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BlogsPublications | May 6, 2016
2 minute read

COA says that the mere continuation exception to a successor corporation’s non-liability is alive and well in Michigan jurisprudence

The mere continuation exception continues to exist as a traditional successor liability theory in Michigan, says the Michigan Court of Appeals in Commonwealth Land Title Insurance Company v. Metro Title Corporation et al., No. 324914.  The Court held that the continuity of the enterprise doctrine is a relaxation of the de-facto merger doctrine in products-liability cases and did not redefine the mere continuation exception.

In May 2012, a default judgment was entered in favor of plaintiff against defendant Metro Title.  Shortly after that, plaintiff filed suit against Metro Title and Metro Equity Services arguing that Metro Title formed Metro Equity in order to fraudulently transfer assets to avoid collection on the default judgment and that Metro Equity was liable for the judgment under a mere continuation successor-liability theory.  The trial court granted Metro Equity’s directed verdict motion on the fraudulent transfer claim, but entered an order enforcing the 2012 default judgment against Metro Equity under the successor-liability theory.  Metro Equity appealed.

Michigan law recognizes the continuity of enterprise exception and the mere continuation exception to a successor corporation’s non-liability.  The former only applies to products liability cases and cases with similar public-policy concerns, whereas the latter applies to causes of action involving successor non-liability.  The defendant argued that the mere continuation exception is no longer a viable theory in Michigan, and that plaintiff cannot argue under the continuity of enterprise theory since it cannot be applied to judgment creditors.  The Court disagreed and analyzed Michigan case law which clearly indicates that Michigan Courts have applied the mere continuation successor exception outside of the contexts of products liability cases. Also telling was a federal case, CT Charlton & Assoc, Inc v. Thule, Inc, 541 Fed Appx 549 (CA 6, 2013), which held that “the ‘continuity of the enterprise’ doctrine . . . is best read as a relaxation of the de-facto-merger doctrine in products-liability cases, not a redefinition of the ‘mere continuation’ exception.”  Accordingly, the Court concluded that the trial court properly applied the mere continuation exception and affirmed its entry of an order enforcing the 2012 default judgment.