Opinion ID: 196374
Heading Depth: 2
Heading Rank: 2

Heading: Successor Liability of Main

Text: Viewed most favorably to Carreiro, the facts of record3 relevant to the successor liability question are as follows. Leach sold the allegedly defective machine press to Robbins, Carreiro's employer, in 1980. Leach, a Rhode Island corporation, was originally owned and operated by Harry Leach and his sons Oscar and Max. After Harry Leach's death, Oscar, Max, and Max's son Bruce were the stockholders of 3. Local Rule 56.1 of the United States District Court for the District of Massachusetts requires the party moving for summary judgment to provide a concise statement of the material undisputed facts with citations to affidavits, depositions, or other documentation permitted under Fed. R. Civ. P. 56(c). The party opposing summary judgment must provide a concise statement of material disputed facts, also with citations to affidavits, etc. Properly supported facts set forth by the moving party are deemed admitted unless controverted by the factual statement of the opposing party.See generally Stepansichen v. Merchants Despatch Transp. Corp., 722 F.2d 922, 930 (1st Cir. 1983) (sanctioning such local rules that facilitate analysis of summary judgment motions). -8- 8 Leach, with Oscar as President and Secretary and Max as VicePresident and Treasurer. Leach sold new, rebuilt, and used machine tools and various other pieces of production and metalworking equipment, some of which it manufactured. In March 1980, Main was incorporated under Rhode Island law with Max Leach and his three children as stockholders. At incorporation and at the time this action commenced, Oscar Leach was not a stockholder of Main, although he was a director. Its other officers and directors were Max and Bruce Leach. Main's primary business at the time of the accident was the sale of used machine tools and various pieces of production and metalworking equipment. Unlike Leach, it never rebuilt or manufactured machinery. Main is a registered agent of Rhodes and sells the Rhodes New Stamp-Matic press, the same press that injured Ms. Carreiro. Thirteen of Main's employees are former employees of Leach. Main and Leach shared the same address from 1980, when Main was incorporated, until 1982, when Leach was dissolved, but Main always had its own telephone number and letterhead. After Leach dissolved, its address was in care of Bruce Leach. In response to a discovery request by Robbins, Main produced certain documents of Leach. In March 1982, Leach was voluntarily dissolved. All of Leach's inventory and assets were sold, discarded, or otherwise disposed of; none were acquired by or transferred -9- 9 to Main. Main acquired no shares of Leach stock. Main was never a creditor of Leach, but it may have done service work on some machines sold by Leach.
Carreiro argues that genuine issues of material fact precluded summary judgment for Main, but Carreiro has pointed to no disputed facts in either his memorandum opposing summary judgment or his brief on appeal. Instead, he asserts in his brief that [e]valuative applications of legal standards to the facts are properly questions for the fact finder, citing as support Springer v. Seaman, 821 F.2d 871, 876 (1st Cir. 1987) (holding that application of tort concepts of foreseeability and superseding cause were properly for jury). We need not decide, however, whether the doctrine of corporate successor liability is the sort of evaluative application of a legal standard appropriate for a jury. United States v. Rule Indus., Inc., 878 F.2d 535, 541-42 (1st Cir. 1989). The summary judgment record here contains no evidence of any transfer of assets from Leach to Main, which, as we explain below, is a threshold requirement for successor liability under the theories advanced by Carreiro. Thus, there being no genuine issues of fact in dispute, Main was entitled to judgment as a matter of law.
-10- 10 The corporate law doctrine of successor liability comprises a set of exceptions to the general rule that a corporation purchasing the assets of another is not liable for the debts of the seller corporation. The parties' briefs rely on Dayton v. Peck, Stow & Wilcox Co., 739 F.2d 690, 692 (1st Cir. 1984) (applying Massachusetts law) to set forth the general rule and the exceptions: The general rule in the majority of American jurisdictions, including Massachusetts, is that a company which purchases the assets of another company is not liable for the debts and liabilities of the transferor. The general rule is subject to four well-recognized exceptions permitting liability to be imposed on the purchasing corporation: (1) when the purchasing corporation expressly or impliedly agreed to assume the selling corporation's liability; (2) when the transaction amounts to a consolidation or merger of the purchaser and seller corporations; (3) when the purchaser corporation is merely a continuation of the seller corporation; or (4) when the transaction is entered into fraudulently to escape liability for such obligations. (citations omitted). Carreiro argues that Main is the successor corporation to Leach based on the second (de facto merger) and third (mere continuation) exceptions. Main counters persuasively that neither of these exceptions apply because there was no sale or other transfer of assets from Leach to Main. Main asserts that because the de facto merger and mere continuation doctrines are exceptions to the general rule of non-liability following an -11- 11 asset purchase, they necessarily presuppose a sale or other transfer of assets from one corporation to its alleged successor. We agree. As discussed below, the cases and other authority cited by both parties apply the de facto merger or mere continuation exceptions only where there has been a purchase or other transfer of assets; we have neither been directed to nor found any authority supporting the application of these exceptions in the absence of some transfer of assets.
