Opinion
Case No. 03cv1946 BTM (WMc).
February 14, 2006
ORDER GRANTING DEFENDANT CENTRAL REFRIGERATED SERVICES, INC.'S MOTION FOR SUMMARY JUDGMENT [Doc. # 52]
On October 1, 2003, Plaintiff Hilda Roach brought suit against Prudential Insurance Company of America ("Prudential"), and Central Refrigerated Services, Inc. ("Central"), successor in interest to Dick Simon Trucking, Inc. ("Dick Simon"). The action involves claims on a life insurance policy underwritten by Prudential and issued to Roach's late husband, Robert, through his employer Dick Simon.
By order dated June 3, 2004, the Court dismissed many of Plaintiff's claims, leaving only Plaintiff's claims under the Employee Retirement Income Security Act ("ERISA"). Additionally, Prudential was dismissed as a party to this suit on May 3, 2005. Remaining Defendant Central has moved for summary judgment. For the reasons discussed below, Defendant's motion is GRANTED.
I. BACKGROUND
Hilda and Robert Roach worked as cross-country truck drivers for Dick Simon. At his time of hire, Robert purchased life insurance provided by his employer and named Hilda the beneficiary. Originally, the policy provided a $50,000 benefit. Sometime in April 2001, the Roachs were informed through a satellite communications system in their truck (known as "the Qualcom") of a change in the employer provided health insurance which required their response. Sometime before May 1, 2001, Robert replied through the Qualcom that he wished to participate in the change in the health insurance policy and that he wanted to increase his life insurance benefit to $100,000. Defendant increased the insurance deductions from Robert's pay beginning May 1, 2001. While it is not clear whether this increased deduction resulted from the change in health insurance coverage or from the increase in life insurance, it is undisputed that there was no further communication about Robert's life insurance.See Order Granting in Part and Denying in Part Motion to Dismiss, June 3, 2004 at p. 2 (providing background facts).
On February 25, 2002, Dick Simon filed a voluntary petition under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Utah. Two months later, on April 22, 2002, the Bankruptcy Court issued an order which authorized the sale of "substantially all of Debtors' [Simon's] assets to Central Refrigerated Service, Inc. free and clear of liens, claims, interests, and encumbrances." Def.'s Request for Judicial Notice ("DJN"), Ex. 1 at p. 1. Freightliner, a business partner of Dick Simon, brought a motion for reconsideration which was granted on August 27, 2002. See In re Simon Transp. Servs. Inc., 292 B.R. 207, 210-215 (Bankr. D. Utah 2003). This order provided that Freightliner's agreements with the debtors were to be excluded from the effects of the sale order. The brief two paragraph order did not otherwise alter the terms of the sale.Id. at 214; Def.'s RJN, Ex. 4.
On August 4, 2002, Robert died. Shortly thereafter, Hilda received $50,000 as the beneficiary of his life insurance policy and an additional $10,000 under a separate policy. Plaintiff has brought this suit to collect the additional $50,000 she is allegedly owed under her husband's $100,000 policy.
II. LEGAL STANDARD
Summary judgment is appropriate if the moving party demonstrates that "the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact." Fed.R.Civ.P. 56(c); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). A fact is material when, under the governing substantive law, it could affect the outcome of the case. See Anderson, 477 U.S. at 248; Freeman v. Arpaio, 125 F.3d 732, 735 (9th Cir. 1997). A dispute is genuine if a reasonable jury could return a verdict for the nonmoving party. See Anderson, 477 U.S. at 248.
A party seeking summary judgment always bears the initial burden of establishing the absence of a genuine issue of material fact. See Celotex, 477 U.S. at 323. Although the nonmoving party bears the burden of proof on a matter at trial, the moving party need only demonstrate to the Court that there is insufficient evidence to support the nonmoving party's case.Id. at 325. The moving party can satisfy this burden in two ways: (1) by presenting evidence that negates an essential element of the nonmoving party's case; or (2) by demonstrating that the nonmoving party failed to establish an essential element of the nonmoving party's case on which the nonmoving party bears the burden of proof at trial. See Id. at 322-23. "Disputes over irrelevant or unnecessary facts will not preclude a grant of summary judgment." T.W. Elec. Serv., Inc. v. Pacific Elec. Contractors Ass'n, 809 F.2d 626, 630 (9th Cir. 1987).
