Court Opinion

ID: 3118941
Source: CourtListenerOpinion
Date Created: 2015-10-16 08:11:54.026011+00
Date Added: 2024-06-11T11:45:17.127670
License: Public Domain

Opinion issued March 28, 2013

                                     In The

                              Court of Appeals
                                    For The

                         First District of Texas
                           ————————————
                              NO. 01-11-00296-CV
                           ———————————
  E-QUEST MANAGEMENT, LLC AND ODYSSEY ONESOURCE, INC.,
                       Appellants
                                       V.
                           ROBBIE SHAW, Appellee

                   On Appeal from the 212th District Court
                         Galveston County, Texas
                      Trial Court Case No. 08CV0414

                                 OPINION

      Appellants, E-Quest Management, LLC (“E-Quest”) and Odyssey

OneSource, Inc. (“Odyssey”), challenge the trial court’s judgment, entered after a

trial to the court, in favor of appellee, Robbie Shaw, in Shaw’s suit against them
for successor liability. In five issues, E-Quest and Odyssey contend that they have

been “prevented from proper presentment” of this appeal due to the trial court’s not

making their requested findings of fact and conclusions of law; the trial court

entered judgment against Odyssey in violation of the statute of limitations; the trial

court’s judgment does not conform to Shaw’s pleadings; Shaw lacked standing to

pursue any successor-liability claim; Texas statutory law precludes Shaw’s

successor-liability claim; and the evidence is legally and factually insufficient to

support the trial court’s findings of fact.

      We reverse and render.

                                     Background

      In her third amended petition, 1 Shaw alleged that on December 4, 2001,

Retirement Living Management, Inc. (“RLM”) terminated her employment and,

while at RLM, she was “treated differently because of her race, such that the terms

and conditions of her employment were . . . affected.” In October 2002, Shaw

filed suit against RLM, and in May 2004, the district court entered a judgment

against RLM, awarding Shaw $11,825 in damages, $54,365 in attorney’s fees,

reinstatement of her employment, and $200 per month from the date of the

judgment until her reinstatement. Shortly thereafter, RLM filed for bankruptcy

protection, and E-Quest and Odyssey “took over the assets of RLM and continued

1
      In her first amended petition, filed on April 23, 2008, Shaw brought claims only
      against E-Quest. Shaw did not bring suit against Odyssey until December 9, 2009.
                                              2
the daily operations of RLM.” In regard to her successor-liability claims, Shaw, in

her petition, asserted,

      Defendants E-Quest and Odyssey should be held responsible should it
      be determined that RLM does not have the financial capabilities to
      pay a judgment. Defendants E-Quest and Odyssey have continued the
      operations and work force of the predecessor employers, and they also
      had notice of its predecessor’s legal obligation when the assets of
      RLM were transferred to them. Since RLM is liable, but does not
      have the financial capability to pay a judgment, then Defendants E-
      Quest and Odyssey would have the ability and responsibility to
      provide adequate relief directly, including the required reinstatement
      of [Shaw].

      At trial, Elmo Robinson testified that he was the president of RLM until he

moved to Odyssey in May 2004. RLM managed retirement communities, hired

employees, performed “all the human resources services,” and provided

administrative and record-keeping services. Robinson had been “involved” in

Shaw’s previous “discrimination lawsuit” against RLM, during which he was

deposed.

      On March 26, 2004, after the jury returned its verdict in the RLM lawsuit,

but before the trial court signed its judgment, Robinson registered E-Quest as a

limited liability corporation with the Texas Secretary of State.     Robinson, E-

Quest’s registered agent, David Clement, and Sandra Paulson, jointly own E-

Quest. Clement, who had been vice president of RLM, is E-Quest’s vice president,

and Paulson, who had been the secretary of RLM, is E-Quest’s secretary.

Although RLM’s offices were located in a different suite, E-Quest’s offices are
                                        3
located in the same building. And Robinson admitted that E-Quest assumed some

of the properties that had been previously managed by RLM and E-Quest and

RLM shared “some” of the same employees and officers, but not all of them. On

May 10, 2004, Odyssey and E-Quest signed an agreement to act as “co-employers”

in their business. Specifically, regarding Carriage Inn, the property at which Shaw

previously worked, Odyssey and E-Quest “essentially took over the responsibility

that [RLM] had before.” However, at no time did RLM, Odyssey, or E-Quest have

an ownership interest in the property; they only performed “property management”

functions.

