Summary
stating that an "[a]nalysis of the necessary factors should be undertaken in a flexible, realistic manner, focusing on intent"
Summary of this case from Wells Fargo Bank, N.A. v. KonoverOpinion
No. CV-02-0813164S
December 23, 2004
MEMORANDUM OF DECISION
Trial was held in this case on October 13, 2004. In response to orders of the Court, the pleadings have been revised after the close of evidence. In the First Count of plaintiff's Amended Revised Complaint dated December 8, 2004, plaintiff alleges that the defendant, Bruce R. Daly, Mechanical Contractor, Inc. ("Contractor"), breached a contract by failing to make payments due on a promissory note despite demand. In the Second Count, plaintiff alleges that Contractor and Daly Daly, LLC. ("Daly Daly") have failed to deliver to plaintiff assets in which plaintiff has a security interest; that Daly Daly was a "mere continuation" of Contractor; and that Daly Daly is therefore liable for the debts and liabilities of Contractor as successor in interest of Contractor. In their December 15, 2004, Answer and Special Defenses, defendants' assert nine special defenses. Bruce R. Daly did not testify at trial, but a transcript of an Examination Under Oath which he gave in a bankruptcy proceeding on October 18, 2001, was admitted into evidence along with other evidence.
First Count
The plaintiff, The Savings Bank of Manchester (the "Bank") has satisfied the elements required to prove a breach of contract by Contractor by a preponderance of the evidence. Through the exhibits offered into evidence, including the testimony of Gary Danis, plaintiff has proven that on or about October 17, 2000, Contractor executed and delivered to the Bank a commercial promissory note in the amount of $242,964.32 (Plaintiff's Exhibit 1); that on the same date he executed and delivered to the Bank a commercial security agreement which conveyed to the plaintiff a security interest in all of the assets of Contractor (Plaintiff's Exhibit 2); that Contractor was in default of the terms and conditions of the Note and the Security Agreement; that despite demand, Contractor has refused to pay the sum owed; and that plaintiff was therefore damaged.
The evidence was that $229,347.06 was the principal balance owed; $39,973.65 was the accrued interest; and $8,329.88 represented late charges. There is no evidence to the contrary. On the First Count of the Amended Revised Complaint, judgment shall enter in favor of plaintiff and against Contractor in the amount of $277,650.59.
Second Count
Plaintiff styles the causes of action alleged in the Second Count as sounding in "conversion, continued conversion, and successor liability." For purposes of clarity, in light of the full record, the Court will construe the Second Count to raise a claim based on an allegation of successor liability, e.g., a claim that Daly Daly is a "mere continuation" of Contractor. See Peglar Associates Inc. v. Professional Indemnity Underwriter's, 2002 Ct.Sup. 7733, 32 CLR 359, No. X05 CV-97-0160824S (Complex Lit. Docket June 19, 2002). In this count, the Bank seeks a judgment against Contractor and Daly Daly in the amount of $277,650.59.
The plaintiff bears the burden of proving that Daly Daly is a "mere continuation" of Contractor. In determining whether Daly Daly is a "mere continuation" Contractor, and should thus be held liable as a successor in interest, the Court should consider the following factors, among others: (1) whether there is a continuity of management, personnel, physical location, assets and general business operations; (2) whether there is a continuity of shareholders; (3) whether the Contractor ceased its ordinary business operations, liquidates, and dissolves; and (4) whether Daly Daly assumed those liabilities and obligations of Contractor ordinarily necessary for the uninterrupted continuation of normal business operations of Contractor. See Peglar Associates, Inc., supra. "Not every one of these indica must be established, however, but the court should apply a balancing test." Id. See also Cargill, Inc. v. Beaver Coal Oil. Inc., 424 Mass. 356, 360, 676 N.E.2d 815, 818 (1977).
Defendants argue that plaintiff has presented no proof that assets formerly belonging to Contractor were transferred to Daly Daly. Defendants also argue that no proof of the value of any assets alleged to have been transferred has been proven. Finally, defendants also argue that the plaintiff no longer exists, due to a merger, and that the current owner of the debt is New Alliance Bank, not named as a party to the action. The Court rejects defendants' arguments.
