Lawrence M Clarke Inc v. Kim S Draeger

STATE OF MICHIGAN
COURT OF APPEALS
LAWRENCE M. CLARKE, INC., UNPUBLISHED
January 15, 2015
Plaintiff/Counter Defendant-
Appellee,
V No. 316194
Ingham Circuit Court
KIM S. DRAEGER, LC No. 08-000227-CZ
Defendant-Appellant,
and
KD EQUIPMENT LEASING, INC. and AIC,
INC.,
Defendants/Counter
Plaintiffs/Third-Party Plaintiffs-
Appellants,
v
GUARANTEE COMPANY OF NORTH
AMERICAN USA and XL REINSURANCE
AMERICA, INC.,
Third Party Defendants-Appellees.
Before: TALBOT, C.J., and CAVANAGH and M. J. KELLY, JJ.
PER CURIAM.
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In this contractor-subcontractor dispute, defendants, two corporations and the individual
who exclusively owns and controls them,1 appeal as of right from the judgment of the circuit
order awarding damages to plaintiff. We reverse and remand for further proceedings.
I. FACTS
Plaintiff was the general contractor for construction of a portion of a sanitary sewer
system in Billings Township. Defendant had earlier encouraged plaintiff to bid on the project,
and provided plaintiff with a unit-price proposal covering all the projected work. Plaintiff
accepted the proposal and, after increasing the prices by 12 percent for its own profit, submitted
it as its bid. Initially plaintiff had expected defendant, as its subcontractor, to provide all the
materials and do all the work, with plaintiff contributing only some general supervision.
Defendant arranged with two subcontractors of its own to work on the project. The
parties entered into a written subcontract for work to be performed by defendant in two sections
of the project. Defendant and its subcontractors worked on other sections as well, but no
additional subcontracts were executed. Plaintiff itself tended to some sections as well, in order
to fulfill its obligations to the municipality under the general contract.
But, as the trial court summarized, “the project did not begin, progress, or end in a perfect
world.” According to plaintiff s witnesses, defendant and its subcontractors provided less than
perfect, competent, or complete work.
While the project was in progress, one of the corporate defendants sold its assets to the
other, who then took over the project, and the proceeds of the sale were applied to an obligation
for back taxes.
The evidence included copies of certificates of automatic dissolution of the two corporate
defendants. The corporate owner admitted failing to pay annual corporation fees or file annual
reports, but insisted that he had since achieved reinstatement of those corporations.
Plaintiff commenced action in 2008, setting forth several theories of recovery, including
breach of contract and unjust enrichment. Defendants counterclaimed, alleging breach of
contract and, alternatively, unjust enrichment, and initiated a third-party action for payment bond
against plaintiff’s two sureties. The trial court summarized the evidence concerning deficiencies
in defendant’s performance on the project, held that the individual defendant should be
personally responsible for the corporate defendants’ liabilities in the matter, and awarded
plaintiff over $900,000 in damages, costs, and interest. The court concluded that the question of
the existence of attendant contracts, and of performance under them, was “somewhat
problematic,” and elected to decide the case under the theory of quantum meruit.
1
For convenience, in light of the great identify of interest of the three defendants, except when
there is a need to distinguish them they will be referred to collectively as “defendant.”
-2-
On appeal, defendant argues that the trial court erred in eschewing contract law in favor
of the equitable doctrine of unjust contract, or quantum meruit, in how it calculated damages, and
in piercing the corporate veil. When reviewing an equitable determination reached by the trial
court, this Court reviews the conclusion de novo, but reviews the supporting findings of fact for
clear error. Mich Nat’l Bank & Trust Co v Morren, 194 Mich. App. 407, 410; 487 NW2d 784
(1992). “The applicability of a legal doctrine is a question of law,” calling for review de novo.
James v Alberts, 464 Mich. 12, 14; 626 NW2d 158 (2001).
II. CONTRACT OR UNJUST ENRICHMENT
Defendant argues that the trial court erred in applying the doctrine of unjust enrichment
where there existed an express contract. We agree.
