Commonwealth Land Title Ins. Co. v. Metro Title Corp.

315 Mich.App. 312

890 N.W.2d 395

COMMONWEALTH LAND TITLE INSURANCE COMPANY,

v.METRO TITLE CORPORATION.

Docket No. 324914.

Court of Appeals of Michigan.

Submitted April 5, 2016, at Detroit.

Decided May 3, 2016, at 9:00 a.m.

Plunkett Cooney, Bloomfield Hills (by Karen E. Beach ), for plaintiff.

The Darren Findling Law Firm, PLC, Royal Oak (by Darren Findling and Andrew J. Black ), for defendant.

Before: O'CONNELL, P.J., and MARKEY and O'BRIEN, JJ.

O'CONNELL, P.J.

Defendant Metro Equity Services (Metro Equity) appeals as of right the trial court's November 17, 2014 order enforcing a judgment obtained by plaintiff, Commonwealth Land Title Insurance Company, under a successor-liability theory. Because Michigan recognizes a separate and distinct exception to successor nonliability in cases other than products liability, we affirm.

I. FACTUAL BACKGROUND

This case arises out of a default judgment that was entered in May 2012 in favor of plaintiff against Metro Title Corporation and Metro Title Agency (Metro Title)¹ in a separate case. Approximately three months after the trial court entered the default judgment, plaintiff filed this lawsuit against both Metro Title and Metro Equity, asserting that (1) Metro Title formed Metro Equity for the purpose of fraudulently transferring assets to avoid collection on the May 2012 default judgment, and (2) Metro Equity was liable for the judgment as a mere continuation of Metro Title under a successor-liability theory.

Metro Equity moved for summary disposition under MCR 2.116(C)(8) and (10). While it acknowledged that its owner was the owner of both Metro Title and Metro Equity, it argued that Metro Equity was not a mere continuation of Metro Title because Metro Equity did not engage in the same business or share the same customer base as Metro Title, and Metro Equity did not purchase any of Metro Title's stock or liabilities.

The trial court denied Metro Equity's motion, concluding that questions of fact remained regarding Metro Equity's liability as a successor corporation. The trial court held a bench trial and at the close of plaintiff's proofs, it granted Metro Equity a directed verdict on plaintiff's fraudulent-transfer claim, but it found that Metro Equity constituted a mere continuation of Metro Title under plaintiff's successor-liability theory. Thus, the trial court entered an order enforcing the May 2012 judgment against Metro Equity. Metro Equity now appeals.

II. STANDARD OF REVIEW

This Court reviews de novo the trial court's conclusions of law made during a bench trial. Waisanen v. Superior Twp., 305 Mich.App. 719, 723, 854 N.W.2d 213 (2014). We review for an abuse of discretion a trial court's decisions regarding the scope and meaning of pleadings. Dacon v. Transue, 441 Mich. 315, 328, 490 N.W.2d 369 (1992).

III. ANALYSIS

Metro Equity asserts that the "mere continuation" exception to successor nonliability is no longer a viable theory of successor liability and that all plaintiffs must proceed under a "continuity of the enterprise" theory, which may not be applied to judgment creditors. We disagree.

Michigan law recognizes two separate exceptions to a successor corporation's nonliability. The continuity-of-the-enterprise exception only applies to products-liability cases and cases with similar public-policy concerns, but the mere-continuation exception applies to other causes of action involving successor nonliability. Judge RIORDAN has elegantly summarized these two exceptions and the difference between them:

I. "MERE CONTINUATION"

Michigan follows the traditional rule of successor liability.

Foster [v. Cone–Blanchard Machine Co. ], 460 Mich. [696,] 702, [597 N.W.2d 506 (1999) ]. Under that rule, the nature of the transaction determines the potential liability of predecessor and successor corporations. Id. "If the acquisition is accomplished by merger, with shares of stock serving as consideration, the successor generally assumes all its predecessor's liabilities. However, where the purchase is accomplished by an exchange of cash for assets, the successor is not liable for its predecessor's liabilities unless one of five narrow exceptions applies." Id. The five exceptions are: (1) an express or implied assumption of liability; (2) de facto consolidation or merger; (3) fraud; (4) transfer lacking in good faith or consideration; or (5) where the transferee corporation was a mere continuation or reincarnation of the old corporation. Id. at 702 ....

