*1
l
Ross v Auto Club
ROSS v AUTO CLUB GROUP
(Calendar
2).
Argued
Docket No. 130917.
December
2007
No. Decided
7,May
2008.
brought
Randall L. Ross
an action in the Macomb Circuit Court
against
Group, seeking
Auto Club
work-loss benefits under the
act,
seq.
no-fault
plaintiff
MCL 500.3101 et
The
was the sole
employee
shareholder
subchapter
corporation,
and sole
of a
S
paid
wages.
defendant, relying
which
him
The
on Adams v Auto
Ass’n,
App
(1986),
Club Ins
plaintiffs
186
had denied the
corporation
operated
claim because the
during
had
at a loss
the
question.
court,
Miller, J.,
time in
granted
The
Donald G.
the
plaintiffs
summary disposition and,
motion for
in addition to
awarding
500.3107(l)(b),
him work-loss benefits under MCL
pursuant
500.3148(1),
awarded him
ruling
fees
to MCL
pay
that the defendant’s refusal to
benefits was unreasonable. The
Gage
Appeals,
EJ.,
JJ.,
Court of
and
Hoekstra,
Wilder,
affirmed, concluding that the defendant had relied on caselaw that
did not
plaintiff
address the circumstances and that
the
had
(2006).
supplied
supporting
W-2forms
his claim. 269 Mich
356
sought
appeal,
Supreme
The defendant
leave to
and the
Court
(2006).
initially
reconsideration,
denied leave.
held that it was under MCL to calculate the by self-employed independent benefits of a contractor work-loss deducting expenses gross his business from his income. Adams is directly point, not on but the defendant’s reliance on it and refusal clearly pay by benefits reasonable. The trial court erred was deciding argument the defendant’s was not based on a legitimate question statutory interpretation. of concurring, additionally disagree Justice wrote awith Kelly, Corrigan’s point partial concerning raised in Justice dissent positions majority opinion that Justice took in the in this Kelly opinion serving case and in an earlier she authored while in the Appeals. part part. Affirmed in and reversed in concurring part dissenting part, Justice in Weaver, I, II, parts majority’s opinion affirming concurred in and III of the plaintiff, the award of benefits to the work-loss but dissented from part opinion reversing attorney IV of that the award of fees to the plaintiff. agreed She instead with the reasons stated in the Court Appeals opinion concluding that the trial court did not clearly by attorney awarding err fees. joined by concurring part Justice Justice Corrigan, Markman, dissenting majority’s part, part concurred in IV of the fees, opinion reversing the award of but dissented from wages part plaintiffs the conclusion in III that the W-2 established purposes calculating his loss of income from work for work-loss plaintiff reported corporation’s benefits. The losses on his wages. personal paid tax returns and no income taxes on his explicitly recognizes relationship act between income no-fault Rossv Auto Club plaintiff corpo- from work and taxable income. While the and his identities, separate legal merely ration have his W-2s reflected the cash flow that the allowed himself from a business that generated Reimbursing no income from work. for this lost cash flow would subsidize his business losses and would not compensate him for his actual loss of income from work. While the subchapter corporation employee may of a S be the appropriate measure of the loss of income from work in some cases, employee a work-lossclaim the sole shareholder and sole subchapter corporation subject of a inquiry S to a factual concerning the actual amount of income lost. The essen- tially operated corporation proprietorship, as a sole and the genuine concerning defendant created a issue of material fact amount, any, if actual loss of income. The judgment reversed, of the Court of should be and the case should proceedings. be remanded to the trial court for further — 1. Insurance — —Subchapter S Corpora- No-Fault Work-Loss Benefits tions. person A who is the sole shareholder and sole of a is entitled under the no-fault act to *3 corporation; work-lossbenefits based on his or her from the corporation’s expenses business corpora- or the fact that the operated tion calculating at a loss is person’s irrelevant in (MCL500.3107[l][b]). wage loss — 2. Insurance — —Attorney No-Fault Unreasonable Denials of Benefits Fees. provides The no-fault act for an award of fees if an insurer unreasonably pay delayed payment claim; refused to or of a justify delay by insurer can its showing refusal or that it was the product legitimate question statutory construction, of a of consti- law, uncertainty; tutional or factual the determinative factor is not ultimately whether the responsible paying insurer is held for benefits, delay but whether its initial refusal or was unreasonable (MCL 500.3148[1]). Mueller, Olsman (by EC. Jules B. Olsman and Donna MacKenzie), M. for the plaintiff.
