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STATE OF MICHIGAN COURT OF APPEALS

WOODRIDGE HILLS ASSOCIATION, Plaintiff-Appellant, v DOUGLAS WALTER WILLIAMS and D.W. WILLIAMS, LLC, Defendants-Appellees.

UNPUBLISHED December 20, 2011

No. 300193 Wayne Circuit Court LC No. 10-005261-CK

Before: MURPHY, C.J., and JANSEN and OWENS, JJ. PER CURIAM. Plaintiff appeals as of right the trial court's order granting summary disposition in favor of defendants in this action involving questions regarding fraudulent conveyances, successor liability, piercing the corporate veil, and the impact of a pending bankruptcy case. We conclude that the trial court erred in granting summary disposition in favor of defendants and that all of plaintiff's claims are ripe and appropriate for litigation in a Michigan state court. Accordingly, we reverse and remand for further proceedings. Defendant Douglas Williams ("Williams") was the sole shareholder in Redford Roofing & Construction Company, Inc. ("Redford"). Williams was the president of Redford and its sole officer. Williams has a residential builder and alterations' license, and Redford operated under the license. Redford entered into a contract with plaintiff to replace all of the roofs on plaintiff's condominium units. The project was completed, but plaintiff filed suit against Redford, alleging that Redford breached the contract by performing shoddy, substandard work. On May 29, 2009, the Livingston Circuit Court entered a judgment in favor of plaintiff and against Redford in the amount of $182,975. Plaintiff's attempts to collect on the judgment were unsuccessful. In its complaint in this case, plaintiff alleged that Williams transferred all of Redford's cash assets from Citizens Bank to a new account at Comerica Bank to avoid a writ of garnishment, that Williams began declining work projects for Redford in August/September 2009, and that Williams "exercised dominion and control over the assets, accounts receivable, business opportunities, and goodwill of Redford . . . so as to cause it to become insolvent." Plaintiff further alleged that Williams diverted Redford's tangible and intangible assets to himself and insiders, including family members, and that he ignored and failed to pay creditors before divesting Redford of its assets. On October 29, 2009, Redford filed for bankruptcy -1-

protection under title 11 of the United States Code, the Bankruptcy Code, and specifically chapter 7, 11 USC 701 et seq. Plaintiff asserted that Williams personally took cash distributions from Redford prior to the bankruptcy filing. In March 2010, Williams created defendant D.W. Williams, LLC ("DWW"), in which Williams was the sole member and officer. DWW was operated, as was Redford, out of an office at Williams' house. Plaintiff alleged, and Williams essentially conceded in a bankruptcyrelated deposition, that Williams continued operating a construction and roofing business under DWW. Plaintiff alleged that DWW is using Redford's assets, accounts receivables, business opportunities, and goodwill to conduct its own business and that Williams has sole dominion and control over these tangible and intangible assets. In count I of plaintiff's complaint, it alleged that Williams violated the Business Corporation Act (BCA), MCL 450.1101 et seq. More specifically, plaintiff contended that Williams, as a Redford director, violated MCL 450.2551 by improperly distributing Redford's assets and that Williams, as Redford's shareholder, also violated MCL 450.1855a by making improper distributions of Redford's assets to himself before providing for Redford's debts, obligations, and liabilities. Plaintiff also alleged in count I that Williams improperly diverted Redford's business opportunities to DWW for the purpose of avoiding plaintiff's judgment, that Williams failed to operate Redford as a separate legal entity, that he used Redford's cash assets to pay his own bills and those of family members, and that he was currently using DWW's cash assets to cover personal and family member bills. The BCA count also contained an allegation that provided, "[Plaintiff] is entitled to pierce the corporation veil and hold Williams personally liable for Plaintiff's money judgment against Redford[.]" The prayer for relief as to count I sought to hold Williams and DWW jointly and severally liable for the judgment procured by plaintiff in the action against Redford. In count II of the complaint, plaintiff alleged breach of fiduciary duty, asserting that Williams, as a director and officer of Redford, was a fiduciary to plaintiff because plaintiff was Redford's creditor. Plaintiff alleged that Williams breached his fiduciary duties to plaintiff, causing damages. The prayer for relief with respect to count II sought to hold Williams and DWW jointly and severally liable for the $182,975 judgment. Finally, in count III, plaintiff alleged fraudulent conveyances pursuant to MCL 566.34 and MCL 566.35,1 maintaining that Williams conveyed Redford's tangible and intangible assets to himself with the intent to hinder, delay, and defraud plaintiff, that Williams used Redford's cash assets to pay his personal bills and the bills of family members, and that the diversion of assets upon Williams becoming aware of plaintiff's claims against Redford constituted fraudulent conveyances. The prayer for relief with respect to count III sought, once again, to hold Williams and DWW jointly and severally liable for the judgment rendered against Redford.

These statutory provisions are found in the Uniform Fraudulent Transfer Act (UFTA), MCL 566.31 et seq.

