Green v. Ziegelman

767 N.W.2d 660

282 Mich. App. 292

GREEN v. ZIEGELMAN.

Docket No. 280624.

Court of Appeals of Michigan.

Submitted January 7, 2009, at Detroit.

Decided February 3, 2009, at 9:10 a.m.

Stephen M. Ryan, P.L.L.C. (by Stephen M. Ryan), for the plaintiffs.

Mark Granzotto, P.C. (by Mark Granzotto), for the defendants.

Before: MURPHY, P.J., and K.F. KELLY and DONOFRIO, JJ.

MURPHY, P.J.

Defendants appeal as of right a $156,313 judgment entered by the circuit court in favor of plaintiffs and against defendant Norman H. Ziegelman (Ziegelman), individually, on plaintiffs' claim of breach of an agreement for architectural services. Ziegelman's liability for the breach was determined postjudgment through proceedings supplementary to the initial judgment, and liability was predicated on an alter ego theory, with the court piercing the corporate veil of a corporation owned by Ziegelman. The initial judgment on the claim for breach of the architectural agreement, which judgment was founded on an arbitration award, was entered solely against defendant Norman H. Ziegelman Architects, Inc. (NZA). We vacate the judgment at issue.

Plaintiffs Sanford Green, Jack R. Hendrickson, and Thomas Esper, along with defendant Ziegelman, were all members of plaintiff Libwag, LLC, which was formed to undertake a real estate development project. The Libwag operating agreement contained an arbitration provision for purposes of settling disputes arising out of the agreement. Shortly after the development project commenced, Libwag entered into architectural and construction contracts with, respectively, NZA and defendant Continental Construction Company (Continental). Ziegelman was the sole shareholder of both NZA and Continental.

A dispute arose concerning the development project and the operating agreement, and Ziegelman demanded arbitration for an alleged breach of the operating agreement, which plaintiffs denied, making their own claim that Ziegelman breached the operating agreement. The parties also disagreed regarding the proper composition of the arbitration panel and the scope of the arbitration provision. Given the dispute, plaintiffs, except for Libwag, filed a declaratory judgment action in the circuit court against Ziegelman, seeking the proper interpretation of the arbitration provision contained in the operating agreement with respect to its scope and the number of arbitrators to sit in judgment. Ziegelman then filed a motion for summary disposition and to compel arbitration. The circuit court, pursuant to MCR 2.116(I)(2), granted summary disposition in favor of plaintiffs, ruling that it had the authority to address the issue concerning the number of arbitrators to be selected and that the dispute must be arbitrated by four arbitrators, as argued by plaintiffs, and not one, as argued by Ziegelman. The circuit court ordered the case to arbitration.

Pursuant to an arbitration agreement thereafter executed by all plaintiffs and all defendants, the parties agreed to arbitrate: (1) all issues by and between Libwag and NZA arising under the architectural agreement, with the arbitration award being final and binding upon the parties to that agreement, (2) all issues by and between Libwag and Continental arising under the construction contract, with the arbitration award being final and binding upon the parties to that agreement, and (3) all issues by and between NZA and Libwag and Hendrickson that were currently pending in a federal district court lawsuit involving copyright infringement claims.¹ The agreement expressly superseded the arbitration provisions found in the architectural and construction contracts. Pursuant to the Libwag operating agreement, the alleged breaches of the agreement were also set to be arbitrated under the agreement's arbitration provision. It is abundantly clear that the parties had decided to resolve all their disputes in arbitration. No mention was made regarding a claim against Ziegelman individually for breach of the architectural agreement, let alone a claim that he was liable for a breach of the architectural agreement predicated on a liability theory of piercing the corporate veil.

The issues and disputes were arbitrated, and the arbitration panel rendered an award concluding that NZA had breached the architectural agreement and that plaintiffs were entitled to a damages award of $156,313 against NZA for the breach.² The arbitration panel also found that Ziegelman himself breached the operating agreement and that his membership interest in Libwag had to be reduced to 7½ percent because of the breach.³ Further, the arbitration panel ruled that neither side demonstrated a breach of the construction contract. Finally, the arbitration panel concluded that NZA failed to establish its copyright infringement claims, which had been the subject of the federal lawsuit.

