Title: Smith v. Kelley
Citation: N/A
Docket Number: SJC-12759
State: Massachusetts
Issuer: Massachusetts Supreme Court
Date: February 11, 2020

NOTICE:  All slip opinions and orders are subject to formal 
revision and are superseded by the advance sheets and bound 
volumes of the Official Reports.  If you find a typographical 
error or other formal error, please notify the Reporter of 
Decisions, Supreme Judicial Court, John Adams Courthouse, 1 
Pemberton Square, Suite 2500, Boston, MA, 02108-1750; (617) 557-
1030; SJCReporter@sjc.state.ma.us 
 
SJC-12759 
 
ROBERT SMITH  vs.  ROBERT E. KELLEY. 
 
 
 
Norfolk.     November 5, 2019. - February 11, 2020. 
 
Present:  Gants, C.J., Lenk, Lowy, Budd, Cypher, & Kafker, JJ. 
 
 
Attorney at Law.  Fraud.  Corporation, Professional corporation, 
Corporate successor liability.  Judgment, Preclusive 
effect.  Collateral Estoppel.  Damages, Fraud. 
 
 
 
 
Civil action commenced in the Superior Court Department on 
July 18, 2016. 
 
 
The case was heard by Thomas A. Connors, J., on motions for 
summary judgment. 
 
 
The Supreme Judicial Court on its own initiative 
transferred the case from the Appeals Court. 
 
 
 
Jeffrey S. Baker (Jonathan D. Plaut also present) for the 
plaintiff. 
 
Dana Alan Curhan (James F. McLaughlin also present) for the 
defendant. 
 
Thomas J. Carey, Jr., for Brian JM Quinn & others, amici 
curiae, submitted a brief. 
 
 
KAFKER, J.  The instant case concerns a final judgment that 
was entered four years ago against a professional corporation, 
2 
 
 
RKelley-Law, P.C. (the P.C.), for the fraudulent activity of one 
of its associates.  The associate defrauded the plaintiff, 
Robert Smith, in a mortgage scam.  The defendant in this case, 
Robert Kelley, was at all times the sole shareholder and officer 
of the P.C.  The day after the entry of final judgment against 
the P.C., the defendant voted to wind up the corporation.  That 
same day, he began operating his law practice as a sole 
proprietorship.  Not long thereafter, the P.C. was placed into 
bankruptcy proceedings.  The P.C. now has no assets, and the 
plaintiff seeks to recover from the defendant personally.  For 
the reasons discussed infra, we conclude that, in the very 
unique circumstances of this case, the plaintiff may pursue 
successor liability against the defendant's sole proprietorship, 
as it was a mere continuation of the former professional 
corporation.1 
 
1.  Background.  In the instant litigation, Smith seeks 
recompense from the defendant for liability established in prior 
Federal court proceedings, see Smith v. Jenkins, 818 F. Supp. 2d 
336 (D. Mass. 2011) (Smith I), aff'd in part, vacated in part, & 
rev'd in part, 732 F.3d 51 (1st Cir. 2013) (Smith II).  We begin 
by summarizing the facts and rulings from those proceedings. 
                     
 
1 We acknowledge the amicus brief submitted by Brian JM 
Quinn, Natali De Corso, and Rebecca Rabinowitz, supporting 
neither party. 
3 
 
 
 
a.  Mortgage fraud scheme.  The plaintiff, Smith, is a 
United States Marine Corps veteran.  Smith I, 818 F. Supp. 2d at 
340.  He suffers from schizophrenia, posttraumatic stress 
disorder, and depression, and he is functionally illiterate.  
Smith II, 732 F.3d at 59.  In 2005, Smith was living out of his 
car and working as a trash collector.  Smith I, supra at 341.  
It was during this period that he was the victim of a mortgage 
fraud scheme.  Smith II, supra. 
Smith was approached by a participant in the scheme about a 
"special investment program" that would not require him to 
invest any money.  Smith I, 818 F. Supp. 2d at 341.  Smith 
agreed, and two real estate purchases were subsequently 
orchestrated in Smith's name using a false financial profile of 
his income, assets, and work and renting history.  Smith II, 732 
F.3d at 60. 
 
Louis Bertucci, a real estate attorney and then-associate 
at the P.C., acted as the closing attorney for both properties.  
See Smith I, 818 F. Supp. 2d at 341.  Although Bertucci was 
acting as the lender's attorney in these transactions, he 
directed Smith to sign the loan documents.  Id. at 341, 344.  
Bertucci also instructed Smith to sign contradictory and false 
owner-occupancy affidavits.  Id. at 345.  As the District Court 
judge explained: 
4 
 
 
"Smith testified that at each closing Bertucci introduced 
himself as the lawyer handling the paperwork for the 
'investment.'  Although Bertucci testified that he had no 
memory of Smith, the jury were warranted from their 
observations of Smith's demeanor in the belief that it 
would have been apparent to Bertucci that Smith did not 
understand the significance of the closings, much less the 
nature of the real estate 'investments' being made in his 
name.  They were also warranted in crediting Smith's 
testimony that Bertucci had led him to believe that he was 
acting in Smith's best interest as his lawyer." 
 
