Title: Clardy v. Sanders

State: alabama

Issuer: Alabama Supreme Court

Document:

551 So. 2d 1057 (1989)
Debby D. CLARDY, as executrix of the Estate of Thomas Eugene Clardy, deceased; and Clardy Realty, Inc.
v.
Martha Hoffman SANDERS.
No. 87-1070.

Supreme Court of Alabama.
June 23, 1989.
Rehearing Denied September 8, 1989.
*1058 Michael B. Beers of Beers, Anderson, Jackson & Smith, Montgomery, and Julian P. Hardy of Pritchard, McCall, Jones, Spencer & O'Kelley and Karon O. Bowdre and Deborah Alley Smith of Rives & Peterson, Birmingham, for appellants.
Richard M. Jordan and Randy Myers, Montgomery, and W. Sidney Fuller, Andalusia, for appellee.
William M. Cunningham, Jr. of Sintz, Campbell, Duke, Taylor & Cunningham, Mobile, for amicus curiae Ala. Defense Lawyers Assoc., in support of appellant.
JONES, Justice.
This appeal by the defendants, from an adverse judgment based on a jury verdict in a wrongful death case, raises the following issues: Whether the trial court erred 1) in denying Clardy Realty, Inc.'s motion for directed verdict on the grounds of insufficiency of the evidence and the inapplicability of the "successor corporation liability" doctrine; 2) in denying the defendants' constitutional challenge to Alabama's punitive damages award in wrongful death cases; and 3) in rejecting the defendants' post-judgment motion for a remittitur on non-constitutional grounds. We affirm.
Thomas Eugene Clardy and James K. Kervin were racing their automobiles late one evening. In an attempt to pass, Clardy swung into the opposite lane and struck a car being driven in the opposite direction by Norma Hoffmann, a 16-year-old female. Both Clardy and Hoffman were killed.
Clardy owned a real estate proprietorship called Clardy Realty. Following Clardy's death, Debby Clardy, the widow of Thomas Eugene Clardy, incorporated Clardy Realty. Mrs. Clardy was also named the executrix of her late husband's estate.
Originally, Martha Hoffmann Sanders, Norma's mother, filed a two-count complaint under Ala.Code 1975, § 6-5-391, against Mrs. Clardy, as the executrix of *1059 Clardy's estate, and against Kervin, alleging negligence and wantonness. Later, Mrs. Sanders amended her complaint to add as a defendant Clardy Realty, Inc., alleging that Clardy was acting within the scope of his authority at the time of the accident, and to add Kervin's father, under a theory of negligent entrustment. Kervin had received five speeding tickets in a two-year period before the accident, and had also been drinking that night.
The jury returned a verdict in favor of Kervin's father, but against the other defendants in the amount of $2.75 million in punitive damages. Judgment was entered in accordance with the verdict. The trial judge conducted an extensive post-trial evidentiary hearing and issued a "Hammond order"[1] setting forth the factors used in determining that the verdict was not excessive.
The following facts are undisputed: 1) Clardy had a blood alcohol level of .21% at the time of the accident; 2) Clardy was racing his truck with the car driven by Kervin; 3) Clardy was driving approximately 80 mph; and 4) Clardy was in Hoffman's lane when he struck her car head-on.
Other facts (taken from the evidence as viewed in a light most favorable to the plaintiff) are as follows: Clardy left his house at about 11:00 P.M. on the night of the accident. There is a dispute over where he was going, but there was testimony to the effect that he was going to check on some of his rental property. A "Clardy Realty" sign was in Clardy's truck at the time of the accident, and the accident occurred near some property owned by Clardy. As previously stated, all of the testimony, which included that of several eyewitnesses, showed that the accident was entirely the combined and concurring fault of Clardy and Kervin. The accident occurred between 1:00 and 1:30 A.M. on August 30, 1986.