Schoolmaster, Horn, Killeen, Siefer, Arene & Hoehn (by David R. Tuffley) and John A. Lydick, for the defendant. [May- op Opinion the Court
Amici Curiae: Coté, Torree J. Yeager, & EC. John A. (by
Willingham Letter), for Farm Bureau Mutual Breen, and Leon J. Company Michigan. Insurance and Salvatore W. Ryan Miller Johnson R. Stephen (by Pirrotta) Auto No-Fault. Protecting the Coalition Killian,
Hall, Render, Lyman, Heath & P.L.L.C. (by Romano), for the Michi- Voigt John L. Lowes and Leah gan Hospital Health and Association. out over dispute J. This case arises
Kelly, injured Randall Ross was no-fault benefits. Plaintiff submitted a claim for an automobile accident and Group, to defendant Auto Club work-loss benefits claim, no-fault insurer. Defendant denied him to file this lawsuit. The trial court not prompting benefits, awarded but also awarded attor- Court of affirmed. ney fees. The granted application ap- We defendant’s for leave to properly We hold that the trial court awarded peal. But it erred clearly work-loss benefits. when that defendant’s refusal benefits was deciding pay legitimate question statutory not based on a inter- affirm the pretation. consequence, As a we is entitled to Appeals judgment work-loss benefits, but reverse its affirmance of the award of attorney fees.
I. PACTS *4 in At injured Plaintiff was an automobile accident. accident, the time of the he was the sole shareholder Inc. employee Michigan Packing Company, and sole entity Plaintiff had this under the Busi- incorporated Ross v Auto Club Opinion of the Court (BCA)1 Corporation and, ness Act federal pur- for tax poses, had filed an election under subchapter S of the Internal Revenue Code.2
As a injuries, result of his was unable to He work. made a claim to for defendant work-loss In claim, benefits. of his support plaintiff provided defendant with forms showing Michigan Packing had paid plaintiff in 2001 wages through 2003.3
Defendant denied
claim. It relied on the
methodology
benefit-calculation
set forth
the Court
in Adams v Auto Club Ins Ass’n.4 Defendant
concluded that
had failed to establish a claim
lost
income because Michigan Packing operated at a
during
at
years
loss
issue.5
Plaintiff
6,
filed
lawsuit on May
this
2004. The trial
granted
court
his motion for summary disposition,
ruling that he was entitled to work-loss benefits based
his wages.
on
The court also
awarded
fees
500.3148(1),
under MCL
attorney-fee
no-fault act’s
provision. It found that defendant
unreasonably
had
delayed making payment
plaintiff.
Defendant moved
for reconsideration. The trial
motion,
court denied the
and defendant
in
appealed
Appeals.
Court of
seq.
MCL 450.1101 et
2 Subchapter
Code,
through
S of the Internal Revenue
26 USC 1361
1379,
qualifying corporation
allows a
to avoid federal taxation at the
level,
corporate
creating
“pass-through”
instead
of income that is taxed
Dep’t Treasury,
229, 236;
at the
v
shareholder level. Chocola
(1985).
6 l 481 Mich Opinion op the Court opin- published in a affirmed Appeals The Court rejected had properly trial court held that ion.6 It by defen- methodology proposed the benefit-calculation plain- on benefits based correctly granted and had dant also held Appeals The Court of wages.7 tiffs attorney by awarding clearly not erred court had trial because unreasonable denial It found defendant’s fees.8 dissimilar to having facts had relied on a case defendant Moreover, had supplied case. those of this denied defen- The Court his claim.9 supporting forms motion for reconsideration. dant’s in this Court. appeal for leave to applied Defendant granted but later application, denied the Initially, we 7, On March motion for reconsideration. defendant’s concerning 2007, argument heard oral this Court correctly affirmed “the Court of whether attorney plaintiff pursuant fees to award of trial court’s 500.3148(1).”10 on the hearing argument After to consider both appeal leave to granted we application, 11 benefits issue. issue and the attorney-fee OF REVIEW
II. STANDARD the lower us to decide whether requires This case act in deter- interpreted the no-fault properly courts benefits. is entitled work-loss mining are reviewed de statutory interpretation Issues of novo.12
6 (2006). 356; Group, 787 711 NW2d Ross v Auto Club 7 Id. at 361-362. 8 Id. at 362.
9 Id. at 363-364.
10
(2006).
Whereas of law are reviewed de a trial findings court’s of fact are reviewed for clear error.15 A clearly decision is erroneous “the when re- a viewing court left with firm definite and conviction that a mistake has been made.”16
III. WORK-LOSS BENEFITS The concerning issue work-loss benefits is one first It impression. is whether can someone recover work- 500.3107(l)(b) loss benefits under MCL if he or she is the sole employee subchapter and shareholder of a S corporation that money lost more it paid wages. than Defendant plaintiff, contends that is such person, who is not entitled to points benefits. Defendant that a out corporation’s profits pass losses through to the shareholders for tax Accord- purposes. ingly, it argues, plaintiff should be treated like an unincorporated proprietor, sole which means when calculated, his income is gross his must receipts by be reduced expenses. business Appeals rejected this argument.
