UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF MICHIGAN

SOUTHERN DIVISION

 

UNITED STATES FIRE INSURANCE 

COMPANY,

Plaintiff,

v. Case No. 09-12362

POLESTAR CONSTRUCTION 

OF FLORIDA, LLC, et al.

Defendants.

 /

OPINION AND ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFF’S

MOTION FOR SUMMARY JUDGMENT

Before the court is a “Motion for Summary Judgment,” filed on February 12,

2010, by Plaintiff United States Fire Insurance Company. A response was filed on

March 15, 2010 and a reply on March 22, 2010. After the briefing was completed, it

was determined that this case was a companion to case no. 08-12834, and the case

was reassigned to this court. See E.D. Mich. LR 83.11(b)(7). A hearing on this motion

is unnecessary. See E.D. Mich. LR 7.1(e)(2). For the reasons stated below, the court

will grant in part and deny in part Plaintiff’s motion.

I. INTRODUCTION

In a prior case before this court, Plaintiff sued Defendant Polestar Construction of

Florida, LLC (“Polestar Florida”) for breach of contract and account stated. (Case No.

08-12834, 7/2/08 Compl.) The suit was based on Polestar Florida’s failure to pay

premiums due on a worker’s compensation and employers’ liability insurance policy. 

(Id. ¶ 5.) The parties stipulated to the entry of a Consent Judgment in favor of Plaintiff
2

and against Polestar Florida in the amount of $231,018.00, and the court entered the

Consent Judgment on September 25, 2009. (9/25/09 Consent Judgment.) The

judgment remains unsatisfied, despite Plaintiff’s efforts to collect, because Polestar

Florida has no assets. (Pl.’s Mot. Br. at 3.)

On June 18, 2009, Plaintiff initiated the present case by filing a five-count

“Complaint for Proceedings Supplementary to Judgment” against Defendants Polestar

Florida, Polestar Construction of Michigan, LLC, Polestar Construction, LLC, Four Star

Holdings, LLC, Yukon Holdings, LLC, Aaron Banach Enterprises, Inc., Aaron Banach,

Anita Banach, Daniel Gilbert, and Amy Gilbert. (6/18/09 Compl.) Plaintiff is seeking to

collect the unpaid prior judgment against these various entities and individuals that have

some connection to Polestar Florida. (Id.) At the beginning of discovery, Defendants

filed a third-party complaint against Kevin Rafferty and Timothy Morrison, who are

members of Polestar Florida. (9/4/09 Third-Party Compl.) On February 12, 2010,

Plaintiff filed the present motion for summary judgment based on the theory that

Polestar Florida’s corporate veil should be pierced. 

II. BACKGROUND

A. The Parties

Plaintiff United States Fire Insurance Company is a Delaware corporation with its

principal place of business in New Jersey. (Compl. ¶ 1.) It is a nationwide insurance

company. (Pl.’s Mot. Br. at 4.) 

Defendant Polestar Florida is a Florida limited liability company in the business of

concrete restoration and hurricane glass. (Compl. ¶ 1; Pl’s Mot. Ex. A at 12.) It has

four members: Defendant Aaron Banach (“Banach”), Defendant Daniel Gilbert
3

(“Gilbert”), Third-Party Defendant Kevin Rafferty (“Rafferty”), and Third-Party Defendant

Timothy Morrison (“Morrison”). (Compl. ¶ 11.) Banach and Gilbert are the managing

members of Polestar Florida, and according to Morrison and Rafferty, “were in sole

control of all business decisions and actions taken by Polestar Construction of Florida,

LLC.” (Pl.’s Mot. Ex. C, ¶ 4.) Polestar Florida was formed in approximately January of

2005. (Compl. ¶ 26.) It had no initial capitalization; the four members merely brought

their knowledge and contacts. (Pl.’s Mot. Ex. A at 38-39.) Banach described Polestar

Florida initially as “nothing more than the four of us.” (Id. at 39.) The business was

funded by its projects, which often made payments up front. (Id.)

Defendant Four Star Holdings, LLC (“Four Star Holdings”) is a real estate holding

company that consists of the same four members of Polestar Florida. (Id. at 112.) It

was organized to purchase an office building in Hollywood, Florida, and it also briefly

held two pre-construction condo units. (Id.)

Banach and Gilbert are the sole members of Defendants Polestar Construction of

Michigan, LLC and Polestar Construction, LLC. (Id. at 8.) Polestar Construction, LLC

did not perform any work and it shared the same tax identification number as Polestar

Construction of Michigan, LLC. (Id.) The court will therefore refer to these entities

collectively as “Polestar Michigan.” Polestar Michigan’s business focuses on apartment

complex maintenance and renovation in Michigan. (Id. at 12.)

Banach and Gilbert are also the sole members of Defendant Yukon Holdings,

LLC (“Yukon Holdings”). (Id. at 9.) Yukon Holdings purchased a house in Stuart,

Florida. (Id. at 124.) 
4

Defendant Anita Banach is married to Aaron Banach, and Defendant Amy Gilbert

is married to Daniel Gilbert. (Compl. ¶¶ 44-48.) Plaintiff alleges that it was these four

individuals that purchased the house in Stuart, Florida, not Yukon Holdings. (Id.)

Defendant Aaron Banach Enterprises, Inc. is a corporation that was originally

established as Color Works Collegiate Painters, but it has filed a d/b/a as Polestar

Construction. (Pl.’s Mot. Ex. A at 67.) The company does not have any present

operations. (Id.)

