Gladstone v. Stuart Cinemas, Inc. and Stuart, No. 6 -1-00 Bncv (Wesley, J., Nov. 21, 2005)

[The text of this Vermont trial court opinion is un official. It has been reformatted from the original. The accuracy of the text and the accompan ying data included in the Vermont trial court opinion database is not guaranteed.]

STATE OF VERMONT BENNINGTON COUNTY, SS. TED GLADSTONE and ALEXANDRA GLADSTONE ,

Plaintiffs, v. BENNINGTON SUPERIOR COURT DOCKET NO. 6-1-00 Bncv STUART CINEMAS, INC. and MELVIN STUART,

Defendants. ORDER ON PLAINTIFFS’ MOTION TO AMEND COMPLAINT AND MOTION FOR WRIT OF ATTACHMENT
Following a remand from the Vermont Supreme Court, see 2005 VT 44, Plaintiffs have moved to amend their complaint to add a new cause o f action. However, the Supreme Court’s remand order directs “ the court to hear defendant’ s case on the issue involved in this appeal and decide the case based on all the evidence,”id . at ¶ 35. Although the Supreme Court mentioned breach of fiduciary duty to creditors in connection with its discussion of successor liability, nothing in the opinion suggests that the scope of the remand contemplated consideration of a new cause of action. Id . at ¶ 29. The Court will therefore DENY Plaintiffs’ motion to amend, limiting the proceedings on remand to a considerati on of Plaintiff’s claim against Stuart Cinemas, Inc. under the principles for assessing co rporate successor liability as set out in the Supreme Court’s opinion.2

Plaintiffs have also moved for a writ of attachmen t under V.R.C.P. 4.1. Since Defendant Stuart is not potentially liable, his ownership int erest in the movie theater property on Route 67A in Bennington cannot be attached. SCI’s leasehold interest in the property is attachable, and the Court will order attachment of this interest in the amount of $200,000. However, the Court finds no authority for Plaintiff’s request for a mo nthly accounting from SCI as an element of relief contemplated by the attachment statute. Acc ordingly, the motion for a writ of attachment is GRANTED IN PART AND DENIED IN PART

. Background In 1997, claiming breach of lease, Plaintiffs obtai ned a judgment for $89,709.58 against BCI, a movie theater corporation owned and operatedby Defendant Stuart. Plaintiffs subsequently brought this action to recover that ju dgment, plus interest and costs, from Stuart or SCI, another movie theater corporation owned and op erated by Stuart. Plaintiffs argued that Stuart was liable under a piercing-the-corporate-ve il theory, and that SCI was liable under a successor-corporation theory. Following the presen tation of Plaintiffs’ case, the Court granted Defendants’ motion for judgment on partial findings under V.R.C.P. 52(c), ruling that Plaintiffs had failed to meet the requirements of either theory. Plaintiffs appealed. Although their notice of appe al was phrased broadly, their only substantive argument was that the Court had erred i n its successor-corporation analysis, and this is the only issue the Supreme Court addressed. “Pl aintiffs do not appeal the court’s refusal to pierce the corporate veil, nor its findings that th ere was no fraudulent transaction, but do contend that the court erred in finding that there was no d e facto merger between BCI and SCI and that SCI was not a mere continuation of BCI”. Id. At ¶ 9. The Supreme Court reversed on this issue ,1 Sprague did not establish the existence of such a fiduciar y responsibility, nor has any

subsequent Vermont Supreme Court case. Rather, the opinion reversed the trial court’s dismissal for failure to state a claim because “however remote th e possibility or novel the claim may be, we cannot say as a matter of law at this point that there is no p ossibility that plaintiffs could present sufficientevidence to establish a fiduciary duty and a breach thereof; a dismissal based on V.R.C.P.12 (b)(6) was at leas t premature in this case”. 145 Vt. 443, 448.
3 but Defendant Stuart argues that the failure to app eal the Rule 52 judgment in his favor, coupled with the limited remand order, compels the conclusi on that he cannot be revived as a party defendant to face a new theory of liability. The C ourt agrees. The Supreme Court’s opinion clarifies the law of su ccessor-corporation liability by explaining that a substantial transfer of assets fr om the predecessor corporation to the successor corporation is not essential, and that the nature a nd operation of the two businesses do not have to be identical. Instead, the Supreme Court focuse d on the identical ownership and management of the two corporations, and the unfairness to cred itors of the predecessor corporation of allowing the same people to carry on essentially the same bu siness -even though not identical- in the name of the successor corporation, making decisions whic h would benefit the successor corporation to the detriment of the predecessor corporation, witho ut meeting the obligations of the predecessor corporation. Elaborating on the potential for unfairness, the Su preme Court drew upon its brief earlier consideration of a corporate director’s possible fi duciary duty to the corporation’s creditors and suggested that such a duty would seem to be applicable here. 2005 VT 44 , ¶¶ 27-28, citing Asociation of Haystack Property Owners, Inc. v. Spr ague , 145 Vt. 443 (1985). 1 At the end of this discussion, however, the Supreme Court recogni zed “that any claim of a breach of fiduciary duty would run, if at all, against the officers anddirectors of BCI, and we have no such claim on4