Id. at 344. 
 
Several months after the closings, Smith began receiving 
telephone calls from lenders about missed mortgage payments.  
Id. at 342.  Both properties subsequently went into foreclosure.  
Smith II, 732 F.3d at 61.  The foreclosures ruined Smith's 
credit and prevented him from being able to rent an apartment.  
Id.  His mental health also deteriorated precipitously; his 
schizophrenia worsened, he became suicidal, and he withdrew from 
others.  Id. 
 
b.  Lawsuit against Bertucci, Kelley, and others.  In 2007, 
Smith brought suit in State court against Bertucci, the P.C., 
Kelley (the sole shareholder of the P.C.), and others.  Id. at 
61.  The case was removed to the United States District Court 
for the District of Massachusetts.  Id.  At trial, Kelley and 
the P.C. sought a directed verdict on the claims asserted 
against them for fraud and vicarious liability.  See id. at 72.  
The District Court judge concluded that 
5 
 
 
"with respect to . . . Kelley, there is absolutely nothing 
in the record that would persuade me that he even knew [the 
ringleader of the scheme, who was not Bertucci], much less 
that he actively participated in the scheme alleged; and 
because, as I have indicated, there is no basis under which 
an attorney-client relationship with [the ringleader] can 
be imposed on [the P.C.], there is no basis for liability 
on the part of . . . Kelley." 
 
Accordingly, the District Judge entered a directed verdict in 
favor of Kelley and the P.C.  Smith I, 818 F. Supp. 2d at 339 
n.1.  At the conclusion of the trial, judgment was entered in 
Smith's favor as to most of his remaining claims.  Smith II, 732 
F.3d at 61-62. 
 
On appeal, the United States Court of Appeals for the First 
Circuit agreed that there was insufficient evidence of Kelley's 
personal liability.  The First Circuit observed that, while 
Kelley had signed several of the closing documents, "Kelley's 
signature on a couple of forms is simply not enough to show that 
Kelley made false statements to Smith upon which Smith relied to 
his detriment."  Id. at 72.  At the same time, however, the 
First Circuit ruled that "[s]ufficient evidence was presented to 
warrant a finding that the [P.C.] was vicariously liable for 
Bertucci's fraud" and remanded the case to the District Court 
for a determination on that issue.  Id. at 72-73. 
 
On remand, the District Court judge noted that "[the P.C.] 
did receive compensation for the . . . property closings.  
Additionally, . . . Kelley and [the P.C.] are identified as the 
6 
 
 
closing agents for both properties, and Bertucci (and . . . 
Kelley) signed the closing documents on behalf of 'RKelley-
Law.'"  Accordingly, the judge found the P.C. vicariously liable 
for Bertucci's participation in the mortgage fraud scheme.  The 
judge entered a final judgment against the P.C. in excess of 
$200,000 on January 12, 2016.  As the District Court judge had 
entered a directed verdict in favor of Kelley on the claims 
against him, and the verdicts were affirmed on appeal, no final 
judgment was entered against Kelley personally. 
 
c.  The P.C.  The P.C., against which the final judgment 
was entered, had been formed by Kelley in or around 2003.  The 
practice primarily involved real estate conveyances.  At the 
height of the practice, the P.C. employed twelve to fifteen 
employees.  At all times, Kelley was the sole shareholder, 
president, treasurer, secretary, and director of the P.C.  
Additionally, he served as the P.C.'s registered agent in 
Massachusetts. 
 
In 2014, during the pendency of the litigation in Federal 
court, Kelley laid off everyone who worked at the P.C. other 
than himself.  For approximately six months, Kelley was the only 
employee of the P.C.  Kelley eventually hired back his wife as 
an office manager, but he remained the only other employee. 
The day after final judgment was entered against the P.C. 
on Smith's claims, Kelley resigned from his officer positions in 
7 
 
 
the P.C. and voted to wind up the corporation.  Pursuant to the 
vote,2 Kelley decided to "consult with [a] bankruptcy lawyer on 
whether to file dissolution papers or bankruptcy."  At the same 
time, Kelley opened a sole proprietorship called Law Office of 
R. Emmett Kelley (the sole proprietorship).3  Pursuant to the 
wind-up vote, Kelley had existing clients of the P.C. amend 
their fee agreements to bill all future work to the sole 
proprietorship, instead of the P.C.  The sole proprietorship 
                     
 
2 The specific terms of the vote were as follows: 
 
"that R. Kelley Law, P.C. would cease operations effective 
immediately; that the sole stockholder shall direct a plan 
to wind up the corporation; that a list of all assets be 
compiled; that existing clients be contacted and asked to 
amend any ongoing fee agreements and be billed for all 
future work to the Law Offices of R. Emmet Kelley; to 
establish a new account in the law office of Robert E. 
Kelley, D/B/A Law Offices Of R. Emmett Kelley, new [tax 
identification number]; file a final tax return for R. 
Kelley-Law, P.C.; apportion ongoing expenses to the two law 
firms during the wind-up process; prepare an agreement to 
sell any assets to the Law Offices of Robert E Kelley at 
their fair market value; consult with bankruptcy lawyer on 
whether to file dissolution papers or bankruptcy; and to do 
all things necessary to wind up corporation." 
 
