Court Opinion

ID: 4316613
Source: CourtListenerOpinion
Date Created: 2018-09-28 17:00:30.564436+00
Date Added: 2024-06-11T14:45:04.197620
License: Public Domain

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
                           File Name: 18a0486n.06

                                        Case No. 17-2500

                          UNITED STATES COURT OF APPEALS
                               FOR THE SIXTH CIRCUIT
                                                                                    FILED
                                                                               Sep 28, 2018
LYNNETTE THOMAS,                                     )                     DEBORAH S. HUNT, Clerk
                                                     )
       Plaintiff-Appellee,                           )
                                                     )      ON APPEAL FROM THE UNITED
v.                                                   )      STATES DISTRICT COURT FOR
                                                     )      THE EASTERN DISTRICT OF
EDWAN KHRAWESH,                                      )      MICHIGAN
                                                     )
       Defendant-Appellant.                          )
                                                     )

BEFORE: SILER, MOORE, and ROGERS, Circuit Judges.

       SILER, Circuit Judge. Lynnette Thomas brought this action to enforce against Edwan

Khrawesh a judgment she had obtained against one of Khrawesh’s closely held corporations. The

district court granted Thomas the relief she sought, prompting Khrawesh to file the instant appeal.

For the following reasons, we AFFIRM.

                                                I.

       Thomas worked at a sporting-goods store in Detroit, Michigan. Khrawesh owned the store

and incorporated it under the name Detroit Sport Foot, Inc. (DSF). Upon her resignation, Thomas

successfully sued DSF for sexual harassment, thereby obtaining a judgment for $105,512.50 as

damages against the company. Before she could collect, however, Khrawesh withdrew DSF’s

assets and dissolved it without an accounting. Consequently, Thomas brought this action to pierce
Case No. 17-2500, Khrawesh v. Thomas

DSF’s corporate veil and enforce the judgment against Khrawesh personally. The district court

granted summary judgment in Thomas’s favor, holding that DSF’s corporate veil should be pierced

and that Khrawesh should be held personally liable on Thomas’s judgment against DSF. It also

increased the damages to $126,446.63.

                                                 II.

       “This court reviews the district court’s grant of summary judgment de novo.” Groening v.

Glen Lake Cmty. Sch., 884 F.3d 626, 630 (6th Cir. 2018). Summary judgment is appropriate “if

the movant shows that there is no genuine dispute as to any material fact and the movant is entitled

to judgment as a matter of law.” Fed. R. Civ. P. 56(a).

                                                 III.

       Khrawesh seeks reversal of the district court’s decision, arguing Thomas failed to present

evidence sufficient to warrant piercing DSF’s corporate veil. In doing so, Khrawesh does not

dispute the bulk of the the district court’s factual findings or present additional evidence from

which a jury could find in his favor. Instead, he maintains that the district court’s factual findings

are inadequate to support its conclusions.

       Under Michigan law, which the parties do not dispute applies to this case, a corporation’s

shareholders are ordinarily not responsible for the corporation’s obligations. In fact, “there is a

presumption that the corporate form will be respected.” Servo Kinetics, Inc. v. Tokyo Precision

Instruments Co., 475 F.3d 783, 798 (6th Cir. 2007).

       Nonetheless, a court may pierce a corporation’s veil and impose a corporation’s obligations

on its shareholders if: “(1) the corporate entity [is] 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.” Id. (citations omitted). In analyzing these elements, courts consider

                                                -2-
Case No. 17-2500, Khrawesh v. Thomas

factors, including whether the corporation was undercapitalized, maintained books and finances

separate from those of its owners, or was used to support fraud or illegality. Int’l Union, United

Auto., Aerospace & Agric. Implement Workers of Am. v. Aguirre, 410 F.3d 297, 302–03 (6th Cir.

2005). Whether a court pierces the corporate veil “is highly dependent on the equities of the

situation, and the inquiry tends to be intensively fact-driven.” Servo Kinetics, 475 F.3d at 798.

       Here, the first element is satisfied. As the district court noted, Khrawesh was the president

of DSF, owned 100% of the company’s stock, and once loaned DSF money that the company

never paid him back. Further, Khrawesh failed to show that DSF had officers (other than

Khrawesh), declared dividends, or kept minutes of corporate meetings. These uncontroverted

findings are sufficient to support the district court’s conclusion. See Mich. Laborers' Health Care

Fund v. Taddie Const., Inc., 119 F. Supp. 2d 698, 703 (E.D. Mich. 2000) (holding that corporation

was a mere instrumentality of defendant when defendant was corporation’s sole shareholder and

only officer, defendant made loans to corporation which were never paid back, and the record

contained no corporate minutes or evidence showing that corporation ever declared dividends).

       The second and third elements are also met. Khrawesh withdrew DSF’s assets and

dissolved the company without an accounting shortly after Thomas obtained a judgment against

it, thereby allowing the company to evade the judgment. Such conduct shows that Khrawesh used

DSF’s corporate form to commit a wrong. See Daymon v. Fuhrman, No. 249007, 2004 WL
2238596, at *2 (Mich. Ct. App. Oct. 5, 2004) (upholding trial court’s decision that defendant used

corporation to commit wrong when defendant transferred corporation’s assets and dissolved it

without an accounting). And the perpetration of this wrong ultimately harmed Thomas, as she has

been unable to collect on her judgment.

                                               -3-
Case No. 17-2500, Khrawesh v. Thomas

       In sum, the record supports the district court’s conclusion that Khrawesh failed to respect

DSF’s corporate form and instead used the company to shift assets in an effort to avoid satisfying

Thomas’s judgment. Further, Khrawesh has failed to present evidence contradicting the factual

findings upon which the district court based its opinion. The district court therefore did not err

when it pierced DSF’s corporate veil.

       AFFIRMED.

                                              -4-