Once the moving party establishes the absence of genuine issues of material fact, the burden shifts to the nonmoving party to set forth facts showing that a genuine issue of disputed fact remains. See Celotex, 477 U.S. at 314. The nonmoving party cannot rest on the mere allegations or denials of his pleading, but must "go beyond the pleadings and by his own affidavits, or by the `depositions, answers to interrogatories, and admissions on file' designate `specific facts showing that there is a genuine issue for trial.'" Id. at 324 (citing Fed.R.Civ.P. 56(c)). When making this determination, the court must view all inferences drawn from the underlying facts in the light most favorable to the nonmoving party. See Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986); Fontana v. Haskin, 262 F.3d 871, 876 (9th Cir. 2001). The court must not weigh the evidence or make credibility determinations in evaluating a motion for summary judgment. See Anderson, 477 U.S. at 255.
III. DISCUSSION
Defendant argues that Plaintiff's claims, based on successor liability, are barred by the Bankruptcy Court order declaring Central free and clear of all liabilities not specifically assumed. Plaintiff submits that successor liability is not precluded by the bankruptcy order because she can show (1) that there is continuity between Dick Simon and Central and (2) that Central had notice of Plaintiff's claim.
Under general common law, "a corporation that merely purchases for cash the assets of another corporation does not assume the seller corporation's liabilities." Upholsters' Int. Union Pension Fund v. Artistic Furniture of Pontiac, 920 F.2d 1323, 1326 (7th Cir. 1990) (internal citation omitted) (hereinafterUpholsters'). This rule is designed to "maximize the fluidity of corporate assets." Id. However, the rule of no successor liability has been limited by four exceptions: (1) if there is an express or implied assumption of liability; (2) the transaction amounts to a consolidation, merger, or similar restructuring of the two corporations; (3) the purchasing corporation is a "mere continuation" of the seller; and (4) the transfer of assets to the purchaser is for the fraudulent purpose of escaping liability for the sellers debts. Id. Federal courts have "imposed liability upon successors beyond the bounds of the common law rule in a number of different employment-related contexts" to vindicate important federal statutory policies, including ERISA.Id. at 1327-28. See also Steinbach v. Hubbard, 51 F.3d 843, 845 (9th Cir. 1995) ("federal courts have developed a federal common law successorship doctrine that now extends to almost every employment law statute").
Here, Plaintiff contends that Central is a mere continuation of Dick Simon. The Ninth Circuit has outlined a two-part test for determining whether an employer is a successor. A company is deemed a successor if (1) it hires most of its employees from the predecessor employer's work force and (2) if it conducts essentially the same business as the predecessor.Trustees for Alaska Laborers-Construction Indus. Health and Security Fund v. Ferrell, 812 F.2d 512, 515 (9th Cir. 1987).
Defendant, on the other hand, maintains that the bankruptcy order of April 22, 2002, which approved the sale of Dick Simon's assets to Central, preempts any successor liability. In Central's view, whether or not it is deemed a continuation of Dick Simon has no bearing on the validity of Plaintiff's claim against it. Instead its points to the bankruptcy order, which states that the "Asset Purchase Agreement was negotiated, proposed, and entered into by the Debtors [Dick Simon] and the Purchaser [Central] without collusion, in good faith, and after arm's length and lengthy bargaining." Def.'s RJN, Ex. 1, ¶ U at p. 8. The Court additionally found that the sale was in the best interests of Simon and its creditors because it would preserve the value of Simon's assets and generate over $52 million dollars for the debtor's estate. Id., ¶ X at p. 9, ¶ II at p. 13. Additionally, the order stated that Central would not have entered into the agreement if the "sale of the acquired assets . . . were not free and clear of all Interests (other than Assumed Liabilities), or if [Central] would, or in the future could, be liable for any interests (other than Assumed Liabilities)." Id., ¶ AA at p. 10. In approving the sale, the Court stated that the "Sale Order shall be effective and enforceable immediately upon entry."Id., ¶ 40 at p. 30. It also provided that the Sale Order would only be effective upon entry of an order approving the "Motion to Approve Stipulation for Waiver and Release of Certain Claims"Id., ¶ 42 at p. 30. A review of the Utah Bankruptcy Court docket shows this motion was approved on April 23, 2002.