 
3 The record includes an affidavit from Kelley wherein he 
averred that his solo practice was closed in May 2017.  He 
further stated that all hard assets of his solo practice had 
been moved to a storage facility and "remain there awaiting the 
conclusion of this case" and that he continues to use his office 
for "mail only."  The parties have not raised this issue in 
their briefing, or articulated the extent to which it should 
affect our analysis.  Accordingly, without briefing or a more 
well-developed factual record on this point, we decline to 
address it. 
8 
 
 
operated out of the same office as the P.C., used the same e-
mail address, and utilized very similar letterhead. 
 
Approximately three months after final judgment was entered 
against the P.C., on April 4, 2016, the Federal District Court 
judge issued an execution against the P.C. for $255,728 plus 
interest.4  Smith made a demand upon the P.C., but the P.C. 
failed to remit any money to him.  On July 18, 2016, Smith 
brought the instant suit against Kelley in the Superior Court, 
seeking a declaratory judgment that Kelley was personally liable 
for the P.C.'s liabilities as a successor in interest to the 
P.C.  Smith also brought an equitable claim to reach and apply 
Kelley's assets to satisfy the final judgment entered against 
the P.C. 
 
d.  Bankruptcy proceedings.  On May 19, 2017, the P.C. 
filed a voluntary petition for relief under Chapter 7 of the 
United States Bankruptcy Code, 11 U.S.C. §§ 301 et seq. (2012).  
A trustee was appointed.  During the course of discovery in the 
bankruptcy proceedings, the trustee determined that the P.C. had 
direct claims against Kelley.  Specifically, Kelley had taken 
equipment, inventory, and supplies from the P.C. without paying 
for them.  Moreover, receivables owed to the P.C. had been 
                     
 
4 The damages award consisted of $25,000, prejudgment 
interest, treble damages, $113,865 in attorney's fees and costs, 
and $42,000 for postverdict attorney's fees and costs. 
9 
 
 
deposited into Kelley's account, rather than the account of the 
P.C.  The trustee calculated the total value of the direct 
claims that the P.C. could assert against Kelley at $74,000.5  
Kelley offered to purchase the claims from the bankruptcy estate 
for $85,000. 
 
The trustee subsequently moved for an order from the 
bankruptcy court to authorize the sale of the P.C.'s claims.  
The sale was to comprise "all of the claims . . . that the 
bankruptcy estate has or could have against Kelley."  This 
included not only direct claims that the P.C. could assert 
against Kelley, mentioned supra, but also any "indirect-
liability" claims, defined as claims "based on imputation of 
liability theories such as alter ego or veil-piercing that could 
have been asserted by creditors of the [P.C.] against Kelley to 
the extent those claims may be legally asserted on behalf of a 
bankruptcy estate."  The motion further provided that 
"the Claims are being sold without any representation or 
warranty that any claim in the Successor Liability Action, 
or any other particular claim or 'imputed' claim, is or is 
not property of the bankruptcy estate that would be 
included in the Claims being sold.  Claims based on general 
harm to creditors are usually property of the bankruptcy 
estate, while claims based on a creditor's individualized 
damages are not." 
 
                     
 
5 At the hearing on the summary judgment motions, the 
plaintiff indicated that the bankruptcy judge did not hold a 
hearing on the valuation of what Kelley owed the P.C., and that 
no expert testimony was heard or valuation conducted. 
10 
 
 
The trustee also indicated that he believed the probability of 
success on the indirect liability claims "to be uncertain at 
best."  The trustee explained that he was "not aware of any 
instance in which an individual attorney has been found liable 
as a successor to his previous professional corporation." 
 
The bankruptcy judge allowed the trustee's sale motion.  In 
so ruling, however, the bankruptcy judge added the following 
caveat: 
"The court hereby clarifies that this ruling should not be 
deemed a determination that the alter ego and veil piercing 
claims alleged or to be alleged against . . . Kelley are an 
asset of the bankruptcy estate and therefore sold to . . . 
Kelley.  Creditor . . . Smith withdrew his objection to 
this motion based on the foregoing clarification and 
counsel to . . . Kelley stated on the record that his 
client does not insist that those claims be deemed assets 
of the estate." 
 
 
e.  Summary judgment.  Subsequent to the bankruptcy judge's 
ruling, the parties filed cross motions for summary judgment in 
the instant State court litigation.  Therein, the parties 
disputed whether Kelley's sole proprietorship could be held 
liable for the final judgment that had been entered against the 
P.C., either as a successor in interest or under the doctrine of 
piercing the corporate veil.  A judge in the Superior Court 
granted Kelley's motion for summary judgment and denied Smith's 
motion for the same.  The judge concluded, inter alia, that the 
doctrine of successor liability was only applicable to successor 
corporations, and could not be applied where the successor in 
11 
 
 
interest was a natural person, rather than a corporate entity.  
Smith appealed, and we transferred the case to this court on our 
own motion.6 
 
2.  Analysis.  We note at the outset that the unusual facts 
underlying this case appear to prevent Smith from recovering 
from Kelley pursuant to this court's rules governing misconduct 
by attorneys in professional corporations.  Generally speaking, 
the owners of a professional corporation engaged in the 
performance of legal services will be held personally liable for 
their own misconduct and the misconduct of their employees. 
Pursuant to S.J.C. Rule 3:06 (3) (b), as amended, 423 Mass. 1302 
(1996), the owners of a professional corporation may be held 
jointly and severally liable for damages7 resulting from "any 
                     
6 Smith does not appear to appeal from the judgment of the 
Superior Court as to his reach and apply claim.  Because he has 
not raised the issue on appeal, we need not address it. 
 