“ ‘A contract is a promise or a set of promises for the breach of which the law gives a
remedy, or the performance of which the law in some way recognizes as a duty.’ ” Black’s Law
Dictionary (6th ed, 1990), p 322, quoting Restatement Contracts, 2d, § 3. The elements of a
valid contract are “parties competent to contract, a proper subject matter, a legal consideration,
mutuality of agreement, and mutuality of obligation.” McInerney v Detroit Trust Co, 279 Mich.
42, 46; 271 N.W. 545 (1937). In contrast, “[t]he elements of a claim for unjust enrichment are:
(1) receipt of a benefit by the defendant from the plaintiff and (2) an inequity resulting to
plaintiff because of the retention of the benefit by defendant.” Barber v SMH (US), Inc, 202
Mich. App. 366, 375; 509 NW2d 791 (1993). “In such instances, the law operates to imply a
contract in order to prevent unjust enrichment.” Id. This theory of recovery is also variously
labeled quasi-contract or contract-in-law, see Dumas v Auto Club Ins Ass’n, 437 Mich. 521, 546;
473 NW2d 652 (1991), or quantum meruit, see Morris Pumps v Centerline Piping, Inc, 273
Mich. App. 187, 194; 729 NW2d 898 (2006).
“However, a contract will be implied only if there is no express contract covering the
same subject matter. Generally, an implied contract may not be found if there is an express
contract between the same parties on the same subject matter.” Id. (internal quotation marks,
citations, and emphasis omitted).
In this case, the trial court quoted extensively from Morris Pumps, including where this
Court recited that, in earlier times, a party seeking a remedy for a breach of contract could
choose between an action in contract law or an action in equity for quantum meruit, but
Michigan law has evolved to where the latter is no longer available where an express contract
exists. See Barber, 202 Mich. App. at 375. The trial court then stated as follows:
The only way to fairly dispose of this case is for the court to make a
determination concerning damages based on a quantum meruit theory. Indeed,
both sides during the course of trial seemed to agree that, on [defendant’s] part, it
only wished to be paid for the work it performed, and on [plaintiff’s] part, it was
prepared to pay [defendant] for the work it actually performed.
The parties could not figure out among themselves which party owed the
other money, so they approached a trial judge that was otherwise ignorant about
the transaction and gave him the authority to apply his ignorance to the hundreds
of transactions that were documented during the course of the project.
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The court thus signaled its intention to resort to quantum meruit instead of contract law
more in the matter of the election of remedies that Morris Pumps recounted was once, but no
longer, available in litigation over express contracts. This is not a situation where the parties
respectively pleaded in contract over part of their dealings with each other, and in unjust
enrichment over other parts of those dealings. Neither party made any such distinction; each
instead set forth a contract claim, then reiterated it under the rubric of unjust enrichment as an
alternative. The parties’ acknowledged intention that defendant be paid for work actually
performed comports with ordinary contract law, which provides for partial payment for partial
performance. And mere inconvenience in determining contractual obligations is not a reason to
eschew contract law in favor of unjust enrichment principles.
Plaintiff on appeal continues not to distinguish contract claims from noncontract claims,
but maintains instead that the court’s resort to unjust enrichment was appropriate in light of
problems with identifying the status of the various defendants as contract partners, valid
corporate entities, successor interest holders, etc. But confusion of that sort is not among the
reasons Morris Pumps recognized as allowing quantum meruit claims to be pleaded and
maintained alongside contract claims.2 The rule remains that quantum meruit, or unjust
enrichment, is not available where an express contract governs the matter at issue. Morris
Pumps, 273 Mich. App. at 194; Barber, 202 Mich. App. at 375.
To the extent that the trial court invoked the equitable doctrine of quantum meruit in
connection with matters covered by a valid contract, express or implied, the court erroneously
applied the doctrine more broadly that the current legal framework allows.
The trial court recited that defendants Draeger and AIC “submitted a unit-price proposal
to [plaintiff] for the completion of all the work required by the township,” which plaintiff
accepted, then marked up 12 percent and submitted to the township for the winning bid. The
trial court further noted that the parties “entered into a written subcontract for work to be
performed by [defendant] in two sections of the project . . . .” In eschewing contract law in
favor of quantum meruit for this whole cause of action, the court treated the equitable doctrine as
applicable even where it recognized the existence of an express contract, without offering
findings on whether some, if not all, of the other matters in issue likewise were covered by
contract.