Several Rhode Island decisions have applied the mere continuation exception, but each case involved an asset transfer. In H.J. Baker & Bro., Inc. v. Orgonics, Inc., 554 A.2d 196, 204 (R.I. 1989), the Supreme Court of Rhode Island stated that [g]enerally, a company that purchases the assets of another is not liable for the debts of the transferor company. The Baker court, however, imposed successor liability because the corporation's assets were acquired for nominal consideration by its president in a manner calculated to defraud creditors. The president used the acquired assets to continue the same business with the same employees. Id. at 7, 9. See also Casey v. San-Lee Realty, Inc., 623 A.2d 16, 19 (R.I. 1993) (finding mere continuation exception inapplicable to intra-family asset transfer for no consideration in the absence of fraud); Cranston Dressed Meat -12- 12 Co. v. Packers Outlet Co., 190 A. 29, 31 (R.I. 1937) (finding one corporation a mere continuation of predecessor where successor corporation used supplies, inventory, and cash-onhand of predecessor and where court found intent to defraud creditors). These Rhode Island cases apply the mere continuation doctrine to impose successor liability in certain asset transfers, an exception to the general rule set forth in Baker that an asset transfer does not create successor liability. Although these cases do not specifically limit the mere continuation doctrine to inter- corporate asset transfers, there is no hint, and it is not logical, that the mere continuation exception should have a broader scope than the rule to which it relates. We are aware of no opinion of the Supreme Court of Rhode Island discussing generally the de facto merger exception or specifically whether that exception applies in the absence of an asset transfer.
In the absence of a definitive ruling by the highest state court, a federal court may consider analogous decisions, considered dicta, scholarly works, and any other data tending to show how the highest court in the state would decide the issue at hand, taking into account the broad policies and the trends so evinced. Gibson v. City of Cranston, 37 F.3d 731, 736 (1st Cir. 1994) (quoting Michelin -13- 13 Tires (Canada), Ltd. v. First Nat'l Bank, 666 F.2d 673, 682 (1st Cir. 1981)). However, Carreiro, in choosing a federal rather than a state forum, is presumably cognizant of this court's statement that 'litigants who reject a state forum in order to bring suit in federal court under diversity jurisdiction cannot expect that new trails will be blazed.' Jordan v. Hawker Dayton Corp., 62 F.3d 29, 32 (1st Cir. 1995)(declining invitation to extend successor liability to asset purchaser under Maine law)(quoting Ryan v. Royal Ins. Co. of America, 916 F.2d 731, 744 (1st Cir. 1990)). Carreiro cites no cases or other authority suggesting that the mere continuation or de facto merger exceptions can apply in the absence of an asset transfer. Every case that Carreiro does cite involved a sale or other transfer of assets from the original corporation to its putative successor. In our research of scholarly works, see Gibson, 37 F.3d at 736, we find that successor liability in general, and the mere continuation and de facto merger exceptions in particular, are always discussed and analyzed in the context of inter-corporate asset transfers. Scholarly interest and judicial innovation in this area of corporate law have been fueled by concern with corporate transactions structured as asset purchases to avoid successor liability, which exists in a statutory merger but generally does not in an asset purchase. Because a purchase can achieve the same -14- 14 economic result as a merger when the acquirer continues the same business with the same assets and employees, many courts have reasoned that the same liability rule -- successor liability -- should apply. See, e.g., William M. Fletcher, 15 Cyclopedia of the Law of Private Corporations 7122, 7123-23.05 (1990 and Supp. 1995); American Law of Products Liability 3d 7:1, 7:10-13 (1987 and Supp. 1995); Phillip I. Blumberg, The Law of Corporate Groups, 13.05-05.1 (1987). But these treatises and the cases Carreiro cites contain no mention nor even any hint that the mere continuation or de facto merger doctrines might apply in the absence of an asset transfer. Our research reveals three decisions where a litigant sought to impose successor liability in the absence of an asset transfer; all three hold that an asset transfer was an essential prerequisite to successor liability. See Williams v. Bowman Livestock Equip Co., 927 F.2d 1128, 1132 (9th Cir. 1991) (without a transfer of assets there is no basis to impose liability under mere continuation exception, applying Oklahoma law); Meisel v. M&N Modern Hydraulic Press Co., 645 P.2d 689, 691-92 (Wash. 1982) (transfer of assets an essential prerequisite to successor liability under de facto merger and mere continuation theories); Evanston Insur. Co. v. Luko, 783 P.2d 293, 296 -15- 15 (Haw. Ct. App. 1989) (all exceptions to general rule of no successor liability presuppose a transfer of assets). We conclude that the Supreme Court of Rhode Island would not find successor liability under the mere continuation or de facto merger doctrines absent any evidence of an inter-corporate asset transfer. Not only is it illogical to extend the scope of an exception more broadly than the general rule to which it relates, but to hold otherwise would blaze a new trail, which is inappropriate for a federal court applying state law under diversity jurisdiction. See Jordan, 62 F.3d at 32.
The summary judgment record contains the uncontroverted affidavit of Main's president Max Leach stating that Main did not acquire any inventory or other assets from H. Leach. At oral argument, Carreiro's lawyer asked this court to infer that some assets must have been transferred when Leach employees joined Main (assets such as hand tools, shop supplies, pencils, and goodwill consisting of the Rhodes distributorship and Leach's customer base), but nothing in the summary judgment record supports that inference. This argument, not presented below and made for the first time at oral argument, is waived. See National Amusements, Inc. v. Town of Dedham, 43 F.3d 731, 749 (1st Cir.), cert. denied, 115 S. Ct 2247 (1995)(arguments not -16- 16 presented below are waived); Frazier v. Bailey, 957 F.2d 920, 932 (1st Cir. 1992)(arguments not fully presented in appellate brief are waived). In sum, having concluded that Rhode Island law would not impose successor liability under the de facto merger and mere continuation exceptions absent an asset transfer, and finding no evidence of any asset transfer on the record, we affirm summary judgment for defendant Main.