Court Opinion

ID: 3070530
Source: CourtListenerOpinion
Date Created: 2015-10-16 00:27:04.562696+00
Date Added: 2024-06-11T10:40:25.747202
License: Public Domain

Opinion filed February 27, 2015

                                        In The

        Eleventh Court of Appeals
                                     __________

                                  No. 11-13-00044-CV
                                      __________

                  REGAL WARE, INC., Appellant
                             V.
                CFJ MANUFACTURING, L.P. D/B/A
            CFJ MANUFACTURING AND COLLECTIONS
                  FINE JEWELRY, INC., Appellee

                    On Appeal from the 352nd District Court
                            Tarrant County, Texas
                     Trial Court Cause No. 352-257187-11

                     MEMORANDUM OPINION
      This appeal arises out of an original dispute between Saladmaster, Inc., a
dissolved Delaware corporation that is now a division of Regal Ware, Inc., and
CFJ Manufacturing, L.P., a Texas limited partnership, over CFJ’s sale of allegedly
“genuine” Rolex watches to Saladmaster. Regal Ware asserted that it was either
the successor of Saladmaster or that it had received the assignment of
Saladmaster’s fraud claims against CFJ when Saladmaster dissolved. Regal Ware
alleged that CFJ defrauded Saladmaster when CFJ represented to Saladmaster that
the watches were “genuine” Rolex watches when, in fact, the watches were not
“genuine” Rolex watches.
       The trial court granted CFJ’s combined traditional and no-evidence motion
for summary judgment and entered a final judgment that Regal Ware take nothing
on its fraud claims. In the alternative, the trial court also granted CFJ’s plea to the
jurisdiction because Regal Ware lacked standing to pursue claims that Saladmaster
had against CFJ. Regal Ware appeals the trial court’s judgment. We affirm.
                                      I. Background Facts
       Saladmaster operated a direct-sale business of cookware and kitchen
products. At various times from 2004 to 2006, Saladmaster purchased approxi-
mately $225,000 in watches from CFJ. Saladmaster purchased the watches based
on CFJ’s representation that they were genuine Rolex watches.                          Saladmaster
ordered several watches and other jewelry from CFJ in November and December
2006, with some of the watches being delivered in those months and the remainder
being delivered in January 2007.1 Saladmaster used the watches as performance
incentives for its direct sellers.
       On December 14, 2006, Saladmaster’s board of directors adopted a
resolution calling for the corporation to be dissolved on December 31, 2006, and
for its assets to be transferred to its sole shareholder, Regal Ware. Saladmaster
filed a certificate of dissolution with the Delaware secretary of state on
December 26, 2006. Regal Ware formed its own Saladmaster division, and that