      On cross-examination, Robinson conceded that he had participated in

RLM’s bankruptcy proceedings, during which RLM’s assets, estimated to be worth

between $50,000 and $100,000, were turned over to the bankruptcy trustee. And

RLM had “over 200” creditors, including Shaw, when it filed for bankruptcy. He

explained that E-Quest and Odyssey did not “acquire anything” from RLM

because all of its assets were turned over to the bankruptcy trustee. Robinson

further distinguished RLM from E-Quest by explaining,

      [RLM] was to hire and provide employees for the retirement
      communities performing all of the human resource functions that a
      company would perform. E-Quest did none of that. E-Quest simply
      was a company that could contract with [Odyssey] and at the same
      time provide some record keeping, administrative services to
      retirement communities. It’s a pass through organization with no
      employees including myself. . . . E-Quest simply bills the retirement

                                        4
      communities, those funds are paid to E-Quest who in turn passes them
      through to [Odyssey].

Robinson had jointly owned RLM with Robert McKee, but McKee was not

involved in either E-Quest or Odyssey. And no officer or shareholder of RLM was

ever an officer or shareholder of Odyssey. Robinson, along with Clement and

Gibson, fronted the initial capital to start E-Quest.

      Mark Turner, an employee of Odyssey, explained that it was a “professional

employer’s organization” that never had any contact with RLM. First Odyssey

Group entered a contract with E-Quest on May 10, 2004 to provide “HR out-

sourcing, payroll, safety and loss control, . . . [and] worker’s compensation”; it

then assigned the contract to Odyssey on January 1, 2005. After entering the

agreement, Odyssey enrolled any employee referred to it by E-Quest into its own

payroll records and benefit programs, while E-Quest managed the “day to day

operation of the employees” and had the most “direct control over the hiring and

firing of employees.”

      After hearing the evidence, the trial court awarded Shaw “all damages” to

which she was “entitled as described, outlined or otherwise stated” in the previous

judgment she received against RLM: $11,825.80 in damages, reinstatement

“together with all seniority and other company benefits,” “$200 per month from

May 14, 2004 until actual reinstatement,” $54,365 in attorney’s fees, and $3,240 in

costs. In their initial briefing to this Court, E-Quest and Odyssey argued, among
                                           5
other issues, that the trial court had erred in not entering findings of fact or

conclusions of law despite their timely request. On agreement of the parties, we

abated the appeal for the trial court to enter its findings of fact and conclusions of

law, which it entered on September 22, 2011.

      The trial court concluded that “E-Quest and Odyssey are the successors-in-

interest to [RLM] under the doctrine of successor liability” and “[RLM’s]

bankruptcy does not deprive [Shaw] of the ability to assert her successor liability

claim.” The trial court found that:

      1.     [Shaw] filed a lawsuit against [RLM], alleging race
             discrimination and retaliation.

      2.     [Shaw] obtained a jury verdict against [RLM].

      ...

      4.     Shortly after [Shaw] obtained a jury verdict . . ., E-Quest was
             created.

      5.     Around the time that E-Quest was created, E-Quest and
             Odyssey began negotiations. Thereafter, E-Quest and Odyssey
             entered into a formal contractual relationship.

      6.     Prior to filing for bankruptcy, [RLM] failed to abide by the
             terms of the judgment, and [Shaw] was never compensated . . . .

      7.     [RLM] filed for Chapter 7 bankruptcy in the United States
             Bankruptcy Court for the Southern District of Texas.

      8.     [RLM’s] bankruptcy case is closed.

      9.     E-Quest and Odyssey had notices of [RLM’s] legal obligations,
             specifically, [Shaw’s] lawsuit, jury verdict, and/or judgment
                                          6
      against [RLM], to [Shaw] when the assets of [RLM] were
      transferred to E-Quest and Odyssey.

