MEMORANDUM AND ORDER RE: DEFENDANT HARRIER ELECTRIC, INC.’S MOTION FOR SUMMARY JUDGMENT (DOCKET ENTRY # 55); MOTION OF JOHN T. CALLAHAN & SONS, INC. FOR PARTIAL SUMMARY JUDGMENT (DOCKET ENTRY # 50); MOTION FOR SUMMARY JUDGMENT IN FAVOR OF DEFENDANT EMPLOYERS INSURANCE OF WAS-SAU A MUTUAL COMPANY (DOCKET ENTRY # 44)
Pending before this court are the above styled summary judgment motions. (Docket Entry ##44, 50 & 55). After conducting a hearing, this court took the motions under advisement.
BACKGROUND
The present dispute concerns a subcontract for electrical work involving renovations to the Lynn English High School in Lynn, Massachusetts. Plaintiff and defendant in counterclaim John T. Callahan & Sons, Inc. (“Callahan”), the project’s general contractor, entered into a $19,236,689 contract with the City of Lynn. Defendant Dykeman Electric Company, Inc. (“Dyke-man”) entered into the $2,127,000 subcontract with Callahan to perform electrical work. Defendant Employers Insurance of Wassau A Mutual Company (‘Wassau”) issued a payment bond and a performance bond on the project naming Callahan as the obligee, Dykeman as the principal and Wassau as the surety. The penal sum on the bonds amounted to $2,127,000. Dyke-man invoiced Callahan for the $21,355 cost of the payment and the performance bonds.
The performance bond triggered Was-sau’s performance “whenever [Dykeman] shall be, and declared by [Callahan] to be in default under the subcontract.” 1 (Docket Entry # 64, Ex. D; emphasis added). The performance bond therefore required a default by the principal (Dyke-man) and a declaration of default by the obligee (Callahan). A default under the subcontract occurred, inter alia, “if a receiver is appointed on account of the Contractor’s insolvency.” (Docket Entry # 64, Ex. C, ¶ 14.2). 2 Callahan therefore had the ability to declare Dykeman in default at the time of the May or June 1999 appointment of a receiver, described below, but chose not to make such a declaration until October 2000.
To protect its exposure, Wassau required Dykeman, its two principals (Thomas C. Dykeman and Christopher Dyke-man) and their spouses. (Constance and Linda Dykeman) to execute a general indemnity agreement. The indemnitors, including Dykeman, pledged the machinery and equipment at the work site as security. Under the agreement, if Wassau established a reserve to cover “any liability, claim asserted, suit or judgment under” a bond, then Wassau could demand that the indemnitors, including Dykeman, deposit an equal sum of money as collateral security regardless of whether Wassau had
Wassau therefore had the ability to file a claim with the receiver in October 2000 when Callahan “asserted” its claim and declared Dykeman in default. At that time, which was prior to the March 2001 dissolution, the receiver still retained the proceeds from the February 2000 sale of Dykeman’s assets. Accordingly, before Dykeman formally dissolved, Wassau could have filed a claim with Dykeman’s receiver together with a motion to extend the October 25, 1999 deadline for filing claims and requested that the proceeds of any sale of Dykeman’s assets be deposited with Was-sau in an amount equal to Wassau’s reserve. There is little indication that Was-sau availed itself of these protections.
The construction project did not proceed smoothly or on schedule. On May 20, 1999, Dykeman filed for receivership protection under Rhode Island law in Rhode Island Superior Court (“the Rhode Island court”). The Rhode Island court immediately appointed a temporary receiver 3 and restrained the filing of any lawsuit against Dykeman. The receiver’s powers, set forth in the appointment order, endowed him with the ability to conduct Dykeman’s business, take possession of Dykeman’s assets and prevent the cancellation of any contract with Dykeman. 4 With respect to Wassau’s authority under the general indemnity agreement to take possession of the work under the subcontract, 5 a June 28, 1999 order by the receiver barred any party from taking possession of “any property in the possession of [Dykeman]” without the receiver’s prior approval. (Docket Entry # 14, Ex. B).
Within a week, Wassau learned of the state court filing and shortly thereafter obtained the receivership papers. L. Neal Foxhill (“Foxhill”), an assistant vice president in charge of Wassau’s bond claim department, spoke with Christopher Dyke-man as well as with a lower level Wassau employee. In memoranda dated May 26 and 28, 1999, Foxhill acknowledged the “serious deterioration” of Dykeman’s assets and financial condition as well as the delays and difficulties at the project site. (Docket Entry # 64, Ex. J & K). At some point in time, Foxhill established a reserve and completed a reserve report. Foxhill also wrote a June 2, 1999 letter to Dyke-man and the individual indemnitors demanding their indemnification under the general indemnity agreement and urging them to prioritize the completion of work on the bonded project as opposed to on any unbonded work. Foxhill did not demand that the indemnitors match the amount of any Wassau funds held in reserve. Dykeman proved cooperative in encouraging the receiver to use Lynn English progress payments to pay Lynn English materialmen and laborers.
By letter dated June 3, 1999, Foxhill told the receiver that Wassau had a contingent claim for an undetermined amount because of its obligation to pay completion costs for the Lynn English project under the performance and payment bonds. (Docket Entry # 47, Ex. C). Wassau did not file a formal claim for a specified amount. Likewise, Callahan never submit
Callahan, concerned about Dykeman’s plans to complete the project, called a June 25, 1999 meeting to discuss the receivership filing. Christopher Dykeman, his attorney, Stephen Callahan, Steven J. Loeper (“Loeper”), Callahan’s project manager, Callahan’s attorney and Mike Baxter (“Baxter”) of Wassau attended the meeting. Christopher Dykeman assured the group that Dykeman would complete the work. Participants were also advised that parties might bid for Dykeman’s assets 6 as well as its ongoing contracts and that Christopher and Thomas Dykeman, 7 in addition to three other suitors, were interested. In short, Dykeman would continue to work on the project, “be put out to bid” and “bought as a going concern.” (Docket Entry #64, Ex. N). Although present, Baxter did not participate in the discussions.
Around this time period, Wassau recognized that Dykeman was not in default because Callahan had not declared Dyke-man’s default. Specifically, an internal Wassau memorandum explains that “since Dykeman is not in default, [Wassau would have] no speaking role [at the June 25th meeting], but we can offer encouragement to the parties to the contract to keep moving forward.” (Docket Entry # 64, Ex. 0; Docket Entry # 66, Ex. C). According to Wassau, Callahan “was not going to consider the filing of the receivership an act of default.” (Docket Entry #64, Ex. N). Just prior to the June 25th meeting, Loe-per voiced his concern to Foxhill that Dykeman’s filing for receivership might constitute an act of default under the subcontract. Loeper wanted to know what would happen if Callahan declared a default and a successor company purchased Dykeman and completed the subcontract. Foxhill told Loeper “that a successor company would not have the benefit of [the performance and payment] bonds and would have to provide its own bonds.” (Docket Entry # 48, Foxhill Deposition, p. 75; 8 Docket Entry # 49, Ex. D).