AIC’s proposal that formed the basis for plaintiff’s bid on the municipal project is not
styled as a contract, and is not signed by any party, but the record provides bases for recognizing
2
Moreover, as discussed in Part IV, infra, the trial court’s decision to pierce the corporate veil
and hold the individual and corporate defendants equally responsible for the corporate liabilities
eliminated any need to distinguish between the three defendants below with regard to work done,
compensation earned, or liabilities incurred. Plaintiff on appeal defends the trial court’s decision
to pierce the corporate veil.
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that the proposal, as supplemented by undocumented understandings, functioned as a contract
between the parties, in light of the parties’ performance under, and reliance on, it.3
That a separate contract was executed for two sections does not necessarily indicate that
defendant’s work on other sections took place without any express contract. The separate
arrangement for two sections came about partly to allow two subcontractors of defendant to
begin work on those sections, while retaining the pricing terms of the original proposal. The
parties thus continued to treat the original proposal, including as adapted by plaintiff for
purposes of submitting its bid on the project, as setting forth express contract terms.
Plaintiff’s secretary and vice president confirmed that defendant offered a proposal for
the entire project, and that plaintiff submitted that proposal as its own bid to the municipality, but
for marking it up 12 percent. Asked if that proposal, as modified, was used through the course of
the project to determine how much to pay defendant, that witness answered in the affirmative.
Plaintiff’s secretary and vice president further testified that the project was broken into
several sections as the behest of engineers, that the parties executed a subcontract for those
sections, and that defendant additionally worked on four other sections and was paid in accord
with the original proposal. Asked if she could have required defendant to sign additional
contracts before offer attendant payments, the witness replied, “I should have, . . . I really should
have.” She agreed that, according to the “overall agreement,” however, defendant would be paid
for the work actually done.
The failure to realize apparent plans to execute contracts specifically covering those other
sections could be taken as an indication that the parties attended to that work without a contract,
such that any conflicts that arose in the matter would have be resolved by recourse to other than
contract law. But actual performance taking place in mutual reliance on the master bid, as
informed by the express contract for sections 10 and 15, suggests that the parties were operating
under an implied contract which incorporated by mutual understanding the terms set forth in
defendant’s proposal as transformed into plaintiff’s bid for the job.
A valid contract requires a meeting of the minds or mutual assent on all essential terms.
Eerdmans v Maki, 226 Mich. App. 360, 364; 573 NW2d 329 (1997); Stark v Kent Products, Inc,
62 Mich. App. 546, 548; 233 NW2d 643 (1975). The determination of mutual assent is an
objective one based on the parties’ words and actions. Stark, 62 Mich. App. at 548. Where
contract terms are set forth in the form of an offer that clearly shows a willingness to enter an
agreement, acceptance of that offer, including by performance in strict conformance with that
offer, establishes a binding agreement. See Eerdmans, 226 Mich. App. at 364.
In this case, the conflicts that arose between the parties overwhelmingly concerned
performance of their agreed-upon obligations, not the particulars of what they agreed upon in the
3
See Stevens v Corbitt, 33 Mich. 458, 461 (1876) (a promise to pay a sum certain for a
construction project that is both accepted by performance done in reliance on that promise
establishes a binding contract).
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first instance. The trial court identified no terms necessary to a contract in this situation to which
the parties did not agree in fact, and neither does plaintiff on appeal. Plaintiff acknowledges
defendant’s assertions that all work underlying this case came under contract, and neither
disputes that premise nor suggests that any defenses invalidated such express agreements and
thus left the court with no choice but to invoke its equitable powers.
For these reasons, we remand this case to the trial court with instructions for specific
determination of what aspects of the parties relationship underlying this litigation came under
contract, express or implied, and reevaluate the evidence and decide the competing contract
claims under contract law where applicable, then to resort again to unjust enrichment, or
quantum meruit, only to the extent that justice requires operation of that equitable where no valid
contract was in place.