B. The Failed Florida Condo Projects

The main reason Polestar Florida was formed was to perform work on two

condominium conversion projects for a large developer, KMC. (Id. at 15.) The projects,

“Treasures on the Bay” and “401 Blue,” were located in Miami, and Polestar Florida was

the main contractor. (Id. at 15, 18.) These two projects came into being near the end of

the real estate boom in Miami, and the developer eventually went out of business and

lost the properties. (Id. at 15, 24.) In 2006, Polestar Florida lost approximately one

million dollars on these projects. (Id. at 19, 30-31.) At his deposition, Banach stated

that Polestar Florida would have probably survived if it had not been for those two

projects. (Id. at 75.) 

C. Plaintiff’s Audit

Plaintiff issued a workers compensation insurance and employer liability policy to

Polestar Florida. (Pl.’s Mot. Br. at 4.) After the expiration of the policy, Plaintiff

performed a workers compensation audit. (Compl. ¶ 14; Pl.’s Mot. Ex. A at 32.) The

audit revealed that Polestar Florida owed $289,680 in additional premiums. (Pl.’s Mot.
5

Ex. A at 32.) Polestar Florida “endeavored to pay Plaintiff” and made payments of

$61,042 towards these additional premiums, but then it ceased making payments. 

(Defs.’ Resp. Ex. 1 ¶ 5.) The balance is the basis of the present dispute.

D. Polestar Florida’s Operations

Most of Polestar Florida’s administrative work was performed at an office in

Michigan, where Gilbert and Banach worked along with their bookkeeper, Wanda

Brown. (Pl.’s Mot. Ex. A at 37.) This office was used for both Polestar Florida and

Polestar Michigan, with the employees for Polestar Michigan doing bookkeeping,

answering telephone calls, performing information technology work, and estimating for

Polestar Florida. (Id. at 148.) Polestar Florida would pay Polestar Michigan to cover

these functions that Polestar Michigan performed on its behalf. (Id. at 149.) A total

amount of overhead was calculated for the office, and then the amount paid by Polestar

Florida to Polestar Michigan would be based on a percentage of what the total sales

were that month for each entity. (Id.) This was the method used for allocating overhead

expenses in 2006 and 2007, but Banach was unsure of the method used in 2005. (Id.

at 150.) Regarding production functions and information technology work, Polestar

Florida would pay Polestar Michigan for the actual hours worked. (Id. at 149.) Morrison

and Rafferty, as well as project managers and estimators, worked in an office in Florida. 

(Id. at 37.) 

Polestar Florida employed persons in Michigan and Florida. (Id. at 68-69.) 

Polestar Michigan had a large number of employees in Florida performing work at the

401 Blue project for Polestar Florida. (Id. at 160.) It was Polestar Michigan that paid

these employees because, according to Banach, “they were Michigan residents paying
6

taxes in the State of Michigan.” (Id.) Polestar Florida would then make large payments

to Polestar Michigan to cover the payroll costs that Polestar Michigan was incurring by

its employees working on Polestar Florida’s project. (Id. at 161.) These hundreds of

thousands of dollars going between Polestar Florida and Polestar Michigan are evinced

by Plaintiff’s Exhibit D, which is a compilation of various checks drawn from Polestar

Florida’s accounts. (Id. at 158-160.) Banach was unsure how these transactions were

documented within the company and stated, “There’s some documentation in some

form that tells both entities what the money is for going back and forth. What it is and

where it is, I don’t know.” (Id. at 162.) 

E. Intercompany Loans from Polestar Florida

1. Polestar Michigan and Payroll Loans

Polestar Florida and Polestar Michigan made a series of intercompany loans,

typically to cover payroll expenses. (Id. at 62.) In the 2005 financial statements, there

was an intercompany loan for $181,000, and in the 2006 financial statements, there was

an intercompany loan for $196,000. (Id. at 98-99.) Banach explained these entries as

follows: “That would be money from either the Michigan entity or Florida entity going

back and forth to help cover payroll, payroll taxes. Typically that’s what that money

was, covering payroll or payroll taxes.” (Id. at 99.) Banach later clarified that the

$181,000 loan was a loan to Polestar Michigan from Polestar Florida. (Id. at 132.) He

explained the reason for the loans was that “there was money that went back and forth

to keep things afloat between both entities. It wasn’t a matter of favorable preference

between entities. It was a matter of staying in business.” (Id. at 134.) Banach stated,

“And it would go both ways, too. Michigan would send money back to Florida at times
7

to cover payroll, payroll taxes, IRS payments. Both entities helped each other out in

times of need.” (Id. at 155.) As an example, in February of 2005, $102,000 was

transferred between Polestar Florida and Polestar Michigan, and in April of 2005, over

$200,000 was transferred between Polestar Florida and Polestar Michigan. (Id. at 152,

154.)

2. Four Star Holdings, LLC and the Purchase of the Office Building

Four Star Holdings was set up to purchase an office building in Hollywood,

Florida. (Id. at 112) It also briefly held two pre-construction condo units at one of its

projects, but these units were eventually sold for a loss. (Id. at 112, 123.) The office

building was purchased for approximately $695,000. (Id. at 95.) As no capital

contributions were made to Four Star Holdings, the purchase of the building was

financed with a loan from a private lender as well as a loan from Polestar Florida for

$100,190. (Id. at 114-15.) The loan from Polestar Florida was documented with a

promissory note, and at the end of 2006, the amount Four Star Holdings owed to

Polestar Florida was approximately $45,000. (Id. at 120, 124.) 

Polestar Florida occupied the office building and made rent payments to Four

Star Holdings. (Id. at 118, 123.) The office building was sold on November 28, 2006,

for a gain of $110,000, with each of the four owners receiving $10,000 from the sale. 

(Id. at 120.)