In the summer of 1999, Dykeman’s work on the project slowed or halted at various times due to poor design, scheduling and planning. 9 In August or September 1999, Christopher Dykeman prepared a summary of Dykeman’s increased costs to present to the city as part of Callahan’s global reimbursement claim. Dykeman continued to remain on the project in the fall of 1999 and the winter of 2000.
On January 27, 2000, the receiver notified Callahan and Wassau, as well as other Dykeman creditors, of an offer to purchase Dykeman’s assets for $606,000 by defendant Harrier Electric Company (“Harrier”), a recently formed corporation whose officers, principals and/or stockholders were also Dykeman’s principals.
10
The
The petition to sell the assets free and clear of liens advised Wassau, Callahan and other interested parties that the transfer of any release on their part would be without prejudice to proceed with a claim against the proceeds of the sale. The order allowing the petition to sell confirmed that any party claiming an interest in the assets of Dykeman retained and did not waive the right to claim an interest in the sale proceeds of $790,000.
The petition also referred to the attached offer in which Harrier agreed to assume all of Dykeman’s “obligations in connection with any contracts ... which exist on the date of the Closing.” (Docket Entry # 69, Ex. B). The subcontract between Callahan and Dykeman, however, prohibited the subcontract’s assignment “without written consent” of the other party. 13 (Docket Entry # 64, Ex. C, ¶ 13.2.1).
On February 14, 2000, after prior notice and a hearing, the trustee sold Dykeman’s assets to Harrier for $606,000 and Dyke-man’s additional assets including real estate to Netlectric for $184,000. In a proposed letter agreement dated February 24, 2000, Harrier asked Callahan to consent to the assignment of the subcontract from Dykeman to Harrier. Callahan never signed the proposed agreement. Hence, although Dykeman, by filing for receivership, placed its assets, including the subcontract, in the hands of the receiver who then sold the assets, purportedly including the subcontract to Harrier, the subcontract prohibited such an assignment without Callahan’s consent.
In order to raise sufficient funds and obtain a loan for the $790,000 purchase, the individual indemnitors of Wassau (Thomas, Christopher, Constance and Linda Dykeman) pledged and encumbered their assets to First International Bank (“First International”) in return for a loan of $780,000. In conjunction with the loan, First International obtained personal guarantees from each of the four individual indemnitors secured by third and fourth mortgages on their personal residences and security interests in their tangible and intangible property. 14
After acquiring Dykeman’s assets by virtue of the February 14, 2000 sale, Harrier or Dykeman in receivership 15 performed electrical work at the site until October 2000 without an express assignment of the contract from Callahan. Loe-per, Callahan’s Rule 30(b)(6) deponent and the senior project manager, testified that Callahan never had a contract with Harrier “in writing or otherwise.” (Docket Entry #57, Ex. A). He nevertheless believed that Harrier was “an extension of Dykeman.” 16 (Docket Entry # 61, Ex. D). Similarly, a city official who worked at the site at an undetermined time had “never heard of Harrier” in connection with the project. (Docket Entry # 61, Ex. O). Stephen Callahan as well as Dennis Shee-han, another Callahan official, agreed with Loeper’s testimony that Callahan never had a contract with Harrier and that Harrier was therefore not at the job site. 17 Indeed, Loeper further testified that Callahan made a conscious choice not to agree to the proposed assignment of the subcontract to Harrier. As an explanation for Callahan’s failure to agree to the assignment, Loeper testified that he preferred to avoid the administrative difficulty of issuing a new contract to a new entity such as Harrier and ensuring that the terms were agreeable to both parties.
After the February 2000 purchase of Dykeman’s assets, Harrier used the same business address, telephone number and facsimile number as Dykeman. Harrier also filed a fictitious name statement allowing Harrier to do business under the name of Dykeman Electrical Contractors. 18 After February 2000, Harrier continued using Dykeman letterhead in correspondence with Callahan. Callahan paid Harrier with checks issued to “Dykeman Electric Co.”
In or around September 2000 Harrier stopped working on the project. Harrier accuses Callahan of not paying Harrier for its work in a timely manner and of attempting to settle Callahan’s claims with the city to the disadvantage of the subcontractors’ claims that Callahan sponsored. In light of Harrier’s departure, Callahan contracted with a replacement contractor, Armese Electrical Services (“Annese”).
On October 6, 2000, Callahan notified Wassau of Dykeman’s default. Callahan declared Dykeman in default “by virtue of its failure to complete the project and by walking off the job on October 6, 2000.” (Docket Entry # 64, Ex. U).
On March 12, 2001, a final judgment issued dissolving Dykeman. The Rhode Island court’s March 12, 2001 final judgment approved and ratified the trustee’s January 29, 2001 final report which sought Dykeman’s dissolution and the court’s approval of certain claims. (Docket Entry # 14, Ex. D). A court decree dissolving a Rhode Island corporation ceases the existence of the corporation for purposes of its ability to sue and be sued. R.I. Gen. Laws §§ 7-1.1-95 & 7-1.1-98. A dissolved corporation may continue to exist for a two year period after dissolution for the limited purpose of winding up its affairs. R.I. Gen. Laws § 7-1.1-98.1.
On March 20, 2001, Callahan filed suit against Dykeman, Harrier and Wassau. This court allowed Dykeman’s motion to dismiss inasmuch as it is no longer amenable to suit as a judicially dissolved corporation. Harrier presently moves for summary judgment on counts VII, VIII and IX. As pled, these counts uniformly require the existence of an effective assignment of the subcontract. 19 Harrier therefore argues that the counts depend upon the existence of a valid assignment of the subcontract from Dykeman to Harrier, which is lacking, or the existence of a contract between Harrier and Callahan, which Callahan’s Rule 30(b)(6) witness denies. Callahan asserts that Harrier nevertheless incurs successor liability because: (1) there was a de facto merger; (2) Harrier is a mere continuation of Dykeman; and/or (3) Harrier is the alter ego of Dyke-man. 20
Wassau moves for summary judgment on counts IV, V and VI 21 on the basis that its rights under the bond were materially and prejudicially changed when Callahan failed to declare Dykeman in default and the sale of Dykeman’s assets depleted the corporate and individual indemnitors’ assets. According to Wassau, by choosing not to declare Dykeman in default in May 1999 at the time of the receivership filing, Callahan waived its right to collect under the performance bond.