 
7 Rule 3:06 does impose limits on the amount of damages for 
which an owner of a professional corporation may be held 
vicariously liable.  Pursuant to the rule, damages are limited 
to the excess of 
 
"(1) the sum of $50,000 plus the product of $15,000 
multiplied by the number of owners and employees of said 
entity at the time of such act, error, or omission who are 
duly licensed by this court to practice law in the 
Commonwealth, or duly licensed to practice law by the 
licensing authority in the jurisdiction in which they 
practice, and who are owners of or employed by said entity 
as lawyers, but not in excess of $500,000 in the aggregate, 
over (2) the sum of the assets of said entity and the 
12 
 
 
negligent or wrongful act, error, or omission" performed by an 
owner or employee of the professional corporation if the 
tortious conduct (1) occurred in the course of performing legal 
services and (2) resulted in damages to the person for whom the 
legal services had been performed.  Here, however, Smith was not 
a client of the P.C.  Bertucci, the attorney with whom Smith 
interacted, did not represent Smith, but instead worked on 
behalf of the lender, although he may have misled Smith into 
believing he was representing Smith. 
 
Rule 3:06 (3) also imposes personal liability on each owner 
of a professional corporation for "damages which arise out of 
the performance of legal services on behalf of the entity and 
which are caused by [the owner's] own negligent or wrongful act, 
error, or omission."  S.J.C. Rule 3:06 (3) (a), as amended, 423 
Mass. 1302 (1996).  As the Federal judgment established, 
however, Kelley had not personally engaged in negligent or 
wrongful conduct toward Smith.  Thus, this case involves a 
circumstance in which the liability at issue does not appear to 
fall within the purview of rule 3:06, despite the fact that the 
underlying misconduct occurred in the course of providing legal 
                     
proceeds of any insurance policy issued to it which are 
applied to the payment of such damages." 
 
S.J.C. Rule 3:06 (3) (b), as amended, 423 Mass. 1302 (1996). 
13 
 
 
services.  Most importantly, no argument has been made by Smith 
that rule 3:06 provides a basis for recovery in the instant 
case.8 
a.  Issue or claim preclusion.  We next address Kelley's 
contention that the Federal court proceedings preclude Smith 
from advancing these claims here.  Examining each of Kelley's 
contentions in turn, we conclude that Smith's claims are not 
subject to preclusion under Federal law.  See Anderson v. 
Phoenix Inv. Counsel of Boston, Inc., 387 Mass. 444, 449 (1982) 
(question of preclusive effect of prior Federal court judgments 
on State court proceedings are examined under Federal law). 
 
Under the Federal doctrine of claim preclusion, "a final 
judgment forecloses 'successive litigation of the very same 
claim, whether or not relitigation of the claim raises the same 
issues as the earlier suit.'"  Taylor v. Sturgell, 553 U.S. 880, 
892 (2008), quoting New Hampshire v. Maine, 532 U.S. 742, 748 
(2001).  The claims at issue here do not, however, involve the 
"very same claims" at issue in the prior Federal litigation.  
The Federal litigation concerned whether Kelley personally 
                     
 
8 In their thoughtful brief, the amici highlight the general 
use of rule 3:06 (3) to impose personal liability on owners of a 
professional corporation.  Neither party to the instant 
litigation, however, has provided briefing on the applicability 
of the rule.  Additionally, the amici have not addressed, and we 
do not consider, whether Bertucci's interactions with Smith were 
such that Smith could be deemed a person for whom Bertucci's 
legal services had been performed. 
14 
 
 
engaged in tortious conduct toward Smith.  By contrast, the 
instant case concerns whether Smith may collect from Kelley's 
sole proprietorship the judgment that had been entered against 
the P.C.  The sole proprietorship was established in response to 
the final judgment entered in the Federal court, and did not 
exist during the pendency of the Federal litigation.  Smith thus 
did not have a "full and fair opportunity to litigate" the issue 
of imposing liability on the sole proprietorship in the normal 
course of the Federal litigation.  Taylor, supra, quoting 
Montana v. United States, 440 U.S. 147, 153 (1979). 
 
