Washington

Warning: The following opinion is provided for purposes of discussion only. We have not Shepardized™ this opinion, and do not know the subsequent disposition of this case nor whether the effect of the opinion has been overruled or superceded by other law.

Rendoni v. Pacific Fleet & Lease Sales Inc.,
1999.WA.42943 (Wash.App.Div.1 06/01/1999)

Washington Court of Appeals

No. 43049-1-I

1999.WA.42943

June 01, 1999

ORLANDO RENDONI, APPELLANT,

v.

PACIFIC FLEET & LEASE SALES, INC., AND MARK L. FORD, RESPONDENTS.

Source of Appeal: Appeal from Superior Court of King County Docket No: 96-2-08324-1 Judgement or order under review Date filed: 09/03/1997 Judge signing: Hon. Suzanne M. Barnett

Counsel: Counsel for Appellant(s) John S. Mills Attorney At Law 3713 North 22nd St. Tacoma, WA 98406-5305 Counsel for Respondent(s) Duncan C. Wilson Sampson & Wilson Inc PS Sampson & Wilson Inc PS 1400 Talbot Rd S Ste 400 Renton, WA 98055-4282

The opinion of the court was delivered by: Grosse, J.

Judges:

[Editor's note: originally released as an unpublished opinion]

Orlando Rendoni argues, based on the "mere continuation" exception to the successor liability doctrine, that Pacific Fleet & Lease Sales, Inc. (Pacific Fleet) should be held liable as the successor to Pacific Coast Auto Brokers, Inc.'s debts. He acknowledges, however, that he is unable to prove that Pacific Fleet paid inadequate consideration for the assets of Pacific Coast Auto Brokers, Inc., an essential factor of the theory upon which he bases his case. Instead, he contends that proof of inadequate consideration is unnecessary where mere continuation can be shown by other facts. In the final analysis, however, existing case law is clear. And Rendoni fails to present persuasive argument at law or in equity to justify its revision. Therefore, we affirm.

FACTS

Orlando Rendoni loaned money to Pacific Coast Auto Brokers, Inc. (Pacific Coast) for inventory financing. The parties never executed a security agreement or filed a financing statement, although the loan agreement provided that the loans could be secured. Rendoni initially held title to the vehicles in inventory, but ceased doing so after some time.

Mark L. Ford, Pacific Coast's sole shareholder and officer, also made loans to Pacific Coast. But, unlike Rendoni, Ford documented his advances with promissory notes, executed a security agreement, and filed a financing statement. Some years later, Ford dissolved the corporation, and the corporation's financial status resulted in its default on the promissory notes to Ford and Rendoni. As a secured creditor, Ford foreclosed his security interests, and transferred the collateral he repossessed to a new entity, Pacific Fleet, in exchange for a $17,000 promissory note. Rendoni obtained a stipulated Judgement against Pacific Coast in the amount of $127,500. Rendoni then commenced the present action against Pacific Fleet and Ford to recover the Judgement. He argued that Pacific Fleet should be held liable on the Judgement against Pacific Coast under a successor liability theory.

The court dismissed the claims against Ford, and the claims against Pacific Fleet proceeded to trial before a different Judge. At the close of Rendoni's case in chief, the court granted Pacific's Fleet's CR 41(b)(3) motion to dismiss. The court held that Rendoni failed to establish a prima facie case that Pacific Fleet was a mere continuation of Pacific Coast.

DISCUSSION

As a general rule, a corporation purchasing the assets of another corporation does not by its purchase become liable for the selling corporation's debts.*fn1 Successor liability may be imposed, however, if: (1) the purchaser expressly or impliedly agrees to assume liability; (2) the purchase is a de facto merger or consolidation; (3) the purchaser is a mere continuation of the seller; or (4) the transfer of assets is for the fraudulent purpose of escaping liability.*fn2

Although the facts of this case may raise questions under the fourth exception as to the nature of this transaction, that exception was not argued at trial and is not before us. Instead, Rendoni's argument focuses on the third exception. And as to that exception, his argument fails. The established test in Washington for proving that a successor company is merely a continuation of its predecessor for purposes of determining the successor's legal obligations consists of three factors. Rendoni must establish: (1) a common identity of the officers, directors, and stockholders between the companies; (2) that the new company gave inadequate consideration for the assets transferred; and (3) a transfer of all or substantially all of the old company's assets.*fn3 Pacific Fleet concedes the first factor. In his supplemental brief, Rendoni concedes that he failed to prove the second factor.*fn4 And Rendoni does not assign error to the trial court's Conclusion that he failed to offer "sufficient evidence that all or substantially all of the assets were involved in the transfer."*fn5 It would appear that our analysis is complete.

But Rendoni argues that his failure of proof is not fatal to recovery. Specifically, focusing on the second factor, he argues that proof that the assets were transferred for inadequate consideration is not necessary where the continuation of the corporation can be established on other facts. To support this argument, Rendoni relies on several cases, including Jones v. Francis,*fn6 wherein the Washington Supreme Court found successor liability based on the mere continuation exception.