13 500.3148(1). (2006). Sweebe, 151, 154; See Sweebe v 474 Mich 15 Id. Kitchen, 654, 661-662; Kitchen v 641 NW2d 245 Opinion of the Court irrel- were losses corporation’s the holding
In that benefits, work-loss computing evant to stated: Court of (1) plaintiff received case, dispute no that there is In this (2) plaintiff s corporation and employee of
wages as an determined on corporation was not from remuneration corporation. of the net income of the annual the basis on the lost claim based a work-loss did not assert Plaintiff distinguish this case corporation. These facts profits plain argument that reject defendant’s Adams. We from a calculation of self-employment status dictates tiffs corporate ex less the receipts gross emphasize plaintiffs net income. We penses to determine wages and was not received plaintiff as an individual receipts gross of the basis of the on the remunerated justify the presents no evidence to corporation. Defendant “ entity corporate long-held ‘[t]he disregard of the rule single owned although all its stock is is distinct ” Moreover, corporation’s] “[a corporation.’ individual or doing so would respected, unless separate existence will be contrary be justice cause a result that would or subvert public policy.” plain clearly overriding Because other some corporation, and because wages from the tiff received contrary, the presented no evidence to the has defendant corporation are irrelevant expenses of the business *7 loss, plaintiff is treated as calculating plaintiffs wage and any employee position being in no different than court corporation operating at a loss. trial other correctly plaintiff was entitled work- determined that summary properly granted his motion for loss benefits disposition.[17] reached the the Court of conclude that
We Accordingly, we affirm right reasons. result for the right entitled to work- and hold that is its decision wages. on his loss benefits based original; (emphasis citations Ross, in Mich at 361-362 omitted). Ross v Auto Club
Opinion of the Court Justice CORRIGAN argues her partial dissent that defendant has created a factual question regarding the amount of loss of income from work. This ignores legitimate distinction between a share- holder and the corporate entity that is established by Michigan law. What Justice CORRIGAN says about the nature of a subchapter S corporation is true: for federal income purposes, taxation the income and losses of a corporation pass through individual if shareholders as the income and losses belonged to the members aof partnership. But her “income” analysis by errs suggesting that blurring corporate and shareholder identities for federal taxation purposes also blurs separate legal identities created for those by Indeed, entities the BCA. authority she relies on made clear for federal taxation purposes alone, a subchapter S corporation merely analogous to a partnership or a sole proprietorship.
There is no authority for Justice CORRIGAN’s proposi- tion that the distinct corporate identity created law Michigan may be ignored. The corporation’s in- come or losses are not the shareholder’s income or losses for purposes of the no-fault act’s work-loss- provision. benefits Neither the BCA nor the no-fault act supports Thus, her analysis. her statement that “plain- tiff and his wife had no 2001, taxable income in entirely 2003”18 misses the central point: regardless of whether he was subject to taxation law, under federal indisputably received actual income in the form of years. those Justice CORRIGAN ignore seems to the import of her own observation that “plaintiffs work as the sole of his resulted no income —but overall lossés—to the [18] Post at 20. *8 1
10 Opinion of to the ultimately belonged The losses corporation.”19 plaintiff. not to corporation, accom- core, position would its Justice CORRIGAN’s At It would corporate veil. facto of piercing a de plish in engaged had not though the shareholder do this even a justify that would conduct wrongful fraudulent or punish form. It would corporate ignoring court’s S, a under filing an election a report him to loss designation permits legitimate indulges CORRIGAN purposes. taxation Justice for federal question in that defendant created speculation summary under MCR disposition material fact to defeat 2.116(0(10). the undis- explain And she fails to how inaccurate reflec- wages is an puted proof plaintiffs of his loss of income from work and how tion fig- possibly losses could diminish corporation’s ure.20 FEES
W.ATTORNEY attorney The second issue is whether award act for an award provides fees was The no-fault proper.21 19Post at 20. opinion, plaintiff received at least As noted in footnote 3 of this $11,250 years Thus, question. of his of the tax as result work each $11,000 annually corporation, at least for his own for the earned employment Presumably plaintiff paid on these also taxes