In addition to opposing Wassau’s summary judgment motion, Callahan moves for summary judgment to preclude Was-sau from disclaiming liability on the basis
DISCUSSION
I. DEFENDANT HARRIER ELECTRIC, INC.’S MOTION FOR SUMMARY JUDGMENT (DOCKET ENTRY # 55)
Harrier moves for summary judgment on the basis that all of the relevant counts require an effective assignment of the subcontract from Dykeman to Harrier. (Complaint, ¶¶ 61, 67 & 71). Neither party, however, elucidates the law relative to whether Dykeman, operating under state receivership, effectively sold or transferred the subcontract to Harrier.
Rhode Island law endows the Rhode Island court with “full power to liquidate the assets and business of a corporation.” R.I. Gen. Laws § 7-1.1-90. The relevant Rhode Island statute expressly gives the Rhode Island court broad equitable powers including the power to appoint a receiver.
See In Re Newport Offshore, Ltd.,
The statute also gives the receiver the authority “to compromise any dispute” and thereby authorized the receiver to compromise the contractual dispute between Callahan and Dykeman. The receiver also had the power to sell and dispose of any corporate asset, “to carry on [the corporation’s] business” and to perform “all other acts which might be done by the corporation.” R.I. Gen. Laws § 7-1.1-91.
Given the foregoing authority, it is apod-ictic that the court and the permanent receiver thereby acquired the assets of Dykeman upon the filing for receivership and the appointment of a permanent receiver. The receiver also had the power to transfer or sell the assets of Dykeman including contracts.
It is equally true, however, that, “A receiver takes, as under any other assignment by operation of law, only the property and effects as the corporation held, was possessed of or entitled to for its own benefit.” 16A William Meade Fletcher Fletcher Cyclopedia Corporations § 8207 (1995). The subcontract held by Dykeman prohibited an assignment of the contract without the written consent of the other party. Dykeman and therefore the receiver by operation of law did not have the power to assign the subcontract to Harrier without Callahan’s written consent. 23
At the time Dykeman filed for state supervision, it did not have the written consent of Callahan to assign the contract.
A similar nonassignability clause barred the appointed receiver in
In re Lascoff,
During oral argument, Harrier maintained that the evidence did not suggest either an express or an implied contract between Harrier and Callahan. Loeper testified that the parties did not have a contract, written or otherwise. Faced with such evidence and with Harrier having more than met its initial summary judgment burden of production,
see Dow v. United Brotherhood of Carpenters and Joiners of America,
Callahan fails to point to evidence of an effective assignment and/or the existence of an express or implied contract between Callahan and Harrier. 24 Rather, Callahan relies on equitable theories of successor liability to preclude summary judgment. Absent liability under these equitable theories, summary judgment is otherwise proper on counts VII, VIII and IX, all of which require the existence of an effective assignment of the subcontract or an express or implied contract containing an implied covenant of good faith. 25
The parties agree that Rhode Island law applies. (Docket Entry # 77, p. 22). This court therefore defers to this reasonable assumption.
See Foster-Miller, Inc. v. Babcock & Wilcox Canada,
For Harrier to succeed on summary judgment, the Rhode Island court must have had the power to transfer the assets free and clear of successor liability claims to Harrier and it must have exercised that power by transferring the assets free and clear of Callahan’s successor liability claim. As explained in the next two subsections, a genuine issue of material fact arises with respect to the second requirement and summary judgment is therefore improper on this basis.
Harrier also succeeds on summary judgment, however, if it cannot be held liable as a successor of Dykeman’s under Rhode Island law. As explained in the third subsection, Harrier is not liable as a matter of law as a successor or alter ego of Dyke-man.
1. The Rhode Island Court’s Authority
The Rhode Island court’s power to extinguish successor liability claims emanates from the broad language of the relevant statutes governing receivership and liquidation. The statute gives the court “full power to liquidate the assets and business of a corporation.” R.I. Gen. Laws § 7-1.1-90. Once the corporation files for receivership, the court “has exclusive jurisdiction of the corporation and its property.” R.I. Gen. Laws § 7-1.1-91(f). Significantly, the statute also gives a liquidating receiver the authority “to compromise any dispute or controversy.” R.I. Gen. Laws § 7-1.1-91(d). Finally, guided “by the statutory rules applicable to the payment of debts in insolvency and bankruptcy,” the court may prescribe the priority of creditors’ claims.
Leonard Levin Co. v. Star Jewelry Co.,
The foregoing express power to collect money from the sale of assets, distribute the proceeds and determine controversies necessarily implies the equitable
In reaching this conclusion, it is worth noting that an intervening foreclosure sale does not afford an acquiring corporation such as Harrier protection from successor liability.
See Ed Peters Jewelry Co. v. C & J Jewelry Co.,
The present asset sale, however, is distinguishable because it occurred under the auspices of the state receivership proceeding and the Rhode Island court’s approval of that sale. Such a sale is more akin to a sale of assets free and clear of any “interest” in the property of the debtor under the Bankruptcy Code. See 11 U.S.C. § 363(f).
In sum, the Rhode Island court has the authority and the power to terminate Harrier’s contractually based successor liability to Callahan by selling assets free and clear of such claims. The Rhode Island statute endows the receiver with such authority. The receiver gave Callahan notice of the sale and the Rhode Island court conducted a hearing before approving the
2. The Rhode Island Court’s Exercise of the Power to Sell Assets Free and Clear
The Rhode Island court’s order approved the asset sale to Harrier free and clear of all hens and claims “upon the terms and conditions set forth in the Offer annexed hereto and incorporated herein.” (Docket Entry # 14, Ex. C). Under the referenced and attached offer, Harrier expressly agreed to assume the contractual liabilities of Dykeman. The prohibition against assignment only operated to prevent the transfer of the subcontract as opposed to the transfer of successor liability. Other than the particular obligations of the subcontract, the offer therefore contemplated Harrier’s assumption of Dyke-man’s contractual obligations.
Consequently, the court approved a sale that, on its face, made Harrier hable for Dykeman’s contractual obhgations. The language of the offer incorporated into the Rhode Island court’s order behes an intent to extinguish contract based successor liability claims. Furthermore, there is httle indication that the receiver submitted the general terms and conditions of the subcontract to the Rhode Island court. At a minimum, a rational fact finder or this court as a preliminary matter could find in Callahan’s favor. 30
3. Harrier’s Successor Liability under Rhode Island Law
Harrier next submits that it is not liable as a successor or alter ego under Rhode Island law. Both parties agree that as to successor liability, “a company that purchases the assets of another is [generally] not liable for the debts of the transferor company.”
