Martin v. TWP Enterprises Inc.
132 A.3d 361
| Md. Ct. Spec. App. | 2016Background
- Phillip Martin (minority owner/manager) entered a 2‑year employment agreement guaranteeing $10,000/month with Best & Brady Components, LLC (formed 2010); Best & Brady never became profitable and ran out of cash by May 2011.
- TWP Enterprises (through its wholly owned subsidiary Truss Investors, LLC) funded and took an 80% interest in Best & Brady; TWP officers served as Best & Brady managers and provided extensive "back office" support.
- Best & Brady sold its assets to TWP in August 2011; the Bill of Sale had TWP assume about $1,162,160 in liabilities (including ~ $300,000 owed to Martin as a trade creditor).
- Martin obtained a default judgment against Best & Brady for unpaid compensation and sued TWP claiming successor liability under the "mere continuation" exception.
- The circuit court found TWP was not a "mere continuation" of Best & Brady, concluding the sale aimed to salvage a failing business and that TWP paid adequate consideration; judgment for TWP affirmed on appeal.
Issues
| Issue | Plaintiff's Argument (Martin) | Defendant's Argument (TWP) | Held |
|---|---|---|---|
| Whether the trial court improperly applied fraud factors instead of focusing on "mere continuation" indicators | The court should focus on continuity of ownership/management; TWP continued Best & Brady’s business and thus is liable | Court properly considered purpose and adequacy of consideration along with continuity factors | Court affirmed: purpose and consideration may be considered; TWP not a mere continuation |
| Whether continuation of same operations/management makes TWP successor liable | Continued use of name, employees, customers, location and management demonstrates mere continuation | Overlap existed pre- and post-sale; ownership/management changed and sale was to salvage the business, not to evade creditors | Court: factual overlap not dispositive; sale served creditor protection and adequate consideration was given |
| Whether adequacy of consideration is irrelevant to mere‑continuation analysis | Adequacy should not be dispositive for mere continuation | Adequacy and purpose are proper factors to test whether exception should apply | Court: adequacy and purpose are proper and were dispositive here |
| Whether creditor protection favors finding successor liability | Martin argued he lost promised compensation despite sale | TWP argued sale benefited creditors (Martin received ~ $300k as trade creditor) and prevented worse outcome (bankruptcy) | Court: sale protected creditor interests; successor liability not imposed |
Key Cases Cited
- Baltimore Luggage Co. v. Holtzman, 80 Md. App. 282 (1989) (discusses indicia of mere continuation and stresses considering factors beyond common management/ownership)
- Nissen Corp. v. Miller, 323 Md. 613 (1991) (distinguishes "mere continuation" from "continuity of enterprise" and declines to adopt enterprise theory)
- Academy of IRM v. LVI Environmental Servs., Inc., 344 Md. 434 (1997) (adds purpose of asset transfer and adequacy of consideration to mere‑continuation analysis)
- Colandrea v. Colandrea, 42 Md. App. 421 (1979) (applies fraudulent transfer principles to disregard corporate form when assets shifted to defeat creditor claims)