The Bankruptcy Court order provides a listing of "Excluded Liabilities", which includes liabilities "arising out of, or in connection with" the operation of Dick Simon to the extent that the event or occurrence of facts giving rise to the liabilities occurred before the closing of the sale. Id., Ex. A to Order, ¶ 2.4(b) at p. 12. The order explains that any liabilities arising from Dick Simon's pension, profit sharing or other benefit plans are excluded liabilities. Id., Ex. A to Order, ¶ 2.4(d) at p. 12. Pursuant to the order, Central did not assume these liabilities under any theory of successor liability. Id., Ex. A to Order, ¶ 2.4 at p. 11. Later, the order states that "[u]nder no circumstances shall the Purchaser be deemed a successor of or to the Debtors for any interest against or in the Debtors or the Acquired Assets of any kind or nature whatsoever." Id., ¶ 28 at p. 26.
Finally, the order provided that "[a]ll persons and entities . . . holding Interests against or in the Debtors or the Acquired Assets . . . arising under or out of, in connection with, or in any way relating to, the Debtor, the Acquired Assets, the operation of the Business prior to the Effective Time on the Closing Date . . . are forever barred, estopped, and permanently enjoined from asserting such interests against the Purchaser."Id., ¶ 6 at pp. 14-15. Central asserts that the Bankruptcy Court order approving the sale precludes Roach's suit because her claim, relating to Dick Simon's failure to increase her husband's life insurance, arose before the closing date of the sale.
Additionally, relying on a series of cases, Central argues that any claim of successor liability is preempted by the order under the Bankruptcy Code. Its main case in support of this argument isVolvo White Truck Corp. v. Chambersburg Beverage, Inc. (In re White Motor Credit Corp.), 75 B.R. 944 (Bankr. N.D. Ohio 1987) (hereinafter White Motor). In White Motor, Volvo purchased White Motor's truck business assets following White Motor's Chapter 11 bankruptcy petition. Faced with several state court actions for injuries and losses sustained by plaintiffs driving White Motor trucks, Volvo, sued as successor in liability, moved before the bankruptcy court to enjoin defendants from prosecuting their state court actions. Volvo argued that because it purchased White Motor's business free and clear of Defendants' claims, it could not be held liable as its successor. In holding for Volvo, the court found that successor liability had been pre-empted by the Bankruptcy Code. Id. at 951.
In its decision, the court relied on two rationales. First, "[t]he successor liability specter would chill and deleteriously affect sales of corporate assets, forcing debtors to accept less on sales to compensate for this potential liability." Id. Other courts, in following the White Motor case, have noted that courts in Chapter 11 proceedings are attempting to preserve as many assets as possible to protect creditors, both secured and unsecured, often through sales to third parties. See, e.g., Myers v. United States, 297 B.R. 774, 784 (S.D. Cal. 2003) ("[t]hird parties cannot assess `worth' if the Bankruptcy Court orders that they take the assets free and clear of any and all claims whatsoever, but nonetheless, unsecured creditors can `lie in the weeds'" and wait to sue solvent purchasers); In re Medical Software Solutions, 286 B.R. 431, 446 (Bankr. D. Utah 2003) (noting that "[w]ithout adequate protection, purchasers would bid nominal amounts for assets to compensate for the risk of uncertainty thereby impairing the debtor's creditors with a lower sales amount"); Forde v. Kee-Lox Mfg., Co., Inc., 437 F. Supp. 631, 633-34 (W.D.N.Y. 1977), aff'd 584 F.2d 4 (2d Cir. 1978) ("If the trustee in a liquidation sale is not able to transfer title to the bankrupt's assets free of all claims . . . prospective purchasers may be unwilling to pay a fair price for the property, leaving less to distribute to the creditors").