H.J.Baker & Bro., Inc. v. Orgonics, Inc.,
This general rule is subject to the following four, widely recognized exceptions:
(1) when the purchasing corporation expressly or impliedly agreed to assume the selling corporation’s liability; (2) when the transaction amounts to a consolidation or merger of the purchaser and seller corporations; (3) when the purchaser corporation is merely a continuation of the seller corporation; or (4) when the transaction is entered into fraudulently to escape liability for such obligations.
Dayton v. Peck, Stow and Wilcox Co.,
A. Mere Continuation
“The seminal case” under Rhode Island law regarding successor liability is
H.J.Baker & Bro., Inc. v. Orgonics, Inc.,
(1) there is a transfer of corporate assets; (2) there is less than adequate consideration; (3) the new company continues the business of the transferor; (4) both companies have at least one common officer or director who is instrumental in the transfer; and (5) the transfer renders the transferor incapable of paying its creditors because it is dissolved either in fact or by law.
H.J.Baker & Bro., Inc. v. Orgonics, Inc.,
The facts and circumstances of each case must be examined.
H.J.Baker & Bro., Inc. v. Orgonics, Inc.,
The determinative facts which support Harrier’s position that it lacks successor liability are that: Dykeman filed for receivership protection in May 1999 and the Rhode Island Court appointed a receiver; the receiver set an October 1999 deadline for filing claims; Callahan did not file a claim against Dykeman for breach of contract in the Rhode Island court even though the receiver’s appointment constituted a default under the subcontract; the receiver notified Callahan about the proposed sale of assets to Harrier; after notice and a hearing, the Rhode Island court approved the sale of assets to Harrier and Netlectric for $790,000 in February 2000; Callahan did not object to the sale or to the sale price; and Dykeman continued in receivership with the receiver performing its business until the Rhode Island court’s March 2001 final judgment and dissolution order.
Notwithstanding these undisputable facts, Callahan seeks to impose liability against Harrier under a mere continuation theory of successor liability.. Viewing the record in Callahan’s favor, as required, it shows that Harrier held itself out as Dyk-man through correspondence, Harrier performed electrical work, the relevant individuals at the work site viewed Harrier as Dykeman, there was an overlap of officers and stockholders between the two companies and Harrier used the same business address and the same telephone and facsimile numbers as Dykeman. A reasonable jury could readily conclude that there was a transfer of Dykeman’s assets, the new company (Harrier) continued the business (electrical work) of the old company (Dykeman) and both companies “have at least one common officer who is instrumental in the transfer.”
H.J. Baker & Brothers, Inc. v. Orgonics, Inc.,
On the other hand, Harrier paid $790,000 for the assets thereby supporting the presence of adequate consideration. The Rhode Island court, after notice, conducted a judicial hearing before the sale and thereafter issued its approval. Callahan had notice of the asset sale but failed to object. In approving a sale of assets, a court typically considers the sales price, the appreciated value the “amount of advertising, and the nature of the assets.” Tobias M. Lederberg
An Overview of Rhode Island Receiverships: Theory and Practice
45 R.I.B.J. 9, 11 (1997). At the summary judgment hearing, Callahan had no “quarrel[] with the judicial sale as a sale.” (Docket Entry # 77, p. 35). The sale was therefore commercially reasonable as a matter of law.
See Rhode Island Hospital Trust National Bank v. National Health Foundation,
In addition, Callahan never challenged the amount of the sale as inadequate. With Harrier having pointed to the absence of evidence of inadequate consideration, Callahan failed to offer sufficient evidence to convince a finder of fact to rule in its favor by finding that the $790,000 amount was inadequate consideration.
Accordingly, there is no evidence to show that the $790,000 purchase price was less than adequate consideration for Dyke-man’s assets. Nor is there any direct evidence of actual fraudulent intent.
See generally Ed Peters Jewelry Co. v. C & J Jewelry Co.,
In addition, after the transfer of assets to Harrier, Dykeman remained in receivership until its dissolution with the proceeds of the sale available to satisfy claims such as Callahan’s unasserted breach of contract claim. The order approving the sale expressly transferred any claims against the assets to a claim against the proceeds. Although the October 1999 deadline for filing claims had passed, Callahan could have filed a motion to file an untimely claim. Moreover, prior to the deadline, Callahan had a breach of contract claim based on the June 1999 appointment of a permanent receiver by the Rhode Island court. Finally, Dykeman was not dissolved until more than a.year after the sale thereby giving Callahan ample time to file a claim against the assets or proceeds of the sale with the receiver.
The conclusive showing on the second Baker factor coupled with the strong showing on the fifth Baker factor warrant summary judgment. Taking all of the facts and circumstance together and viewing them in Callahan’s favor, including the evidence relative to the other Baker factors, Harrier is entitled to summary judgment on the mere continuation theory of successor liability to Callahan.
B. De Facto Merger
The Rhode Island Supreme Court has not discussed the de facto merger exception relied on by Callahan.
See Carreiro v. Rhodes Gill and Co., Ltd.,
The failure of the Rhode Island Supreme Court to discuss let alone recognize the de facto merger doctrine necessarily gives this court pause. That said, however, this court will assume arguendo that Rhode Island would recognize some theory of successor liability based on the de facto merger test given the weight of authority in other jurisdictions recognizing the doctrine. 36 See 15 William Meade Fletcher Fletcher Cyclopedia Corporations § 7122 n. 12 (1999) (collecting de facto merger cases).
The factors courts typically consider in determining whether to apply the de facto merger exception are: (1) “a continuation of the enterprise of the seller corporation so that there is continuity of management, personnel, physical location, assets, and general business operations;” (2) “a continuity of shareholders which results from the purchasing corporation paying for the acquired assets with shares of its own stock, this stock ultimately coming to be held by the shareholders of the seller corporation so that they become a constituent part of the purchasing corporation;” (3) “the seller corporation ceases its ordinary business operations, liquidates, and dissolves as soon as legally and practically possible; and” (4) “the purchasing corporation assumes those obligations of the seller ordinarily necessary for the uninterrupted continuation of normal business operations of the seller corporation.”
Cargill, Inc. v. Beaver Coal & Oil Co., Inc.,
The First Circuit, however, characterizes the second factor as “[o]ne of the key requirements for a merger under traditional corporation law.”