3. Yukon Holdings, LLC and the Purchase of the Stuart, Florida House

In 2005, Polestar Florida loaned Yukon Holdings $138,000 that was used for the

purchase of a house in Stuart, Florida. (Id. at 96, 124, 126.) This loan was documented

with a promissory note. (Id. at 124.) The precise purchase price is unclear, but the
8

basis used for depreciation in 2005 was $629,923. (Id. at 126.) In addition to the loan

from Polestar Florida, Yukon Holdings obtained a loan from Countrywide Financial. (Id.

at 131.) As of February 19, 2009, the balance of the mortgage was $590,000. (Id. at

129.)

When asked why Polestar Florida was loaning money when it was showing a

loss for 2005, Banach replied, “They had no business loaning money.” (Id. at 96.) By

the end of 2006, the amount of the debt was $138,289. (Id. at 97.) Banach stated that

to the best of his knowledge, this note receivable has been paid. (Id. at 98.) However,

on a January 16, 2009 garnishee disclosure, Yukon Holdings indicated that it was

indebted to Polestar Florida in the amount of $64,888.90, but that it was exempt from

withholding because it assumed IRS debt in the same amount as the indebtedness to

Polestar Florida. (Pl.’s Mot. Ex. F.) A March 2010 affidavit from Banach states that “the

loan to Yukon Holdings, LLC was repaid to Polestar Construction of Florida, LLC in full

and with interest.” (Defs.’ Resp. Ex. 1, ¶ 7.)

The house was on the market for a few years, and was originally listed for around

$900,000, although it is presently being used as a rental and is not currently for sale. 

(Pl.’s Mot. Ex. A at 125, 127, 129-30.) Banach stated that he does not know what the

present equity in the house is, but that it is “upside down.” (Id. at 130.)

F. Financial Performance and Executive Compensation

1. Polestar Florida

In 2005, Polestar Florida had approximately $11 million in sales, but it reported a

loss of $173,896. (Id. at 86-87.) Gilbert and Banach reported losses of $45,212, and

Morrison and Rafferty reported losses of $41,735. (Id. at 87.) Banach had a capital
9

contribution balance of $0.00, Gilbert had a balance of $84,811.86, Morrison had a

balance of $3,543.00, and Rafferty had a balance of $0.00. (Id. at 40.) The reason

Gilbert’s capital contribution balance was larger than the others in 2005 was because he

loaned Polestar Florida money to cover payroll. (Id. at 41.) 

The compensation of officers for 2005 was $194,000 and was split between the

four members. (Id. at 87-88.) This amount represented the members’ salary as

employees of the limited liability company. (Id. at 88.) The compensation was based

on guidelines from their accountant taking into account tax considerations and the

amount other persons were paid performing a similar line of work. (Id. at 141.)

At his deposition, Banach explained how cash-flow affected their officer

distributions, “If there was money there that was available, then, yes, we would take a

distribution, and if money wasn’t there for a payroll, we wouldn’t take a payroll check . . .

. I wouldn’t say that we – if there was a positive cash flow that we were sweeping

everything out of the company, but we would take distributions based on how much

money was available at the time and what our receivables were and what bills we had

coming up . . . .” (Id. at 142.) In a March 2010 affidavit, Banach stated that

“[c]ompensation paid by Polestar Construction of Florida, LLC decreased and eventually

ceased when Polestar Construction of Florida, LLC began to experience cash flow

problems.” (Defs.’ Resp. Ex. 1, ¶ 6.)

Banach and Gilbert received their salaries from Polestar Florida through Polestar

Michigan in order to save money on FICA tax. (Pl.’s Mot. Ex. A at 103.) Polestar

Florida would pay a “management fee” to Polestar Michigan in the amount of their

salaries and then Polestar Michigan would pay this amount to Banach and Gilbert. (Id.) 
10

This allowed them to avoid paying FICA tax twice since they were already making a

salary from Polestar Michigan. (Id.)

In 2006, Polestar Florida had gross sales of $4,542,545, and posted a profit of

$332,443. (Id. at 91.) Gilbert and Banach reported ordinary business income of

$86,435 and Morrison and Rafferty reported ordinary business income of approximately

$80,000. (Id. at 93-94.) Compensation of officers was down this year to $93,400. (Id.

at 92.) At the end of 2006, Banach had a capital contribution balance of $0.42, Gilbert

had a balance of $871.17, Morrison had a balance of $0.00, and Rafferty had a balance

of $13,799.96. (Id. at 40.) Balance sheets were not prepared for 2007 and 2008. (Id.

at 41.) 

2. Polestar Michigan

In 2005, Polestar Michigan had sales of $2,498,598, but it reported a loss of

$427,502. (Id. at 131-32.) The compensation for its officers, Banach and Gilbert, was

$258,858. (Id. at 132.) Banach noted that these figures are based on Polestar

Michigan’s tax return, which he described as a “snapshot of the year,” and that he and

Gilbert were not taking distributions and paychecks later in 2005 after “getting kicked

below the belt,” referring to the failed condo projects in Florida. (Id. at 133.) Banach

stated that at the same time Polestar Florida was losing money at the 401 Blue project

and the Treasures project, Polestar Michigan lost approximately $300,000 on a large

condo project in Florida called Ocean View Towers. (Id. at 134-35.) Thus, according to

Banach, they “got kicked in both companies [at] approximately the same time, which is

the same time the problems with the IRS started.” (Id. at 135.)

Polestar Michigan was involved in litigation arising out of the Ocean View Towers
11

project. (Id. at 136.) It received a settlement for $200,000; however, it had $200,000 in

legal fees. (Id.) Approximately $40,000 to $50,000 of these legal fees were paid by

Polestar Florida. (Id. at 136, 139.) Banach stated, “This is part of both entities trying to

keep a heart beat in both,” but he also explained that someone in the office in Michigan

posted the legal invoices to the wrong company. (Id. at 136, 144.) Banach testified that

Polestar Michigan paid the $40,000 in legal fees back to Polestar Florida by making

payments on debts that Polestar Florida owed to the IRS, credit card companies, and

other creditors. (Id. at 146.)