       1
         We note that one invoice included in the summary judgment evidence had a January 9, 2007
invoice date with a January 10, 2007 shipping date of jewelry and one men’s Rolex watch. This invoice
is almost identical to an earlier 2006 invoice. But Regal Ware has not alleged or provided any evidence
that would raise a material fact question that its Saladmaster division purchased items from CFJ in
January 2007.
division used the employees, sellers, and other operations of the dissolved
Saladmaster. Later, after several of the sellers reported problems with the watches,
Regal Ware through its Saladmaster division alleged that the watches were not
genuine Rolex watches and demanded replacement watches or refunds.             CFJ
refused those requests.
      On December 27, 2011, Regal Ware filed suit against CFJ seeking to
recover the $225,000 that Saladmaster paid CFJ for the watches. Through its
petition, Regal Ware alleged claims of fraud and fraudulent inducement. CFJ
answered with a general denial and then filed a traditional and no-evidence motion
for summary judgment and, in the alternative, a plea to the jurisdiction. In its
motion, CFJ argued that Regal Ware lacked capacity to assert the fraud claims
because the lawsuit was not filed within three years of Saladmaster’s dissolution,
as required by Delaware’s corporate survival statute. See DEL. CODE ANN. tit. 8, §
278 (West 2010). After a hearing, the trial court granted CFJ’s motion and entered
a final judgment; Regal Ware appealed.
                                II. Issues Presented
      Regal Ware presents two issues.       First, Regal Ware argues that it has
standing to pursue the claims because they are not derivative of Saladmaster.
Second, Regal Ware argues that it also has standing because Saladmaster, upon
dissolution, assigned its claims to Regal Ware.
                              III. Standard of Review
      We review a trial court’s summary judgment under a de novo standard.
Exxon Corp. v. Emerald Oil & Gas Co., 331 S.W.3d 419, 422 (Tex. 2010).
Because the trial court did not specify the grounds upon which it relied when it
granted summary judgment, we will affirm the summary judgment if any of the
theories advanced are meritorious. Carr v. Brasher, 776 S.W.2d 567, 569 (Tex.
1989). We also review de novo a ruling by the trial court in which it granted a plea
to the jurisdiction. Tex. Natural Res. Conservation Comm’n v. IT-Davy, 74 S.W.3d
849, 855 (Tex. 2002). We construe pleadings liberally in favor of the plaintiff and
take as true all evidence favorable to the plaintiff.        Tex. Dep’t of Parks &
Wildlife v. Miranda, 133 S.W.3d 217, 226 (Tex. 2004).
                                     IV. Analysis
         Regal Ware challenges the final judgment of the trial court and asserts in
two issues that it has standing to bring suit against CFJ. Because the question
presented by both of Regal Ware’s issues is whether Delaware’s corporate survival
statute prevented Regal Ware from asserting claims, we review both issues
together.
         At common law, the legal existence of a corporation was terminated upon
dissolution. Hunter v. Fort Worth Capital Corp., 620 S.W.2d 547, 549 (Tex.
1981). To limit the draconian effect on those dealing with a corporation, courts
developed a trust fund theory, which was an equitable doctrine whereby the assets
of the dissolved corporation that had been distributed to shareholders were said to
be burdened with a lien in favor of creditors. Id. at 550. Later, the legislature
codified this doctrine; the survival statute creates a right or claim that would not
exist apart from the statute. Martin v. Tex. Woman’s Hosp., Inc., 930 S.W.2d 717,
720 (Tex. App.—Houston [1st Dist.] 1996, no writ) (citing M.S. v. Dinkytown Day
Care Ctr., Inc., 485 N.W.2d 587, 589 (S.D. 1992)). The distinction between a
statute of limitations, which is an affirmative defense, and a survival statute is that
a statute of limitations affects the time that a stale claim may be brought. Id. In
contrast, a survival statute extends for a limited time the ability of a dissolved
corporation to bring or defend suits—an ability that would have ended at its
dissolution date but for the statute’s extension. Gomez v. Pasadena Health Care
Mgmt., Inc., 246 S.W.3d 306, 315 (Tex. App.—Houston [14th Dist.] 2008, no
pet.).
      Because Saladmaster and Regal Ware were incorporated in Delaware, the
parties agree that Delaware law applies in this case. TEX. BUS. ORGS. CODE ANN.
§§ 1.102, 1.104 (West 2012). “Delaware law governs the internal affairs of . . . a
Delaware corporation.” Highland Crusader Offshore Partners, L.P. v. Andrews &
Kurth, L.L.P., 248 S.W.3d 887, 890 n.4 (Tex. App.—Dallas 2008, no pet.) (citing
Warren v. Warren Equip. Co., 189 S.W.3d 324, 329 (Tex. App.—Eastland 2006,
no pet.)). In this situation, we proceed as a federal court would under the Erie2
doctrine: we look first for an authoritative decision on point from that state’s
highest court, and if none is available, we give due deference to decisions by that
state’s lower courts and other authorities. Id. (citing Francis v. Herrin Transp.
Co., 432 S.W.2d 710, 714 (Tex. 1968) (following decisions of Louisiana’s courts
of appeals in the absence of a pertinent decision from the Louisiana Supreme
Court)). In relevant part, Delaware’s corporate survival statute provides:
             All corporations, whether they expire by their own limitation or
      are otherwise dissolved, shall nevertheless be continued, for the term
      of 3 years from such expiration or dissolution or for such longer
      period as the Court of Chancery shall in its discretion direct, bodies
      corporate for the purpose of prosecuting and defending suits, whether
      civil, criminal or administrative, by or against them, and of enabling
      them gradually to settle and close their business, to dispose of and
      convey their property, to discharge their liabilities and to distribute to
      their stockholders any remaining assets, but not for the purpose of
      continuing the business for which the corporation was organized.

DEL. CODE ANN. tit. 8, § 278. Regal Ware argues that Section 278 does not apply
to its claims against CFJ for several reasons: (1) Saladmaster did not dissolve but,
rather, “functionally merged” with Regal Ware; (2) as Saladmaster’s sole
shareholder, Regal Ware did not sue CFJ derivatively; and (3) the claims were
assigned to Regal Ware by Saladmaster. See id.