III. DAMAGES
In arguing that the trial court committed several errors in calculating what the parties
owed each other, defendant identifies three subjects of disagreement with plaintiff: Whether the
work defendant completed should be measured by the pay estimates or by final measurements,
whether plaintiff should pay defendant for the general contract items included in defendant’s
proposal, and whether some of the back charges plaintiff claimed as necessary to complete work
on defendant’s sections were legitimate.4
A. PAY ESTIMATES OR FINAL MEASUREMENTS
Not in dispute is that this project proceeded on the basis of unit price contracts, meaning
that “the contractor and subcontractor are paid for each unit of work performed, in contrast to a
lump-sum contract where the contractor is paid for the total amount of work performed.”
Midwest Bridge Co v Dep’t of Transp, 134 Mich. App. 611, 613; 350 NW2d 913 (1984).
When, on cross-examination, defendants’ counsel asked plaintiff’s secretary and vice
president if the pay estimates were indeed mere estimates, she rejected that characterization and
explained how progress was carefully measured each day: “They weren’t guesstimates.
Everybody pulled the tape measure when we had an inspector handy.” However, when invited
to agree that final measurements taken upon completion of the project would differ from the sum
4
Plaintiff argues that at least some of defendant’s contract claims were barred by a provision in
the subcontract executed for two sections of the project that called for the subcontractor to
provide “written notice of all claims within seven (7) days of . . . knowledge of facts giving rise
to the event for which claim is made,” else “such claims shall be deemed waived.” However,
defendant ably retorts that plaintiff waived that affirmative defense for having failed to assert it
in its pleadings. See MCR 2.111(F). Defendant also plausibly asserts that sufficient knowledge
of facts to establish damages until plaintiff produced certain documentation after this litigation
began. We further note that the trial court apparently did not consider any such defense below.
For these reasons, we conclude that this alternative argument for affirmance is unavailing.
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of those earlier daily measurements, the witness replied, “Give or take a few feet, sir, you’re
probably right.” The exchange continued as follows:
Q. If the . . . nine pay estimates total up to just a round number of a
thousand feet, but the final measurement by the engineers is eleven hundred feet,
what’s the contractor going to get paid?
***
A. Hypothetically, in that scenario, if that measurement was eleven
hundred feet, you are correct, sir.
Q. Okay.
A. He would be paid for eleven hundred feet.
Article 10 of the subcontract executed for two sections of the project covers payment.
Section 10.2 calls for “[p]rogress payments, less retainage” for work “satisfactorily performed,
no later than seven (7) days after receipt by [plaintiff] of payment from Billings Township for
Subcontract Work,” then adds, “Final payment of the balance due shall be made to Subcontractor
no later than seven (7) days after receipt by [plaintiff] of final payment from Billings Township
for subcontract Work.” This provision clearly contemplates a series of payments that are not
deemed to reflect all payment due until a final payment from the municipality allows such a
reckoning.
The trial court looked to the several pay estimates as reflecting how the parties managed
the progress payments. Plaintiff suggests that the trial court properly looked no further to
determine how much defendant had earned, but defendant insists that the court should have
consulted change estimate 4, which sets forth the final balancing in relation to plaintiff’s contract
with the municipality. Plaintiff argues that defendant is not entitled to claim any benefits from
change order 4, on the ground that defendants were not parties to the contract under which it
came into being. The trial court apparently agreed with defendant, however, in regarding change
order 4 as offering a basis for adjusting earlier estimates to reflect actual work accomplished, but
stated that it “declines to make any adjustment to the amount due [plaintiff] based on change
order no. 4, on the basis the evidence does not establish which party may have been at fault for
construction delays that apparently led to the assessment of liquidated damages.”
The latter declaration is problematic. Actual work completed, as determined by final
measurements, is a matter apart from liquidated damages resulting from construction delays.
Any difficulties in determining responsibility for such delays still leaves in plain view change
order 4’s detailed listing of work done, adjustments made, and amounts due and owing. Further,
to the extent that plaintiff wished that any adjustments in payments to defendant take into
account responsibility for liquidated damages resulting from delays, plaintiff bore the burden of
proving defendant’s liability in the matter. If indeed the trial court was not satisfied that the
evidence preponderated in plaintiff’s favor in this regard, the court should simply have declined
to adjust what change order 4 otherwise suggested was owed to defendant.