G. Polestar Florida Winds Up

Polestar Florida’s last business operations were in December of 2007. (Id. at

42.) Morrison had stopped participating in Polestar Florida in 2006, and Rafferty had

stopped in 2007, although there is no indication that either are no longer formally

members of Polestar Florida. (Id. at 15.)

On May 13, 2008, Polestar Florida conducted its annual member meeting, with

Banach, Gilbert, and Rafferty present. (Pl.’s Mot. Ex. E, 5/13/08 Meeting Minutes, ¶ 2.) 

The members reviewed the current jobs and noted that “[a]ll work had been completed

using employees from Michigan to complete all unfinished work.” (Id. ¶ 6) The

members also noted that “[n]o new work was being bid or produced t[h]rough Polestar

Construction of Florida, LLC.” (Id.) The members expressed concern “how the

liabilities would be met after all Polestar Construction of Florida, LLC work had been

completed and paid for” and stated that “[t]otal liability had been reduced from

$986,836.04 to $430,825.31 since Kevin resigned on 11/10/2007.” (Id. ¶ 7.) The

members reviewed a “reduction of liabilities,” which detailed “the loan to Yukon Holdings
12

LLC, Polestar Construction of Michigan, LLC and legal fees that were accidentally

posted to Polestar Construction of Florida, LLC.” (Id. ¶ 9.) Gilbert moved for a capital

call, which was seconded by Banach. (Id. ¶ 11.) “The capital call asked for each

member to contribute financially to cover the monthly financial commitments of Polestar

Construction of Florida, LLC. . . . Payments are to be made by the 25th of each month

beginning July 25, 2008.” (Id.) At a member meeting held on May 27, 2008, Banach

and Gilbert noted that Rafferty did not make his first payment toward the capital call and

that he was in default. (Pl.’s Mot. Ex. E, 5/27/08 Meeting Minutes, ¶¶ 1, 2.)

Polestar Florida had approximately $27,000 in credit card debt. (Pl.’s Mot. Ex. A

at 49.) Banach and Gilbert are making payments on these accounts because they

signed personal guaranties. (Id. at 48.) As of February 19, 2009, one of the balances

has been paid in full and another transferred to Polestar Michigan, which is now making

payments. (Id. at 173.)

Polestar Florida also presently owes more than $200,000 to the Internal Revenue

Service (“IRS”). (Id. at 44.) A payment plan has been established in which Banach and

Gilbert make monthly payments of $10,133. (Id. at 44-45.) They are making these

payments because individual members of a limited liability company are personally

responsible for 941 withholding tax. (Id. at 45.)

Banach and Gilbert determined that the payment agreement cannot go into

default because they do not want to be held personally liable. (Pl.’s Mot. Ex E, 5/27/08

Member Meeting Minutes ¶ 3.) They therefore established the following payment

method in order to ensure that the payments to the IRS are made. First, all of Polestar

Florida’s accounts receivables will go to pay off the IRS debt. (Id. ¶ 4.) After the
13

receivables are exhausted, Polestar Michigan will make payments to the IRS in an

amount that equals what it owes Polestar Florida based on the intercompany loans. (Id.

¶ 5.) Once Polestar Michigan satisfies its debts to Polestar Florida, Yukon Holdings will

make payments to the IRS in an amount that equals what it owes Polestar Florida. (Id.

¶ 6.) After the IRS debt is paid, Banach and Gilbert agreed that Polestar Florida would

file for bankruptcy. (Id. ¶ 9.)

III. STANDARD

Under Federal Rule of Civil Procedure 56, summary judgment is proper when

there is no genuine issue as to any material fact and the moving party is entitled to

judgment as a matter of law. Fed. R. Civ. P. 56(c). “In deciding a motion for summary

judgment, the court must view the evidence in the light most favorable to the nonmoving party, drawing all reasonable inferences in that party’s favor.” Sagan v. United

States, 342 F.3d 493, 497 (6th Cir. 2003). “Where the moving party has carried its

burden of showing that the pleadings, depositions, answers to interrogatories,

admissions and affidavits in the record, construed favorably to the non-moving party, do

not raise a genuine issue of material fact for trial, entry of summary judgment is

appropriate.” Gutierrez v. Lynch, 826 F.2d 1534, 1536 (6th Cir. 1987) (citing Celotex

Corp. v. Catrett, 477 U.S. 317 (1986)).

The court does not weigh the evidence to determine the truth of the matter, but

rather, to determine if the evidence produced creates a genuine issue for trial. Sagan,

342 F.3d at 497 (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986)). 

The moving party discharges its burden by “‘showing’ –that is, pointing out to the district

court– that there is an absence of evidence to support the nonmoving party’s case.”
14

Horton v. Potter, 369 F.3d 906, 909 (6th Cir. 2004) (citing Celotex, 477 U.S. at 325). 

The burden then shifts to the nonmoving party, who “must do more than simply show

that there is some metaphysical doubt as to the material facts.” Matsushita Elec. Indus.

Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). The non-moving party must put

forth enough evidence to show that there exists “a genuine issue for trial.” Horton, 369

F.3d at 909 (citing Matsushita, 475 U.S. at 587). Summary judgment is not appropriate 

when “the evidence presents a sufficient disagreement to require submission to a jury.” 

Anderson, 477 U.S. at 251-52.

IV. DISCUSSION

Plaintiff’s motion for summary judgment is based on a veil-piercing theory and

asks the court “to collapse the corporations as alter egos and render them all

accountable and liable along with the individuals who controlled them.” (Pl.’s Reply at

3.)