benefit. wages, payroll the Federal Insurance Contributions such as taxes under Act, attempt explain Corrigan does not also known as FICA. Justice any $11,000 corporation’s had effect on the how the losses bank account. by acquiescing argues that defendant has waived this claim Plaintiff 7, 2005, entry judgment. March final This in the of the trial court’s consistently objected argument merit. Defendant has to the award has no judgment approval entry of the of the did fees. Defendant’s unappealable disputed settlement or into not transform issue Howlett, Contracting, Ahrenberg judgment. Mechanical Inc v consent See 74, 77-79; Mich Ross v Auto Club
Opinion of the Court *9 attorney reasonable fees to a if claimant the insurer claim. unreasonably refuses to pay the Specifically, 500.3148(1) provides: An is entitled to a advising reasonable fee for representing personal claimant in an action for or property protection insurance benefits which are overdue. attorney’s The fee charge against shall be a the insurer recovered, addition to the benefits if the court finds that unreasonably the insurer pay refused to the claim or unreasonably delayed making proper payment. purpose
The of the no-fault act’s attorney-fee penalty provision is to ensure prompt payment to the insured.22 Accordingly, an insurer’s refusal or delay places a bur- den on the insurer to justify its refusal delay.23 or The insurer can meet this burden showing that refusal or delay is the product of a legitimate question of statutory construction, law, constitutional or factual uncertainty.24 trial court correctly set forth this rule of law in
determining that plaintiff was entitled to attorney fees. The issue is whether clearly it erred in applying this finding rule and that defendant’s refusal was not based on a legitimate question of statutory construction, law, constitutional or factual uncertainty. The determi- native factor in our inquiry is not whether the insurer ultimately responsible is held benefits, but whether its initial refusal to pay was unreasonable. sought
Plaintiff work-loss benefits under MCL 500.3107(l)(b), which states: 22 Michigan See Employees Morris, Ed 180, Mut Ins Co v 460 Mich 200 (1999). 12; n 23 America, Attard v Citizens Ins Co (1999).
NW2d 633 Co, 51, 66; GoblervAuto-OwnersIns 428 Mich 404 NW2d 199 Opinion
(1) (2), personal pro- provided Except in subsection as following: payable for the benefits are tection insurance (b) consisting income from work an of loss of Work loss during performed the first 3 injured person would have not been years the accident if he or she had after the date of injured. section, a to benefits under this
In order to be entitled a loss of income. must suffer forms and asserted provided Plaintiff in this case made represented his income. He they adequately that he was the sole share- despite this claim the fact of a holder sole *10 in money paid wages. more then it him that had lost must be con- corporate Defendant asserted that losses a sole share- calculating sidered when “income” for Defendant’s employee. holder who is also the sole In impression. an issue of first argument presents of the was not entitled support argument benefits, defendant relied on the Court of to work-loss in Ins Ass’n. decision Adams v Auto Club Adams, In motor vehicle accident permanently accident, At time the he was disabled the the plaintiff. as an inde- self-employed cosmetologist who worked 41 percent weekly contractor. He of his pendent paid rental and also gross required revenue as chair was including expenses pay expenses, all of his own business applied and materials. When he for work- supplies accident, the defendant insurance loss benefits after of 85 company initially approved payment percent average daily gross receipts. Approxi- of the plaintiffs later, however, the defendant decided mately year one of his percent that the was entitled suit, claiming receipts. plaintiff brought net Ross v Auto Club Opinion of the Court benefits should be calculated on the basis of his average daily gross receipts. The defendant argued that it should be allowed to deduct business in expenses calculating his work-loss benefits.25 The Court of Appeals began its analysis Adams by noting that the issue to be decided was the proper method for calculating work-loss benefits under MCL 500.3107(l)(b).26 The Court noted that the statute al- lows injured party to collect benefits for “loss of income” but does not define that phrase.27 The Court of Appeals examined the statutory language, Michigan precedent, and decisions from sister states. It decided that, case, under the facts of the the term “loss of income” contemplated deducting plaintiffs busi- expenses ness gross from his income order to deter- mine his work-loss benefits.28 The Court determined procedure that this was necessary to avoid awarding the plaintiff more in benefits than he would have taken home from his job had he been able to work.29The Court was satisfied that this result was consistent with the no-fault goal act’s of placing same, individuals better, but no position than they were before their accidents.30
In case, this defendant relied on argued Adams. It because was the sole shareholder and employee of Michigan Packing and company lost more paid than it plaintiff in wages, plaintiff was not entitled to work-loss benefits. He suffered no loss of income. Defendant asserted that the benefit-calculation *11 25Adams, App 154 Mich at 190.
26 Id.
27 at Id. 191. 28Id. at 192-193.
29Id. at 193.