Second, the court explained, if successor liability is permitted, it would undermine and rearrange the priorities established by the Bankruptcy Code. Id. In Rubinstein v. Alaska Pacific Consortium (In re New England Fish Co.), 19 B.R. 323 (Bankr. W.D. Wa. 1982), the Court held that a debtor's assets could be transferred free and clear of civil rights claims brought by former employees of the debtor. The court found these former employees, some of whom had obtained money judgments against the debtor, to be general unsecured creditors, and noted that permitting these claimants to proceed on successor liability claims would "subvert the specific priorities which define Congressional policy for bankruptcy distribution to creditors."Id. at 326, 329. See also In re Trans World Airlines, 322 F.3d 283, 291-93 (3d Cir. 2003) ("[t]o allow the claimants to assert successor liability claims against [the asset purchaser] while limiting other creditors' recourse to the proceeds of the asset sale would be inconsistent with the Bankruptcy Code's priority scheme").
Here both of these policy concerns apply. First, the Bankruptcy Court Order specifically stated that the Asset Purchase Agreement "will provide a recovery for Debtor's creditors that is equal to or greater than what would be provided by any other practical available alternative." RJN, Ex. 1, ¶ W at p. 9. It also found that Central's purchase was contingent on being declared free and clear of all interests (other than assumed liabilities). Id., ¶¶ AA at p. 10. The Court found that the purchase would provide a minimum of $52 million to the estate of the debtor.Id., ¶ II at p. 13. Based on these findings, it is reasonable to conclude that Central would have paid substantially less, or not entered into the sale at all, without a guarantee (excluding liabilities it had expressly assumed) that it could not be held liable as a successor to Dick Simon. To secure the maximum size fund from which to pay creditors, the Bankruptcy Court approved the order free and clear of certain claims, including Plaintiff's.
Second, allowing Plaintiff to proceed against Central as successor to Dick Simon would allow her to potentially take priority over other creditors. Defendant has submitted testimony that Dick Simon's Chapter 11 proceedings are still pending in Bankruptcy Court. There is additionally an active Committee of Unsecured Creditors currently represented by counsel. Emery Decl., ¶¶ 1, 3. If Plaintiff is allowed here to proceed against Central while others in a similar situation must navigate the bankruptcy proceedings, it would disrupt the Bankruptcy Code's priority system. Because these two policy concerns are implicated, Central maintains that the bankruptcy order should preempt successor liability and that it should therefore not be liable as Dick Simon's successor in this action.
Roach, on the other hand, insists that successor liability should apply because it is clear that (1) there was continuity of operations between Dick Simon and Central and (2) because Central had notice of her claims. Roach relies primarily on one case,Chicago Truck Drivers, Helpers and Warehouse Workers Union (Independent) Pension Fund v. Tasemkin, Inc., 59 F.3d 48 (7th Cir. 1995), to support her successor liability argument. Plaintiff contends that this decision, which explicitly rejected applying White Motor's reasoning, supports imposing successor liability on Central. She further argues that the two requirements for successor liability are present. According to Roach, continuity of operations is established because Central and Dick Simon have the same headquarters and management and administrative teams. Second, she asserts that Central had adequate notice of Plaintiff's claims because they knew of Robert's terminal illness before the sale.
In Tasemkin, the plaintiff fund sought to recover delinquent pension fund payments from the defendant, a successor company following a Chapter 7 liquidation proceeding. Id. at 49. Tasemkin had acquired the assets of its predecessor, Old Tasemkin, by foreclosing on collateral, not through a sale approved by a Bankruptcy Court.Id. Following the close of the bankruptcy case, which was finalized without payments to certain creditors (including the fund), the fund brought suit under the theory of successor liability. Id. The district court dismissed, stating that allowing a case to proceed based on successor liability would frustrate the primacy of the Bankruptcy Code. Id. at 50. The Seventh Circuit, however, reversed and remanded the case, stating that the district court's reliance on White Motor and the related line of cases was flawed. Id. It noted that because Old Tasemkin's bankruptcy proceeding had closed, the fund's suit could not affect the amount of property available for distribution to creditors because all of the debtor's property had already been distributed. Id. at 51. In so holding, the court wrote that "it is not clear why an intervening bankruptcy proceeding, in particular, should have a per se preclusive effect on the creditor's chances" of recovery. Id.
