Case Title: Gladstone v. Stuart Cinemas, Inc.

Citation: 178 Vt. 104, 2005 VT 44, 878 A.2d 214

Docket Number: 

State: vermont

Court: Vermont Supreme Court

Date: 2005-02-25T00:00:00Z

Document:
Gladstone v. Stuart Cinemas, Inc. (2003-298); 178 Vt. 104; 878 A.2d 214

2005 VT  44

[Filed 25-Mar-2005]

       NOTICE:  This opinion is subject to motions for reargument under
  V.R.A.P. 40 as well as formal revision before publication in the Vermont
  Reports.  Readers are requested to notify the Reporter of Decisions,
  Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801 of
  any errors in order that corrections may be made before this opinion goes
  to press.

                                 2005 VT  44

                                No. 2003-298

  Ted Gladstone and Alexandra Gladstone      	 Supreme Court

   					
                                                 On Appeal from
       v.                                        Bennington Superior Court
                                             

  Stuart Cinemas, Inc. and Melvin Stuart     	 April Term, 2004

  John P. Wesley, J.

  Stephen L. Saltonstall of Barr Sternberg Moss Lawrence Silver &
    Saltonstall, P.C., Bennington, for Plaintiffs-Appellants.

  Lon T. McClintock of Jacobs, McClintock & Scanlon, LPC, Bennington, for
    Defendants-Appellees.

  PRESENT:  Amestoy, C.J.,(FN1) Dooley, Johnson, Skoglund and Reiber, JJ.
            
        
       ¶  1.  DOOLEY, J.  In this corporate successor liability case,
  plaintiffs Ted and Alexandra Gladstone, who are attempting to collect an
  $89,709.58 judgment rendered in a prior action against Bennington Cinemas,
  Inc. (BCI) from defendants Stuart Cinemas, Inc. (SCI) and Melvin Stuart,
  appeal an order from the trial court granting defendants' motion for a
  judgment on partial findings pursuant to V.R.C.P. 52(c).  The court
  concluded that the evidence presented at trial did not establish
  defendants' liability for the previously entered judgment.  Plaintiffs
  contend the court erred in granting defendants' motion because the evidence
  presented at trial demonstrates that under three common law theories of
  corporate successor liability-de facto merger, mere continuation and
  continuing enterprise-SCI is liable for the judgment.  We reverse and
  remand. 

       ¶  2.  Plaintiffs own a shopping plaza in Bennington.  One of the
  commercial spaces in the plaza is a three-screen movie theater.  In 1988,
  Stuart and his wife moved from Connecticut to Vermont to acquire a movie
  theater business.  At this time, Green Mountain Cinemas, Inc., which
  operated the three-screen theater in plaintiffs' plaza, was selling its
  assets.  The lease for the theater space between Green Mountain Cinemas,
  Inc. and plaintiffs, and running until June 30, 1998, was included as one
  of these assets.  Melvin Stuart formed BCI to purchase the assets, making
  himself and his wife sole shareholders, directors and officers.  BCI then
  operated the theater, and the corporation met its debt obligations,
  including rent due to plaintiffs, in a timely fashion. 
   
       ¶  3.  BCI's movie theater was the only one operating in Bennington. 
  During 1991 and 1992, Stuart received warnings from acquaintances in the
  movie distribution business that competitors were beginning to look at
  Bennington as a location to open a multiplex movie theater.  Concerned that
  BCI would not survive if a competitor entered the market, Stuart
  investigated the possibility of expanding the three-screen cinema.  With
  plaintiffs' consent, Stuart employed an architect and a contractor to
  propose a design and estimate the cost of expanding plaintiffs' plaza to
  accommodate a multiplex movie theater.  Through BCI, Stuart applied to
  several banks for financing, but only Vermont National Bank (VNB) responded
  favorably.  Shortly before BCI was approved for the loan, Stuart contacted
  Mr. Gladstone to inform him that VNB was interested in financing the
  expansion.  Mr. Gladstone responded that he had received information that
  led him to believe that BCI would not be approved for the loan and he had
  rented the space proposed for the expansion to another tenant.  