On October 17, 1986, Mrs. Clardy incorporated her husband's business under the name Clardy Realty, Inc. She testified that she did so on the advice of her accountant and lawyer, and not in response to the litigation arising from the accident. According to Mrs. Clardy, the assets and liabilities of Clardy Realty were assumed by Clardy Realty, Inc. No consideration passed between the estate of Clardy and Clardy Realty, Inc. The location, manner of operation, and personnel of Clardy Realty remained the same following the incorporation. The only major change that occurred was Mrs. Clardy's becoming the licensed broker for the corporation, the position her husband had held in the proprietorship.
Under Clardy Realty, Inc.'s first allegation of error, it poses the following propositions: "A. Speculative evidence cannot support the verdict against Clardy Realty, Inc.; B. Theories of successor corporation liability are not applicable to impose liability on Clardy Realty, Inc.; and C. The trial court's erroneous charge to the jury concerning the presumption of agency by the owner of the vehicle constitutes reversible error."[2] As a premise for its "insufficiency" argument, Clardy Realty, Inc., contends that the plaintiff failed to meet her burden of making a prima facie showing that Clardy was on business for the proprietorship at the time of the accident. This argument misperceives the relationship between Clardy as an individual, and Clardy as the sole proprietor of Clardy Realty. Whether Clardy, at the time of the accident, was on business for Clardy Realty is of no legal consequence as to the liability of either Clardy's estate or Clardy Realty, Inc., under the successor liability doctrine. Clardy the individual and Clardy Realty, a sole proprietorship, are but a single legal *1060 entity; and the two separate capacities (Clardy as an individual, and Clardy as a sole proprietor) can not be separated into two legal entities for the purpose of testing Clardy Realty, Inc.'s liability as a successor in interest to the liabilities of Clardy's estate.
The failure of Clardy Realty, Inc.'s respondeat superior argument, however, does not answer the ultimate question concerning the application of the "successor corporation liability" theory. Under this prong of its argument, Clardy Realty, Inc., contends that it could not legally succeed to the debts and obligations of Clardy Realty, because the proprietorship ceased to exist upon Clardy's death and before Clardy Realty, Inc., came into existence; and, further, that the plaintiff did not seek to substitute Clardy Realty, Inc., for Clardy's estate, but sued Clardy Realty, Inc., as an additional defendant, thus impermissibly enhancing the plaintiff's award of punitive damages.
Clardy Realty, Inc.'s first contention is to the effect that there could be no continuity of operations due to the break in time between Clardy's death and Clardy Realty, Inc.'s legal existence. This argument fails, both factually and legally. Factually, the time span between Clardy's death and Clardy Realty, Inc.'s incorporation was far too brief to allow any appreciable change in the business operations of the firm; and the evidence of record does not support a finding of any material change in the firm's operation. Legally, the test of the doctrine's application is not so tenuous or restrictive as to depend exclusively upon the "continuity of operations" element.
The requisite alternative elements of the "successor corporation liability" theory are stated in Andrews v. John E. Smith's Sons Co., 369 So. 2d 781 (Ala.1979):
369 So. 2d  at 785. Under appropriate instructions, and the facts disclosed of record, the jury was authorized to conclude that one or more of these elements was present, and, thus, that Clardy Realty, Inc., succeeded to the liabilities of Clardy Realty.
The second aspect of Clardy Realty, Inc.'s argument (the recovery against both the estate and Clardy Realty, Inc.) is more difficult of resolution, and, indeed, contains a ring of logic. Ordinarily, the application of the "successor liability doctrine" does not contemplate that both entities will be held liable for a single obligation arising from a single culpable act or other legal obligation. To be sure, if the doctrine is held to apply, the successor entity is ordinarily fully chargeable with the liability, but not the predecessor entity.