The bankruptcy proceedings similarly do not preclude 
Smith's claims against Kelley.  This is true even though the 
trustee's suggestion of bankruptcy asserted that Smith's claims 
against Kelley constituted "the exclusive property of the 
[P.C.'s] bankruptcy estate," and, as the judge below observed, 
the question whether Smith's successor liability and veil 
piercing claims were sold to Kelley "is a matter that should 
have been decided by the Bankruptcy Court as part and parcel of 
its adjudication of the final consequences of the P.C.'s Chapter 
7 filing over which the Bankruptcy Court enjoys exclusive 
jurisdiction as a matter of federal supremacy."  The bankruptcy 
judge nonetheless explicitly declined to adjudicate this issue 
when he allowed the trustee's sale motion.  The bankruptcy judge 
instead created a carve-out for the very claims at issue and 
15 
 
 
indicated that Kelley "did not insist" that Smith's claims be 
deemed assets of the estate.  In light of Kelley's concession 
and the bankruptcy judge's failure to resolve the issue, we 
agree with the Superior Court judge below that the bankruptcy 
judge's order allowing the sale of the P.C.'s claims to Kelley 
has no preclusive effect on the instant litigation.9 
 
b.  Successor liability.  Having determined that the prior 
litigation does not foreclose Smith from seeking to impose 
personal liability on Kelley, we turn to the question whether 
Kelley's sole proprietorship may be held liable for the final 
judgment entered against the P.C. as a successor in interest.  
We conclude that in the narrow factual circumstances of this 
case, it may. 
 
As a general rule of corporate law, the liabilities of a 
corporation are not imposed upon its successor.  See Milliken & 
Co. v. Duro Textiles, LLC, 451 Mass. 547, 556 (2008).  This 
principle is no less applicable to professional corporations, 
which are afforded the same protections against liability as 
corporations formed under G. L. c. 156D.  See G. L. c. 156A, 
§ 6 (a).  See also 63 Am. Jur. 2d Products Liability § 117 
(1997) ("The traditional rule of corporate successor liability 
and the exceptions to the rule are generally applied regardless 
                     
9 We also note that Kelley did not file for personal 
bankruptcy in the aftermath of the judgment against his P.C. 
16 
 
 
of whether the predecessor or successor organization was a 
corporation or some other form of business organization"); 
Graham v. James, 144 F.3d 229, 240 (2d Cir. 1998). 
While we respect the integrity of corporate structures, we 
nonetheless find it troubling "that by merely changing its form, 
without significantly changing its substance, a single 
corporation can wholly shed its debts to unsecured creditors, 
continue its business operations with an eye toward returning to 
profitability, and have no further obligation to pay such 
creditors."  Milliken & Co., 451 Mass. at 561.  The application 
of the doctrine of successor liability is "designed to remedy 
this fundamental inequity."  Id.  The "essence" of this doctrine 
is that, "[u]nder principles of equity, a court will consider a 
transaction according to its real nature, looking through its 
form to its substance and intent."  Id. at 560.  If the entity 
remains essentially the same, despite a formalistic change of 
name or of corporate form, successor liability may be imposed. 
Successor liability is triggered, inter alia, when a 
successor entity is a mere continuation of its predecessor.10  
                     
10 There are four exceptions to the general rule of limited 
corporate liability that fall within the doctrine of successor 
liability.  A successor in interest may be held responsible for 
the liabilities of its predecessor where "(1) the successor 
expressly or impliedly assumes liability of the predecessor, (2) 
the transaction is a de facto merger or consolidation, (3) the 
successor is a mere continuation of the predecessor, or (4) the 
17 
 
 
The "mere continuation" exception of successor liability 
"reinforces the policy of protecting rights of a creditor by 
allowing a creditor to recover from the successor corporation 
whenever the successor is substantially the same as the 
predecessor" (footnote omitted).  15 W.M. Fletcher, Cyclopedia 
of Corporations § 7124.10, at 321 (rev. 2017).  To determine 
whether the exception applies, we examine the continuity or 
discontinuity of the ownership, officers, directors, 
stockholders, management, personnel, assets, and operations of 
the two entities.  See Cargill, Inc. v. Beaver Coal & Oil Co., 
424 Mass. 356, 359 (1997) (focusing on de facto merger 
exception, but articulating factors relevant to mere 
continuation analysis, including continuity of management, 
personnel, physical location, assets, and general business 
operations); McCarthy v. Litton Indus., Inc., 410 Mass. 15, 23 
(1991); Columbia State Bank v. Invicta Law Group PLLC, 199 Wash. 
App. 306, 312-314 (2017) (discussing relevant factors in finding 
mere continuation of law firm from professional corporation to 
sole proprietorship, such as continuity of business, clients, 
leadership, and location).  We emphasize that "no single factor 
                     
transaction is a fraudulent effort to avoid liabilities of the 
predecessor" (citation omitted).  Milliken & Co. v. Duro 
Textiles, LLC, 451 Mass. 547, 556 (2008).  Because we conclude 
that the proprietorship is a mere continuation of the P.C., we 
need not consider the three other theories of successor 
liability in this decision. 
18 
 
