305 N.W.2d 297 | Mich. Ct. App. | 1981
KLINE
v.
KLINE
Michigan Court of Appeals.
Kirk & Robertson, for the intervening plaintiff.
Frederick W. Lauck, for defendant.
Before: D.C. RILEY, P.J., and D.E. HOLBROOK, JR., and M.B. BREIGHNER,[*] JJ.
PER CURIAM.
This is an appeal by leave granted from an order denying plaintiff-intervenor's motion to quash writs of garnishment. The intervenor claimed that the obligation of the garnishee was to *702 it, the professional corporation, and not to its sole shareholder, Robert L. Kline.
Robert L. Kline and Dorothy A. Kline were parties to an action which ended in a judgment of divorce. As part of the property settlement, Dr. Kline agreed to pay a certain sum of money to defendant. He did not pay and defendant sought to garnish debts owed to him by, among others, Delta Dental Plan. Delta disclosed that it owed debts, not to Robert L. Kline, but to Robert L. Kline, D.D.S., P.C., a professional service corporation organized pursuant to MCL 450.221 et seq.; MSA 21.315(1) et seq., and owned wholly by Robert L. Kline. The lower court held that Robert L. Kline and the professional corporation should be treated as one and the same, disregarding the corporate entity.
Generally, the law treats a corporation as an entirely separate entity from its stockholders, even where one person owns all of the corporation's stock. Bourne v Muskegon Circuit Judge, 327 Mich. 175, 191; 41 NW2d 515 (1950). Complete identity of interest between sole shareholder and corporation may lead courts to treat them as one for certain purposes. Williams v American Title Ins Co, 83 Mich. App. 686; 269 NW2d 481 (1978). Where the corporation is a mere agent or instrumentality of its shareholders or a device to avoid legal obligations, the corporate entity may be ignored. People ex rel Attorney General v Michigan Bell Telephone Co, 246 Mich. 198, 205; 224 N.W. 438 (1929). A court may look through the veil of corporate structure to avoid fraud or injustice. Schusterman v Employment Security Comm, 336 Mich. 246; 57 NW2d 869 (1953). The community of interest between corporation and shareholders may be so great that, to meet the purposes of justice, they *703 should be considered as one and the same. L A Walden & Co v Consolidated Underwriters, 316 Mich. 341, 346; 25 NW2d 248 (1946). When the notion of a corporation as a legal entity is used to defeat public convenience, justify a wrong, protect fraud or defend crime, that notion must be set aside and the corporation treated as the individuals who own it. Paul v University Motor Sales Co, 283 Mich. 587, 602; 278 N.W. 714 (1938). The fiction of a corporate entity different from the stockholders themselves was introduced for convenience and to serve the ends of justice, but when it is invoked to subvert the ends of justice it should be and is disregarded by the courts. Paul, supra. A court's treatment of a corporate entity clearly rests on notions of equity, whether it is an action at law or at equity. Each case involving disregard of the corporate entity rests on its own special facts. Brown Brothers Equipment Co v State Highway Comm, 51 Mich. App. 448; 215 NW2d 591 (1974).
The lower court held that this professional corporation established for tax and pension purposes is a "hybrid" type of corporation and for that reason denied the motion to quash the writ of garnishment. We cannot agree that this is a sufficient reason for ignoring the corporate entity. We therefore remand to the trial court for a hearing on the issue.
The Professional Service Corporation Act, 1962 PA 192, as amended, MCL 450.221 et seq.; MSA 21.315(1) et seq., allowed certain licensed professionals to incorporate for the first time. Professional corporation laws were enacted largely as a result of efforts by professionals to enjoy the same Federal tax advantages available to corporations. Note, Accident and Malpractice Liability of Professional Corporation Shareholders, 10 Mich J L Reform *704 364, 365 (1977). In passing the statute, the Legislature invested professional corporations with most of the properties of other business corporations. The Legislature specifically refused to limit liability for certain torts committed by the employees of a professional corporation, including professional malpractice. By implication, the Legislature intended professional corporations to be otherwise treated like other corporations in determining liability. This Court will not hold that the purpose of incorporating to enjoy Federal tax benefits is such a purpose as will entitle a court to automatically disregard the corporate fiction.
A professional corporation owned by a single shareholder may often present such a community of interest that the corporate entity should be disregarded. Where a court finds that justice so requires, it will ignore the corporate entity. We do not believe that the lower court made such a finding. While the record shows that the court considered the injustice which might result from respecting the corporate entity, it failed to hear evidence concerning employees and other third-party creditors of the professional corporation. If the court finds that ignoring the corporate entity will work a fraud or injustice on third parties, it may decide to respect the corporate entity if the interests of justice so demand.
We direct that plaintiff-intervenor's motion to intervene be granted for the purpose of determining if the corporate entity should be disregarded. Remanded to the lower court for proceedings not inconsistent with this opinion. We retain no jurisdiction. Costs to abide the final result.
NOTES
[*] Circuit judge, sitting on the Court of Appeals by assignment.