10.   At the time of its organization, E-Quest and [RLM] had the
      same corporate officers and maintained the same corporate
      office.

11.   E-Quest and/or Odyssey also hired the majority of [RLM’s]
      prior employees.

12.   Elmo Robinson, the former president of [RLM], is the current
      president of E-Quest.

13.   Both Patricia Robinson, formerly known as Patricia Gibson,
      and David Clement, who were former officers of [RLM] are
      current officers of E-Quest.

14.   E-Quest and Odyssey provide services for the properties served
      by [RLM]. . . .

15.   The communities that E-Quest and Odyssey service require the
      same types or categories of employees as previously by [RLM].

16.   After [RLM] filed for bankruptcy the services that were
      provided by [RLM] are not provided by Odyssey and E-Quest.

17.   E-Quest and Odyssey are the successors-in-interest to [RLM]
      under the doctrine of successor liability.

18.   [RLM] is [Shaw’s] predecessor employer.

19.   [RLM] does not have the financial capability to pay [Shaw’s]
      judgment.

20.   E-Quest and Odyssey have substantially continued the business
      operations of [RLM] as E-Quest and Odyssey either use the
      same plant, use the same or substantially the same workforce,
      use the same or substantially the same supervisory personnel,
      the same jobs exist under substantially the same working

                                 7
             conditions, use the same machinery, equipment and methods of
             production and/or produce the same product as [RLM].

      21.    Defendants E-Quest and Odyssey are liable to [Shaw] for the
             satisfaction of [Shaw’s] judgment against predecessor [RLM]
             ....

      After the trial court entered its findings of fact and conclusions of law, we

reinstated this appeal. E-Quest and Odyssey then filed their supplemental brief,

challenging the trial court’s conclusions of law and the legal and factual

sufficiency of the evidence supporting the trial court’s findings of fact.

                                Standard of Review

      We review a trial court’s conclusions of law de novo, and we will uphold the

conclusions if the judgment can be sustained on any legal theory supported by the

evidence. BMC Software Belgium, N.V. v. Marchand, 83 S.W.3d 789, 794 (Tex.

2002); In re Moers, 104 S.W.3d 609, 611 (Tex. App.—Houston [1st Dist.] 2003,

no pet.). Although a trial court’s conclusions of law may not be challenged for

factual sufficiency, we may review the legal conclusions drawn from the facts to

determine whether the conclusions are correct. Marchand, 83 S.W.3d at 794;

Holloway–Houston, Inc. v. Gulf Coast Bank & Trust Co., 224 S.W.3d 353, 357

(Tex. App.—Houston [1st Dist.] 2006, no pet.). If we determine that a conclusion

of law is erroneous, but the trial court nevertheless rendered the proper judgment,

the error does not require reversal. Marchand, 83 S.W.3d at 794.

                                           8
                               Successor Liability

      In their fourth issue, E-Quest and Odyssey argue that the trial court erred in

concluding that Shaw can assert a successor-liability claim against them because,

under Texas law, such a claim is “legally barred.” See Act of May 4, 1979, 66th

Leg., R.S., ch. 194, § 1, 1979 Tex. Gen. Laws 422, 422–23 (amended 1987, 1991,

1993, and 1997, recodified 2002) (current version at TEX. BUS. ORGS. CODE ANN.

§ 10.254 (Vernon Supp. 2012)).

      In support of her successor-reliability claim, Shaw relies, in large part, on

Rojas v. TK Communications, Inc., 87 F.3d 745 (5th Cir. 1996). In Rojas, a female

employee, who worked for a radio station owned by TK Communications, Inc.

(“TK”), brought a sexual-harassment claim against TK under Title VII of the Civil

Rights Act of 1964. Id. at 746. She later joined Tichenor Media Systems, Inc.

(“Tichenor”), which had bought the radio station, under a theory of successor

liability. Id. The United States Court of Appeals for the Fifth Circuit noted that,

under “general contract principles,” it was undisputed that Tichenor, in its asset-

purchase agreement, “expressly excepted” the discrimination claim. Id. at 749.

However, the court recognized that successor liability “does not arise from

contract” but “labor law principles enunciated in four Supreme Court cases.” Id.