As to defendants' first argument, in light of all the evidence, including the circumstantial evidence and all reasonable inferences to be drawn from the evidence, the Court concludes that all or substantially all of Contractor's assets, whatever they were, were transferred to Daly Daly. As plaintiff notes in its written submissions of November 2 and November 18, the evidence at trial, including Plaintiff's Exhibit 11, Bruce R. Daly's Examination Under Oath, establishes the following: Daly Daly was formed in 1999. Bruce R. Daly was a 100 percent shareholder in Contractor. On October 18, 2001, Bruce R. Daly was employed by Daly Daly. Bruce R. Daly has a 100 percent interest in Daly Daly. Plaintiff's Exhibit 12, a bankruptcy petition, indicates that Bruce R. Daly's employer was Contractor, who had employed him for 40 years. Bruce R. Daly testified at his Examination Under Oath that the reasons for establishing Daly Daly was to enter into a venture with his son, however, Mr. Daly's son is not involved in Daly Daly. Plaintiff's Exhibit 11, pages 16 through 22. Mr. Daly receives the same salary from Daly Daly that he received from Contractor; Daly Daly is located at the same address and uses the same space as did Contractor; and when Contractor ceased doing business, all of the employees of Contractor went to work for Daly Daly. Plaintiff's Exhibit 11, pages 23 through 27. Bruce R. Daly testified at the Examination Under Oath that Contractor did mostly commercial work, while Daly Daly does inner-city work in small groupings and has done a condominium job. Plaintiff's Exhibit 11, pages 36-37.
Paul D'Agostino was the accountant for Contractor until 2001. Contractor's tax returns for July 1, 1998 through June 30, 1999 for Contractor indicates total assets of $806,516.00; for July 1, 1999, through June 30, 2000, total assets for contractor were $790,231.00. Paul D'Agostino testified he had no knowledge of what had happened to the assets of Contractor. Contractor's tax return for July 1, 1999 through June 30, 2000 listed a 1996 Chrysler with a cost basis of $12,929.00. Contractor's tax return for July 1, 1999 through June 30, 2000, listed a 1998 Cadillac with a cost basis of $56,974.00. The 1999 federal depreciation schedule for Contractor included a laptop computer with a cost basis of $5,000 and several vehicles with a total cost basis of $139,432.
The evidence shows that Daly Daly had been established about a year before Bruce R. Daly filed for bankruptcy in August 2000. When Daly Daly was established, Daly Daly contacted Contractor's former customers. Contractor ceased doing business when Daly Daly was established. Contractor had an inventory, tools and office equipment before it ceased doing business. Contractor had an insurance claim pending for the value of the tools. The Bank has a security interest, see Plaintiff's Exhibit 2, in any inventory, tools, office equipment and insurance claims. The assets in which the Bank has a security interest included inventory, motor vehicles, accounts receivable and customer lists. Contractor had assets as of June 30, 2000. The total cost basis for motor vehicles and office equipment was $148,330 as of June 30, 2000. This was two months before Contractor ceased doing business and two months before Daly Daly was established. The evidence also establishes, as defendants note in their November 3, 2004 submission, that Contractor attempted to collect receivables and turned over to plaintiff receivables it collected.
The Court disagrees with the defendants' second argument, unsupported by any authority, that the plaintiff has the duty to establish what the precise amount of any transferred assets was. The Court concludes from the evidence and the reasonable inferences to be drawn from the evidence, that assets were transferred from Contractor to Daly Daly.
Viewing the evidence in its totality, the Court concludes that plaintiff has proven by a preponderance of the evidence that Daly Daly was a "mere continuation" of Contractor and is liable on a "successor in interest" theory. Analysis of the necessary factors should be undertaken in a flexible, realistic manner, focusing on intent. National Gypsum Co. v. Continental Brands Corp., 895 F.Sup. 328 (D.Mass. 1995). The evidence demonstrates that there was continuity of ownership (factor one); cessation of ordinary business by the predecessor (factor two); and continuity of management personnel, physical location, assets and general business operation (factor four). As to factor three, assumption by the successor of liabilities ordinarily necessary for the continuation of the predecessor's business, the evidence is less clear.
As to defendants' final argument, plaintiff represents in its November 18, 2004, reply that a merger occurred after the pleadings in this case were closed, and that it may seek a substitution of parties pursuant to relevant Practice Book provisions and case law if it obtains a judgment. Gary Danis testified at trial that New Alliance Bank is the successor of interest to the Bank. The Court concludes that it is. If necessary, the Court will act on any such motion to substitute parties in due course.
The Court rejects all of defendants' special defenses as unsupported by the evidence.
Conclusion
For the reasons stated above, the Court concludes that Bruce R. Daly, Mechanical Contractor, Inc., and Daly Daly, LLC, are jointly and severally liable in the amount of $277,650.59, and orders that judgment enter against them both in that amount.
Douglas S. Lavine Judge, Superior Court