appeal.” Nonetheless, it deemed the discussion rel evant to the equitable considerations underlying the theory of successor liability, since “the beneficiary of any such breach was SCI, the business left standing in a better market posit ion and without a competitor.” Id . at ¶ 29. The Supreme Court held that this Court “erred in de fining and applying the principles of successor liability in this case,” and thus reverse d this Court’s ruling that the claim against SCI could not be maintained under the controlling law. It then remanded “for the court to hear defendant’s case on the issue involved in this appeal and decide the case based on all the evidence.” Id . at ¶ 35. (Emphasis added.) Motion to Amend On remand, Plaintiffs seek to amend their complaintto add a claim of breach of fiduciary duty against Defendant Stuart. See V.R.C.P. 15. P laintiffs have invoked Rule 15(a), under which leave to amend “shall be freely given when ju stice so requires.” Defendants maintain that because the trial had started and Plaintiffs had co mpleted their case, the motion must be decided under Rule 15(b), which allows amendment after tria l if issues not raised by the pleadings are tried by consent of the parties; but see, Vineyard Brands, Inc. v. Oak Knoll Cellar , 155 Vt. 473 (1990)(implied consent will not be found unless it appears that the party understood that evidence was introduced to prove the unpleaded issu e). Logic favors Defendant’s argument that Rule 15(b) subscribes stricter limits on the broad discretion established by Rule 15(a) in circumstances where a party has had a full opportun ity to present evidence upon which a judgment has entered. As Plaintiffs concede that the suggestion of a cause of action emerging from Sprague was almost certainly unconsidered by any party at trial, Defendant’s consent surely cannot be implied to have the evidence re-evaluatednow against the elements of such a possible5

claim. Vineyard Brands , supra . Even assuming the possible application of Rule 15(a ), which contains no limitation based on time, cf. Lillicrap v. Martin , 156 Vt. 165, 170 (1989) (amendments with leave of court under Rule 15(a) may be allowed at any time), Plaintiffs have not demonstrated a right to relief. The Supreme Court’s remand specifically directed this C ourt to hear Defendant’s case on successor liability and then decide the case based on all the evidence. Citing authorities from other jurisdictions, Defendants argue that this type of s pecific direction in a remand order strictly limits what the lower court considers on remand. See, e. g., Scott v. Churchill , 377 F.3d 565, 570 (6 th Cir. 2004) (lower court is bound to the scope of th e remand issued by appellate court, and scope of remand is determined by examining the entire ord er or opinion to determine whether and how the appellate court intended to limit the remand). Although none of Defendant’s authorities specifically address consideration of a motion to a mend after a specifically limited remand, the general principle seems logically compelling. More over, the Vermont Supreme Court has indicated in another context that a limited remand is a limited remand. Cf. R.E. Bean Constr. Co. v. Middlebury Assocs. , 142 Vt. 1 (1982) (holding that after the Supreme Court had remanded a case to allow a party to make a proffer, the trial court did not err in refusing to go beyond that and have a full evidentiary hearing). See also Uni ted States v. Campbell , 168 F.3d 263, 265 (6 th Cir. 1999) (distinguishing between general and limi ted remands, explaining that a general remand allows the lower court to address any issue as long as it does so in a manner consistent with the appellate court’s opinion, while a limitedremand explicitly outlines the issues the lower2 Plaintiffs cite Brown v. Whitcomb , 150 Vt. 106 (1988) for the proposition that an am endment