An action to pierce the corporate veil is not a separate cause of action. See In re

RCS Engineered Products Co., 102 F.3d 223, 226 (6th Cir. 1996). Instead, it is a

remedy that is equitable in nature, Arevelo v. Arevalo, Nos. 285548, 286742, 2010 WL

1330636, at *16 (Mich. Ct. App. Apr. 6, 2010), and the party seeking to pierce the

corporate veil bears the burden, Lipp v. Bruce, No. 270264, 2007 WL 2935027, at *2

(Mich. Ct. App. Oct. 9, 2007) (citing 1 Fletcher, Cyclopedia Corporations, § 41.28, at

610-11).

The Sixth Circuit has described Michigan law regarding piercing the corporate

veil as follows:

Under Michigan law, there is a presumption that the corporate form will be
15

respected. Seasword v. Hilti, 537 N.W.2d 221, 224 (Mich. 1995) (citing

Herman v. Mobile Homes Corp., 26 N.W.2d 757, 761 (Mich. 1947)). “This

presumption, often called the ‘corporate veil,’ may be pierced only where

an otherwise separate corporate existence has been used to ‘subvert

justice or cause a result that [is] contrary to some overriding public policy.’”

 Id. (alteration in original) (quoting Wells v. Firestone, 364 N.W.2d 670,

674 (Mich. 1984)). Michigan courts will not pierce the corporate veil

unless (1) the corporate entity was a mere instrumentality of another entity

or individual; (2) the corporate entity was used to commit a fraud or wrong;

and (3) the plaintiff suffered an unjust loss. Foodland Distribs. v. Al-Naimi,

559 N.W.2d 379, 381 (Mich. Ct. App. 1996) (citing SDC Chem. Distribs.,

Inc. v. Medley, 512 N.W.2d 86, 90 (Mich. Ct. App. 1994)); see also

Gledhill v. Fisher & Co., 262 N.W. 371, 372 (Mich. 1935). The propriety of

piercing the corporate veil is highly dependent on the equities of the

situation, and the inquiry tends to be intensively fact-driven. Kline v. Kline,

305 N.W.2d 297, 299 (Mich. Ct. App. 1981) (per curiam); see Herman, 26

N.W.2d at 761 (“In determining whether the corporate entity should be

disregarded and the parent company held liable on the contracts of its

subsidiary because the latter served as a mere instrumentality or adjunct

of the former, each case is sui generies and must be decided in

accordance with its own underlying facts.”).

Servo Kinetics, Inc. v. Tokyo Precision Instruments Co., 475 F.3d 783, 798-99 (6th Cir.

2007). 

Typically, courts have pierced the corporate veil “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.” Foodland Distributors, 559 N.W.2d at 381 (citing Allstate Ins. Co. v.

Citizens Ins. Co. of Am., 325 N.W.2d 505 (1982)). “There is no single rule delineating

when a corporate entity should be disregarded.” Rymal v. Baergen, 686 N.W.2d 241,

252 (Mich. Ct. App. 2004). Instead, the “entire spectrum of relevant fact[s]” should be

considered, Foodland Distributors, 559 N.W.2d at 381, and the facts “assessed in light

of a corporation’s economic justification to determine if the corporate form has been

abused.” Rymal, 686 N.W.2d at 252. 
16

A. Mere Instrumentality

Plaintiff argues that Banach and Gilbert operated the Defendant companies as a

“mere instrumentality” of one another, as evinced by: (1) the “gross undercapitalization”

of Polestar Florida; (2) the use of Polestar Florida as a bank to finance the operations of

the other entities; (3) the repeated transfer of money between the entities on an as

needed basis, (4) the payment of excessive compensation to Banach and Gilbert; (5)

the loan to Yukon Holdings for the purchase of a house unrelated to the business of

Polestar Florida; (6) the transfer of funds among the various entities for payroll and legal

expenses; and (7) the selective repayment of debts in which Banach and Gilbert are

personally liable. (Pl.’s Mot. Br. at 16-17.)

Defendants argue that Banach and Gilbert had no intent to operate the

businesses as “mere instrumentalities” of each other, as demonstrated by the following

facts: (1) the companies kept separate books and records; (2) the companies held

corporate meetings, (3) the companies documented intercompany loans; (4) the

companies had separate members; and (5) the companies sought to repay their debts,

including the debt to Plaintiff, despite an inability to do so because of the timing of their

decision to enter the real estate market in Florida. (Defs.’ Resp. at 6.)

Michigan courts have not yet articulated clearly-stated factors to be considered

when determining what constitutes a “mere instrumentality” for purposes of piercing the

corporate veil. Cf. L & R Homes, Inc. v. Jack Christenson Rochester, Inc., 713 N.W.2d

263 (Mich. 2006) (Corrigan, J., dissenting from denial of application for leave to appeal)

(“I would grant leave to appeal to articulate clear standards for piercing the corporate

veil and settle the confused state of Michigan jurisprudence regarding this problem.”). 
17

Some factors that have been considered include: whether the companies shared

common directors, whether the companies shared an office, and whether meetings

were held and minutes kept. Action Plumbing & Heating Co. v. Jared Builders, Inc., 118

N.W.2d 956, 958 (Mich. 1962.) In the parent-subsidiary context, a Michigan court found

the following facts pertinent to the inquiry: 

(1) all of the subsidiaries’ capital and credit was provided by the parent; (2)

one subsidiary purchased all of its supplies from the parent; (3) one of the

subsidiaries was grossly undercapitalized; (4) the directors and officers of

the subsidiaries were the officers and directors or employees of the parent

company and the sons of the president of the parent company; (5) the

parent handled the payroll of one subsidiary; (6) officers and employees of

the parent company rendered gratuitous services to the subsidiaries; (7)

the policies and decisions of the subsidiaries were determined by the

parent’s president; (8) one subsidiary received no profit; (9) one subsidiary

was dissolved with its debt written off upon completion of a project; (10)

the offices of all three corporations were at the same address; and (11)

the correspondence from the parent revealed that it considered the

subsidiary’s project as its own.

