Michigan’s New Position on The Professional Corporation Act - "The Fix" - Part II

What does the Miller decision mean to your clients and what can be done to “fix” the problem? 

The case raises practical concerns.  Who must now incorporate under the Michigan Professional Corporation Act?  What existing corporations may be deemed to be improperly incorporated?

The Bureau’s current policy is that if the entity does not involve a traditional “learned profession,” and was incorporated prior to the court ruling in May of 2007, they will not require the entity to take any corrective action.

New entities are less clear.  Entities listed under the Professional Service Corporation Act, under the Michigan Public Health Code and those services referenced as "professional" under the Michigan Occupational Code, must now incorporate under the Professional Service Corporation Act.  Occupations which are and which are currently not included, can be found at www.michigan.gov/documents/cis/Website_update_re_Miller111_203547_7.pdf.

Occupations which may surprise, include Funeral Director, Mortician, Real Estate Appraiser, Real Estate Brokers and Salespersons.  Notably (and perplexing to me) is the list of not included occupations including Insurance Agents, Insurance Counselors, Investment Advisors and Mortgage Brokers.  It is unclear to me how these services are less professional and personal in nature than those included!

It should be noted that there is pending “corrective” legislation in the Michigan Legislature.  It appears, however, that the legislature will wait until the case, currently on appeal in the Michigan Supreme Court, is finally decided, before acting.

Some advisors are concerned that third party litigants may attempt to use the Miller decision as a basis to “pierce the corporate veil” and find personal liability.  One possible “fix” that has been suggested is for the corporate entity to form a subsidiary Limited Liability Company (LLC) and move its operations into the LLC.  At this time, there has not been a court ruling regarding the improper organization of an LLC.  Currently, an LLC is not subject to the Miller ruling (note that in “companion” litigation--Allstate v A & A Medical Transportation Services, Inc., in an unpublished opinion the court “sidestepped” the LLC issue when raised by the insurer).  Again, the bureau’s official policy is that the Miller decision does not apply to LLC formation.

Obviously, “do not try this at home” is applicable here.

This Newsletter is intended to be informational, only and does not constitute legal advice.  If you have questions, concerns or comments, please contact me at: arichards@smithbovill.com, or by Telephone at 989-652-9923.

Andy Richards

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Michigan’s New Position on The Professional Corporation Act - Who must be Incorporated as A Professional Corporation - Part I

In what many believe to be an unfortunate trend by insurers to avoid payment for services otherwise properly and reasonably delivered, a Michigan Insurer sought to avoid payment to a provider of Physical Therapy Services under Michigan’s “No-Fault” insurance statute [Miller v Allstate, 275 Mich App 649 (2007)].  Claiming that the provider was “improperly incorporated” under the Michigan Business Corporation Act, the insurer argued that the provider was not entitled to payment.

What is important to advisors is that the case raised the question whether a particular occupation may incorporate only under the Michigan Professional Corporation Act.  This law essentially provides that certain “professional services” are so personal in nature that the professionals will not be allowed to shield themselves from liability for negligence in the provision of such services by incorporating.  The Professional Corporation Act allows them to take advantage of other corporate “advantages,” but limits the corporate protections. Traditionally, based on a 1968 Attorney General Opinion, this limitation was restricted to “Learned Professions.”  The list was relatively short, including doctors, dentists, lawyers, accountants, etc.

The Michigan Court of Appeals did not decide the real issue brought before them:  whether the payments were proper.  Instead, they “remanded” the case for consideration of other issues under the “No-Fault” statute.  In fact, they decided that it was unnecessary to determine whether the PT service was “properly incorporated.”

In a rather bizarre turn of “jurisprudence” which bewilders most observers, they then proceeded into the murky waters (some believe they were clear until churned up by this decision) of corporation issues.

Two important new developments come from their opinion.  First, they ruled that a corporation that can be formed under the Professional Corporation Act cannot be formed under the general corporation act.  This is a significant departure from existing law and the way the Michigan Department of Labor and Economic Growth’s Corporations Division has historically treated incorporation.  They have announced that they will not accept for general incorporation, entities which can form under the Professional Corporation Act.  Second, the Court significantly expanded the range of occupations which are considered “professional service providers” under the Professional Service Corporation Act.

So what does this all mean to advisors and their clients?  Part 2 of this Article attempts to address that.

This Newsletter is intended to be informational, only and does not constitute legal advice.  If you have questions, concerns or comments, please contact me at: arichards@smithbovill.com, or by Telephone at 989-652-9923.

Andy Richards

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