Dayton v. Peck, Stow and Wilcox Co.,
For the following reasons, Rhode Island law would likely follow the First Circuit’s lead and find this factor a key requirement but would reject the factor as conclusive. First, Rhode Island successor
On the other hand, without a transfer of stock and, instead, a transfer entirely for cash at fair market value with the continued survivorship of the corporation and the availability of the proceeds to satisfy the creditor/plaintiffs contract based claim, the transaction has all the earmarks of a bona fide sale of assets rather than a merger. When a sale of assets “is a bona fide transaction, and the selling corporation receives money to pay its debts, or property that may be subjected to the payment of its debts and liabilities, equal to the fair value of the property conveyed by it, the purchasing corporation will not, in the absence of a contract obligation or actual fraud of some substantial character, be held responsible for the debts or liabilities of the selling corporation.”
Pierce v. Riverside Mortgage Securities,
This assumption is particularly true in the area of contract disputes. As noted by the court in
Cargo Partner AG v. Albatrans, Inc.,
Furthermore, the present case not only lacks the key requirement of a transfer of stock as a matter of law. It also lacks the third criteria. No reasonable finder of fact could conclude that Dykeman did not remain in existence for a period of more than one year after the sale with the proceeds available in receivership to satisfy creditors’ claims such as the breach of contract claim now asserted by Callahan.
See, e.g., Gonzalez v. Rock Wool Engineering and Equipment Co., Inc.,
Finally, Rhode Island law is more likely to recognize the de facto merger doctrine in product liability cases where claimants lack a remedy and failed to receive notice of the asset sale. Other courts recognize extensions of the doctrine in the product liability area due to the absence of a remedy against the primary corporation.
38
See National Gypsum Co. v. Continental Brands Corp.,
In sum, considering all of the facts and circumstances, including Harrier’s continued operation of Dykeman’s business, the continuity of management and personnel, the use of the same address and telephone and facsimile numbers, no reasonable finder of fact could find the existence of a de facto merger applying Rhode Island law.
4. Harrier’s Alter Ego Liability
As an initial matter, the question arises of whether to apply Massachusetts or Rhode Island law. At the summary judgment hearing, the parties agreed that Rhode Island law applied to the successor liability issues. (Docket Entry #77, p. 22). Callahan’s theory of piercing the corporate veil or disregarding the corporate entities of Harrier and Dykeman was addressed at another point during the hearing, however, and the parties did not agree or discuss whether Massachusetts or Rhode Island law should apply. It is also apodictic that different laws may apply to the successor liability and the alter ego or corporate veil piercing claims.
See Reisch v. McGuigan,
Harrier submits that Rhode Island law applies because of Dykeman and Harrier’s incorporation in Rhode Island. Case law in the federal and seventh circuits supports Harrier’s position.
See In Re Cambridge Biotech Corp.,
Where, as here, jurisdiction is based on diversity, a federal court applies the choice of law rules of the state in which it sits, i.e., Massachusetts.
See Klaxon v. Stentor Electric Manufacturing Company,
Callahan seeks to pierce the corporate veil of Dykeman or disregard the corporate entities of Dykeman and Harrier and thereby render Harrier hable for Dykeman’s breach of contract. Characterizing this claim as a contractual dispute, Massachusetts law applies the law of the place with the most significant relationship to the transaction by assessing the prevalence of the factors set forth in the
Restatement (Second) of Conflict of Laws
§ 188 (1971) (“section 188”).
See Evans v. Multicon Construction Corporation,
574
Alternatively, the presence of the choice of law clause also dictates the application of Massachusetts law. That clause provides that the subcontract is “governed by the law of the place where the Project is located” (Docket Entry # 52, Ex. C, § 13.1), i.e., Massachusetts. Massachusetts courts typically uphold contractual “choice of law provisions so long as there is no serious conflict with the public policy of Massachusetts and the designated state has some substantial relation to the contract.”
Comdisco Disaster Recovery Services, Inc. v. Money Management Systems, Inc.,
Accordingly, Massachusetts law applies to Callahan’s corporate disregard or veil piercing theory of liability. At the outset, Harrier’s lack of ownership in Dykeman is not dispositive to applying the corporate disregard or alter ego theory and thereby holding Harrier hable for Dykeman’s breach of contract. Indeed, in the seminal case,
My Bread Baking Co. v. Cumberland Farms, Inc.,
At first glance, the corporations appear similar. Christopher and Thomas Dyke-man conducted the day to day business of both companies and held the same titles in both companies. Although Christopher Dykeman did not own shares in Harrier, his spouse owned 49% of the shares and, viewing the record in Callahan’s favor, used, funds from a joint bank account to purchase these shares. The companies used similar names and had the same address. They also had the same telephone and facsimile numbers.. Upon closer inspection, however, summary judgment is warranted.
“Under Massachusetts law, disregarding separate corporate entities is the exception, not the rule.”
Hiller Cranberry Products, Inc. v. Koplovsky Foods, Inc.,
As expressed by the SJC in
My Bread,
the common ownership of stock together with common management,
40
standing alone, does not give “rise to liability on the part of one corporation for the acts of another corporation.”
My Bread Baking Co. v. Cumberland Farms, Inc.,
The SJC in My Bread summarized the general principles applicable to assessing whether to disregard the entities of two, separately formed corporations. Disregarding two corporate entities with common stock and management is particularly apt:
(a) when there is active and direct participation by the representatives of one corporation, apparently exercising some form of pervasive control, in the activities of another and there is some fraudulent or injurious consequence of the in-tercorporate relationship, or (b) when there is a confused intermingling of activity of two or more corporations engaged in a common enterprise with substantial disregard of the separate nature of the corporate entities, or serious ambiguity about the manner and capacity in which the various corporations and their respective representatives are acting.
My Bread Baking Co. v. Cumberland Farms, Inc.,
With respect to the first prong, there was no “pervasive control” by Harrier of Dykeman at the relevant time. Callahan argues that it was confused about which entity was performing the contract after the sale of assets to Harrier. By this time, however, Dykeman was under the sole and exclusive control of the receiver. It is true that the receiver delegated the authority to run the business to Christopher and Thomas Dykeman after Dyke-man filed for receivership. The receiver, however, remained in control of the business and its property at all times. R.I. Gen. Laws § 7-1.1-91. Thus, although Christopher and Thomas Dykeman controlled the activities of Harrier, they did not control the activities of Dykeman in receivership. Their power and authority over Dykeman emanated solely from the receiver. The court order, a matter of public record, endowed the receiver with the express power to conduct Dykeman’s business and disburse funds. When Harrier and Netlectric purchased the assets of Dykeman for $790,000, Dykeman remained
With respect to the second prong, there was no confused intermingling of activity of Harrier and Dykeman. There was no showing that half of the subcontract was being performed by Harrier while the other half was being performed by Dykeman in receivership in the spring or summer of 2000. Callahan knew of the sale of Dyke-man assets to Harrier and the overlap in principals. Harrier maintained an identity separate from Dykeman’s operations in receivership. As part of the asset transaction, Harrier purchased the right to use the Dykeman name and filed the proper corporate papers designating Dykeman Electrical Contractors as the company’s fictitious name.