Precision, Inc. v. Kenco/Williams, Inc., 66 F. App’x 1, 5 (6th Cir. 2003) (citing Herman,

26 N.W.2d 757). Similarly, in the same context, Michigan courts have examined

whether the companies had “shared principal offices, . . . interlocking boards of directors

or frequent interchanges of employees.” Seasword, 537 N.W.2d at 224 n.10. 

There can be no dispute that Polestar Michigan and Polestar Florida were used

as mere instrumentalities of each other and should be considered one and the same. 

Kline, 305 N.W.2d at 298. Polestar Florida and Polestar Michigan were essentially

“mere departments” of each other. Herman, 26 N.W.2d at 762. The companies shared

offices, there was a frequent exchange of money between companies, there was a

frequent interchange of employees, there was an interlocking payroll system, and there
18

was little capitalization of Polestar Florida. Seasword, 537 N.W.2d at 224 n.10; Action

Plumbing, 118 N.W.2d at 958; Herman, 26 N.W.2d at 760.

Polestar Michigan performed much of the work for Polestar Florida. Most of

Polestar’s administrative work was performed at Polestar Michigan’s office in Michigan. 

(Pl.’s Mot. Ex. A at 37.) Polestar Michigan’s employees performed bookkeeping,

answered telephone calls, performed information technology work, and made estimates

for Polestar Florida. (Id. at 148.) Polestar Florida would then pay Polestar Michigan for

these services, and the method of calculation for overhead was not based on actual

work but instead on a percentage of sales. (Id. at 149.) In addition, Polestar Michigan

employees performed work on Polestar Florida’s projects, including one of the

unsuccessful Florida condo conversion projects, 401 Blue. (Id. at 160.) Polestar

Michigan would pay its employees to perform this work for Polestar Florida and then

Polestar Florida would pay Polestar Michigan. (Id.) These facts can lead only to the

conclusion that Polestar Florida and Polestar Michigan were mere instrumentalities of

one another.

As in Action Plumbing, in this case “[t]here was a constant interchange of funds

among the corporations without any care as to the corporate structure, and whenever

the corporations got in great financial difficulty they were bailed out.” 118 N.W.2d at

958. Plaintiff’s Exhibit D provides evidence of hundreds of thousands of dollars that

passed between the two entities. (Pl.’s Mot. Ex. D.) Banach was unsure how these

transactions were documented and Defendants have not attached any documentation

for these transactions. (Pl.’s Mot. Ex. A at 162.) Banach testified that the reason for the

transfers was to “keep things afloat between both entities” and that “[b]oth entities
19

helped each other out in times of need.” (Id. at 134, 155.) Money would shift back and

forth to cover payroll expenses and taxes on an as needed basis. (Id. at 99, 155.) Also,

Polestar Florida paid the legal expenses of Polestar Michigan, and Polestar Michigan

paid the salaries of Banach and Gilbert, with Polestar Florida then paying a

“management fee” to Polestar Michigan. (Id. at 103, 136, 139.)

Another factor that weighs in favor of piercing the corporate veil is that Polestar

Florida had no initial capitalization. Herman, 26 N.W.2d at 760. Defendants argue that

this is not uncommon for a start-up business, (Defs.’ Resp. at 6-7), which may be true. 

However, throughout the operation of Polestar Florida, including after having realized

more than $11 million in sales, the business never received adequate capitalization. 

The lack of capitalization weighs in favor of piercing the corporate veil. 

This lack of capitalization also impacts another potential factor—the fact that

there were additional members of the company. Typically, this would be evidence of a

“check,” preventing the operation of the entity by some members to serve interests

unconnected with the other members. But when no member has any real personal

stake in the entity, the weight of this factor is diminished. Rafferty and Morrison would

not have a strong incentive to ensure that Polestar Florida was being operated solely for

its own purposes and not for Polestar Michigan’s purposes because they, like all of the

members, simply did not have much, if any, financial exposure if the business failed.

Defendants assert that they observed corporate formalities by holding meetings, 

(Defs.’ Resp. at 6), but the only evidence of meetings is from 2008, after Polestar

Florida had essentially ceased operating. (Pl.’s Mot. Ex. E.) No meeting minutes from

2005, 2006, or 2007 have been produced. The existence of two after-the-fact meetings
20

does not carry much weight in terms of demonstrating that the corporate form of

Polestar Florida was respected.

Defendants also claim there is a genuine dispute as to the loan documentation

between the entities. (Defs.’ Resp. at 12.) Evidence that one company “provides

interest free loans without observing corporate formalities by documenting those loans

with promissory notes” supports an alter ego finding. Precision, Inc., 66 F. App’x at 5

(citing Doe v. Unocal Corp., 27 F. Supp. 2d 1174, 1188 (C.D. Cal. 1998)). However,

Defendants did not include any evidence in their response which demonstrates a

genuine issue as to the loan documentation. See Int’l Millennium Consultants, Inc. v.

Taycom Business Solutions, Inc., No. 08-CV-11303, 2010 WL 733087 (E.D. Mich. Mar.

1, 2010) (Borman, J.) (“[Defendant] could easily prove it simply by submitting relevant

documentation such as loan papers, tax statements showing dividend distributions, W-2

forms, or the like. No such papers have been filed. As [plaintiff] notes, and the Court

agrees, the absence of such crucial evidence in the face of the present motion is highly

suggestive.”). More fundamentally, though, even if the loans were documented, it would

not alter the result in light of the other substantial evidence that Polestar Michigan and

Polestar Florida were mere instrumentalities of each other.