      2
       Erie R. Co. v. Tompkins, 304 U.S. 64 (1938).
       A. Merger versus Dissolution
       We first address Regal Ware’s claim that Section 278 is inapplicable to this
case because Regal Ware “functionally merged” with Saladmaster. Regal Ware
argues that the difference between dissolution and merger in this case is a mere
“technicality.” In support of its argument, Regal Ware notes that Saladmaster
became a division within Regal Ware after its dissolution and that the same people
continue to do the same business under the Saladmaster name.
       We do not agree with Regal Ware’s claim that it “functionally merged” with
Saladmaster. Dissolution and merger are two distinctly different ways to change
the structure of a corporation. In a dissolution, the privileges, powers, rights, and
duties of the corporation come to an end and suffer a corporate death. Vanscot
Concrete Co. v. Bailey, 862 S.W.2d 781, 784 (Tex. App.—Fort Worth 1993), aff’d,
894 S.W.2d 757 (Tex. 1995). In a merger, these attributes of corporate life are
transferred to the surviving corporation and are there continued and preserved. Id.
Moreover, dissolutions and mergers are governed by separate sections of the
Delaware Corporations Code. See DEL. CODE ANN. tit. 8, §§ 273–285, 251–262.
Recognizing the distinction between dissolutions and mergers, Section 278
expressly applies only when a corporation chooses to dissolve itself. See DEL.
CODE ANN. tit. 8, § 278.
       We conclude that Saladmaster dissolved itself and transferred its assets to
Regal Ware. 3 Given this conclusion, Delaware’s corporate survival statute bars
Regal Ware’s claims against CFJ unless an exception to the statute applies. 4

