Opinion
No. CV04-4000037
April 11, 2005
MEMORANDUM OF DECISION RE MOTION TO REARGUE AND RECONSIDERATION RE SUMMARY JUDGMENT (#111)
This lawsuit concerns a commercial debt arising out of business transactions between the plaintiff and Merritt Davis Corporation in the years 2000 and 2001. In its complaint, the plaintiff alleges that the present defendants, Merritt Extruder Corporation, Davis Electric and Merritt Davis Corporation are subsidiaries of or successor corporations to Merritt Davis Corporation and are liable for the debt.
On November 15, 2004, Merritt Extruder Corporation filed its motion for summary judgment. See #107. Although the plaintiff had earlier filed its own motion for summary judgment, it did not file an objection to Merritt Extruder Corporation's motion. Merritt Extruder Corporation's motion for summary judgment appeared on the short calendar as a nonarguable motion and was granted by this court on January 19, 2005. The basis of this ruling was that this court inferred that the motion was unopposed. Thereafter, the plaintiff filed the present motion to reargue and reconsider Merritt Extruder Corporation's motion for summary judgment. The reargument portion of the present motion was granted. On February 22, 2005, this court heard argument on whether summary judgment should be granted in favor of Merritt Extruder Corporation.
For the reasons set forth below, this court finds that there exist issues of material fact such that summary judgment must be denied.
BACKGROUND
While the tracing of the corporate entities involved in this case is fairly straightforward, the use of the same or similar sounding corporate names considerably complicates the picture. The parties, however, do not dispute the following.
Merritt Extruder Corporation was a Delaware corporation incorporated in the early 1990s. On or about January 20, 1995 Merritt Extruder Corporation merged with and into Davis Electric Wallingford Corporation which was also a Delaware corporation. Through this merger, Merritt Extruder Corporation (incorporated in Delaware) ceased to exist and the merged corporation's name was changed to Merritt Davis Corporation. The business transactions that are the subject matter of plaintiff's complaint were with Merritt Davis Corporation. Merritt Davis Corporation continued to operate until 2004 when it encountered financial difficulties.
The invoices attached to the plaintiff's complaint suggests that Meritt Davis Corporation continued to do business under the names Merritt Extruder and Davis Electric.
On February 13, 2004, Summit Business Capital Corporation d/b/a Fleet Capital Business Finance Group ("Fleet Capital") called a $1.2 million dollar loan it had extended to Merritt Davis Corporation. According to the affidavit of its President, Arthur Guthrie, Merritt Davis Corporation ceased its business operations as of that date. There is no evidence in the record that Fleet Capital took any legal action to collect the loan or foreclose on its lien on Merritt Davis Corporation's assets. Instead, the record reflects that about six weeks after calling the loan, on March 26, 2004 Fleet Capital and Merritt Davis Corporation entered into a resolution whereby Merritt Davis Corporation agreed to "voluntarily surrender" all of the collateral for the loan, including all of the property located at Merritt Davis Corporation's business premises at 15 Marne Street, Hamden, Connecticut, to Fleet Capital. That same day, March 26, 2004 Arthur Guthrie incorporated Merritt Extruder Corporation in Connecticut (hereinafter Merritt Extruder-Connecticut). On March 29, 2004 Mr. Guthrie, as President of Merritt Extruder-Connecticut, signed a Bill of Sale to purchase for $50,000 all of the personal property located at 15 Marne Street, Hamden, Connecticut formerly owned by Merritt Davis Corporation. The transaction was completed the next day, March 30, 2004 when Fleet Capital signed the Bill of Sale and received a $50,000 bank check. On June 4, 2004 Merritt Davis Corporation was dissolved.
DISCUSSION
In the present lawsuit, the plaintiff seeks to collect from Merritt Extruder-Connecticut monies owed for products purchased in 2000 and 2001 invoiced to Merritt Extruder/David Electric and shipped to 15 Marne Street, Hamden, Connecticut.
Under the general rule, a corporation that purchases all of the assets of another company does not become liable for its predecessor's debts and liabilities unless
(1) the purchase agreement expressly or impliedly so provides;
(2) there was a merger or consolidation of the two firms;
(3) the purchaser is a "mere continuation" of the seller; or
(4) the transaction is entered into fraudulently for the purpose of escaping liability.
Ricciardello v. J.W. Gant Co., 717 F.Sup. 56, 57-58 (D.Conn. 1989), 15 Fletcher, Cyclopedia of Law of Corporations, § 7122 (1961 rev. vol.).
In addition to the above, there is an additional recognized exception — the so-called "product line continuation" exception. This exception applies where the transferee corporation (1) acquires substantially all of the transferor's assets; (2) holds itself out as a continuation of the transferor by producing the same product line; and (3) benefits from the goodwill of the transferor. Ramirez v. Amsted Industries, 86 N.J.332, 431 A.2d 811, 825 (1981). As the defendant correctly points out, however, this exception has only been applied to strict product liability cases. Sullivan v. A.W. Flint Co. and Lynn Ladder and Scaffolding Co., Inc., 17 Conn. L. Rptr. 331 (1996); Ray v. Alad Corporation, 19 Cal.3d 22, 34 (1977); Ramirez v. Amsted Industries, Inc., supra, 335.
The defendant asserts that the general rule is applicable to the present situation and that Merritt Extruder-Connecticut has no liability for the debts of Merritt Davis Corporation. The plaintiff, on the other hand, asserts that two exceptions to the general rule operate to impose liability on Merritt Extruder-Connecticut. First, that Merritt Extruder-Connecticut is a mere continuation of Merritt Davis Corporation. Second, that the transactions that resulted in the transfer of corporate assets to Merrill Extruder-Connecticut were fraudulently entered to escape liability.
In support of its position, the plaintiff has submitted an invoice showing that in 1999, Merritt Davis Corporation was purchasing products under the name "Merritt Extruder Corp.," notwithstanding the fact that Merritt Extruder Corporation (Delaware) was merged out of existence in 1995. More significantly, the plaintiff cites to a Superior Court opinion by Judge Hennessey in Cotter Garage Corporation v. Casson Matava, 2 Conn. Supr. Ct. Repts. 558 (1988) which states that the applicability of the exceptions to the general rule against liability of successor corporations pose issues of fact inappropriate for resolution on summary judgment.
In ruling on a motion for summary judgment the court's role is not to decide issues of fact, but rather, to determine whether any such issues exist. Nolan v. Borkowski, 206 Conn. 495, 500 (1988). Moreover, in deciding a motion for summary judgment, the trial court must view the evidence in the light most favorable to the nonmoving party. Appleton v. Board of Education, 254 Conn. 205, 209 (2000).
In the present case, there exists an issue of fact as to whether Merritt Davis Corporation, when it voluntarily surrendered its assets to Fleet Capital only to essentially continue the business four days later at the same location, with the same equipment, using the same trade name, and having the same corporate president, had an intent to defraud its creditors. Conversely, there is an issue of fact as to whether Merritt Extruder-Connecticut based on those same circumstances is either a continuation of or a reincarnation of Merritt Davis Corporation. See Generally 19 Am. Jur.2d § 2320 et seq. (discussing the circumstances under which a transferee corporation is liable for the debts of the transferor corporation). This is not to say that there is fraud or corporate continuation, but only that issues of fact exist on these grounds such that the plaintiff is entitled to a trial.
CONCLUSION
For the reasons set forth above, the court's January 19, 2005 ruling granting summary judgment is vacated and the motion for summary judgment is denied.
So Ordered.
DEVLIN, J.