Cf. Birbara v. Locke,
The first and second prongs of My Bread do not establish a genuine issue of material fact. Examining the underlying factors that elucidate the issue of whether to set aside the corporate form likewise confirms that Harrier, created in December 1999, and Dykeman, in receivership since May 1999, retained separate corporate identities as a matter of law:
The relevant factors are (1) common ownership; (2) pervasive control; (3) confused intermingling of business assets; (4) thin capitalization; (5) nonobservance of corporate formalities; (6) absence of corporate records; (7) no payment of dividends; (8) insolvency at the time of the litigated transaction; (9) siphoning away of corporation’s funds by dominant shareholder; (10) nonfunction-ing of officers and directors; (11) use of the corporation for transactions of the dominant shareholders; and (12) use of the corporation in promoting fraud.
Attorney General v. M.C.K., Inc.,
As previously discussed, although there was a degree of common ownership between both corporations, Harrier or Thomas and Christopher Dykeman never had the necessary pervasive control over the activities of Dykeman. That authority and control remained with the court and the court appointed receiver. R.I. Gen. Laws § 7-1.1-91. By express court order, the receiver had the power to conduct Dyke-man’s business. Even if the receiver delegated that authority to Christopher and Thomas Dykeman who then continued to perform the subcontract in 1999 after filing for receivership, it is unreasonable to conclude that operationally they controlled Dykeman’s property or that financially they controlled the disbursement of funds.
The third factor slightly favors Callahan. Harrier used the same telephone and facsimile as well as the same address as Dykeman. Callahan also paid Dykeman a number of times as opposed to Harrier or the receiver. Individuals at the job site believed they were dealing with Dykeman. Records were perhaps stored at the same location.
See George Hyman Construction Co. v. Gateman,
Additional factors do not favor Callahan. Although Dykeman’s capital was stretched, there is no indication that the receiver did not supply or approve the cash disbursements necessary for Dykeman to continue to perform the subcontract in 1999.
See, e.g., Evans v. Multicon Construction Corporation,
During the period of Harrier’s involvement at the site, there is no indication that Harrier paid Thomas and Christopher Dykeman unreasonably excessive salaries or bonuses.
See Evans v. Multicon Construction Corporation,
As to the eighth factor, insolvency is the inability to pay debts as they become due,
see Birbara v. Locke,
Addressing the remaining factors, there is no evidence of the syphoning of Dyke-man’s assets during receivership. Like the circumstances in
Birbara,
this is not “a case of ‘financial misconduct of the subsidiary involving such manipulation as asset-stripping or asset-siphoning, which depletes the resources of the subsidiary.’”
Finally and tellingly, this court’s research uncovered no case wherein a plaintiff was attempting to use the corporate veil piercing or disregard theory to pierce the corporate veil of a corporation for conduct occurring during its state receivership. In sum, no reasonable jury could find in Callahan’s favor and disregard Dykeman, operating under the control of a receiver, as an entity distinct and separate from Harrier.
II. MOTION OF JOHN T. CALLAHAN & SONS, INC. FOR PARTIAL SUMMARY JUDGMENT (DOCKET ENTRY # 50); MOTION FOR SUMMARY JUDGMENT IN FAVOR OF DEFENDANT EMPLOYERS INSURANCE OF WASSAU A MUTUAL COMPANY (DOCKET ENTRY # U)
Wassau moves for summary judgment on the basis that Callahan made a conscious decision not to declare Dykeman in default at the time of the receivership filing in May 1999 even though, as Wassau correctly points out, the general terms and conditions of the contract defined a default as, inter alia, the appointment of a receiver on account of a subcontractor’s insolvency. According to Wassau, Callahan’s decision materially prejudiced Wassau because by the time Callahan declared a default in October 2000, the individual indemnitors had pledged all of their assets by purchasing Dykeman’s assets for $790,000 in February 2000. Wassau argues that the depletion of the indemnitors’ assets and the resulting dramatic increase ' in Wassau’s risk under the performance bond amounts to a discharge of Wassau’s liability as a surety. In short, Wassau submits that its liability on the performance bond was materially altered by Callahan’s failure to act and declare a default in a more timely manner.
Wassau additionally argues that Callahan knowingly waived its right to make a claim under the performance bond by not declaring a default based on the receivership filing in May 1999. Wassau reasons that Callahan’s decision not to declare a default until October 2000 and its acceptance of the work performed by Dykeman and Harrier constitutes a waiver of its right to seek recovery under the performance bond.
Addressing these two arguments
seriatim,
this court agrees with the principles set forth in the cases relied upon by Wassau. These principles provide that a material change in the underlying contract made without a surety’s consent operates as a discharge if the modification materially increases the surety’s risk.
41
With the exception of
Leila
and
Prairie State,
discussed
infra,
all of the foregoing
Callahan’s delay in declaring a default, if any, was not a breach of the underlying contract or a material modification thereof. Under the terms of the performance bond, the parties did not set a time period for Callahan to declare a default. 43 The plain language of the performance bond triggers the surety’s obligations, ‘Whenever Principal [Dykeman] shall be, and declared by Obligee [Callahan] to be in default under the subcontract, the Obligee having performed Obligee’s obligations thereunder.” (Docket Entry #52, Ex. D). A “default under the subcontract” occurs, inter alia, “if a receiver is appointed on account of the Contractor’s insolvency.” (Docket Entry # 52, Ex. C). Under these provisions, a default occurred if: (1) a receiver was appointed for Dykeman due to insolvency; and (2) Callahan made a declaration of default. Callahan’s decision not to declare a default in May 1999 or February 2000 was permissible under the terms of the performance bond. Accordingly, its delay in declaring a default did not materially modify the subcontract.
Under
Leila,
the substitution of Harrier for Dykeman in receivership might discharge Wassau because it created a modification or “ ‘a different [underlying] contract,’ ”
Leila Hospital and Health Center v. Xonics Medical Systems, Inc.,
Although not cited by the parties, Massachusetts courts are likely to adhere to
Section 50 prescribes the rule applicable to a surety’s obligations resulting from a delay on the part of the obligee to take action against the principal obligor:
§ 50. Effect On Secondary Obligation Of Obligee’s Lack Of Action To Enforce Underlying Obligation (1) Delay by the obligee in taking action against the principal obligor with respect to the underlying obligation, or failure of the obligee to take such action, does not discharge the secondary obligor with respect to the secondary obligation except as provided:
(a) by applicable statute;
(b) by agreement of the parties;
(c) in § 48 of this Restatement; or
(d) in subsection (2) of this section.