 
is dispositive, and the facts of each case must be examined 
independently."  Milliken & Co., 451 Mass. at 558.  Ultimately, 
however, our focus is on "whether one company has become another 
for the purpose of eliminating its corporate debt."  Id. at 556. 
Kelley urges this court to analyze the degree of continuity 
between the P.C. and the sole proprietorship based on the 
characteristics of the P.C. over the course of its lifetime.  As 
Kelley notes, the P.C. at one point employed twelve to fifteen 
employees, while the sole proprietorship employed just one.  At 
all times, however, Kelley was the sole shareholder, officer, 
and director of the P.C.  Crucially, the leadership structure of 
the P.C. and Kelley's sole proprietorship were functionally 
identical -- while the sole proprietorship does not have 
officers, directors, or shareholders, Kelley has operated at the 
helm of both entities, with his wife serving as an office 
assistant or manager.  See Cambridge Townhomes, LLC v. Pacific 
Star Roofing, Inc., 166 Wash. 2d 475, 482-483 (2009) ("Though 
there is no continuation of officers, directors, or shareholders 
where a sole proprietorship is involved, we can consider the 
continuity of individuals in control of the business as 
satisfying this factor, which at any rate is not a rigid 
requirement for finding successor liability"). 
More significantly, the most relevant time frame of 
comparison here is not the entire lifespan of the predecessor 
19 
 
 
entity, but the time immediately preceding its dissolution.  We 
are not evaluating the evolution of the P.C. but the change 
wrought by its transformation into another organization.  
Looking at the relevant time frame, there is substantial 
evidence that Kelley's sole proprietorship served as a mere 
continuation of the P.C.  In almost every respect, Kelley's sole 
proprietorship mirrored the P.C. that immediately preceded it.  
Prior to dissolution, it was effectively a one-person P.C., and 
after dissolution, it was effectively a one-person sole 
proprietorship.11  Kelley continued to receive legal fees from 
clients of the P.C., and legal fees due the P.C were paid to the 
sole proprietorship.  The client fee agreements of the P.C. that 
preceded its dissolution date were also rolled over to the sole 
proprietorship, as though nothing had changed.  Kelley also took 
the equipment, inventory, and supplies from the P.C. for use in 
the sole proprietorship without paying for them.  Both entities 
used the same e-mail address, the same physical address, the 
same IOLTA account with the same name, and the same health 
insurance with the same named employer, and paid the same 
creditors and vendors.  Kelley did "eventually" use a different 
telephone number for the sole proprietorship from the one he had 
used for the P.C., although it is not clear when this change 
                     
 
11 As mentioned, both pre- and postdissolution, Kelley also 
employed his wife as an office assistant or manager. 
20 
 
 
occurred.  In sum, the evidence appears overwhelming that 
Kelley's sole proprietorship amounted to a "reincarnation" of 
the predecessor professional corporation.  Bud Antle, Inc. v. 
Eastern Foods, Inc., 758 F.2d 1451, 1458 (11th Cir. 1985).  All 
that had changed was the label. 
Having examined the similarities between the predecessor 
entity and the successor entity, we consider whether successor 
liability is nonetheless unavailable because the successor 
entity is a sole proprietorship.  Had Kelley dissolved the P.C. 
in favor of another corporate form that limited personal 
liability, such as a successor professional corporation or a 
limited liability company, we would have little difficulty in 
finding the successor entity liable.  The only issue is whether 
a different set of rules applies when the successor is a sole 
proprietorship.  For the reasons discussed infra, we conclude 
that successor liability may apply to sole proprietorships even 
though they expose their proprietors to personal liability.  
This exposure is an additional concern that must be taken into 
account, especially when considering the equities at the damages 
stage, but we ultimately conclude that successor liability is 
justified where the sole proprietorship is a mere continuation 
of its predecessor and the purpose of the change is to eliminate 
the debt.  See Milliken & Co., 451 Mass. at 560; Ed Peters 
Jewelry Co. v. C & J Jewelry Co., 124 F.3d 252, 268 (1st Cir. 
21 
 
 
1997) ("equity is loath to elevate the form of the transfer over 
its substance, and deigns to inquire into its true nature"). 
Although we have found no cases in Massachusetts that 
squarely deal with this situation, successor liability has been 
found in the closest case on point in another jurisdiction, 
Columbia State Bank, 199 Wash. App. at 312.  There, a lender 
sought recovery against an attorney whose professional limited 
liability company (PLLC) had defaulted on a loan.  Id. at 312, 
314.  The attorney was the sole owner and managing partner of 
the PLLC.  Id. at 312.  The attorney subsequently filed a 
voluntary Chapter 7 petition for personal bankruptcy and ceased 
operating the PLLC the same day.12  Id. at 313.  The next day, he 
began operating a sole proprietorship.  Id. at 314.  Despite 
this, he continued to use engagement letters with the letterhead 
of his old PLLC for nearly six months.  Id.  He also continued 
to use "the same name, website, signage, telephone number, 
offices, insurance, employees, and equipment," and continued to 
represent the same clients.  Id.  Clients were not timely 
informed of the change in legal structure, but all client income 
was placed in the sole proprietorship's bank account.  Id.  The 
                     