II. "CONTINUITY OF THE ENTERPRISE"

However, another relevant doctrine is the continuity of the enterprise doctrine. In Turner [v. Bituminous Cas. Co. ], 397 Mich. [406, 429–430, 244 N.W.2d 873 (1976) ], the Michigan Supreme Court applied the successor liability doctrine in the context of products liability cases, establishing the continuity of the enterprise doctrine. Pursuant to this doctrine, successor liability is imposed if: (1) there is continuation of the seller corporation (i.e.[,] 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; and (3) the purchasing corporation assumes liabilities and obligations of the seller ordinarily necessary for the continuation of normal business operations. See Foster, 460 Mich. at 703 [597 N.W.2d 506] (describing the Turner doctrine). Also pertinent is whether the purchasing corporation held itself out to the world as the effective continuation of the seller corporation. Turner, 397 Mich. at 430 [244 N.W.2d 873].

* * *

... [T]he continuity of the enterprise doctrine generally is limited to products liability cases. See CT Charlton & Assoc., Inc., 541 Fed[.]Appx[.] [549,] 552 [ (2013) ] ("No matter how the 'continuity of the enterprise' doctrine is characterized, a review of Michigan law and the policies underlying the doctrine makes clear that it is only meant to apply in products-liability cases (and potentially a few other areas animated by similar public-policy concerns)."). See also Turner, 397 Mich. at 416 [244 N.W.2d 873] ("This is a products liability case first and foremost."). In fact, Starks could be interpreted as limiting the continuity of the enterprise doctrine to the products liability context. [Starks v. Mich. Welding Specialists, Inc., ] 477 Mich. [922, 722 N.W.2d 888 (2006) ] ("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 ] to cases in which the plaintiff is a judgment creditor."). See also City Mgt. Corp. v. U.S. Chem. Co., Inc., 43 F.3d 244, 253 (C.A.6, 1994) ("[T]he Michigan Supreme Court intended that the continuing enterprise exception be limited to products liability cases.").

However, no such limitation appears in the context of the mere continuation doctrine. As the bankruptcy court in the eastern district of Michigan opined, "the traditional exceptions under Michigan law for the general rule of corporate successor nonliability, one of which is the 'mere continuation' exception, do apply in the commercial context, and are not limited to product liability cases." In re Clements Mfg. Liquidation Co., LLC [v. THB America, LLC ], 521 B.R. [231,] 253 [ (E.D.Mich., 2014) ] (emphasis added). Stated differently, the mere continuation exception applies to commercial cases and is not limited to product liability cases. The Clements court further opined that "[t]he Michigan Supreme Court's one paragraph opinion in the Starks case ... does not hold otherwise. Rather, ... Starks limited ... to product liability cases, a different exception to the traditional rule of non-liability of corporate successors, namely, the 'continuity of the enterprise' doctrine, which is a separate basis for imposing successor liability from the 'mere continuation' doctrine." Id. at 253–254. [Taizhou Golden Sun Arts & Crafts, Ltd. v. Colorbok, LLC, unpublished opinion per curiam of the Court of Appeals, issued August 18, 2015 (Docket No. 320129), 2015 WL 4932243, at *1–3 ( RIORDAN, J., concurring).]²

A deeper analysis of precedent reveals that Judge RIORDAN 's summary well reflects the current state of the law in this area. In Chase, our Supreme Court considered whether a successor corporation could be liable for injuries sustained by an employee of the predecessor corporation, and stated that

[t]he law is well settled in regard to liability of the consolidated or purchasing corporation for the debts and liabilities of the consolidating or selling corporation. Such obligations are assumed (1) when two or more corporations consolidate and form a new corporation, making no provision for the payment of the obligations of the old; (2) when by agreement, express or implied, a purchasing corporation promises to pay the debts of the selling corporation; (3) when the new corporation is a mere continuance of the old; (4) when the sale is fraudulent, and the property of the old corporation, liable for its debts, can be followed into the hands of the purchaser. [Chase v. Mich. Tel. Co., 121 Mich. 631, 634, 80 N.W. 717 (1899) (emphasis added).]

The Chase Court explained that separate exceptions arose from each of the four situations. See id. ("Plaintiff produced no evidence tending to bring the defendant within any of these cases."). In Turner, our Supreme Court summarized the elements of a de facto merger, Turner, 397 Mich. at 420, 244 N.W.2d 873, and then modified them to account for the fact that the sale of a product will rarely involve shareholders, id. at 430, 244 N.W.2d 873. Accordingly, the Turner Court created a continuity-of-the-enterprise exception to apply in products-liability cases involving the cash sale of corporate assets. The exception depended on whether (1) the enterprise continued through its retention of assets and personnel, (2) the selling...