Rendoni states that Jones "contains no Discussion whatsoever of consideration."*fn7 But Jones, in addition to relying on other facts supporting its holding, specifically took note of the fact that the new corporation obtained the assets of the old corporation without consideration.

The new corporation took over the assets of the old one, without any consideration other than to issue its capital stock to the stockholders of the latter in the ratio of their former holdings. The objects, assets and the stockholders of the two corporations are identical.*fn8

Rendoni also relies on Culinary Workers & Bartenders Union, Local No. 596, Health & Welfare Trust v. Gateway Cafe, Inc.,*fn9 even though the holding in that case is based on the "corporate disregard" theory rather than the successor liability theory.*fn10 The two theories are "conceptually distinct."*fn11 And Rendoni failed to argue corporate disregard at trial.

Lastly, Rendoni relies on the Supreme Court's decision in Eagle Pacific Insurance Co. v. Christensen Motor Yacht Corp.*fn12 But importantly, Eagle Pacific dealt with the fraudulent transfer exception rather than the mere continuation exception. The Court merely held that the absence of proof of inadequate consideration does not "automatically purge" a transaction of fraud; the "intent behind the transfer of assets can render the transaction fraudulent{.}"*fn13 Inadequate consideration is merely a sufficient, rather than a necessary, element of fraud.*fn14

The Court, however, specifically noted the importance of the element of consideration in general.

Adequate consideration for a transfer of assets between a buying and selling corporation is an important element when determining whether to impose successor liability. If the buying corporation pays sufficient consideration for the seller's assets, the selling corporation's creditors can then seek to satisfy their Judgements from the sale proceeds. If the sale proceeds are equivalent in value to the transferred assets, then, assumedly, but not necessarily, no harm has been done to the creditors of the selling corporation.*fn15

The Court recognized that in some situations, such as the one presented in Eagle Pacific, the selling corporation has intangible assets upon which it is difficult to place a value.*fn16 But Rendoni's case does not present one of those situations.

In Conclusion, Rendoni's theory of recovery at trial narrowed his appeal to an issue governed by established law. He has presented neither case law nor persuasive argument justifying a departure from this line of authority. We are not convinced that a court could have concluded that Pacific Fleet was a mere continuation of Pacific Coast. Accordingly, we affirm.

WE CONCUR:

Opinion Footnotes

1 Hall v. Armstrong Cork, Inc., 103 Wn.2d 258, 261-62, 692 P.2d 787 (1984).

2 Hall, 103 Wn.2d at 261-62.

3 Gall Landau Young Constr. Co., Inc. v. Hedreen, 63 Wn. App. 91, 97, 816 P.2d 762 (1991). But cf. Eagle Pac. Ins. Co. v. Christensen Motor Yacht Corp., 85 Wn. App. 695, 706 n.1, 934 P.2d 715 (1997), aff'd on other grounds, 135 Wn.2d 894, 959 P.2d 1052 (1998) (declining to adopt the third factor).

4 Appellant's Supplemental Brief, at 2.

5 Conclusion of Law 2.5.

6 Jones v. Francis, 70 Wash. 676, 127 P. 307 (1912).

7 Appellant's Supplement Brief, at 3 (emphasis in original).

8 Jones, 70 Wash. at 681 (emphasis added).

9 Culinary Workers & Bartenders Union, Local No. 596, Health & Welfare Trust v. Gateway Cafe, Inc., 91 Wn.2d 353, 588 P.2d 1334 (1979).

10 See Culinary Workers, 91 Wn.2d at 366-67.

11 Meisel v. M&N Modern Hydraulic Press Co., 97 Wn.2d 403, 409, 645 P.2d 689 (1982); Western Washington Laborers-Employers Health & Sec. Trust Fund v. Harold Jordan Co., Inc., 52 Wn. App. 387, 393, 760 P.2d 382 (1988).

12 Eagle Pac. Ins. Co. v. Christensen Motor Yacht Corp., 135 Wn.2d 894, 901, 959 P.2d 1052 (1998).

13 Eagle Pac., 135 Wn.2d at 906.

14 Eagle Pac., 135 Wn.2d at 903. The key to the fraudulent transfer exception is good faith, and "{n}umerous factors may be relevant when determining good faith." Eagle Pac., 135 Wn.2d at 909.

15 Eagle Pac., 135 Wn.2d at 902-03.

16 Eagle Pac., 135 Wn.2d at 903.

The legal opinions are a matter of public record (that's how we got them), and as such there can be no defamation for republishing them. Sometimes, however, legal opinions are reversed, vacated, or significantly modified, etc., and we do not discover this fact until somebody points it out to us. As we do not desire to publish inaccurate or outdated information, if a legal opinion has been reversed, vacated, or significantly modified, please advise us of this fact immediately, by fax to (877) 698-0678 or you may also send regular postal correspondence to Riser Adkisson LLP at 1827 Powers Ferry Road, Building One, Suite 200, Atlanta GA 30339.