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There is no specific count in the complaint addressing successor liability, which plaintiff acknowledges; however, plaintiff argues that the common allegations touched on above served to sufficiently plead a successor liability claim. The trial court subsequently granted summary disposition in favor of defendants. The court first stated that it was dismissing the claims against DWW because it "was not even in existence at the time this roofing job was done." The trial court then indicated that plaintiff's contract was with Redford and not Williams personally. The court also ruled that plaintiff lacked standing to sue DWW. Defendants had also argued, in part, that summary disposition was proper as plaintiff's claims were not ripe until completion of Redford's bankruptcy. The trial court did not reach that issue. At oral argument before this Court, counsel for the parties agreed that the bankruptcy case remained open. Plaintiff's counsel indicated that plaintiff had repeatedly urged the bankruptcy trustee to commence adversarial proceedings on the basis of fraudulent transfers; however, the trustee declined. According to plaintiff's counsel, the statute of limitations that governs the trustee on a fraudulent conveyance claim has now expired. On appeal, plaintiff argues that the trial court improperly dismissed its successor liability claim brought against DWW. Next, plaintiff, pointing to the BCA count (count I) in which it stated that it was entitled to pierce the corporate veil, contends that Williams used Redford as his alter ego to cause unjust injury or loss and that Williams was now using DWW as his alter ego. Accordingly, the trial court erred in dismissing the count. Plaintiff states that, to the extent that the allegations in the complaint were insufficient to support an alter-ego or piercing-thecorporate-veil theory, it should be permitted to amend its complaint under MCR 2.116(I)(5). Finally, plaintiff argues on appeal that the successor liability claim, as well as the claim predicated on the theory of piercing the corporate veil, were ripe for review. Plaintiff "concedes that its fraudulent conveyance claims were barred by Redford's bankruptcy action for the reasons stated in RDM Holdings, Ltd v Continental Plastics Co, 281 Mich App 678; 762 NW2d 529 (2008)." Initially, we note that, prior to the bankruptcy filing, plaintiff apparently did not attempt to avail itself in the suit against Redford of the various mechanisms under the proceedings supplementary to judgment act (PSJA), MCL 600.6101 et seq., relative to property transfers. See Green v Ziegelman, 282 Mich App 292, 297; 767 NW2d 660 (2009). The PSJA addresses such matters as transfers of the judgment debtor's property, MCL 600.6116, transfers of the judgment debtor's property held by third parties, MCL 600.6119 and MCL 600.6122, and fraudulent transfers, MCL 600.6134. We hold that the trial court's findings in support of summary disposition, i.e., that DWW was not in existence when the roofing job was completed and that Williams was not a party to the roofing contract, have absolutely no relevance to fraudulent conveyance, successor liability, and alter-ego claims. Successor liability principles developed specifically to create liability where a successor corporation would ordinarily not be liable because it was not in existence or played no role relative to the underlying wrong. Similarly, piercing-the-corporate-veil and alterego theories developed specifically to create liability where a person associated with a corporation would ordinarily not be liable for actions of the corporation because, for example, he or she was not personally a party to a corporation contract.

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Although plaintiff believes that its fraudulent conveyance claim is barred in light of the bankruptcy action, we choose to address the topic of fraudulent conveyances because proper resolution of this case requires us to confront the issue whether the state court is an appropriate forum with respect to fraudulent conveyance claims where a bankruptcy case is merely pending, regardless of plaintiff's concession that, in our view, is legally inaccurate. In RDM Holdings, which was a case that dealt with the question of whether completed bankruptcy proceedings implicated the doctrine of res judicata relative to a subsequent state court action, this Court, discussing fraudulent conveyances, stated: 28 USC 157(b)(1) provides that "[b]ankruptcy judges may hear and determine all cases under title 11 and all core proceedings arising under title 11, or arising in a case under title 11, . . . and may enter appropriate orders and judgments[.]" Core proceedings under the Bankruptcy Code include "proceedings to determine, avoid, or recover fraudulent conveyances[.]" 28 USC 157(b)(2)(H). Therefore, a claim under the UFTA would constitute a core proceeding in bankruptcy, allowing the bankruptcy court to render a ruling on a fraudulent conveyance claim. In re Bliss Technologies, Inc, 307 BR 598, 604-605 (ED Mich, 2004). . . . In general, a trustee represents the estate of the debtor, 11 USC 323(a), and he or she has the capacity to sue others or to be sued, 11 USC 323(b). Under 11 USC 544(b)(1), a "trustee may avoid any transfer of an interest of the debtor in property or any obligation incurred by the debtor that is voidable under applicable law by a creditor holding an unsecured claim . . . ." This section has been coined a strong-arm provision that allows a trustee to step into the shoes of a creditor in an effort to nullify transfers that are voidable pursuant to state fraudulent conveyance acts for the purpose of benefiting all the debtor's creditors. In re Fordu, 201 F3d 693, 698 n 3 (CA 6, 1999); Nat'l Labor Relations Bd v Martin Arsham Sewing Co, 873 F2d 884, 887 (CA 6, 1989), mod on reh on other grounds, 882 F2d 216 (CA 6, 1989); In re Forbes, 372 BR 321, 330 (CA 6, 2007); In re Harlin, 321 BR 836, 838 n 2 (ED Mich, 2005); Bliss Technologies, supra at 604. Additionally, 11 USC 548(a)(1) provides a trustee with a mechanism to avoid fraudulent transfers of a debtor's interest without reliance on particular state law, where the statute itself sets forth criteria for determining whether a transfer is fraudulent and can be avoided. See Donell v Kowell, 533 F3d 762, 776 n 7 (CA 9, 2008) (11 USC 548 is viewed as the federal fraudulent transfer provision, whereas 11 USC 544[b] authorizes fraudulent transfer actions by the trustee under, in part, applicable state law). 11 USC 550 addresses the liability of a transferee when a transfer of property has been avoided. Accordingly, a trustee has the authority to pursue fraudulent conveyance actions. [RDM Holdings, 281 Mich App at 698-699.] There can be no dispute that a bankruptcy trustee, standing in the shoes of and representing a debtor, here Redford, can commence adversarial proceedings in bankruptcy on the basis of fraudulent conveyances. In the case at bar, the trustee apparently chose not to engage in any bankruptcy litigation concerning fraudulent conveyances despite plaintiff's pleas, and plaintiff filed this state court action, resulting in two open and pending cases

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