30Id. Opinion op the Court in Adams applies whenever
methodology set forth theory Its was person is involved. self-employed solely responsible individual is self-employed because a losses, considered the losses should be profits was a loss of income. determining whether there when Otherwise, contended, plaintiff up will end defendant financially than he was before position a better accident. differs from Adams acknowledge that this case
We in Adams unincorporated an was contractor, Michigan Packing is whereas independent However, is not de- inquiry whether incorporated. benefits, but whether responsible fendant is for the them was unreasonable. As pay defendant’s refusal out, does points defendant taxes; and losses pay profits not income the business’s Accordingly, because the pass through to the owners.31 Packing belonged to profits Michigan and losses of just they belonged as to the purposes, for tax Adams, defendant’s reliance on Adams was Adams is not and, directly point, on ulti- reasonable. mately, reasoning we do not extend its to the facts of Nonetheless, we conclude that the trial court this case. clearly deciding argument erred in that defendant’s was legitimate question statutory not based on a inter- pretation. to calcu- Appeals acknowledged,
As the Court of how in plaintiffs late the “income” of an individual situa- determining work-loss benefits is purpose tion for impression.32 issue first Because MCL 500.3107(l)(b) does not define the term “loss of in- come,” conclude that it was reasonable for defen- we Director, F2d 481, 484 Dep’t v & Taxation See Holmes Revenue (CA 1991). 32Ross, at 360. *12 Ross v Auto Club Concurring Opinion by Kelly, J. dant rely to on the similar factually Adams decision. Its position calculating plaintiffs income, loss of by losses suffered Michigan Packing should be subtracted from the wages paid had support in law and fact.
V CONCLUSION The issues we decide in this case are plain- whether tiff was properly awarded work-loss benefits and whether defendant’s refusal to pay work-loss benefits was reasonable. The trial court held that plaintiff was entitled to benefits. It also attorney awarded fees after finding that defendant’s refusal to pay benefits was not reasonable. The Court affirmed on both issues. We affirm the award of benefits but reverse the award of attorney fees. Although defendant was ulti- mately responsible benefits, for paying the its refusal to pay was not unreasonable. Defendant relied on a factu- ally similar Court of Appeals adopt decision to a reason- position able on an issue of first impression. Cavanagh
Taylor, C.J., and JJ., Young, and con- J. curred with Kelly,
KELLY, J. In (concurring). partial dissent, her Justice CORRIGAN asserts that my position in this case is incon- sistent with my position in Kirksey v Manitoba Pub Ins Corp.1 She is incorrect. The plaintiff in Kirksey was an independent case, contractor. In this plaintiff is not an independent contractor; he is employed aby corpora- tion. My colleague fails to recognize that this material difference distinguishes the case at bar not from Kirksey, but from the other discusses, cases she as well. 1 Kirksey Corp, v Manitoba Pub Ins Weaver, J., and J. Opinions Corrigan,
WEAVER, (concurring part dissenting I, II, III of the join parts I concur in and part). affirming the award work-loss majority’s opinion plaintiff. benefits part majority’s opinion
I dissent from IV of the agree I reversing plaintiff. the award of fees *13 in Appeals opinion stated the Court of with reasons by did err concluding clearly for that the trial court not attorney fees for defendant’s unrea- awarding plaintiff failure to claim for work-loss pay plaintiffs sonable benefits.
CORRIGAN, in (concurring dissenting J. part decision, I part). part majority’s concur IV of the I plaintiff. which reverses the award of fees dissent, however, majority’s from the con- respectfully plaintiffs wages clusion III that W-2 established part § loss of income from under 3107 of compensable work 500.3107(l)(b). act, the no-fault MCL Plaintiff the sole owner and sole of a was corporation operated that he at a loss that wages. exceeded his To establish “loss of compensable 500.3107(l)(b), plaintiff income from work” under MCL that he merely provided paid evidence himself W-2 wages. persuasively argues Defendant that plaintiffs not a true measure of his income from were because resulted in no actual plaintiffs work work income, Further, but created losses. because of the unique corporations, plaintiff tax status of S reported and, on his tax corporate personal losses returns as result, paid wages. no income tax on his The no-fault explicitly recognizes act between in- relationship come from work taxable income in MCL 500.3107(l)(b), provides generally, “[b]e- which personal protection cause the benefits received from Rossv Auto Club Opinion Corrigan, insurance for loss of income are income, not taxable payable benefits for such loss of income shall be reduced 15% circumstances,
Under these for our purposes, W-2 is a meaningless form that merely reflects the cash flow plaintiff allowed himself from a business that generated no income from work. him Reimbursing would, therefore, this lost cash flow subsidize his pre- existing losses; business it would not him compensate for actual loss of income from I acknowledge work. and his separate have legal identi- ties. See ante at 8. But this fact does not alleviate establish, burden to as fact, a matter of he suffered loss of income from work. Because defen- dant genuine created a issue of material fact regarding whether can establish any “loss of income from injured work an person would performed,” have 500.3107(l)(b), I would reverse and remand this case to the trial court for further proceedings.