(citing Fall River Dyeing & Finishing Corp. v. NLRB, 482 U.S. 27, 107 S. Ct. 2225

(1987); Howard Johnson Co. v. Detroit Local Joint Exec. Bd., 417 U.S. 249, 94 S.

                                         9
Ct. 2236 (1974); NLRB v. Burns Int’l Sec. Servs., Inc., 406 U.S. 272, 92 S. Ct.
1571 (1972); John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 84 S. Ct. 909

(1964)). And the court explained that those labor law principles extended to

“claims asserted under Title VII and related statutes” and supported the imposition

of successor liability in such cases, explaining,

      [T]he successor doctrine arises in the context of discrimination cases
      in situations where the assets of a defendant employer are transferred
      to another entity. Thus, the purpose of the doctrine is to ensure that an
      employee’s statutory rights are not “vitiated by the mere fact of a
      sudden change in the employer’s business.” The doctrine allows the
      aggrieved employee to enforce against the successor a claim he could
      have secured against the predecessor.

      Thus, applicability of the doctrine hinges on the need to protect a
      plaintiff where the offending entity is substituted by another company.

Id. at 750 (quoting Brennan v. Nat’l Tel. Directory Corp., 881 F. Supp. 986, 992

(E.D. Pa. 1995) (citations omitted)). The court then identified “nine factors to be

considered in determining whether successor liability should be imposed in a

discrimination case”:

      (1) whether the successor company had notice of the charge or
      pending lawsuit prior to acquiring the business or assets of the
      predecessor; (2) the ability of the predecessor to provide relief; (3)
      whether there has been substantial continuity of business operations;
      (4) whether the new employer uses the same plant; (5) whether he
      uses the same or substantially the same work force; (6) whether he
      uses the same or substantially the same supervisory personnel; (7)
      whether the same jobs exist under substantially the same working
      conditions; (8) whether he uses the same machinery, equipment, and
      methods of production; and (9) whether he produces the same
      product.
                                          10
Id. (quoting Musikiwamba v. ESSI, Inc., 760 F.2d 740, 750 (7th Cir. 1985)). Of

these nine factors, the first two are critical, while the remaining seven simply

“provide a foundation for analyzing the larger question of whether there is a

continuity in operations and the work force of the successor and predecessor

employers.” Id. (quoting Musikiwamba, 760 F.2d at 751).

      E-Quest and Odyssey assert that, despite the court’s reasoning in Rojas in

regard to successor liability in the context of Title VII, this case is controlled by

article 5.10 of the Texas Business Corporations Act, which provided,

      B.     A disposition of any, all, or substantially all, of the property and
             assets of a corporation, whether or not it requires the special
             authorization of the shareholders of the corporation . . . :

             (1)   is not considered to be a merger or conversion pursuant
                   to this Act or otherwise; and

             (2)   except as otherwise expressly provided by another
                   statute, does not make the acquiring corporation, foreign
                   corporation, or other entity responsible or liable for any
                   liability or obligation of the selling corporation that the
                   acquiring corporation, foreign corporation, or other
                   entity did not expressly assume.

Act of May 4, 1979, 66th Leg., R.S., ch. 194, § 1, 1979 Tex. Gen. Laws 422, 422–

23 (amended 1987, 1991, 1993, and 1997, recodified 2002) (emphasis added).

Shaw notes that article 5.10 has been “repealed, and is no longer in effect.”

However, article 5.10 in fact did not expire until January 1, 2010, over a year after

Shaw filed the instant suit. See Act of May 13, 2003, 78th Leg., C.S., ch. 182, § 2,
                                          11
2003 Tex. Gen Laws 267, 595 (expired Jan. 1, 2010). And the relevant part of the

statute has since been recodified in the Texas Business Organizations Code, which

states similarly,

      (a)    A disposition of all or part of the property of a domestic entity,
             regardless of whether the disposition requires the approval of
             the entity’s owners or members, is not a merger or conversion
             for any purpose.

      (b)    Except as otherwise expressly provided by statute, a person
             acquiring property described by this section may not be held
             responsible or liable for a liability or obligation of the
             transferring domestic entity that is not expressly assumed by the
             person.

