891 N.W.2d 505
Mich. Ct. App.2016Background
- Plaintiffs Edward and Joan Gallagher sold their home to Kaper Properties, paid $37,000, and obtained a judgment against Kaper after Kaper failed to satisfy the existing mortgages as agreed.
- In a 2012 action plaintiffs obtained a judgment against Kaper; claims against Persha (Kaper’s sole shareholder/president) were dismissed without prejudice.
- In 2014 plaintiffs sued Persha alone seeking (1) fraud, (2) breach of fiduciary duty (dismissed as barred), and (3) to pierce Kaper’s corporate veil to reach Persha for the existing Kaper judgment.
- The trial court granted Persha’s MCR 2.116(C)(8) motion, holding plaintiffs had not pleaded actionable fraud and that veil piercing is not an independent cause of action.
- Plaintiffs moved to reinstate the 2012 case to pursue veil piercing against Persha; the trial court denied that motion.
- The Court of Appeals reversed the summary-disposition dismissal of the 2014 veil-piercing suit (allowing a new suit to pursue veil piercing to enforce an existing judgment) and dismissed the reinstatement appeal as moot.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether piercing the corporate veil may be pursued in a new, separate action to enforce an existing judgment against the corporation | Gallagher: a separate action is permitted to pierce the veil and reach responsible individuals after obtaining a judgment against the corporation | Persha: veil piercing is only an equitable remedy tied to the original cause of action and cannot be the subject of a new independent suit | Held: A new action is permissible to pursue veil piercing to enforce an existing judgment; veil piercing is a remedy but may be sought in a separate suit once a judgment exists |
| Whether piercing the corporate veil is a standalone cause of action | Gallagher: plaintiffs may proceed to enforce judgment by seeking veil piercing even if it wasn't pled originally | Persha: piercing is not a cause of action and thus plaintiffs’ separate suit fails as a matter of law | Held: Court reiterates veil piercing is an equitable remedy, not an independent cause of action, but that does not bar a separate suit to enforce an existing judgment |
| Sufficiency of fraud claim in the 2014 complaint | Gallagher: alleged fraud arising from facts in the 2012 transaction supports claim against Persha | Persha: pleadings lack specific false statements of fact required to state fraud | Held: Trial court’s dismissal of the fraud claim is not challenged on appeal; plaintiffs do not contest that dismissal here |
| Whether trial court erred in denying motion to reinstate the 2012 case against Persha | Gallagher: reinstatement necessary to pursue veil piercing based on the earlier judgment | Persha: veil piercing must be tied to the original action; reopening is improper | Held: Because plaintiffs can pursue veil piercing in the 2014 action, the reinstatement issue is moot and that appeal is dismissed |
Key Cases Cited
- Wells v. Firestone Tire & Rubber Co., 421 Mich. 641 (recognizes general presumption respecting separate corporate entities)
- Seasword v. Hilti, Inc., 449 Mich. 542 (same principle favoring corporate separateness)
- Florence Cement Co. v. Vettraino, 292 Mich. App. 461 (discussion of veil piercing as equitable remedy)
- Green v. Ziegelman, 282 Mich. App. 292 (Green I) (proceedings supplementary cannot be used to enter judgment against non-judgment debtor)
- Green v. Ziegelman, 310 Mich. App. 436 (Green II) (res judicata and veil-piercing evidentiary discussion)
- Belleville v. Hanby, 152 Mich. App. 548 (permitting later action to enforce corporate judgment by piercing veil; distinguishes nature of subsequent enforcement action)
- Union Guardian Trust Co. v. Rood, 308 Mich. 168 (merger of cause of action into judgment; actions to enforce judgments)
- Inter-Tel Technologies v. Linn Station Properties LLC, 360 S.W.3d 152 (Ky.) (permitting a separate piercing action after obtaining judgment against debtor corporation)