Restatement (Third) of Suretyship and Guaranty § 50 (1996). Callahan’s delay in proceeding against Dykeman and in declaring a default does not fall within the above exceptions. An illustration in the comment shows that the rule applies even though during the period of delay the principal obligor becomes insolvent:
2. P owes C $1,000 with S as secondary obligor. P defaults and C conducts a series of negotiations with P in respect of payment without modifying the contract between C and P. The negotiations are fruitless. Although P was solvent at the time of default, P becomes wholly insolvent during the period of the delay. S is not discharged from its secondary obligation by reason of the delay.
Restatement (Third) of Suretyship and Guaranty § 50, cmt. a (1996).
Accordingly, Callahan’s delay in declaring a default, even if it prejudiced Was-sau’s ability to obtain reimbursement from the principal obligors under the general indemnity agreement, does not discharge Wassau from its obligations under the performance bond. In addition, Callahan is not seeking recompense from Wassau based on the default due to the receivership filing and concomitant appointment of a receiver. Rather, Callahan submits that Dykeman’s failure to complete the work and its termination of the contract constitutes the relevant default under the subcontract. (Docket Entry #64, Ex. W). This occurred at the earliest in February 2000. In sum, Wassau is not entitled to summary judgment due to Callahan’s decision to delay declaring Dykeman in default.
As a final issue, Wassau submits that Callahan’s inaction and conscious decision not to declare a default in May 1999 or in February 2000 amounted to a waiver of its rights under the performance bond to proceed against Wassau. Waiver, the intentional relinquishment of a known right, is ordinarily a question of fact.
Graustein v. Wyman,
Callahan moves for summary judgment solely on the issue of whether Wassau may rely on the defense of untimely notice of a bond claim to disclaim its liability under the performance bond. In light of the foregoing, Callahan is entitled to summary judgment.
CONCLUSION
For reasons stated above, Harrier’s motion for summary judgment (Docket Entry #55) is ALLOWED. Callahan’s motion for summary judgment (Docket Entry #50) is also ALLOWED to the extent that Wassau may not rely on the defense of untimely notice of the default as a basis to disclaim liability under the performance bond. The fifteenth and seventeenth defenses in Wassau’s answers are stricken. Wassau’s summary judgment motion (Docket Entry # 44) is DENIED.
Notes
. The bond also conditioned Wassau's obligations on Callahan's performance of its obligations.
. The above quote is taken from the general conditions of the contract between the City of Lynn and Callahan. Under the subcontract, Dykeman agreed to "assume to the Contractor [Callahan] all the obligations and responsibilities that the Contractor [Callahan] by those documents [which included the general conditions] assumes to the City of Lynn.” (Docket Entry # 64, Ex. B).
. The Rhode Island court appointed a permanent receiver on June 10, 1999.
. By statute, the Rhode Island cotut has the "power to appoint a receiver, with any powers and duties that the court, from time to time, directs.” R.I. Gen. Laws § 7-1.1-97.1.
.If there was a "default in the performance of the contract,” the general indemnity agreement gave Wassau the ability to "take possession of the work under the contract.” (Docket Entry # 64, Ex. G).
. Wassau therefore had notice that the security pledged in the general indemnity agreement might be sold.
. An internal Wassau memorandum reflects that Christopher Dykeman contemplated a sale "that looks pretty much like the old company.” (Docket Entry # 61, Ex. I).
. The transcript of the deposition does not have an exhibit number and is placed backwards in the relevant filing.
. This disputed fact is viewed in favor of Wassau with respect to Callahan’s summary judgment motion and in favor of Callahan with respect to Wassau's summary judgment motion.
. Thomas and Christopher Dykeman each owned 50% of the shares of Dykeman. Thomas Dykeman became President of Harrier whereas Christopher Dykeman became Vice President and Secretary. Thomas Dyke-man and Christopher Dykeman's spouse, Linda Dykeman, each own 49% of the shares of Harrier.
. Linda and Thomas Dykeman are members of Netlectric. In notices to creditors regarding the proposed sales, the trustee describes Harrier and Netlectric as having principals who are also Dykeman's principals. As evidenced on the schedules attached to the notices, the trustee sent the notices to Foxhill of Wassau and Callahan’s attorneys, Rubin and Rudman, LLP.
. Wassau presently argues that there was a material change in the bond obligations and that it suffered prejudice when the individual indemnitors depleted their available assets to purchase Dykeman.
. The above quote is taken from the general conditions applicable to the contract between the City of Lynn and Callahan. Under the terms of the subcontract, Dykeman and Callahan assumed this obligation.
. In order to bolster its argument of prejudice, Wassau admits that any recourse the company may have had against the individual indemnitors became subordinate and inferior to the security interests, mortgages and life insurance assignments issued to First International.
. It is a genuine issue of material fact as to whether Harrier or Dykeman operating in receivership performed the work from the time of the February 2000 sale to the October 2000 notice of default.
. In late April and early May 2000 Loeper also asked Christopher Dykeman to submit a revised claim for Dykeman's damages to support Callahan's claim against the city.
. It is Callahan’s theory that Dykeman and Harrier were indistinguishable under a de facto merger doctrine or that Harrier was a mere continuation or the alter ego of Dyke-man. As set forth in the complaint, Callahan seeks liability against Harrier for breach of the subcontract between Dykeman and Callahan.
.Callahan lacked actual knowledge of the April 10, 2000 filing at the time. Christopher Dykeman does not remember a conversation in which he told anyone at Callahan that Harrier would be using the Dykeman name.
. Count VII alleges a breach of the subcontract to the extent Dykeman effectively assigned the subcontract. Count VIII alleges a breach of the implied covenant of good faith in the subcontract to the extent Dykeman effectively assigned the subcontract. Count IX alleges a violation of Massachusetts General Laws chapter 93A (“chapter 93A") to the extent Dykeman effectively assigned the subcontract.
. Because these claims fail on the merits, this court need not address Harrier's procedural argument that the complaint does not encompass such claims. Rather, for purposes of argument only, this court assumes that the complaint encompasses such claims.
See Attorney General v. M.C.K., Inc.,
.Count IV seeks a declaratory judgment regarding the parties' obligations under the performance bond. Count V alleges Wassau's breach of the performance bond and Count VI alleges Wassau’s violation of chapter 93A due to Wassau's failure to honor its obligations under the performance bond.
. This court need not determine whether title remained inchoate until dissolution which, in light of the language in section 7-1.1-91, this court doubts. See R.I. Gen. Laws § 7 — 1.1—91(d) ("receiver .. has authority subject to court order ... to sell, convey, and dispose of all or part of the assets of the corporation”).