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It is not clear whether the court’s disregard of change order 4, and attendant decision to
determine work completed by defendant solely on the basis of the pay estimates, resulted from
its decision to eschew contract law in favor of the equitable doctrine of unjust enrichment, or
quantum meruit. Regardless, the trial court should have consulted available final measurements
in calculating the parties outstanding obligations. We instruct the trial court on remand to
consult change order 4 for this purpose, or some other documentation as is determined, or
agreed, to reflect final measurements.
B. GENERAL CONTRACT ITEMS
Defendants advises that “[g]eneral project items are things that must be done on the
Project but do not pertain to a particular physical location or section,” and names as examples
“testing the pipe, tree removal, traffic control, and mobilization,” and argues that the trial court
should have credited defendant for such general project items it determines defendant to have
contributed to the project. The trial court declined to do so on the grounds that no such provision
was included in the subcontract for two sections, and that there was no other “documentary
evidence supporting defendants’ assertion . . . except that general pay items were included in the
amounts defendants placed in the document it used to compile the bid submitted to” plaintiff.
On appeal, defendant points to testimony whereby plaintiff’s vice president stated that
work done on sections in addition to the two governed by a separate contract was to be paid in
accord with defendant’s proposal, but plaintiff’s cofounder testified that he informed defendant
that there would be no payment for general contract items, and that they were thus “excluded
from his subcontract.” This Court defers to the factfinder’s determinations of credibility.
Zeeland Farm Servs, Inc v JBL Enterprises, Inc, 219 Mich. App. 190, 195; 555 NW2d 733
(1996). The trial court stated that it generally found plaintiff’s witnesses more credible than
defendant’s witnesses.
Despite the inclusion of general contract items in the original proposal, their exclusion
from the subcontract covering two sections, coupled with testimony that this exclusion was
intentional and reflected the parties’ understanding, supported the trial court’s decision to make
no allowance to defendant for general contract items in calculating damages.
C. BACK CHARGES
Defendant concedes that as the relationship with plaintiff broke down and defendant
ceased working on the project, plaintiff attended to some of what had originally been defendant’s
responsibilities. Defendant recognized some of plaintiff’s back charges as legitimate all along,
and offer a list of additional back charges defendant now regards as proved, or accepts as the
result of adverse factual findings. But defendants maintains that certain back charges plaintiff
claimed “were unsupported, inflated, and duplicative.” Defendants specify charges stemming
from inspecting and repairing pipes throughout the project, inflated labor costs, duplicative
billing, work on plaintiff’s own sections or costs resulting from plaintiff’s own negligence, a
management fee, certain demands of Billings Township, and ditching expenses never incurred.
Defendants also argue that they were improperly held responsible for the full amounts of certain
bond claims instead of for the actual amounts that plaintiff and the claimants settled upon.
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A party asserting a claim has the burden of proving its damages with reasonable
certainty. Although damages based on speculation or conjecture are not recover-
able, damages are not speculative merely because they cannot be ascertained with
mathematical precision. It is sufficient if a reasonable basis for computation
exists, although the result be only approximate. [Berrios v Miles, Inc, 226 Mich
App 470, 478-479; 574 NW2d 677 (1997) (internal quotation marks and citations
omitted).]
However, for the great many of its allegations that plaintiff claimed back charges without
evidentiary support, or attempted to benefit from duplicate billings, plaintiff has failed to show
how any such allegedly improper back charges were included within the trial court’s assessment
of such charges.5 “A party may not merely announce his position and leave it to us to discover
and rationalize the basis for his claim.” In re Toler, 193 Mich. App. 474, 477; 484 NW2d 672
(1992).
The exception is the trial court’s decision to hold defendant responsible for the full
amounts of certain of defendant’s creditor’s payment bond claims, instead of for the lesser
amounts for which plaintiff settled those claims. In holding defendant to the full amount, the
trial court stated, “It is the court’s view that [defendant] should not benefit from plaintiff’s
successful efforts to compromise amounts claimed to be owed by [defendant] and for which the
creditors of [defendant] asserted bond claims.” Defendant’s objection to this reasoning has
merit.
A party injured by another’s failure to perform under a contract “is not entitled to be
placed in a better position than he would have been had the contract not been broken.” Parmet
Homes, Inc v Republic Ins Co, 111 Mich. App. 140, 150-151; 314 NW2d 453 (1981). “The
injured party . . . however, must make every reasonable effort to minimize the loss suffered . . . .”
