consolidation or merger; (3) where the transaction
was fraudulent; (4) where some of the elements of a purchase in good faith were
lacking, or where the transfer was without consideration and the creditors of the
transferor were not provided for; or (5) where the transferee corporation was a
mere continuation or reincarnation of the old corporation.” [Id. at 702, quoting
Turner, 397 Mich at 417 n 3 (citation and internal quotations omitted).]
The Court in Turner expanded the traditional rule to force a successor to accept the predecessor’s
liability with the benefits of continuity where there is a continuity of enterprise between the
successor and the predecessor. Foster, 460 Mich at 703, citing Turner, 397 Mich at 430. Under
the expanded rule,
a prima facie case of continuity of enterprise exists where the plaintiff establishes
the following facts: (1) there is continuation of the seller corporation, so that
there is a continuity of management, personnel, physical location, assets, and
general business operations of the predecessor corporation; (2) the predecessor
corporation ceases its ordinary business operations, liquidates, and dissolves as
soon as legally and practically possible; and (3) the purchasing corporation
assumes those liabilities and obligations of the seller ordinarily necessary for the
uninterrupted continuation of normal business operations of the selling
corporation. Turner identified as an additional principle relevant to determining
successor liability, whether the purchasing corporation holds itself out to the
world as the effective continuation of the seller corporation. [Foster, 460 Mich at
703-704, citing Turner, 397 Mich at 430.
Defendants argue that the successor liability doctrine has not been recognized outside the
context of product liability cases. Both Foster and Turner were product liability cases.
However, this Court has tacitly recognized the doctrine of successor liability in cases involving
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commercial matters. See Lakeview Commons Ltd Partnership v Empower Yourself, LLC, ___
Mich App ___; ___ NW2d ___ (Docket No. 291728, issued September 16, 2010, approved for
pub November 9, 2010), and RDM Holdings, Ltd v Continental Plastics Co, 281 Mich App 678,
717-719; 762 NW2d 529 (2008) (successor liability applies to corporations in purely commercial
contexts, such as breach of a lease agreement); see also Antiphon, Inc v LEP Transp, Inc, 183
Mich App 377; 454 NW2d 222 (1990).
Nonetheless, in Starks v Mich Welding Specialists, Inc, 477 Mich 922; 722 NW2d 888
(2006), our Supreme Court affirmed a judgment in favor of a successor corporation in a case in
which a judgment creditor sought to enforce a judgment against the judgment debtor’s alleged
successor. The Supreme Court stated:
In lieu of granting leave to appeal, we AFFIRM the judgment of the Court
of Appeals. Where, as here, a successor corporation acquires the assets of a
predecessor corporation and does not explicitly assume the liabilities of the
predecessor, the traditional rule of corporate successor non-liability applies. See
Foster, [460 Mich 696]. Because an exception designed to protect injured victims
of defective products rests upon policy reasons not applicable to a judgment
creditor, the Court declines to expand the exception to the traditional rule set forth
in Turner [397 Mich 406] to cases in which the plaintiff is a judgment creditor.
Thus, a judgment creditor is precluded from enforcing a judgment against a successor
corporation under the doctrine of successor liability.
The trial court determined that Starks was distinguishable because plaintiff proved that
Rivertown implicitly assumed Perry Construction’s liabilities. The trial court’s finding of an
implicit assumption of liabilities was based on its analysis of what it labeled the “five elements”
set forth in Craig v Oakwood Hosp, 471 Mich 67, 93-94; 684 NW2d 296 (2004). The trial
court’s approach misapprehends the decision in Starks and the holding in Craig. In Starks, the
Supreme Court specifically stated that the assumption of liability must be explicit, a condition
that is not satisfied in this case. Further, the Craig Court did not set forth five “elements” to be
satisfied as proof of an implicit assumption of liabilities, but rather recited the five alternate
means of proving successor liability as discussed in Turner and Foster. Consistent with the
Starks Court’s limited recognition of successor liability, the Craig Court concluded that
successor liability is not available in a medical malpractice action. Id. at 96-99.
The trial court erred in concluding that plaintiff could prevail on a successor liability
theory if it proved five “elements” of implicit assumption of Perry Construction’s liabilities.
While we agree that Rivertown was a successor of Perry Construction, the decision in Starks
clearly and plainly provides that a judgment creditor cannot enforce a judgment against a
successor corporation unless there has been an explicit assumption of the predecessor’s debts,
which does not exist in this case.
With respect to de facto merger, in Craig, 471 Mich at 97-98, the Supreme Court stated
that “[a] de facto merger exists when each of the following requirements is met”:
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(1) There is a continuation of the enterprise of the seller corporation, so
that there is a continuity of management, personnel, physical location, assets, and
general business operations.
(2) There is a continuity of shareholders which results from the
purchasing corporation paying for the acquired assets with shares of its own
stock, this stock ultimately coming to be held by the shareholders of the seller
corporation so that they become a constituent part of the purchasing corporation.
(3) The seller corporation ceases its ordinary business operations,
liquidates, and dissolves as soon as legally and practically possible.
(4) The purchasing corporation assumes those liabilities and obligations
of the seller ordinarily necessary for the uninterrupted continuation of normal
business operations of the seller corporation. [Quoting Turner, 397 Mich at 420.]
The evidence in this case established the employees of Perry Construction and Rivertown were
the same and that the businesses were run from the same address. It is clear that Perry
Construction ceased its ordinary business operations when Rivertown was formed, and there was
evidence suggesting that Rivertown paid some of Perry Construction’s debts and that Rivertown
continued projects originally begun by Perry Construction. It was established that Michael Perry
signed a check on behalf of Rivertown, drawn out of Rivertown’s bank account, to Perry
Construction. It is also clear that Rivertown was initially formed with the use of Michael Perry’s
builder’s license, that his wife was the owner of Rivertown, that both Michael and Linda Perry
relied on the monies earned by Perry Construction to support their household, and that
Rivertown was formed to provide the income to support the household that was now missing
with the closure of Perry Construction. Thus, the trial court did not err to the extent that it
granted plaintiff a judgment against Rivertown based on a de facto merger theory.
Judgment against Rivertown is affirmed. The trial court’s grant of summary disposition
for the Perry’s is reversed, and its directed verdict for Space Place is affirmed. We remand to the
trial court for proceedings consistent with this opinion. We do not retain jutisdiction.
/s/ Deborah A. Servitto
/s/ Joel P. Hoekstra
/s/ Donald S. Owens
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