 
12 The attorney in Columbia State Bank v. Invicta Law Group 
PLLC, 199 Wash. App. 306, 312-313 (2017), had also signed his 
firm's loan agreement individually as a guarantor and was 
discharged from his personal guaranty when he emerged from 
bankruptcy. 
22 
 
 
court ruled that the lender could recover against the sole 
proprietorship under the mere continuation theory of successor 
liability.  Id. at 320-322.  In so doing, the court concluded 
that while the sole proprietorship did not, by definition, have 
officers, directors, or shareholders, there was nevertheless a 
"continuity of individuals in control of the business."  Id. at 
320, quoting Cambridge Townhomes, LLC, 166 Wash. 2d at 482-483.  
Additionally, the individual at the helm of both entities was 
the same, the clients were the same, and the business at issue 
(law) was the same.  Columbia State Bank, supra at 321.  The 
court also ruled that no legal transfer of assets was necessary 
for successor liability to apply, because the attorney "owned 
the past business and simply continued using the assets for his 
new business."  Id. at 324. 
The liabilities of the PLLC in the Columbia State Bank case 
were thus imputed to the attorney.  See id. at 335.  In so 
ruling, the court explained that successor liability "exists in 
equity to protect creditors from debtors that attempt to change 
corporate form, sell off their assets, or merge with another 
company in an attempt to avoid their debts."  Id. at 334.  
Moreover, and as we have also discussed, the mere continuation 
theory of liability prevents a company from escaping liability 
by "transferring all of the company's assets and continuing 
business in another form."  Id.  The fact that the successor was 
23 
 
 
a sole proprietorship did not change the court's analysis of 
successor liability. 
We do recognize that imposing successor liability on a sole 
proprietorship carries with it additional ramifications.  A sole 
proprietorship, by definition, is a form of business wherein a 
single person "owns all the assets" of the business.  See Ladd 
v. Scudder Kemper Invs., Inc., 433 Mass. 240, 243 (2001), 
quoting Black's Law Dictionary 1392 (6th ed. 1990).  Unlike 
business entities that shield shareholders from personal 
liability, a sole proprietorship subjects the proprietor to 
personal liability as to "all debts of the business."  See Ladd, 
supra, quoting Black's Law Dictionary, supra.  A sole 
proprietorship thus leaves the proprietor much more exposed to 
personal legal liabilities than professional corporations and 
other common corporate entities would.  Accordingly, imposing 
successor liability on a sole proprietorship has significant 
consequences for the proprietor beyond those typically at issue 
in corporate forms that are protected against personal 
liability. 
Despite these concerns, we nonetheless conclude that the 
doctrine of successor liability should be extended here, where 
the record plainly reflects that the purpose of dissolving the 
P.C. and establishing the sole proprietorship was to avoid 
payment of the liabilities at issue.  The record establishes 
24 
 
 
that Kelley voted to wind up the P.C. and establish his sole 
proprietorship the day after final judgment was entered against 
the P.C.  Indeed, Kelley openly admitted in deposition testimony 
that he dissolved the P.C. precisely because of the judgment 
entered against it.  When directly asked whether he dissolved 
the P.C. because of the judgment, Kelley testified, "That is 
exactly why I dissolved it."  Moreover, when questioned as to 
whether he metaphorically "pulled down the shingle that said 
P.C. and held up a shingle that said R. Emmett Kelley," Kelley 
responded, "Metaphorically you're spot on." 
The defendant contends nonetheless that it is unfair to 
convert the debt of the P.C. into personal debt.  Of course, as 
explained supra, he is responsible for that conversion himself.  
Had Kelley continued the law practice as a professional 
corporation, he would not have been personally liable for the 
P.C.'s debt.  Had he not converted the P.C. into a sole 
proprietorship, he would not have been liable for the P.C.'s 
debt.  Instead, he attempted to continue the practice as before 
but eliminate its debt to Smith.  He used the conversion to a 
sole proprietorship to try to accomplish this inequitable 
purpose.  Although the conversion has backfired and resulted in 
imposing the liability on Kelley personally, that was the 
consequence of his own choices.  As an attorney held to the high 
ethical standards of the bar, his actions are especially 
25 
 
 
concerning.  We therefore discern nothing inequitable in these 
circumstances, particularly when confronted with the 
countervailing equities.  Smith, a mentally ill, functionally 
illiterate, and disabled veteran was scammed by the P.C.'s 
associate and left destitute.  The P.C. was found vicariously 
liable for its associate's actions.  Equity cries out for a 
remedy in these circumstances.  When the bankruptcy judge chose 
not to resolve the matter, he left the issue for us to decide. 
At bottom, successor liability is an equitable remedy aimed 
at fairness and justice.  Milliken & Co., 451 Mass. at 560.  As 
we have previous said, focusing on the substance and intent of a 
transaction, rather than its form, is at "the essence" of the 
doctrine of successor liability.  Id.  While we recognize that 
imputing liability to Kelley's sole proprietorship will also 
subject him to personal liability, this liability is only 
implicated because Kelley sought to shed the debts of the P.C. 
without shedding its clients or business.  Given that Kelley 
tried to avoid the P.C.'s liabilities while continuing the 
P.C.'s business, the equities of this case weigh in favor of 
imposing successor liability.  See Cargill, Inc., 424 Mass. at 
362 ("We consider the fair remuneration of corporate creditors a 
policy worthy of advancement").  Indeed, Kelley's attempt to 
avoid the P.C.'s liabilities is "precisely the kind of harm to 
26 
 