The parties agree that this issue has not been directly addressed in the Alabama cases. Authorities from other jurisdictions have been cited by the parties and thus consulted by us in our effort to resolve this issue. See Tift v. Forage King Industries, Inc., 108 Wis.2d 72, 322 N.W.2d 14 (1982); Plaza Express Co. v. Middle State Motor Freight, Inc., 40 Ill.App.2d 117, 189 N.E.2d 382, n. 4 (1963); Jones v. Eppler, 266 P.2d 451, n. 9, 10 (Okla.1953); and Acorn Lumber Co. v. Friedlander Box Co., 240 Ill.App. 425 (1926). Specifically, we adopt the rationales and the holdings of the Tift and Jones decisions. The Tift court held:
108 Wis.2d at 77-80, 322 N.W.2d  at 16-17.
The Jones court wrote:
"While we have passed upon the question of assumption of debts (see above cases) this is the first occasion for determining such corporation entity's liability for torts of its predecessor. A tort liability of an individual, partnership or corporation is an indebtedness which may be enforced against a corporation which takes over the business and assets of its predecessor under the circumstances outlined above, as the assumption of the liabilities of a predecessor includes tort liabilities. 13 Am.Jur., Corporations, Sec. 1253; Barnes v. Liebig, 146 Fla. 219, 1 So. 2d 247 [(1941)]."
266 P.2d  at 457-58.
Here, the facts, when tested against the rationales of Tift and Jones, defy any conclusion save one: that Clardy Realty, Inc., became the successor corporation to the *1063 interests and liabilities of Clardy Realty, a sole proprietorship.
The trial court entered the following supplementary order denying the defendants' post-judgment motions:
After reviewing the trial court's Hammond order and the arguments of counsel, we find no constitutional basis for reversal. See Industrial Chemical & Fiberglass Corp. v. Chandler, 547 So. 2d 812 (Ala. 1989) (on rehearing); and Central Alabama Electric Cooperative v. Tapley, 546 So. 2d 371 (Ala.1989).
We have carefully reviewed the entire record and considered the gravity of the wrong in light of the trial judge's post-judgment findings and conclusions, as well as other judgments affirmed by this Court in wrongful death cases, and we find no basis for reversal on non-constitutional grounds. See Alabama Power Co. v. Capps, 519 So. 2d 1328 (Ala.1988), appeal dismissed, ___ U.S. ___, 108 S. Ct. 1723, 100 L. Ed. 2d 188 (1988); Black Belt Wood Co. v. Sessions, 514 So. 2d 1249 (Ala.1986); Alabama Power Co. v. Cantrell, 507 So. 2d 1295 (Ala.1986), appeal dismissed, ___ U.S. ___, 108 S. Ct. 2008, 100 L. Ed. 2d 596 (1988); General Motors Corp. v. Edwards, 482 So. 2d 1176 (Ala.1985); American Pioneer Life Ins. Co. v. Sandlin, 470 So. 2d 657 (Ala.1985); and National Security *1064 Fire & Casualty Co. v. Bowen, 447 So. 2d 133 (Ala.1983).
AFFIRMED.
ALMON, SHORES and ADAMS, JJ., concur.
MADDOX, J., concurs as to parts II and III, and concurs in the result as to part I.
HOUSTON, J., concurs as to part I, and concurs in the result as to parts II and III.
JONES, Justice.
APPLICATION OVERRULED.
ALMON, SHORES and ADAMS, JJ., concur.
MADDOX and HOUSTON, JJ., concur specially.
MADDOX, Justice (concurring specially).
I agree that the defendants' application for rehearing should be overruled. I am writing specially to point out that punitive damages in a wrongful death case, such as the case here, are different in nature from punitive damages in any other type of tort action in Alabama. The defendants' constitutional arguments concerning this punitive damages award must be considered in a different light than constitutional challenges to punitive damages awards in other tort actions, because in Alabama, only punitive damages are recoverable in a wrongful death action. See my opinion concurring in part and dissenting in part in Alabama Power Co. v. Cantrell, 507 So. 2d 1295, 1306 (Ala.1986), appeal dismissed, ___ U.S. ___, 108 S. Ct. 2008, 100 L. Ed. 2d 596 (1988).
HOUSTON, J., concurs.
[1]  See Hammond v. City of Gadsden, 493 So. 2d 1374 (Ala.1986).
[2]  Because the issue concerning the trial court's jury instruction on the presumption of agency was not preserved for review pursuant to Rule 51, A.R.Civ.P., we will not address this allegation of error.