TEX. BUS. ORGS. CODE ANN. § 10.254 (Vernon Supp. 2012) (emphasis added).

      As reflected in the above statutes, Texas “strongly embraces” a “non-

liability” rule for corporate successors. See Lockheed Martin Corp. v. Gordon, 16
S.W.3d 127, 139 (Tex. App.—Houston [1st Dist.] 2000, pet. denied). Texas law

authorizes a successor to acquire the assets of a corporation without incurring any

of the grantor corporation’s liabilities unless the successor expressly assumes those

liabilities. C.M. Asfahl Agency v. Tensor, Inc., 135 S.W.3d 768, 780–81 (Tex.

App.—Houston [1st Dist.] 2004, no pet.); Lockheed Martin, 16 S.W.3d at 139; see

also McKee v. Am. Transfer and Storage, 946 F. Supp. 485, 487 (N.D. Tex. 1996)

(“The Texas Business & Corporations Act eliminates the doctrine of implied

successor liability.”). Thus, in Texas, there is no successor in interest when an

acquiring corporation does not expressly agree to assume the liabilities of the other
                                         12
party to an agreement because “successor” has a specialized meaning “beyond

simple acquisition.” Sitaram v. Aetna U.S. Healthcare of N. Tex., Inc., 152 S.W.3d
817, 828 (Tex. App.—Texarkana 2004, no pet.).

      Shaw cites to no Texas authority applying successor liability as discussed by

federal courts in the context of Title VII or otherwise imposing liability on a

successor company in spite of the Texas rule in support of non-liability. However,

the reasoning supporting the federal application of successor liability is similar to

the reasoning supporting the “mere continuation” exception to limited liability, an

exception “even more liberal” than the de facto merger doctrine.           See, e.g.,

Mudgett v. Paxson Mach. Co., 709 S.W.2d 755, 758 & n.4 (Tex. App.—Corpus

Christi 1986, writ ref’d n.r.e.) (listing elements of “mere continuation” doctrine as

whether “the buyer purchased the ‘good will’ and name of the seller, operated the

business in the same place, with the same employees and continued to produce the

same product”) (citing Cyr v. B. Offen & Co., 501 F.2d 1145, 1153 (1st Cir.

1974)); see also Hollowell v. Orleans Reg’l Hosp. LLC, 217 F.3d 379, 390–91 (5th

Cir. 2000) (applying “mere continuation” doctrine under Louisiana law and listing

elements as: “(1) retention of the same employees; (2) retention of the same

supervisory personnel; (3) retention of the same production facility in the same

physical location; (4) production of the same product; (5) retention of the same

name; (6) continuity of assets; (7) continuity of general business operations; and

                                         13
(8) whether the successor holds itself out as a continuation of the previous

enterprise”).

      However, Texas courts have interpreted article 5.10 as expressly abrogating

the mere continuation doctrine as a means of imposing successor liability. See

Motor Components, LLC v. Devon Energy Corp., 338 S.W.3d 198, 205 (Tex.

App.—Houston [14th Dist.] 2011, no pet.) (“The Texas legislature rejected long

ago the ‘continuation’ doctrine of implied successor liability . . . .”) (citing TEX.

BUS. ORGS. CODE ANN. § 10.254); Shapolsky v. Brewton, 56 S.W.3d 120, 137–38

(Tex. App.—Houston [14th Dist.] 2001, pet. denied) (holding that just as liability

cannot be transferred under “mere continuation” doctrine, company’s contacts

cannot be imputed to successor for purposes of establishing personal jurisdiction),

abrogated on other grounds by Michiana Easy Livin’ Country v. Holten, 168
S.W.3d 777 (Tex. 2005); Mudgett, 709 S.W.2d at 758 (“Certainly if the de facto

merger doctrine is contrary to the public policy of our state, so must be the mere

continuation doctrine.”).

