Vigilant Ins. v. Firetech Sprinkler CV-99-191-B 11/17/00

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

Vigilant Insurance Company

v. Civil No. 99-191-B Opinion No. 2000DNH245 Firetech Sprinkler Corporation, et. al.

MEMORANDUM AND ORDER

The Vigilant Insurance Company reimbursed its insureds for

damages that they suffered during a fire at the North Conway

Outlet Center. It then brought this action against the Firetech

Sprinkler Corporation and several other defendants. Vigilant

charges that Firetech is liable because it purchased certain

assets from the company that installed the outlet center’s

sprinkler system. Firetech has responded with a motion for

summary judgment.

I. BACKGROUND1

The North Conway Outlet Center was damaged in a fire that

1 I describe the facts in the light most favorable to Vigilant, the nonmoving party. See Oliver v . Digital Equip. Corp.,

(1st Cir. 1988). started in an unoccupied portion of the building on March 2 1 ,

1999. Although the Carpenter Sprinkler Company, Inc. and The

Carpenter Supply Corporation (collectively “Carpenter”) had

installed a sprinkler system at the center in 1991, it did not

cover the area where the fire started. Vigilant’s insureds,

Pfaltzgraff, and the Pfaltzgraff Outlet Company, incurred

substantial property damage as a result of the fire.

On August 1 1 , 1992, Lee and Lori Lawton formed the Firetech

Sprinkler Corporation for the purpose of acquiring Carpenter’s

assets and engaging in the sprinkler business. The next day,

Firetech entered into an agreement with Carpenter to pay it

$75,000 for the following assets:

Any equipment, drawings, records, tools, dyes, trade secrets and rights to maintain those sprinkler systems previously installed by or owned by [Carpenter]; all as set forth on Exhibit “A” (list of tools and equipment at [Carpenter’s] principal location appraised by American Auctioneers and Appraisals, I n c . ) ; on Exhibit “B” (eleven (11) sets of “crew tools”); Exhibit “C” (list of assumed contracts); and goodwill.

Ex. A to Def.’s Mot. for Summ. J., (Doc. No. 2 5 ) , at § 1 . The

agreement also provides that:

-2- (i) [Firetech] shall not assume, pay, perform or be in any way liable for any debts, liabilities, contracts, commitments or obligations of [Carpenter], except as otherwise specifically provided herein . . .[Carpenter] shall pay and shall indemnify and hold [Firetech] harmless against and from any and all debts, liabilities, contracts, commitments, or obligations of [Carpenter], except as otherwise agreed to hereunder.

Id. at § 5 ( A ) . Neither party has produced the list of assumed

contracts referred to as Exhibit “C.” Nor does the agreement

otherwise identify any obligations that Firetech agreed to

assume.

Carpenter filed for bankruptcy protection on August 1 2 , 1992

and the bankruptcy court approved the asset sale on September 1 4 ,

1992. The asset sale was completed on October 1 3 , 1992.

II. STANDARD OF REVIEW

Summary judgment is appropriate only “if 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 and that the moving party

is entitled to a judgment as a matter of law.” Fed. R. Civ. P.

-3- 56(c); see Lehman v . Prudential Ins. C o . of Am.,

, 327

(1st Cir. 1996). A genuine issue is one “that properly can be

resolved only by a finder of fact because [it] . . . may reason-

ably be resolved in favor of either party.” Anderson v . Liberty

Lobby, Inc.,

(1986). A material fact is one

that affects the outcome of the suit.

. In ruling on

a motion for summary judgment, the court must construe the

evidence in the light most favorable to the non-movant and

determine whether the moving party is entitled to judgment as a

matter of law. See Oliver,

.

Where the nonmoving party bears the burden of persuasion at

trial, it must “make a showing sufficient to establish the

existence of [the] element[s] essential to [its] case” in order

to avoid summary judgment. Celotex Corp. v . Catrett,

(1986). It is not sufficient for the non-movant to

“rest upon mere allegation[s] or denials [contained in that

party’s] pleading.” LeBlanc v . Great Am. Ins. Co.,

(1st Cir. 1993) (quoting Anderson,

5 6 ) . Rather,

to establish a trial-worthy issue, there must be enough competent

-4- evidence “to enable a finding favorable to the nonmoving party.”

Id. at 842 (internal citations omitted).

I apply this standard in ruling on Firetech’s motion for

summary judgment.

III. DISCUSSION

Under New Hampshire law, a corporation does not become

responsible for another corporation’s liabilities merely by

purchasing its assets. See Cyr v . B . Offen & Co., Inc.,

(1st Cir. 1974); see also 15 William Meade Fletcher et

a l . Fletcher Cyclopedia of the Law of Private Corporations § 7122

(perm. ed., rev. vol. 1999). Exceptions have been recognized

where: (1) the buyer expressly or impliedly agrees to assume the

seller’s liabilities; (2) the asset purchase qualifies as a de

facto merger; (3) the buyer is a "mere continuation" of the

seller; (4) the buyer is not a purchaser in good faith; or (5)

the transaction is fraudulent. See Cyr,

; see

-5- also Fletcher, §§ 7122, 7123.2 Vigilant relies primarily upon

the “mere continuation” exception to support its successor

liability claim.