       ¶  4.  Because he could no longer expand his business in plantiffs'
  plaza, Stuart began to consider other options.  Eventually, he decided that
  the best option was to purchase and renovate an existing property in
  Bennington on Route 67A.  In 1994 and 1995, Stuart applied to VNB for
  financing for this project.  VNB's commercial loan officer approved a
  business plan, under which the Stuarts would form a new corporation,
  separate from BCI, to run the multiplex theater.  The business plan also
  provided that the three-screen theater would continue to operate after the
  multiplex opened if the business remained profitable.  VNB approved a
  financing package for the multiplex theater which included a $900,000 (FN2) 
  construction loan which was to mature in six months.  At maturity, the
  construction loan would convert to a $400,000 commercial loan secured by
  the real estate and business assets, subordinated to a $500,000 commercial
  loan with a Small Business Administration (SBA) guaranty.  Under the terms
  of the package, pending the formation of a new corporate entity, VNB
  required the Stuarts and BCI to pledge as borrowers on the construction
  loan.  With financing in place, the Stuarts purchased the property on Route
  67A on February 27, 1995.  No funds from BCI were used in this purchase.
                                                                             
       ¶  5.  On March 3, 1995, the Stuarts incorporated SCI to operate the
  multiplex theater.  As with BCI, Mr. and Mrs. Stuart were the sole
  shareholders, directors and officers of the new corporation.  Despite
  having identical shareholders, officers, and directors, BCI and SCI
  maintained separate financial records, and BCI paid none of SCI's start up
  costs.  The record indicates that BCI's involvement in the multiplex
  transaction was limited to being a listed borrower on the construction loan
  which was discharged on September 25, 1995 when, according to the terms of
  the financing package, the $400,000 commercial loan and $500,000 SBA backed
  loan were issued.  BCI was not listed as borrower for either of these two
  loans.  

       ¶  6.  SCI opened the multiplex theater in June 1995.   During the
  following month, BCI's three-screen theater remained open, but, under
  direction from distributors, movies were shifted from the three-screen
  theater to the multiplex, leaving BCI's theater able to show only one
  movie.  During July, several of BCI's employees were laid off and hired by
  SCI, and Stuart removed projectors and seats from the BCI theater and
  installed them in the SCI theater.  Also during this month, the two
  theaters shared the same phone number.  

       ¶  7.  BCI did not pay plantiffs rent for July 1995 and ceased
  operations the next month.  Approximately two years later, plaintiffs sued
  BCI for back rent owed on the lease that BCI had assumed.  The trial court
  found that BCI, as the assignee of the lease, was liable to plaintiffs for
  the unpaid rent.  To date, BCI has not paid any portion of the ensuing
  judgment.  
   
       ¶  8.  In an attempt to recover the judgment amount, plaintiffs
  filed in the original case a motion for a writ of execution against Stuart
  and SCI.  The court denied the motion because SCI and Stuart were not
  parties to the action.  Following this denial, plaintiffs initiated this
  action against Stuart and SCI.  Plaintiffs advanced several theories of
  liability under which they could recover from parties with whom they were
  not in contractual privity under the lease.  Each of the theories advanced
  below, like those advanced here, involved disregarding BCI's corporate form
  in order to impose liability on either Stuart or SCI, thereby making one or
  both of those parties responsible for BCI's debts.  In the trial court,
  plaintiffs vigorously pursued the theory that the facts warranted the court
  piercing the corporate veil and imposing liability on Stuart individually. 
  In the alternative, plaintiffs argued that under three subsets of the
  doctrine of successor liability-de facto merger, the mere continuation, and
  the fraudulent transaction theory-SCI should be liable for BCI's debts.