There are several important factual distinctions betweenTasemkin and the facts here. First, Tasemkin did not involve a Bankruptcy Court order which expressly stated that the sale of assets was free and clear of liabilities and that the purchaser would have no successor liability. Rather, Tasemkin used self-help to foreclose on all the assets of the bankrupt entity, leaving nothing for the other creditors. Here, Central paid approximately $52 million for the assets. This money went into a fund available for creditors. In order to create such a fund, the bankruptcy court approved the assets transfer without liability. Additionally, the bankruptcy case in Tasemkin had closed prior to the fund's action against the successor, and as such, its holding "does not directly implicate the Bankruptcy Code, since the underlying bankruptcy proceeding is long over." Id. at 50, n. 2. Here, as discussed previously, the bankruptcy proceedings are still active. Combined, these facts make the Tasemkin case distinguishable from the case here. Instead, the Court finds the cases highlighted by Central, which all involved claims brought against purchasers whose acquisitions came pursuant to a Bankruptcy Court approved sale, apply to the matter at hand.
Additionally, Roach is essentially attacking the validity of the bankruptcy court's order in this case. An attack on a valid bankruptcy court order is not subject to attack in another proceeding. See Celotex Corp. v. Edwards, 514 U.S. 300, 313 (1995). If Plaintiff feels that the approval of the sale was improper, she should have challenged it in the bankruptcy court, and not here. See id. Permitting a collateral attack on the order would seriously undercut "the orderly process of law."Id. at 313.
Plaintiff's other attempts to survive summary judgment do not persuade the Court. First, she points to the decision in In re Simon Transportation Services, Inc., 292 B.R. 207 (Bankr. D. Utah 2003) (hereinafter the "Freightliner matter"), which highlights the connections between Central and Dick Simon. These facts, she maintains, establish the requisite continuity of operations. However, the bankruptcy court was made aware of this relationship in Simon's filings made prior to the approval of the sale. See Mot. for Approval of Sale of Substantially all of the Debtors' Assets, Def.'s RJN, Ex. 3 at ¶ 10. Nevertheless, it approved the sale and stated that Central could not be considered a successor in interest. Def.'s RJN, Ex. 1, ¶ 28 at p. 26.
Second, Plaintiff argues that the April 22, 2002 order approving the sale did not become final until August 27, 2002, when the Bankruptcy Court granted Freightliner's motion for reconsideration of the April 22 order. This August 27, 2002 date came after the death of Robert Roach and one day before Plaintiff's filing of a beneficiary statement with Central. She argues that these facts show that Central had notice of her claim prior to the closing of the sale.
Plaintiff's arguments largely miss the point. She is attempting to impose successor liability on Central by pointing to Central's continuity with its predecessor and its notice of her claim. While some of the cases Plaintiff cites, including theUpholsterers' case, have imposed successor liability when continuity and notice are established, she cites no case where the relevant facts were as here. She cannot point to any authority in which successor liability was imposed on a purchaser buying assets following a Bankruptcy Court approved sale which stated that the acquisition was free and clear of any interests in the assets not explicitly assumed. The order here explicitly stated that any liabilities related to employee benefit plans "arising from [Dick Simon's] operation of the Business prior to the Closing Date" were not assumed by Central. Def.'s RJN, Ex. A to Order, ¶ 2.4(d) at p. 12. Here the dispute over the benefits Roach seeks arose from Dick Simon's operation of the business prior to the closing date of Central's purchase. Whether the order became final in April or August of 2002 is therefore irrelevant.
In sum, Defendant purchased Dick Simon's assets pursuant to a court approved sale which provided that it would not assume Dick Simon's employee benefit liabilities. Plaintiff here is attempting to sue Defendant Central, Dick Simon's successor, based on claims arising from the operation of Dick Simon's employee benefit plan. Under the terms of the Bankruptcy Court approved sale, Central did not assume these liabilities. Plaintiff's claim is therefore barred. Defendant's motion for summary judgment is GRANTED.
IV. CONCLUSION
For the foregoing reasons, Defendant's motion for summary judgment is GRANTED. Additionally, Defendant has filed objections to certain documents filed by Plaintiff in opposing the motion. Because the Court is granting Defendant's motion, it need not rule on these objections. They are therefore overruled as moot.
IT IS SO ORDERED.