. Separate and apart from this issue is whether the receiver had the power to sell Dykeman’s assets to Harrier free and clear of successor liability for Callahan's pre-existing breach of contract claim against Dykeman.
. For example, Callahan does not argue that Harrier's conduct in performing work at the project after the February 2000 purchase amounted to an implied in fact contract. By relying exclusively on the successor liability and alter ego theories to defeat summary judgment, the express or implied breach of contract claims are subject to summary judgment.
. Count IX alleges a violation of chapter 93A. Harrier moves for summary judgment on the chapter 93A count and identifies the absence of evidence to support the claim. Callahan fails to address the claim either in its papers or at oral argument. As the party with the underlying burden of proof on the chapter 93A claim, Callahan therefore fails to meet its summary judgment burden of production thus mandating summary judgment on this count.
Alternatively, the summary judgment records fails to provide sufficient evidence of conduct rising to the level of a section 11 violation. Callahan's delay did not amount to an extortionate breach of the terms of the performance bond or otherwise constitute an unfair act or practice within the meaning of chapter 93A.
See Commercial Union Insurance v. Seven Provinces Insurance Co.,
. Harrier is correct inasmuch as the cases cited in Callahan's brief regarding these equitable theories of recovery do not involve the circumstance at issue in this case, to wit, a judicially approved sale of assets.
.In contrast, the Bankruptcy Code expressly gives the court the power to sell a debtor's assets free and clear of any "interest” in the property of the debtor. 11 U.S.C. § 363(f). A bankruptcy sale under 11 U.S.C. § 363(f) thereby authorizes asset sales free and clear of liens and any "interest in” the property of the debtor. The modern trend is toward an expansive reading of "interest[s] in property” that is not circumscribed or strictly confined to in rem interests in the debtor’s property.
In re Trans World Airlines, Inc.,
. Private sales such as the one in the case at bar, albeit occurring during state receivership, "require court approval.” Tobias M. Lederberg An Overview of Rhode Island Receiverships: Theory and Practice 45 R.I.B.J. 9, 11 (1997). The receiver adhered to the customary procedure and filed a petition to sell the assets with the Rhode Island court. See Tobias M. Lederberg An Overview of Rhode Island Receiverships: Theory and Practice 45 R.I.B.J. 9, 11 (1997) (court "approval is usually obtained by the receiver filing a petition to sell assets with the court”). He also notified Dykeman's creditors and other interested parties of the hearing and the proposed sale thereby giving them the opportunity to appear and object to the sale.
.
H.J.Baker & Bro., Inc. v. Orgonics, Inc.,
. Because the result is the same, this court need not determine at this juncture whether the issue of the Rhode Island court's intent to extinguish the successor liability claims is for this court to decide as a fact finder, for this court to decide as a preliminary matter before charging the jury, or for the jury to decide as the fact finder.
.
Cyr
is distinguishable because it involved an attempt by a tort claimant to recover for an industrial accident preceding the sale of assets to a successor corporation with a similar name. Extending its reasoning to impose contractual liability on a successor is therefore problematic. The court explicitly distinguished the case from a successor’s liability for the contractual obligations of its predecessors.
Cyr v. B. Offen & Co., Inc.,
. Baker involved the mere continuation exception in the context of an asset sale.
. The disputed facts also include what entity performed the work at the project site during the time period between Hamer’s February 2000 purchase and the stoppage of that work in September or October 2000 prior to Dyke-man's March 2001 dissolution. A reasonable jury could view that Harrier performed that work or that Dykeman, operating under receivership, performed that work. Callahan lacks a judicial remedy against Dykeman. Resolving this dispute in Callahan’s favor for purposes of the present motion, as required, Harrier performed work at the site even though it lacked an express contract with Callahan and Callahan refused the assignment of the subcontract from Dykeman to Harrier. .
. A search of Rhode Island Supreme Court cases decided after Carreiro confirms that the First Circuit’s 1995 statement remains accurate.
. In addition to the mere continuation theory, Rhode Island law recognizes actual fraud as a separate successor liability test.
Ed Peters Jewelry Co. v. C & J Jewelry Co.,
. In the absence of guidance by the state’s highest court, "a federal court may consider analogous decisions, considered dicta, scholarly works, and any other data tending to show how the highest court in the state would decide the issue at hand.”
Carreiro v. Rhodes Gill and Co., Ltd.,
. Contrary to Callahan’s position,
Cargill
does not compel a denial of summary judgment.
Cargill
involved an affirmance of the lower court's summary judgment motion upholding the presence of a de facto merger under Massachusetts law because all of the four factors were satisfied.
Cargill, Inc. v. Beaver Coal & Oil Co., Inc.,
. In the analogous area of bankruptcy sales, courts likewise do not impose successor liability on the purchaser except in areas involving product liability or a federal statute with an overriding policy.
See generally
15 William M. Fletcher
Fletcher Cyclopedia of Law of Private Corporations
§ 7122 (1991) (number of jurisdictions allow for expanded successor liability in the areas of product liability and under federal statutes). Specifically, these areas include successor liability claims for product liability,
see Wilkerson v. C.O. Porter Machinery Co.,
. The First Circuit in
Birbara
raised the possibility of applying a stricter standard of piercing in contract cases but noted that Massachusetts law has not created such a distinction.
Birbara v. Locke, 99
F.3d at 1238. In fact, shortly after the
My Bread
decision, the Massachusetts Supreme Judicial Court ("SJC”) considered a contract case without making a distinction between tort and contract alter ego liability.
See Gordon Chemical Co. v. The Aetna Casualty and Surety Co.,
. Furthermore, in the case at bar, the "common management” took place at different times. By the time of Harrier's incorporation, Dykeman was in receivership being managed by the receiver.
. Under Massachusetts law, applicable to the present claim, “a compensated surety is
.
Employers
also stands for the principal that where, as here, the bond incorporates the underlying contract, the two contracts “are construed together as a whole to ascertain the intent of the parties.”
Employers Insurance of Wausau v. Construction Management Engineers of Florida, Inc.,
. The parties did agree that, “Any suit under this bond must be instituted before the expiration of two (2) years from the date the Principal ceased work on said subcontract.” (Docket Entry # 52, Ex. D). Wassau’s argument might merit summary judgment if Callahan’s delay resulted in the running of a statute of limitations or a violation of this express condition. See Restatement (Third) of Surety-ship and Guaranty §§ 43 & 50(l)(c) (1996). Callahan's March 2001 timely filing of this action precludes any reliance on this provision.
. The inability of Wassau to raise untimely notice does not impact its ability to argue that Harrier's substitution, if any, modified the underlying contract and materially increased its risk. In other words, allowing Callahan’s summary judgment motion does not preclude Wassau from raising this defense.