I. STANDARD OP REVIEW
This Court reviews de novo a trial court’s decision
granting
denying
or
a motion
summary disposition.
for
City
Co,
Taylor
v Detroit Edison
475 Mich
of
(2006).
715
28
NW2d
This case
question
involves a
of
statutory interpretation, which we also review de novo.
Neshewat,
Haynes
29, 34;
v
477 Mich
Opinion by Corrigan,
II. ANALYSIS
the benefits available for
The no-fault act describes
part
as those for
pertinent
“work loss”
consisting
work an
\w]ork loss
loss
income
from
during
injured person
performed
would have
first
not been
years
the date
the accident
he or she had
after
if
injured.
any
the date
Work loss does not include
loss after
injured person
dies. Because the benefits
on which
personal protection
for loss of
received from
insurance
income,
payable for
income are not taxable
the benefits
be reduced
unless the
such loss of income shall
15%
presents
support
of his or her
claimant
to the insurer
proof
claim reasonable
of a lower value of the income tax
case,
advantage in his or her
in which case the lower value
added).]
500.3107(l)(b) (emphasis
apply. [MCL
shall
that a claimant
replace
“Work-loss benefits
income
earned had he not been
v
injured.” Popma
would have
Ass’n,
460, 472;
Auto Club Ins
(1994).
primarily
provide
These benefits “are meant
to
in
simple
claimants with
income insurance and are
tended to
claimants
dollar
compensate
approximately
for dollar for the amount of
lost because of the
injury
disability.”
Compensable
or
Id.
work loss is not
always measured
reference to a claimant’s
preacci
dent
however. The statute defines
wages,
“work loss”
not as
but
wages,”
“lost
as “loss of income
work.”
from
added).
500.3107(l)(b)
accord,
(emphasis
In
example,
independent
may
contractor
seek work-loss
benefits because “work loss includes not
lost
lost
wages,
profit
but also
which is attributable
personal
self-employment.” Kirksey
effort
v Mani
12, 17;
toba Pub Ins
Corp,
NW2d
cases,
all
significantly, “[i]n
Most
claimants are
A
proofs.”
left to their
at 472.
Popma, supra
manipulate
statutory
“will not be allowed to
scheme
burden of proof.”
avoid this
Id.
*15
Ross v Auto Club
Opinion
Corrigan,
noted,
As
plaintiff is the sole shareholder and sole
of an S
corporation. Shareholders of a small-
business corporation may
corporation
elect for the
to be
treated as an S corporation under subchapter S of the
Internal Revenue
1361(a)(1);
Code. 26 USC
26 USC
1362(a)(1). An
is generally not
taxed
1363(a).
directly by
government.
the federal
26 USC
Instead,
its tax
deductions,
liabilities and
including
losses,
income and
pass through to the individual share
holders on a
rata
pro
basis. 26 USC 1366. “The effect is
to
electing
treat
corporations more like partnerships,
since
income
partnership
through
flows
partners
and is
accordingly.”
taxed
Chocola v Dep’t Treasury,
(1985).
229, 236;
Mich
Plaintiffs corporation reported overall losses that exceeded plaintiffs wages 2001, 2002, and 2003. He listed the corporation’s losses on personal income tax return. Accordingly, defendant offered as evidence opinion of an accounting expert who concluded although plaintiff reported he wages, suffered no actual loss of income from work. argues that, Defendant under these circumstances, plaintiff should not be treated as a wage-earning employee of a distinct corpo- Rather, ration. plaintiffs yearly income from work should be calculated by subtracting his business ex- from penses his gross receipts, as was done Adams v Ass’n, Auto Club Ins 154 Mich App As the majority explains, ante at panel Adams acknowledged “goal of the no-fault act is place same, individuals but better, no position than they were before their automobile accident.” Ad- ams, supra at 193. It opined that the self-employed “plaintiff not claim [could] that his actual expendable income included even that income he which was re- *16 Opinion by Corrigan, J. Therefore, Id. expenses.” out as business pay to
quired self-employed plaintiff overcompensating to avoid to conduct a factual Adams, appropriate it was expenses certain business-related into whether inquiry determining of work- purposes be deductible for should Id. at 193-194. loss benefits. and find Adams agree applicable.