Tel-Ex Plaza, Inc v Hardees Restaurants, Inc, 76 Mich. App. 131, 134; 255 NW2d 794 (1977).
Accordingly, when awarding damages, “deduction of any saving to the injured party must be
made.” Goodwin, Inc v Orson E Coe Pontiac, Inc (Supplemental Opinion), 62 Mich. App. 405,
413; 233 NW2d 598 (1975).
Defendant reports that plaintiff never requested the full amounts of the bond claims
below, and we note that plaintiff does not suggest otherwise on appeal. Again, it is not clear
whether the trial court’s decision to rely on its own empirical sense of fairness in this instance,
rather than an injured party’s duty to mitigate damages, or a court’s duty to adjust awards of
damages to reflect successful such mitigation, resulted from its decision to eschew contract law
in favor of the doctrine of unjust enrichment. Regardless, we conclude that the court erred in
awarding plaintiff back charges in connection with bond claims in amounts greater that what
plaintiff actually paid.
5
Plaintiff presented an exhibit listing over $850,000 in back charges claimed, and requested
others during the course of trial, but in the end the trial court recognized back charges adding up
to only $446,424.
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IV. PIERCING THE CORPORATE VEIL
Our decision to reverse and remand for application of contract law where applicable, and
correction of the damages award in at least two particulars, may seem to render moot, or at least
premature, the question whether the trial court properly held the individual and corporate
defendants equally liable for corporate liabilities in this matter. Because the issue may arise
again on remand, however, we will address it.
“In general, the law treats a corporation as an entirely separate entity from its stock-
holders, even where one person owns all the corporation’s stock.” Lakeview Commons Ltd
Partnership v Empower Yourself, LLC, 290 Mich. App. 503, 509; 802 NW2d 712 (2010) (internal
quotation marks and citation omitted). A court need not respect that fiction, however, “when it is
invoked to subvert justice.” Id. “Traditionally, the basis for piercing the corporate veil has been
to protect a corporation’s creditors where there is a unity of interest of the stockholders and the
corporation and where the stockholders have used the corporate structure in an attempt to avoid
legal obligations.” Id. at 409-510 (internal quotation marks and citation omitted). A court may
disregard the distinct identities of corporations from those of their affiliates, officers, or
shareholders where the corporation was merely the instrumentality of another entity or indi-
vidual, the corporate structure was used to perpetuate a fraud or other wrong, and the plaintiff
suffered unjust loss or other injury in the matter. Foodland Distributors v Al-Naimi, 220 Mich
App 453, 457; 559 NW2d 379 (1996).
In electing to disregard the distinctions between the individual and corporate defendants
below, the trial court explained as follows:
To the extent Draeger, sole owner of AIC and KD, did not operate the
entities in conformance with the requirements of Michigan’s corporation statute,
MCL 450.1 et seq[.], he is not entitled to claim exemption from personal liability
and the protection of the corporate shield. Draeger did not file annual reports, did
not hold shareholder or board of directors meetings, did not pay annual filing fees,
and permitted each corporation to be dissolved.
***
Draeger entered into the Billings Township transaction with [plaintiff] in
the name of his alter ego, AIC Inc. He was obviously undercapitalized, still owed
[plaintiff] $19,800 from a previous project. Neither he nor his company AIC had
the wherewithal to bid the project with [plaintiff’s] participation as the prime
contractor. AIC had no capacity to acquire the performance and payment bonds
required by the project.
During the course of AIC’s participation in the project, from about mid-
April, 2007 to mid-November, 2007, AIC did not fully pay its subcontractors or
suppliers, which could only mean Draeger paid himself before he paid his subs or
creditors.
Draeger testified his corporations, including AIC and KD Equipment
Leasing, had been dissolved by the State because annual reports were not filed.
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Draeger testified the corporations did not hold annual or regular shareholder or
directors meetings. During the course of his participation in the project, Draeger
permitted his insurances to lapse, and at one point apparently assigned the
[plaintiff]/AIC contract from AIC to KD. The “contract” between [plaintiff] and
AIC included a no assignment clause as well as a clause requiring AIC to
maintain its insurance coverages.
Accordingly, Draeger is not permitted to be shielded by corporate form.
He is personally liable for the indebtedness resulting from this opinion.