 
innocent creditors that the successor liability doctrine was 
designed to prevent."  Milliken & Co., supra. 
Although we conclude that Kelley's sole proprietorship is 
liable under the mere continuation theory in this case, we 
caution that the application of successor liability is fact-
specific, and "the facts of each case must be examined 
independently."  Id. at 558.  If, for example, the P.C. had had 
multiple shareholders, each of whom set off to pursue his or her 
own business upon dissolution of the P.C., successor liability 
would not be warranted.  A much more difficult question would 
also be presented had Kelley left the practice to work for a 
different firm.13  Here, however, it is evident that Kelley 
intended to continue his practice just as he had before the 
entry of the final judgment against the P.C., but wished to do 
so without the liability it had incurred.  See DeJesus v. 
Bertsch, Inc., 898 F. Supp. 2d 353, 362 (D. Mass. 2012), aff'd 
sub nom. DeJesus v. Park Corp., 530 Fed. Appx. 3 (1st Cir. 2013) 
("The successor liability doctrine is an equitable doctrine, and 
the Court considers whether the shareholders used a disguised 
mechanism to transfer the legal ownership of the corporation but 
ultimately retain the same effective control").  Thus, on the 
                     
 
13 We also note, as explained supra, that had the bankruptcy 
court addressed and resolved the liability, Kelley would also 
have been in a much different position. 
27 
 
 
facts of this case, we impute successor liability from the P.C. 
to Kelley's sole proprietorship. 
c.  Damages.  Finally, having concluded that Kelley's sole 
proprietorship is liable as a successor in interest to the P.C., 
we consider the extent of the liability imposed upon Kelley.  As 
mentioned, sole proprietors are personally liable for the 
entirety of the debts foisted upon their proprietorships.  See 
Ladd, 433 Mass. at 243.  In the instant case, Kelley continued 
on with his legal practice after judgment was entered against 
the P.C.14  Thus, as a practical matter, the continuation of the 
practice generated revenues that should have been available to 
pay off the debt.  In fashioning an equitable remedy, however, 
we consider it just to distinguish between the revenues 
generated by the ongoing practice and Kelley's other assets. 
In fashioning such an equitable remedy, the focus should be 
on whether the continued business could have paid some or all of 
the debt, not whether the defendant had other personal assets 
available to do so.  We conclude that equity favors such a focus 
at the damages stage to properly account for, and protect 
against, undue personal liability and hardship for Kelley.  As 
the Federal courts found, Kelley was not personally liable for 
                     
 
14 Kelley's deposition also makes clear that he continued to 
earn substantial revenues from his business after dissolving the 
P.C. and continuing on as a sole proprietorship.  In 2017, he 
earned approximately $200,000 in legal fees. 
28 
 
 
the fraud; rather, the P.C. was vicariously liable.  As the P.C. 
was essentially continued to Kelley's personal benefit, the 
revenues generated by the continuing practice should be used to 
pay the debt, not Kelley's other assets.  To the extent 
possible, such a distinction should be preserved.  Drawing that 
line here best achieves equity in the instant case. 
More specifically, on remand, the motion judge should 
attempt to analyze damages as if the P.C. had been continued, 
not converted, so as to place Smith in the same position as he 
would have been in had the improper conversion not occurred.  To 
make this determination, the motion judge should examine 
Kelley's income tax returns during the lifetime of the sole 
proprietorship to identify the revenues that were generated by 
the proprietorship.  This information will allow the motion 
judge to identify the amount of income that may be considered 
appropriately available to satisfy the judgment.  A repayment 
plan over time may have to be considered.  The fact that some or 
all of these revenues may have since been spent by Kelley for 
his personal needs is of no import, as those monies should have 
first been dedicated to the repayment of the debt owed by the 
P.C. 
In sum, "[e]quitable remedies are flexible tools to be 
applied with the focus on fairness and justice."  Demoulas v. 
Demoulas, 428 Mass. 555, 580 (1998).  See Milliken & Co., 451 
29 
 
 
Mass. at 559–560 ("The doctrine of successor liability is 
equitable in both origin and nature").  See also Musikiwamba v. 
ESSI, Inc., 760 F.2d 740, 749 (7th Cir. 1985) (observing, in 
context of successor liability under 42 U.S.C. § 1981, that 
"nature and extent of liability is subject to no formula, but 
must be determined upon the facts and circumstances of each 
case"). We conclude that the approach set out here best achieves 
these purposes.15 
3.  Conclusion.  For the foregoing reasons, we reverse the 
judgment of the Superior Court granting Kelley's motion for 
summary judgment and denying Smith's motion for summary 
judgment.  We remand this case to the Superior Court for 
proceedings consistent with this opinion. 
 
 
 
 
 
 
So ordered. 
                     
15 In light of our conclusion that Smith is entitled to 
recover under the doctrine of successor liability, we need not 
address the availability or merits of Smith's theory of recovery 
as to piercing the corporate veil.