Sodexo Operations, LLC v. Not-For-Profit Hospital Corporation
264 F. Supp. 3d 262
| D.D.C. | 2017Background
- Sodexo contracted with Capital Medical Center (CMC) in 2008 to provide nutrition/management services at United Medical Center (Southeast Management Agreement); Sodexo completed performance in Dec. 2009 and alleges $349,333.81 remained unpaid.
- The District foreclosed on CMC-controlled hospital assets in July 2010, paid $20 million at foreclosure, and created the Not-For-Profit Hospital Corporation (NFP) by mayoral order to operate the hospital assets.
- Sodexo alleges NFP is successor-in-interest to CMC and seeks to recover under theories of (1) mere-continuation successor liability and (2) express or implied assumption of CMC’s debts.
- NFP moved to dismiss under Rule 12(b)(6), arguing no written assignment of the management contract occurred, the NFP Act and Mayoral Order transfer assets but not liabilities, and the mere-continuation exception (and assumption) does not apply.
- The district court accepted Sodexo’s factual allegations as plausible at the pleading stage (including submitted affidavits/memoranda), found disputed facts about the extent of DC’s control and whether NFP assumed debts, and denied the motion to dismiss without prejudice to permit discovery.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether NFP can be liable as a "mere continuation" of CMC | NFP continued CMC’s operations, name, location, employees, funding and purpose, and CMC effectively ceased as a viable concern | No legal continuity: different corporate form, no common management, CMC remained extant on paper, transfer was by foreclosure/legislation not a sale | Court: Denied dismissal — Sodexo pleaded sufficient facts to make mere-continuation plausible; fact development required |
| Whether NFP expressly or impliedly assumed CMC’s debts | NFP (through DC actions) expressly/implicitly assumed some debts and continued vendor payments; exhibits raise factual disputes about intent | No written assignment per contract’s anti-assignment clause; no express act by NFP to assume debts; fiscal memoranda are DC’s not NFP’s manifestations | Court: Denied dismissal — plausible claim of express/implied assumption; intent is factual and not resolved on pleadings |
| Whether the NFP Act / Mayoral Order’s silence on liabilities precludes successor liability | Sodexo: actions and documents show assumption/continuation despite statutory silence | NFP: statutory text transfers assets and personnel but omits liabilities; mention of some assumed items implies exclusion of others | Court: Rejected NFP’s plain-text argument at 12(b)(6) stage; factual record needed to determine extent of assumed obligations |
| Whether foreclosure/legislative transfer defeats successor liability absent a sale | Sodexo: substance over form; foreclosure followed by District purchase and creation of NFP can give rise to successor liability | NFP: a sale is required for mere-continuation in D.C.; foreclosure/legislation is not a sale that triggers liability | Court: Denied dismissal — found the question inconclusive at pleadings stage and cited authority that foreclosure does not automatically shield successor from liability |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (pleading must state a plausible claim to survive dismissal)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (legal conclusions not accepted as true on a motion to dismiss)
- Bingham v. Goldberg, Marchesano, Kohlman, Inc., 637 A.2d 81 (D.C. 1994) (factors for mere-continuation successor liability)
- Debnam v. Crane Co., 976 A.2d 193 (D.C. 2009) (successor may be liable if it expressly or impliedly assumes predecessor debts)
- Atherton v. D.C. Office of Mayor, 567 F.3d 672 (D.C. Cir. 2009) (plaintiff need only suggest a plausible scenario to survive a Rule 12(b)(6) motion)
- Jackson v. George, 146 A.3d 405 (D.C. 2016) (successor liability can attach without a sale if there is continuation of the corporate entity)