       ¶  9.  The court, in a bench trial, heard testimony over three days. 
  At the conclusion of plaintiffs' case, defendants moved for entry of a
  judgment on partial findings under V.R.C.P. 52(c).  Rule 52(c), which is
  virtually identical to Federal Rule 52(c), provides:

    If during a trial without a jury a party has been fully heard on
    an issue and the court finds against the party on that issue, the
    court may enter judgment as a matter of law against that party
    with respect to a claim or defense that cannot under the
    controlling law be maintained or defeated without a favorable
    finding on that issue, or the court may decline to render any
    judgment until the close of all the evidence. Such a judgment
    shall be supported by findings of fact and conclusions of law . .
    . whether or not requested by a party.

  In ruling on a 52(c) motion "the court's task is to weigh the evidence,
  resolve any conflicts in it, and decide for itself where the preponderance
  lies."  9A Wright & Miller, Federal Practice and Procedure 2d § 2573.1, at
  498-99 (1995).  In this case, the court concluded that the evidence did not
  establish liability on the part of SCI or Stuart and granted defendants'
  motion with respect to all of plaintiffs' theories of liability. 
  Plaintiffs appeal this ruling, but not in its entirety.  Plaintiffs do not
  appeal the court's refusal to pierce the corporate veil, nor its finding
  that there was no fraudulent transaction, but do contend that the court
  erred in finding that there was no de facto merger between BCI and SCI and
  that SCI was not a mere continuation of BCI.  Plaintiff also argues here,
  but did not argue below, that SCI should be liable under the continuing
  enterprise theory of successor liability.  
   
       ¶  10.  We have not previously considered an appeal from a Rule 52(c)
  ruling.  Rule 52(c) was added to bring the Vermont Rules into conformity
  with the Federal Rules.  The Reporter's Notes explain that the rule was
  added to parallel Rule 50, Judgment as a Matter of Law in Actions Tried by
  a Jury, and replaced the part of Rule 41(b)(2) that "authorized dismissal
  when a plaintiff had failed to carry an essential burden of proof."  Both
  parties agree that when considering a Rule 52(c) judgment we should review
  the trial court's conclusions of law de novo, and its underlying factual
  findings for clear error.  This standard of review is in conformity with
  the federal courts' standard.  See, e.g., Mullin v. Town of Fairhaven, 284 F.3d 31, 36-37 (1st Cir. 2002); Dubner v. San Francisco, 266 F.3d 959, 964
  (9th Cir. 2001); Samson v. Apollo Res., Inc., 242 F.3d 629, 632-33 (5th
  Cir. 2001); Clark v. Runyon, 218 F.3d 915, 918 (8th Cir. 2000).  It is
  consistent with our decisions reviewing motions granted pursuant to 52(c)'s
  predecessor, Rule 41(b)(2).  See New England Educ. Training Serv. Inc. v.
  Silver St. P'ship, 156 Vt. 604, 611, 595 A.2d 1341, 1344-45 (1991).  
   
       ¶  11.  While plaintiffs accept this deferential standard of review,
  they argue that the trial court "relied upon an erroneous view of the
  applicable law," and that this Court should consider whether, at trial,
  plaintiffs presented sufficient evidence to establish a prima facie showing
  of successor liability.  Plaintiffs contend that if they established a
  prima facie case they should survive defendants' motion for a judgment on
  partial findings.  This is not the standard under Rule 52(c).  Wright and
  Miller explain that, "[t]he trial judge is not . . . to concern itself with
  whether the nonmovant has made out a prima facie case."  Wright & Miller,
  supra, § 2573.1 at 497-98.  Instead the judge acts as the trier of fact,
  weighing the evidence and determining whether the nonmovant has established
  a right to relief.  See Stearns v. Beckman Instruments, Inc. 737 F.2d 1565,
  1568 (Fed. Cir. 1984) (discussing Rule 41(b) which was succeeded by 52(c)
  and explaining that judge weighs and passes on evidence presented).  Unlike
  the procedure for summary judgment, under Rule 52(c) the judge does not
  have to consider the evidence in the light most favorable to the nonmoving
  party.  See New England Educ. Training Serv., Inc., 156 Vt. at 611, 595
  A.2d at 1344-45; Geddes v. Northwest Mo. State Univ., 49 F.3d 426, 429 n.7
  (8th Cir. 1995); United States v. Davis,