      Here, it is undisputed that neither E-Quest nor Odyssey “expressly assumed”

liability for Shaw’s judgment against RLM.          Shaw argues that we should

nevertheless extend the successor-liability doctrine from Rojas to the present case

because the above cited Texas cases “do not involve employment discrimination

claims.” She notes that in Rojas the Fifth Circuit stated that the doctrine of

                                         14
successor liability “has been extended to claims asserted under Title VII and

related statutes.” Rojas, 87 F.3d at 750. As stated by the Texas Supreme Court,

one of the purposes of the Texas Commission on Human Rights Act (“TCHRA”) is

to “provide for execution of the policies of Title VII of the Civil Rights Act of

1964 and its subsequent amendments.” Quantum Chem. Corp. v. Toennies, 47
S.W.3d 473, 476 (Tex. 2001) (citing TEX. LABOR CODE ANN. § 21.001(1)).

“Therefore, analogous federal statutes and cases interpreting them guide our

reading of the TCHRA.” Id. (citing NME Hosps., Inc. v. Rennels, 994 S.W.2d 142,

144 (Tex. 1999)).

      However, as Shaw concedes in her brief, successor liability, as discussed by

the federal courts, is a “common law” doctrine, like the “mere continuation”

doctrine. It is not based on a statutory interpretation of Title VII, but rather

“derived from equitable principles.”        See, e.g., Brzozowski v. Correctional

Physician Servs., Inc., 360 F.3d 173, 178 (3rd Cir. 2004); Ed Peters Jewelry Co. v.

C & J Jewelry Co., 124 F.3d 252, 265 (1st Cir. 1997) (“[S]uccessor liability is an

equitable doctrine, both in origin and nature.”). And, unlike in Rojas, where the

plaintiff brought suit under Title VII and directly joined the defendants in that suit,

Shaw brings her claim under neither Title VII or the TCHRA. Rather, Shaw seeks

to recover on a judgment entered long ago, presumably for violations of the

                                          15
TCHRA. And, again, Shaw cites us to no Texas authority imposing successor

liability under such circumstances.

      Shaw does note that a federal district court has applied successor liability to

claims brought under the TCHRA. See Mendez v. Ameri-Forge Corp., No. Civ.A.

H-01-0523, 2005 WL 2241009, at *4 (S.D. Tex. Sept. 15, 2005). Although the

federal district court in Mendez did provide a brief analysis of the applicability of

successor liability to the plaintiff’s claims brought under both Title VII and the

TCHRA, it ultimately resolved the case by concluding that the plaintiff had failed

to timely prosecute the action. Id. at *4–5; but see McKee, 946 F. Supp. at 487

(declining to apply successor liability to Texas wrongful-termination claim,

brought along with claim under Americans with Disabilities Act, because of Texas

statute limiting successor liability to those expressly assumed); Schutze v. Fin.

Computer Software, No. 04-CV-0276-H, 2006 WL 2842008, at *9–10 & n.2 (N.D.

Tex. Sept. 29, 2006) (concluding it “clearly true” that successor liability could not

apply to plaintiff’s Texas discrimination claims and assuming, without deciding,

that doctrine could not apply to plaintiff’s statutory discrimination claims brought

under TCHRA). As a result, Mendez is inapplicable here.

      In light of the express statutory mandate precluding the imposition of

implied successor liability under Texas law, we conclude that Shaw’s successor-

liability claim is precluded by Texas statute. See Act of May 4, 1979, 66th Leg.,

                                         16
R.S., ch. 194, § 1, 1979 Tex. Gen. Laws 422, 422–23 (amended 1987, 1991, 1993,

and 1997, recodified 2002); TEX. BUS. ORGS. CODE ANN. § 10.254; see also Motor

Components, LLC, 338 S.W.3d at 205 (“The Texas legislature rejected long ago

the ‘continuation’ doctrine of implied successor liability . . . .”); Lockheed Martin,
16 S.W.3d at 139.

      Accordingly, we hold that the trial court erred in concluding otherwise.

                                    Conclusion

      Having held that the trial court erred in concluding that Shaw’s successor-

liability claim is not barred by Texas law, we need not address the remaining issues

of E-Quest and Odyssey. We reverse the judgment of the trial court and render a

take-nothing judgment in favor of E-Quest and Odyssey.

                                              Terry Jennings
                                              Justice

Panel consists of Justices Jennings, Higley, and Sharp.

                                         17