In disputing the court’s reasoning, defendant does not contest any of the court’s factual
findings, but rather cites authority for the propositions, respectively, that the failure to comply
with statutory formalities, undercapitalization, failure to pay creditors, failure to maintain
required insurance, and assignment to an undercapitalized successor corporation are insufficient
on their own to justify piercing the corporate veil. But defendant cites no authority for the
proposition that any of those factors is irrelevant to the inquiry, let alone that the five of them
together do not add up to sufficient justification.
Defendant additionally argues that there was no finding to the effect that abuse of the
corporate form caused any injury to plaintiff. But defendant offers little elaboration, beyond the
assertions that plaintiff’s “purported injuries arose, if at all, because AIC allegedly breached the
parties’ contract,” and that the law “does not allow a plaintiff to hold shareholders liable every
time a corporation breaches a contract.” However, the obvious rejoinder is that if not every
breach of contract is grounds for piercing the corporate veil, it does not necessarily follow that
no breach of contract can ever take place under circumstances warranting that remedy.
The trial court identified ways in which defendant Draeger’s undercapitalization and
management of his corporations caused plaintiff serious distress in connection with its contract
with the municipality. Defendant does not argue that the court clearly erred in finding that
Draeger failed to see that AIC’s subcontractors or other creditors were consistently paid all
monies due, but instead reports that that Draeger at times elected to apply what funds he had,
apparently including payments from plaintiff upon promises to pay AIC’s subcontractors or other
creditors, to other business expenses. This assignment of something less than highest priority to
paying AIC’s subcontractors and other creditors threw AIC’s performance of its responsibilities
to the project, and thus plaintiff’s ability to fulfill its obligations to the municipality, into doubt.
Likewise that defendant Draeger allowed the required insurance coverages to lapse.
Plaintiff relies on the federal case, Mich Laborers’ Health Care Fund v Taddie Constr,
Inc, 119 F Supp 2d 698, 703 (ED Mich, 2000), where the court deemed sufficient a wrong for
purposes of piercing the corporate veil that the corporation and its sole shareholder failed to fund
fringe benefits to which corporate employees were entitled.6 Defendant distinguishes Laborers’
6
This Court is not bound by federal decisions construing Michigan law, but may consult them as
persuasive authority. See Allen v Owens-Corning Fiberglas Corp, 225 Mich. App. 397, 402; 571
NW2d 530 (1997).
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Health Care Fund from the instant case in that the former involved corporate business carried on
by the owner after the corporation was dissolved for failure to file reports, and apparently
remained dissolved, see id. at 700-701, whereas the instant corporate defendants were reinstated
as corporations in good standing. However, the federal court analyzed the failure to pay benefits
separately from the continuation of operations after dissolution, treating the two as alternatives,
and did not suggest that without dissolution the failure to fund employees’ benefits would not
justify piercing the corporate veil. Id. at 702-703.
Also instructive is this Court’s recent decision in Brooks Williamson & Assocs, Inc v
Mayflower Constr Co, ___ Mich App ___; ___ NW2d ___ (Docket No. 317122, issued
November 13, 2014), where the panel concluded that the defendant failed to show good cause for
setting aside a default resulting in a piercing of the corporate veil for having “failed to offer any
facts disputing the allegations of commingling, misappropriating and siphoning of assets, and
disregard for corporate formalities.” Slip op p 8.
For these reasons, defendants have failed to show that the trial court erred in piercing the
corporate veil.
V. CONCLUSION
The trial court erred in resolving the entire case under the rubric of quantum meruit, of
unjust enrichment, instead of contract law, where the court acknowledged that a written contract
covered part of the activities involved, and stopped short of finding that others were not also
covered by contract, implied or otherwise. The court additionally erred assessing what was owed
to defendant by relying on pay estimates to the exclusion of any final measurements, and in
holding defendant responsible for the full amounts of payment bond claims that plaintiff in fact
settled for lesser amounts. Defendant fails to show that the trial court otherwise miscalculated
damages, or erred in piercing the corporate veil.
Reversed and remanded for further proceedings consistent with this opinion. We do not
retain jurisdiction.
/s/ Michael J. Talbot
/s/ Mark J. Cavanagh
/s/ Michael J. Kelly
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