In determining whether an asset purchaser will be treated as

a “mere continuation” of the seller, a court must consider a

variety of factors including: (1) whether the buyer holds itself

out to the public as a continuation of the seller by using its

name or by otherwise exploiting its good will; (2) whether the

buyer assumed the seller’s “ordinary business obligations and

liabilities”; (3) whether the buyer maintained the seller’s

“management, personal, physical location, and assets”; and (4)

whether the seller dissolved its business after completing the

asset sale. Fletcher, § 7123.20. No single factor is

2 The parties assume that the successor liability issue is governed by New Hampshire law even though the Asset Purchase Agreement calls for Vermont law to be used in resolving disputes concerning the agreement. I defer to the parties’ choice of New Hampshire law without examining the agreement’s choice of law clause because the law in both states is the same in all material respects. Compare MacCleery v . T.S.S. Retail Corp.,

3 , 16 (D.N.H. 1994) (applying New Hampshire law) with Cab-Tek, Inc. v . E.B.M., Inc.,

(VT. 1990)(applying Vermont l a w ) .

-6- determinative and other factors may also be relevant depending

upon the circumstances of each case. See id.; cf. MacCleery,

(discussing de facto merger analysis).

Applying New Hampshire law to the facts of this case, I am

satisfied that Firetech is not a “mere continuation” of

Carpenter. First, although Firetech purchased Carpenter’s good

will along with its other assets, it did not use Carpenter’s name

or otherwise suggest to the general public that it was a “mere

continuation” of Carpenter. Vigilant challenges this conclusion

by noting that Firetech retained Carpenter’s telephone number and

hired several of its key employees. It argues that this evidence

demonstrates that Firetech held itself out as a successor to

Carpenter. I disagree. While I have no doubt that Firetech

benefitted to some degree by obtaining Carpenter’s telephone

number and by hiring certain of its key employees, the record

fails to support Vigilant’s claim that either fact could have

caused Firetech’s potential customers to reasonably believe that

it was acting as Carpenter’s successor. It simply reaches too

far to argue, as Vigilant does, that an arms-length asset

-7- purchaser can become responsible for a seller’s liabilities

merely by also acquiring the seller’s telephone number and hiring

several of its key employees.

Second, Firetech did not assume any of Carpenter’s general

business obligations or liabilities when it purchased Carpenter’s

assets. The Asset Purchase Agreement states that Firetech did

not agree to assume any of Carpenter’s “debts, liabilities,

contracts, commitments, or obligations” unless they were

specifically identified in the agreement. Although the agreement

refers to a list of assumed contracts as “Exhibit C,” neither

party has produced a copy of the exhibit and the agreement does

not otherwise identify any obligations that Firetech agreed to

assume when it purchased Carpenter’s assets. Thus, the record

contains no evidence to contradict Firetech’s claim that it

negotiated new contracts with any of Carpenter’s former customers

that decided to do business with Firetech rather than assuming

Carpenter’s existing contracts.

Third, Firetech is owned and controlled by a different group

of individuals than the group that owned and controlled

-8- Carpenter. Carpenter was principally owned by Wayne Lafayette.

Firetech is principally owned by Lee and Lori Lawton. None of

Firetech’s owners ever owned any stock in Carpenter. Moreover,

none of Firetech’s officers or directors ever served as officers

or directors of Carpenter. While Firetech hired many of

Carpenter’s former employees and operates its business in the

same town as Carpenter’s former place of business, these facts

are of limited significance given that the two businesses have

entirely distinct ownership and control groups.

Finally, while the fact that Carpenter ceased its operations

and dissolved after selling its assets weighs in favor of a

determination that Firetech is a “mere continuation” of

Carpenter, it is not sufficient even when combined with the other

evidence that Vigilant relies on to support its claim. When all

of the evidence is construed in the light most favorable to

Vigilant, it leads inevitably to the conclusion that Firetech is

a simple asset purchaser and not a “mere continuation” of

Carpenter. To hold otherwise would make arms-length asset

purchasers responsible for the seller’s liabilities even when the

-9- purchaser has expressly disclaimed any such responsibility and

the evidence demonstrates that the buyer has not attempted to

capitalize on the seller’s good will. This is a result that New

Hampshire law will not permit.3

IV. CONCLUSION

For the reasons described in this Memorandum and Order, I

grant Firetech’s motion for summary judgment (Doc. N o . 25) and

the clerk is directed to enter judgment accordingly.

SO ORDERED.

Paul Barbadoro Chief Judge

November 1 7 , 2000

3 Vigilant also contends that Firetech is responsible for Carpenter’s liabilities under the de facto merger exception. The analysis required under this exception is similar to the analysis required under the “mere continuation” exception. See Fletcher, § 7123.20 (discussing continuation of enterprise and de facto merger exceptions); see also MacCleery,

(same). Thus, I reject Vigilant’s de facto merger argument for the same reasons that I reject its claim under the “mere continuation” exception.

-10- cc: Paul R. Bartolacci, Esq. Dona Feeney, Esq. Richard Mills, Esq. Rodney L. Stark, Esq. John P. Shea, Esq. Donald J. Perrault, Esq.

-11-