I with defendant Here, his at a loss that plaintiff operated business income, he reported corporate exceeded his W-2 Indeed, and his wife purposes. plaintiff losses for tax 2001, 2002, and 2003. Most had no taxable income as the sole of his significantly, plaintiffs employee work resulted in no income—but overall corporation corporation. expert opinion losses—to the offered defendant, which recounted these facts and conclu- sions, created a issue of material fact genuine regarding can establish “loss of income from plaintiff any whether performed. ...” injured person work would have 500.3107(l)(b). otherwise, Put defendant created regard of fact to genuine a issue material with whether a wages constituted correct measure of income from his loss of work.
In of adopting reasoning of case, majority contrary, this stresses to the merely any should be treated as of a employee that is at a loss. Ante at 8. But operating compared directly cannot be to an that any corporation operating Employees at loss. income, subchapter corporations C receive real which is losses, way by corporate pay in no offset and must wages regardless income taxes on their of whether the itself, Here, operates at a loss. corporation, and, corporation’s used the S losses offset his result, he relieved from federal paying any as a was income tax. Ross v Auto Club Opinion by Corrigan,
Further,
this and
explicitly recognize
other courts
unique
nature of S
are
corporations, which
often
more
comparable
partnerships
corpora
than to
Chocola,
tions.
at 243
supra
(“Subchapter S corpora
enjoy
tions
unique
provide
characteristics
compelling analogy to partnerships,
produce
which
apportionable business income in the
hands mem
.”);
.
.
partners
Bratenahl,
ber
.
Tetlak v Village
(2001)
Ohio St 3d
(stating
By adopting
majority
such a
treats other-
similarly
proprietors
wise
situated sole
on
differently
they
the mere basis of whether
choose to incorporate.
Further,
assertion,
contrary
majority’s
to
ante at
I
my
do not think that
position requires
“de facto
piercing
corporate
any
veil”
traditional sense.
Rather, I recognize
or
profits
losses as
the sole shareholder and sole proprietor
corpo-
of an S
ration
bear
may
on whether he lost income from work
Moreover,
as a matter of fact.
any
my
extent
view
may be cast as
us
requiring
pierce
corporate veil,
it
doing
is not at all clear that
so
be inappropriate
would
under these
I
circumstances. As have observed on more
occasion,
than one
this Court has failed to establish
clear standards for
L
piercing
corporate veil. See &
Homes,
Rochester,
R
Inc,
Inc v Jack Christenson
*18
(2006)
J.,
Mich
853
dissenting). As the Court
(CORRIGAN,
Kline,
observed in Kline
700,
v
104 Mich App
702-703;
(1981),
1 The Kline Court’s full discussion follows: identity Complete sole of interest between shareholder and may corporation lead courts to treat them as one for certain Co, 686; App purposes. v 83 Mich Williams America Title Ins (1978). corporation agent a Where the is mere or NW2d instrumentality legal of its shareholders or a device to avoid entity ignored. obligations, corporate may People be ex rel Co, 198,
Attorney
Michigan
Telephone
v
Bell
246 Mich
General
(1929).
may
through
205;
restricted to accrued and thus covers actual loss earnings earning Thus, as capacity. contrasted to loss of unemployed person an injury no suffers work loss from until the time employed he would have been but for his injury. hand, employed On the other person an who loses performed time from work he would have he had not been * * injured has suffered work loss *. Work loss is not injured person’s wage restricted to the level at the time of injury. example, For unemployed college student who permanently loss, was appropri- disabled could claim at an injury, ate time after the for work he would then be performing injured. had he not been Conversely, an em- ployed person’s claim for work loss appropriately would be adjusted at the time he would have retired from his 1(a)(5) [Id., employment.” quoting § the comments to UMVARA, found in 14 ULA 46-47.] Ross v Auto Club Opinion Corrigan, 500.3107(b) language clear of former Both the to the UMVARA led the MacDonald the comments benefits are available to com- to conclude “that work-loss injured person for that amount pensate only *20 had his accident not would have received automobile occurred.” Id. at 152. wages The before the plaintiffs automatic, true measure of his accident were not an Rather, have worked ongoing plaintiff loss. the “would weeks, until the date of his and earned for two After that date would have earned heart attack. and, there- had the accident not occurred wage no even after fore, ineligible for work-loss benefits that [he was] 3107(b).” of the MacDonald Id. § import date under to use the act as it Court’s decision was to “allow insurers intended and avoid not due paying compensation was added). Id. at 154 (emphasis claimant.” reasoning, similar and relied on employed This Court MacDonald, plaintiff Marquis in to hold favor of (On Remand), Indemnity v Accident & Hartford (1994). There, the plaintiff Mich alleged in an accident and that her result- injured was her injury job. During caused her to lose ing temporary to a disability, job perma- her was offered period her She then unable to employee. nent was replacement amount. Id. at 640. She job paid find a a similar that, disability her had alleged although period during benefits ended, for full work-loss qualified she because, but for the three-year period statutory accident, employed remained her she would have Id. at 642. This Court agreed previous position. work could be although availability lower-paying obligation in terms of the considered issue damages, genuine her she had created mitigate the accident was the regarding fact whether of material Id. higher wage. at a cause of her loss of income but-for at 649-650. [May- Mich Opinion by Corrigan, sum, consistently