to the pleadings should be allowed after remand. B rown is inapposite, however, as the initial appeal in that case produced a summary reversal and a general remand without limitation, see 137 Vt. 627 (1979), not a limited remand with specific instruction as i n this case.
6 court should address). 2 Even if the language of the limited remand does notstrictly bind this Court, it is certainly an important consideration in assessing whether jus tice requires amendment under Rule 15(a). The Supreme Court obviously recognized this possibl e cause of action, but acknowledged it was not available because it had not been raised and be cause those against whom it might have been brought were not parties. The Supreme Court furthe r noted that the same equitable interests and considerations could be addressed through the succe ssor liability claim against SCI. Although in a position to give clear guidance, the Supreme Court issued its limited remand without mentioning the possibility of amendment, an omissio n this Court deems significant in considering what justice requires under all the cir cumstances. In deciding a motion to amend under Rule 15(a), the critical inquiry is “‘whether the just and expeditious disposition of the controversy betw een the parties will be advanced by permitting the amendment.’” Graham v. Springfield S chool Dist. , 2005 VT 32, ¶ 6. The Court notes that this basic landlord-tenant dispute has n ow been going on for ten years. Plaintiffs have already sought to hold Defendant Stuart personally liable under two separate theories, without success. There is no reason Plaintiffs could not h ave asserted this cause of action sooner, except it did not suggest itself as a viable claim for rel ief until raised as an analogy in the Supreme Court’s discussion. Plaintiffs insist they would no t have to reopen their case, but it is hard to imagine how the additional claim against an additio nal party could fail to significantly increase7

the complexity of the issues and the time and resou rces required to finish the trial, ( particularly as the elements of the new claim are even less developed in Vermont jurisprudence than were the elements of successor liability befor e this case). The Court acknowledges Plaintiff’s efforts to revive an arguably viable cl aim against Stuart individually, as well as the remanded successor liability cause against SCI, in hopes of broadening the prospects for execution in the event of a favorable judgment. Ye t, by failing to appeal this Court’s Rule 52 judgment dismissing all claims against Defendant Stuart individually, Plaintiffs had already conceded the futility of reaching his personal asse ts to satisfy any claim. Under all the circumstances presented here, the Court cannot be p ersuaded that the Supreme Court’s dictum regarding the possible fiduciary responsibility of a corporation’s officer to its creditors - a common law cause of action as yet unestablished by any fully adjudicated case by Vermont’s highest court - justifies expanding the express rem and mandate to accommodate an amendment bringing Defendant Stuart back into the case. In s um, permitting the amendment would not advance the just and expeditious disposition of thi s controversy, and the motion to amend will be denied. Motion for Writ of Attachment Plaintiffs have also moved for a non-possessory wri t of attachment in the amount of $200,000 under V.R.C.P. 4.1. Specifically, they wa nt to attach (1) Defendant Stuart’s land and movie theater, as well as monies received by Stuartas rent for this property; (2) SCI’s leasehold interest in the land and movie theater; and (3) all receipts, proceeds and assets of SCI “with the exception of those funds necessary for the corporat ion to pay its bona fide obligations and bills to creditors currently and without pre-payment.”8

From the Court’s denial of Plaintiffs’ motion to am end, it follows that Stuart is not a potentially liable party, and neither his real esta te nor monies received in rent for that real estate can be attached. However, SCI is a potentially liable party, as established by the considerations set forth in the Supreme Court’s opinion, and there is a reasonable likelihood that Plaintiffs will recover judgment, including interest and costs, aga inst the corporation. Defendant SCI has not contested the claim that, for purposes of these att achment proceedings, the amount of any likely judgment over and beyond any insurance, bond, or other security available to satisfy the judgment, could reach $200,000. See V.R.C.P. 4.1(b )(2). Thus, the Court ORDERS that a nonpossessory writ of attachment in the amount of $200 ,000 will issue for SCI’s leasehold interest in the land and theater on Route 67A, thereby preventi ng it from being transferred or modified. The third part of Plaintiffs’ request essentially a sks the Court to place SCI in a receivership as a form of relief in an attachment p roceeding This is not authorized under Rule 4.1 or any other rule, nor pursuant to 12 V.S.A.§32 51 et seq. Based on the foregoing considerations, the Court ORDERS as follows:
Plaintiffs’ motion to amend is DENIED

. Plaintiffs’ motion for a writ of attachment is GRANTED IN PART AND DENIED IN PART, with partial approval as follows: . A writ of attachment shall issue in the amount o f $200,000 for SCI’s leasehold interest in the land a nd movie theater owned by Stuart and located on Route 67A, as particularly described in the moti on. The purpose of this attachment is to prevent any transfer or modification of SCI’s right s and obligations under the terms of the lease. Signed at Brattleboro, Vermont, this 1 stday of August, 2005.

_____________________________9 John P. Wesley Presiding Judge