Police & Fire Retirement System of Detroit v. Michael a Leibowitz
329048
| Mich. Ct. App. | Feb 14, 2017Background
- Plaintiff (City of Detroit Police & Fire Retirement System) loaned $10,000,000 to Invescor, a life-settlement broker; Invescor defaulted and plaintiff obtained a default judgment against Invescor for $10,131,250.
- Invescor was controlled by defendant Michael Leibowitz, its sole shareholder, president, and CEO; plaintiff later sued Leibowitz seeking to pierce the corporate veil and hold him personally liable for the Invescor judgment.
- Discovery showed transfers from Invescor to Leibowitz and charges of personal expenses to corporate accounts; plaintiff alleged commingling, self-enrichment, and deceptive accrual-based accounting that created "phantom assets."
- Defendant admitted some personal charges but produced testimony that such items were reconciled and that the accounting treatment reflected industry practice and disclosures to plaintiff’s due-diligence advisor.
- The trial court granted plaintiff summary disposition under MCR 2.116(C)(10), pierced the corporate veil, and entered judgment against Leibowitz; the Court of Appeals reversed and remanded, holding genuine issues of material fact existed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether summary disposition was proper on plaintiff's veil-piercing claim | Evidence shows Leibowitz used Invescor as an alter ego, commingled funds, siphoned assets, and concealed financial condition — no factual dispute | Reconciliation practices and testimony create disputed facts; transfers may reflect loans or business support, not theft | Reversed: (C)(10) inappropriate because genuine issues of material fact exist |
| Whether Invescor's breach of contract suffices as the "wrong or fraud" element for piercing | Breach of the loan agreement and the entity’s inability to pay supports the "wrong" element | Breach alone is insufficient; plaintiff must show an independent fraudulent act by Leibowitz | Held breach can satisfy the second element if the entity was used to effect the wrong; plaintiff need not show separate tort by Leibowitz |
| Whether plaintiff suffered an unjust injury caused by Leibowitz's abuse of the corporate form | Deceptive accounting and transfers to Leibowitz caused an unjust loss distinct from a failed investment | Plaintiff’s due diligence received disclosure of staging method; injury may be from plaintiff’s advisors or market collapse | Questions of fact exist about disclosures, industry practice, and causation; summary disposition denied on this element |
| Right to jury trial on remand | N/A — plaintiff seeks equitable relief (veil piercing) and enforcement of existing judgment | Leibowitz demanded a jury earlier and contends breach claim entitles him to jury fact-finding | No jury right: veil piercing is equitable; underlying breach judgment against Invescor already exists and was merged, so no separate jury-triable legal claim remains |
Key Cases Cited
- Maiden v. Rozwood, 461 Mich. 109 (standard for reviewing (C)(10) motions and viewing evidence in favor of nonmovant)
- Rymal v. Baergen, 262 Mich. App. 274 (piercing veil elements: instrumentality, wrong/fraud, unjust injury)
- Glenn v. TPI Petroleum, 305 Mich. App. 698 (factors used by courts in veil-piercing analysis)
- Foodland Distrib. v. Al–Naimi, 220 Mich. App. 453 (veil piercing is equitable; courts may ignore corporate form to prevent injustice)
- Tredit Tire & Wheel Co., Inc. v. Regency Conversions, LLC, 636 F. Supp. 2d 598 (E.D. Mich.) (breach of contract can satisfy wrongful-act element for veil piercing)
- Nieves v. Bell Indus., Inc., 204 Mich. App. 459 (no fraud where plaintiff had means to discover falsity)
- Green v. Ziegelman, 310 Mich. App. 436 (control exercised by owner can constitute use of entity to wrong complainant)