In this Court has condoned careful regarding factual the true measure of actual inquiry income lost as a direct result of an automobile accident. I find it Justice KELLY striking also herself em- of MacDonald similar to that ployed reasoning Marquis courts as the author of the Court of opinion Kirksey. Kirksey, In she presented was with a plaintiff independent injured contractor who was while trucking company. Kirksey, supra working at injury, 13-14. At the time of had the option working for a second trucking company, which guaranteed him more hours and if pay, the first com- pany promises was unable to fulfill its of more hours Id. at 13. The and certain benefits. claimed that, because the first offered him company reduced hours at the time of his injury, the amount of his loss of income from work should not have been based on his earnings Rather, at the time of the accident. because he *21 would have returned to work full-time at second accident, company but for his his benefits should have been earnings during based on his his previous work Id. at 14. company. with second Judge recog- KELLY nized that wages always alone are not a measure of loss work; rather, of income from independent an contractor such as the plaintiff could seek work-loss benefits because “work loss includes not only wages, lost but also lost is profit which attributable to personal effort Id. at 17. note that self-employment.” and I this com- 1(a)(5) ment directly § reflects the comments to of the UMVARA, state, which comments in part: “Work loss includes not lost wages, but lost profit which is (as personal attributable to effort in self-employment distinguished from profit attributable from invest- ment) .... [T]he issue is whether claimed work loss is justly attributable to the injury.” (emphasis ULA 47 added). In Kirksey, Judge KELLY held the Ross v Auto Club Opinion by Corrigan, of his earnings necessarily at the time accident were not of his the true measure loss income as a result of the Kirksey, Rather, jury accident. at 16. if a to supra were injury, plaintiff find absent his would have higher company, earned a income from the second his might premised loss of income from work be on that higher income. Id.
I am unable to
square
majority’s holding
this
Michigan jurisprudence,
including
case with
Mac-
Donald,
and
Marquis,
Kirksey.
import
clear
of the
no-fault act
these cases
it is that an
interpreting
injured
may
recover work-loss benefits on the
income,
of his
basis
actual loss of
as reflected
I
Accordingly,
factual record.2
cannot agree with the
majority’s
that, just
decision to establish a rule
because
proprietor incorporates
business,
a sole
his
he will be
differently
treated
than a sole proprietor with the same
actual income and losses.31 would hold
did
not meet his
prove
burden to
his actual amount of work
inquiry,
actual
a
Because
loss as matter of fact is the central
Justice
attempt
concurring opinion
distinguish
Kirksey
Kelly’s
in her
independent contractor,
on the basis that he was an
ante at
inapposite. Further, hypothetical example involving
independent
my
point.
independent
contractor illustrates
overall
What if an
contrac
tor,
Kirksey,
incorporate
such as the one in
chooses to
file
as an S
liability reasons, thereby becoming
for tax or
the sole
shareholder,
proprietor,
company
sole
and sole
of a
that hired
matter,
out his services?
aAs factual
how would his actual income earned
change
changing
legal
Why
from work
as a mere result of his
his
status?
wages automatically
would his actual W-2
become more accurate
upon incorporation?
measure
income
Company Michigan
Farm Bureau Mutual Insurance
raises a similar
problem
injured, self-employed
in its amicus curiae brief. It notes that
may
prove
farmers
not be
able
actual loss of income after an
*22
Therefore,
may
replacement-
automobile accident.
farmers
elect to add
policies.
require
labor
endorsements
their no-fault
Such endorsements
pay
replacement
disabling
an insurer to
for farmer
labor in the event of a
reasonably
why plaintiff
accident. Farm Bureau
asks
should receive
loss submitting yearly wage amounts. Rather, because defendant showed that plaintiff oper- loss, ated his at a defendant created genuine issue of material fact concerning amount, if any, actual loss of income from work. I would reverse the Court Appeals judgment affirming 2.116(C)(10) summary disposition under MCR in plain- tiffs favor and remand this case to the trial I court. would further require plaintiff to offer proof on remand of the true measure of income from work that is necessary put same, him in the better, but no position than the one he occupied before his accident.
MARKMAN, J., CORRIGAN, concurred with replacement wages performed for work he that resulted in a loss when he required pay comparable not to elect and for a endorsement.