 Based on the undisputed facts, a reasonable factfinder could conclude only that

Polestar Florida and Polestar Michigan were mere instrumentalities of each other. 

Polestar Michigan therefore cannot insulate its assets from the creditors of Polestar

Florida. Although Banach stated that they were “trying to keep a heart beat in both,”

(Pl.’s Mot. Ex. A at 136), there was only one circulatory system, with the money from

each entity serving as the lifeblood for the other.
21

With respect to Four Star Holdings and Yukon Holdings, Plaintiff has not

established that a reasonable factfinder must conclude that these entities were mere

instrumentalities of Polestar Florida. Unlike the situation with Polestar Michigan, there

was no shuffling of money back and forth between the companies—Polestar Florida

made one loan to Four Star Holdings and one loan to Yukon Holdings. A related

company making loans to another related company does not necessarily mean that the

companies are instrumentalities of each other. Precision, Inc., 66 F. App’x at 5. A

reasonable factfinder could find this evidence sufficient to make a finding of mere

instrumentality, particularly because of the apparent lack of business purpose for the

loan to Yukon Holdings. However, at the summary judgment stage and drawing all

inferences from the facts in the light most favorable to Defendants, Plaintiff has not

established that a reasonable factfinder would be required to reach this conclusion.

Nor has Plaintiff established that Aaron Banach Enterprises, Inc. should be held

lilable for Polestar Florida’s debts. The record is devoid of any evidence regarding this

entity.

In addition, Plaintiff has not established that a reasonable factfinder would be

required to find the individual Defendants liable. Indeed, Plaintiff submits no evidence

regarding Anita Banach and Amy Gilbert’s role in the operation of these companies,

besides asserting that their names were listed on the deed to the house purchased in

Stuart, Florida. (Compl. ¶ 46; Pl.’s Mot. Br. at 18.) This fact, by itself, cannot establish

that these wives must be held liable for Polestar Florida’s debts. As to the individual

members of Polestar Florida, Plaintiff has not established what specific roles they

played, if any, in operating the company; the only evidence put forward by Plaintiff in
22

this regard consists of general allegations from Rafferty and Morrison. (Pl.’s Mot. Ex.

C.) Indeed, almost all of the evidence derives from Banach’s deposition, and Plaintiff

makes no specific assertions about Gilbert. 

Plaintiff argues that these two individuals received excessive compensation. 

(Pl.’s Mot. Br. at 17.) In 2005, Polestar Florida’s executive compensation was

$194,000, split between four people, and Polestar Michigan’s executive compensation

was $258,858. (Pl.’s Mot. Ex. A at 87-88, 132.) These amounts may be proven to have

been excessive; however, Plaintiff presents no evidence of what the market rate would

have been for comparable work, and the court will not speculate. The court will

therefore deny summary judgment as to Yukon Holdings, LLC, Four Star Holdings, LLC,

Aaron Banach Enterprises, Inc., Aaron Banach, Anita Banach, Daniel Gilbert, and Amy

Gilbert.

B. Fraud or Wrong

Plaintiff argues that “Banach and Gilbert intentionally ignored the corporate form,

not out of sloppiness, but in order to skirt liability and defraud creditors.” (Pl.’s Mot. Br.

at 18.) Defendants argue that Polestar Florida’s inability to pay Plaintiff is not based on

a wrong committed by Defendants, but instead is based on the bad economy. (Defs.’

Resp. at 7.) Defendants focus on the elements of fraud and argue that they were not

attempting to defraud Plaintiff. (Id. at 8.) In its reply, Plaintiff alleges that Defendants

are attempting to elevate the second prong into a fraud requirement, which is not

required. (Pl.’s Reply at 4.)

“Regarding the element of a wrong, any illegality would suffice to establish this

element. In fact, even conduct short of the illegal could support element two. Michigan
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law does not require a showing of fraud or illegality before the corporate form will be

disregarded.” Mich. Laborers’ Health Care Fund v. Taddie Const., Inc., 119 F. Supp. 2d

698, 703 (E.D. Mich. 2000). Indeed, “a breach of contract can satisfy this prong of the

test.” Rogel v. Dubrinsky, 337 F. App’x 465, 470 (6th Cir. 2009). However, “the

injustice sought to be prevented must in some manner relate to a misuse of the

corporate form short of fraud or illegality.” Soloman v. Western Hills Development Co.,

312 N.W.2d 428, 432 (Mich. Ct. App. 1981).

Plaintiff has not established here that Defendants engaged in fraudulent

behavior. Also, Defendants have not committed a wrong by entering into a failed project

and falling upon hard economic times. Nor have Defendants committed a wrong by

preferring some creditors over others after having fallen upon these hard economic

times. See Olympic Forest Products, Ltd v. Cooper, 148 F. App’x 260, 264 (6th Cir.

2005). However, Polestar Florida has breached a contract to Plaintiff, and it has

acknowledged this breach by agreeing to a consent judgment in the previous case. A

breach of contract is sufficient to justify piercing the corporate veil. See Rogel, 337 F.

App’x at 470.

The issue then becomes whether this breach somehow relates to Defendants’

misuse of the corporate form. There can be no dispute that it does. The amount of

money going back and forth between Polestar Florida and Polestar Michigan was

substantial, particularly when compared to the amount owed to Plaintiff. In one month

alone, an amount almost equal to what Plaintiff was owed was transferred from Polestar

Florida to Polestar Michigan. (Pl.’s Mot. Ex. A at 152, 154.) This money could have

been used to pay the legitimate obligations of Polestar Florida’s third-party creditors. 
24

Instead, it was being used to maintain the “heart beat” of Polestar Michigan. (See Pl.’s

Mot. Ex. A at 136.) 

