The Gavel Online Edition

Issue 1/95 · Online Edition · February, 1995

A periodic newsletter on legal issues for clients and friends of David B. Forest, P.C., 21321 Cass Avenue, Suite 2A, Clinton Township, Michigan 48036 (810) 465-8520

WHAT IS THE GAVEL?
This is the first issue of our Newsletter, designed for the information and education of our clients. It will be published periodically, whenever news items of interest come along (and I get a chance to put it together!). Your comments, suggestions and criticisms will be greatly appreciated. Hope you enjoy it.

IS YOUR CORPORATION SUFFICIENTLY CAPITALIZED?
One of the reasons that business people form a corporation is to protect themselves personally from liability arising from the business. As a shareholder, the owner (personally) is immune from corporate obligations (default on notes, product liability, etc.), and a creditor of the Corporation can only look to the corporation for satisfaction of debts owed.
HOWEVER, sometimes a Plaintiff will seek to get a the shareholder's assets as well as the Corporation's if the corporation's assets are insufficient to satisfy the amount owed.
HOW? By attempting to "pierce the corporate veil". This is done by successfully claiming that the owners(s) are not respecting the corporate form; rather, the Corporation is simply the owner's sham and the owner should not be allowed to 'hide' behind the Corporation. IF the Plaintiff is successful, the corporate veil is 'pierced', and the shareholder is now liable for all debts and obligations of the Corporation's creditors.
There are ways to help ensure your Corporation's veil is not pierced.
Two of the more obvious are (a) use the corporate name (not a version of it unless a certificate of assumed name is properly on file) when transacting business (business cards and letterhead, office and truck signage) and (b) make sure the corporate minute book is kept up to date (at least the Annual and Board of Directors meets) [PLEASE NOTE: Corporations with February meetings and whose minute books are maintained by our law offices will be receiving information on this shortly.] The often overlooked way is to maintain sufficient capital for the size of the Corporation. After the first two factors, courts look to this area when a challenge is made to pierce the corporate veil. Unfortunately, the courts have not given much guidelines on how much capital is enough, but not enough is often like what U.S. Supreme Court Justice Stewart said about pornography:" (I cannot define it, but]...I know it when I see it." In that vein, if you originally capitalized your corporation at $1,000 and never changed despite the business growing substantially over the years, you need to revisit this issue.

REAL ESTATE TRANSFER TAXES
As part of the school finance reform passed last year, there are additional taxes on real estate transfers as of January 1, 1995. The new tax [State Real Estate Transfer Tax] works out to 0.75% of the value of the property interest being transferred. This is in addition to the existing [Real Estate Transfer Tax]. Essentially, this means for all property outside of Wayne County the combined tax is $8.60 per $1,000 of value ($9.00) in Wayne). BUT, Governor Enlger has been trying to eliminate this new tax, and mentioned it most recently in his State of the State Address...Stay tuned.

IT'S OK TO DIE AS A MICHIGANDER
Yes, we're supposed to be called Michiganians, but some of prefer the old Michigander. And wise old Michiganders with estates had preferred to die as Floridians, Texans, etc. Under Michigan's old inheritance tax, the deceased's estate would have to pay Michigan's inheritance tax even if the estate's worth was under the federal estate tax exemption for the first $600,000 in property interest for most estates. This inheritance tax could be quite costly (e.g. $77,400 if single person left all $600,000 in assets to niece). Therefore, in the past if made more sense for a Michigan resident, who would have to pay a larger inheritance tax, to become a Florida resident at retirement in order to pay a lower Florida 'pick-up' tax.
However, Michigan passed the Michigan Estate Tax Act for persons dying after September 30, 1993. Now, for Michigan residents with Michigan property, the tax is equal to the credit allowed for state death taxes paid for federal estate tax purposes (i.e. the state 'picks-up' the amount that would have gone.) Net effect: in a typical estate, there will be no out-of-pocket cost to Michigan residents because of this new tax scheme. Therefore, there is no reason to become a Floridian for death tax purposes (though warm weather may also have something to do with it1) Source: Filings begin under the Michigan Estate Tax Act, Michigan Bar Journal, December 1994, p. 1318. Is your estate in order?

CASE IN POINT: [Intentional Tort Exception to Worker Compensation]
The Worker's Disability Compensation Act (WDCA) is the exclusive remedy for work-related injuries unless a plaintiff can show that the employer's conduct leading to an injury amounted to an intentional tort.
Under MCL 418.131(1), the employer's conduct which allows this exception is defined as "...if the employer had actual knowledge that an injury was certain to occur and wilfully disregarded that knowledge." A recent Michigan Court of Appeals case turned on the issue of what "certain to occur" means.
In Travis v Dries and Krump Mfg Co, Plaintiff had worked for defendant for about seven months before she was assigned to operate a brake press. The press was deigned with dual palm buttons for safety, but the production manager knew that the press had an ongoing problem with double cycling (i.e. occasionally continued its next cycle without operator's hands on the palm buttons). Each time it doubled cycled, the (prior) operator was able to identify the problem, usually with linkage, get the problem solved and avoid injury. Unfortunately, within an hour of operating the brake press for the first time, the machine doubled cycle and the Plaintiff's hands were severely injured.
The employer was able to successfully convinced the trial court that the Plaintiff had not proven it had actual knowledge that an injury was certain to occur and had wilfully disregarded that knowledge.
Therefore, the trial court judge dismissed Plaintiff's claim on summary disposition. Plaintiff appealed and the case was ultimately decided in her favor as the Appeals Court wrestled with the term "certain to occur". While there has been a split in the Appeals Court on whether this phrase means absolute certainty, in this case the Appeals Court concluded that just because an injury could be avoided did not mean that tan injury was not certain to occur, and thus Plaintiff was allowed to get around the WDCA and proceed to trial.

REFERRALS
If you have been pleased with the service and professionalism you have received from our offices, it would be greatly appreciated if you passed the good word along. Referrals are always appreciated and encouraged, and we look forward to the opportunity to be of service to your associates and friends. If we can not service their needs, we will be happy to refer them to the appropriate attorney specializing in their area of need.
However, if you have not been pleased, call us directly!

Have you received your coffee cup yet? If not, call us, and you, too, can let the world know:

MY LAWYER IS BETTER THAN YOUR LAWYER

David B. Forest, JD, MBA
Attorney and Counselor at Law
(810) 465-8520

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