       3
         At the summary judgment hearing, Regal Ware recognized that Saladmaster made a choice to
dissolve. In its brief, Regal Ware “does not dispute that Saladmaster is in fact dissolved.”
       4
        In our review of Delaware case law, we found that no case provided a direct answer to the issue
presented in this case. Thus, we turn to other jurisdictions for guidance. See Highland Crusader, 248
S.W.3d at 890 n.4.
       B. Individual-Shareholder-Claim Exception
       An examination of case law from other jurisdictions reveals that there are
two types of actions that arise during the period of corporate existence but survive
past the windup period of the survival statute: (1) those actions brought in an
individual capacity for a personal wrong and (2) ascertainable or previously
asserted claims that have the character of a tangible property asset and that have
devolved by law or have been assigned to the shareholders. Davis v. St. Paul
Fire & Marine Ins. Co., 727 F. Supp. 549, 552 (D.S.D. 1989) (applying South
Dakota’s corporate survival statute). When a claim is held individually by a
shareholder of a dissolved corporation, even if the claim arose from a corporate
matter, the corporate survival statute is not applicable. Sharif v. Int’l Dev. Grp.
Co., 399 F.3d 857, 861 (7th Cir. 2005) (applying the corporate survival statute of
Illinois); Halliwell Assocs. v. C.E. Maguire Servs., Inc., 586 A.2d 530, 533 (R.I.
1991) (applying the corporate survival statute of Massachusetts). If, on the other
hand, an action seeks to redress a wrong done to the corporation, or if the claim
arose solely as a consequence of a corporate wrong, the claim is derivative in
nature and will not survive past the windup period. Halliwell, 586 A.2d at 533.
       Regal Ware’s action against CFJ was not an individual shareholder action
but, rather, a claim sought to redress a wrong done to Saladmaster. As such, the
claims were personal to Saladmaster and clearly derivative to Regal Ware. Thus,
the individual shareholder exception does not apply to Regal Ware’s claims against
CFJ.
       C. Property Interest Exception
       The second type of action that arises from the period of corporate existence
but endures past the survival statute’s windup period involves ascertainable or
previously asserted claims that have the character of a tangible property asset and
that have devolved by law or have been assigned by the shareholders. Sharif, 399
F.3d at 861; Halliwell, 586 A.2d at 534. Classes of assets that courts have held
devolve to shareholders upon dissolution are primarily interests in either real or
personal property, corporate claims asserted within the windup period, fixed
liabilities, or liquidated debts. Halliwell, 586 A.2d at 534–35.
      Courts in other jurisdictions have declined to extend this list of assets to
include unasserted corporate contract claims. See, e.g., Sharif, 399 F.3d at 861
(recognizing that Illinois corporate survival statute bars inchoate claims);
Hutson v. Fulgham Indus., Inc., 869 F.2d 1457, 1463–64 (11th Cir. 1989) (finding
that Alabama’s corporate survival statute barred unasserted fraud claim); Canadian
Ace Brewing Co. v. Joseph Schlitz Brewing Co., 629 F.2d 1183, 1187 (7th Cir.
1980) (finding that corporate survival statute of Illinois barred unasserted corporate
claim); Davis, 727 F. Supp. at 552–53 (holding that South Dakota’s corporate
survival statute barred unexecuted corporate contract claim because the claim was
not ripe and was not a tangible representation of a fixed ascertainable debt). We
find the reasoning in these cases to be persuasive.
      Unlike a note or mortgage, an unasserted cause of action based on a breach
of contract claim is not a debt fixed in amount and evidenced by a document.
Davis, 727 F. Supp. at 552–53. Rather, an unasserted contract claim involves
evidentiary problems and factual disputes. Hutson, 869 F.2d at 1463. We decline
to recognize a property interest in such an undefined claim. Davis, 727 F. Supp. at
553 (allowing pursuit of corporate claims that are merely embryonic beyond the
windup period would expand the corporate survival statute beyond its terms and
would interfere with its purpose of requiring the prompt and orderly winding up
and finalization of a dissolved corporation’s affairs); MBC, Inc. v. Engel, 397 A.2d
636, 639 (N.H. 1979) (“The policy behind the [survival] statute is favored over the
ends of particularized justice. To allow lawsuits involving a dissolved corporation
to commence in contravention of a clearly expressed legislative policy would
thwart the orderly process of corporate dissolution . . . .        It would produce
continuous dribble of the business activity contrary to the intent of the winding up
provisions of the statute.” (internal quotation marks and citations omitted)).
        We conclude that the claims against CFJ did not devolve to Regal Ware.
The claims were unasserted at the time of Saladmaster’s dissolution, and courts in
other jurisdictions have consistently held that unasserted corporate claims do not
fall within the property interest exception. We also conclude that the claims
against CFJ were not assigned to Regal Ware; thus, the property interest exception
does not apply to this case. We disagree with Regal Ware’s claim that a ledger
dated February 1, 2007, which documents the transfer of all assets from
Saladmaster to Regal Ware, shows that the fraud claims were assigned to Regal
Ware.
        Even if the ledger constituted a general assignment, Saladmaster’s
unasserted fraud claims were not covered by the general assignment. See Nix v.
W.R. Grace & Co.–Conn., 830 F. Supp. 601, 605 (S.D. Ala. 1993) (holding that a
general assignment of claims by a corporation to its shareholders prior to the
corporation’s dissolution does not preserve unasserted claims past the statutory
windup period). The cases Regal Ware cites suggest that the fraud claims are
subject to transfer and assignment apply only to claims asserted prior to a
corporation’s dissolution. See Sharif, 399 F.3d at 861; Kalmanovitz v. Heileman
Brewing Co., 595 F. Supp. 1385, 1399 (D. Del. 1984); Hamilton Partners, L.P. v.
Englard, 11 A.3d 1180, 1204 (Del. Ch. 2010); Lewis v. Anderson, 453 A.2d 474,
479 (Del. Ch. 1982).
        Even if we were to find that Saladmaster’s alleged fraud claims had been
assigned to Regal Ware, which we do not, Regal Ware would still have been
required to file its suit against CFJ within the three-year time limit prescribed by
Section 278. See DEL. CODE ANN. tit. 8, § 278; Davis, 727 F. Supp. at 552–53;
MBC, 397 A.2d at 639 (“All remedies available to either the corporation or the
shareholder may be enforced only during the statutory continuance period. The
former shareholder has no greater rights than the defunct corporation.”). As the
Supreme Court of New Hampshire said in MBC, “We will not permit the
corporation continuance statute to be circumvented by allowing former
shareholders to assert expired rights of a defunct corporation after the statutory
period has elapsed.” MBC, 397 A.2d at 639.
      Regal Ware brought claims against CFJ that were personal to Saladmaster
and were derivative to Regal Ware. Saladmaster failed to assert the claims while
still in existence or within the time prescribed by the survival statute. Regal Ware
then waited five years after the dissolution of Saladmaster to bring the claims.
Given these facts, we hold that Regal Ware’s claims against CFJ were barred by
Delaware’s corporate survival statute. See DEL. CODE ANN. tit. 8, § 278. We
further hold that the trial court did not err when it granted CFJ’s motion for
summary judgment and, in the alternative, CFJ’s plea to the jurisdiction. We
overrule both of Regal Ware’s issues.
                               V. This Court’s Ruling
      We affirm the judgment of the trial court.

                                                   MIKE WILLSON
                                                   JUSTICE

February 27, 2015
Panel consists of: Wright, C.J.,
Willson, J., and Bailey, J.