It is relevant that Plaintiff is a sophisticated entity that voluntarily entered into a

contractual relationship with Polestar Florida. Cf. Rogel, 337 F. App’x at 470; Servo

Kinetics, Inc., 475 F.3d at 800. Plaintiff had an obligation to perform some degree of

due diligence on the company it was insuring before entering into a contract worth

hundreds of thousands of dollars. Plaintiff also could have better protected itself by

obtaining a personal guaranty from the individual members, as other creditors did. 

However, Plaintiff was “entitled to rely on the assumption that [Polestar Florida] would . .

. be operated for the benefit of the entity.” Servo Kinetics, Inc., 475 F.3d at 800.

Plaintiff “undertook the risks of contracting with an independent [Polestar Florida]; it did

not voluntarily agree to limit its remedies for breach of contract to a corporation

operated as a mere instrumentality of [other corporations].” Id.

Plaintiff contracted with Polestar Florida, not Polestar Michigan. It was entitled to

assume that Polestar Florida’s work would be performed by Polestar Florida employees,

and that Polestar Florida’s money would be used for Polestar Florida’s purposes. 

Because it was not, Polestar Florida’s creditors stood to lose. Polestar Florida was free

to funnel money to Polestar Michigan. However, by doing so, when Polestar Florida’s

legitimate obligations to third parties became impossible to meet, Polestar Florida

creates the risk that Polestar Michigan may be held responsible. Based on the

undisputed facts of this case and viewing them in the light most favorable to

Defendants, a reasonable factfinder must conclude that the disregard of the corporate
25

distinction between Polestar Florida and Polestar Michigan is related to the wrong in this

case—Polestar Florida’s breach of the insurance contract with Plaintiff.

C. Unjust Loss

Plaintiff argues that it is unable to collect the judgment in the amount of $231,018

against Polestar Florida because “Banach and Gilbert intentionally undercapitalized

Polestar Florida, funneled hundreds of thousands of dollars out from Polestar Florida,

and played a shell game with the rest of Polestar Florida’s assets.” (Pl.’s Mot. Br. at

19.) Defendants argue that Plaintiff’s loss “could not result from the alleged improper

use of the corporate form,” because even if Polestar Florida continued to operate,

Plaintiff could not collect based on the priority of other secured creditors. (Defs.’ Resp.

at 11.) Defendants argues that Polestar Florida’s inability to pay is the result of the

economy and there is no evidence that they ceased operations to avoid paying Plaintiff. 

(Id. at 11-12.)

It is perhaps true that Polestar Florida’s demise was chiefly the result of entering

the real estate market in Florida at an inopportune time. There is no evidence that

Polestar Florida ceased operations in order to avoid paying creditors. However, this

does not necessarily mean that its prior actions did not cause an unjust loss to Plaintiff. 

As the Michigan Court of Appeals explained,

We recognize that there is no evidence revealing, nor any finding by the

trial court, that defendant set out deliberately either to wrong creditors or

to avoid any legal obligations. Nevertheless, the trial court found that a

wrong had been committed by defendant’s “‘flexible’ approach to the

corporation’s distinct existence [which] had the foreseeable effect of

perpetrating a wrong resulting in unjust loss to [plaintiffs]. . . . We cannot

conclude that these findings were clearly erroneous.
26

Daymon v. Fuhrman, No. 249007, 2004 WL 2238596 (Mich. Ct. App. Oct. 5, 2004) (per

curiam) (emphasis and alteration in original).

Here, there was more than a “flexible approach” to the distinct existence of

Polestar Florida and Polestar Michigan. When Polestar Florida was in operation, it

operated its business in a manner that made it virtually indistinguishable from Polestar

Michigan. The foreseeable effect of the operation of a business in this regard is that

third-party creditors would suffer if the business eventually went bad. The money that

was going to pay Polestar Michigan’s payroll expenses, taxes, legal fees, and other

expenses should have been going to pay the legitimate obligations of Polestar Florida,

including the insurance premiums due to Plaintiff. There is no dispute that Polestar

Florida owes Plaintiff $231,018, and that it has suffered an unjust loss as a result of not

being able to collect. Defendants’ unsupported assertion that other secured creditors

have priority does not alter the result. It has put forward no evidence. Accordingly,

summary judgment will be entered in favor of Plaintiff as to Polestar Michigan.

IV. CONCLUSION

 A reasonable factfinder must conclude that the equities weigh against respecting

the corporate formalities of judgment-proof Polestar Florida with respect to Polestar

Michigan.

Accordingly, IT IS ORDERED that Plaintiff’s motion for summary judgment [Dkt.

# 29] is GRANTED IN PART and DENIED IN PART. It is GRANTED as to Polestar

Construction of Michigan, LLC, Polestar Construction, LLC, and Polestar Construction

of Florida, LLC. It is DENIED as to Aaron Banach Enterprises, Inc., Yukon Holdings,
S:\Cleland\JUDGE'S DESK\C1 ORDERS\09-12362.USFIRE.SJ.PierceCorporateVeil.npk.2.wpd

27

LLC, Four Star Holdings, LLC, Aaron Banach, Anita Banach, Daniel Gilbert, and Amy

Gilbert.

s/Robert H. Cleland 

ROBERT H. CLELAND

UNITED STATES DISTRICT JUDGE

Dated: May 27, 2010

I hereby certify that a copy of the foregoing document was mailed to counsel of record

on this date, May 27, 2010, by electronic and/or ordinary mail.

s/Lisa G. Wagner 

Case Manager and Deputy Clerk

(313) 234-5522