Plaintiffs then proceeded to file a motion in the circuit court to reopen the case, to add Libwag, NZA, and Continental as parties, given that they were not named in the complaint seeking declaratory relief, and to enter judgment upon the arbitration award. Plaintiffs made no attempt at this point to pursue a claim against Ziegelman personally for breach of the architectural agreement, nor was any theory posited regarding the need to pierce the corporate veil. Subsequently, the circuit court entered an order granting plaintiffs' motion. The order provided that judgment was to be entered pursuant to the arbitration award. A judgment, entered the same day that the order granting plaintiffs' motion was granted, provided, in relevant part, that NZA breached the architectural agreement. The judgment also stated:

IT IS FURTHER ORDERED AND ADJUDGED that Libwag and Green and Hendrickson and Esper shall have Judgment in favor of them and against [NZA] in the amount of $156,313.00, plus statutory interest from and after April 27, 2006, and execution shall so issue therefore.

Nowhere in the judgment is it provided that Ziegelman was liable for breach of the architectural agreement.

Approximately three months later, plaintiffs filed an ex parte motion under the proceedings supplementary to judgment act (PSJA), MCL 600.6101 et seq., and MCR 2.621. In the motion, plaintiffs requested an order requiring NZA to produce a laundry list of financial records and documents, requiring Ziegelman, as president of NZA, to appear for a discovery hearing in order to testify regarding NZA assets, and requiring NZA to produce certain documents at the discovery hearing. Plaintiffs also sought an order restraining NZA from transferring assets. Plaintiffs further requested that, "if it appears on hearing hereof that other parties hold in their names property beneficially or equitably belonging to [NZA], such parties may be joined in this proceeding." An order granting the motion was subsequently entered, but it said nothing about any other party being joined in the supplementary proceedings. Ziegelman then submitted to a discovery deposition as president of NZA. The deposition revealed that NZA had no assets and only $400 in accounts receivable. It also revealed evidence that arguably could serve as a basis to piercing NZA's corporate veil and holding Ziegelman personally liable, suggesting that NZA was nothing more than Ziegelman's alter ego.⁴ On the strength of the deposition, plaintiffs filed a motion to pierce the corporate veil, asking the circuit court to impose personal liability on Ziegelman in the amount of $156,313, which represented the judgment against NZA for breach of the architectural agreement. The circuit court granted the motion to pierce NZA's corporate veil and ruled that Ziegelman was personally liable in the amount of $156,313. The circuit court, ruling from the bench, reasoned:

Contrary to defendant's assertion, MCR 2.621 allows the plaintiff[s] to, by motion or by a separate action, obtain relief supplementary to entry of the judgment.

MCL 600.6104 provides that after money judgment has been rendered the judge may on motion in that action or in a subsequent action make any order as within their discretion whatever seems appropriate in regard to the carrying out the full intent and purpose and to subject any nonexempt assets of any judgment debtor to the satisfaction of judgment.

Therefore, after careful examination of the relevant facts and the Court having heard the representations here in open court, this court finds that all of the factors required for piercing the corporate veil are present[.]

Judgment against Ziegelman individually was entered, and his attempts to have the circuit court reconsider or reexamine its ruling were rejected. Defendants appeal as of right.

On appeal, defendants argue that the circuit court erred by entering the judgment against Ziegelman,⁵ given that plaintiffs failed to satisfy the compulsory joinder rule, MCR 2.203, by not joining a claim for breach of the architectural agreement, predicated on piercing of the corporate veil, against Ziegelman individually. Defendants also argue that res judicata barred entry of the judgment against Ziegelman individually, that the court erred in deciding the corporate veil issue in the context of a postjudgment motion comparable to summary disposition, and that the court erred in its initial decision ordering arbitration before a panel of four arbitrators. We conclude that plaintiffs could not use a proceeding supplementary to the initial judgment to have another judgment entered holding Ziegelman personally liable where there was no underlying arbitration award or judgment to that effect.

Many of the arguments presented by the parties concern legal questions, including interpretation of MCR 2.203, MCR 2.621, and the PSJA, as well as the applicability of res judicata. Questions of law such as statutory interpretation, court rule construction, and whether the doctrine of res judicata should have been invoked are reviewed de novo on appeal. Estes v. Titus, 481 Mich....