Town of Portland v. Summer Meadows Condominium Association et al. (2014)

MEMORANDUM OF DECISION ON MOTION FOR SUMMARY JUDGMENT BY APPORTIONMENT DEFENDANT INERGY PROPANE, LLC

Apportionment defendant Inergy Propane, LLC d/b/a Propane Gas Service (“Inergy”) has moved for summary judgment on Count Six of plaintiff Town of Portland's Complaint, Count Eight of Intervening plaintiff Todd Ghent's Revised Intervening Complaint and Count Two of the Apportionment plaintiff JAC Excavation, LLC's (“JAC”) Apportionment complaint on the grounds that they have failed to show that Inergy has liability as a successor in interest to Propane Gas Service, Inc. (“PGS”) or had any duty with respect to the underground propane tank which is the subject of this litigation.

Procedural and Factual Background

The following facts are not in dispute.   Sometime prior to 1992 an underground propane tank was installed at the Summer Meadows Condominiums located at 194/196 Summer Street in Portland, Connecticut.   In 1992 Superior Energy, LLC (“Superior”) became the exclusive propane supplier to the subject underground tank.   Superior purchased the tank from the Summer Meadow Condominium Association in 2008.

Inergy purchased the majority of defendant PGS' assets in 2006.   Under the Asset Purchase Agreement which Inergy has provided in support of its motion, Inergy agreed to purchase PGS' “Business.”   Under Article 1 of the Asset Purchase Agreement, PGS' “Business” included:  “(1) purchasing, trading, marketing, distributing and selling propane gas on a retail or wholesale basis;  and (2) selling, servicing and installing parts, appliances and supplies related thereto on a retail basis ․” Under Article 4.2(b) of the Asset Purchase Agreement, Inergy only agreed to assume specific liabilities:

the obligations of sellers accruing after the Closing (and not attributable to any violation, breach or failure to perform occurring prior to the Closing) under the Assumed Contracts to which a Seller is a party, with respect to Customer Credits ․ and such other obligations of Sellers, if any, as are set forth in Schedule 4.2. hereto (collectively, the “Assumed Liabilities”)

Inergy did not assume any additional liability under the terms of the Asset Purchase Agreement.   Article 5b of that Agreement provides that Inergy shall not assume or in any way be liable for “ ․ any liability or obligation of either Seller arising under any Contract that is attributable to any violation, breach or failure to perform occurring prior to Closing, and any liability or obligation of either Seller arising under any Contract that is not assumed by Buyer ․” Thus, under the Asset Purchase Agreement, Inergy never agreed to assume liability for any alleged negligent act committed by PGS prior to the closing date.

On the closing date referred to in the Asset Purchase Agreement, Inergy took ownership of PGS' retail propane assets, and continued to operate the PGS retail branch under the Propane Gas Service brand name.   As of the date it acquired PGS' business, Inergy implemented its own policies and procedures and integrated the Propane Gas Services branch into its Eastern United States retail propane division.   None of PGS' owners, directors or shareholders became officers, directors or owners of Inergy after Inergy purchased PGS's business.

When Inergy acquired PGS' propane assets, defendant Superior was the only propane supplier that was providing propane and service to the subject underground tank.   Inergy did not acquire an account that provided service to 194/196 Summer Street, Portland and has never sold or supplied propane or provided service to the tank at that address.

On January 29, 2011, JAC was removing snow with a backhoe from the driveway for the condominium located at 194/196 Summer Street, Portland, when the backhoe came into contact with the dome of the underground propane tank, shearing off the regulator and allowing propane to escape and ultimately causing an explosion.   Todd Ghent and Timothy Goff, volunteer firemen for the plaintiff Town of Portland, were injured in that explosion while responding to the propane leak at 194/196 Summer Street.

Portland filed this action seeking statutory reimbursement for workers' compensation benefits provided to its employees as a result of the aforementioned explosion.   In the Third Amended Complaint, Count Six, Portland alleges that Inergy is PGS' successor in interest and caused its employees' injuries in one or more of the following ways:

a.  Failing to follow the applicable National Fire Protection Agency codes pertaining to the installation of propane gas tanks and containers, or otherwise design and install the propane tank in such a way as to protect against damage to person and property;

b. Failing to properly bury the tank at the appropriate depth pursuant to applicable National Fire Protection Agency code sections;

c. Failing to warn third parties of the existence of the propane tank;

d. Failing to adequately instruct or warn the end-users of the tank, the condominium association or others, on proper maintenance, safeguards and landscaping, property maintenance or snowplow usage in the vicinity of the tanks;

e.  Failing to properly mark the location of the propane tanks after their installation;

f. Failing to place the tank in a place or position that would have protected it from damage during expected property maintenance, such as snowplowing;  and

g. Failing to install barriers, masonry, landscaping or other protective mechanisms that would have acted to prevent accidental damage to the propane tank valves by landscapers, snow plowers or others.

In Count Eight of the Revised Intervening complaint Todd Ghent alleges that his injuries were due to the negligence and carelessness of Inergy in one or more of the following ways:

a.  It failed to follow the applicable National Fire Protection Agency codes that pertained to the installation of propane gas tanks and containers, or otherwise design and install the propane tank in such a way as to protect against damage to person and property;

b. It failed to exhibit any visible warning of the propane tank's location;

c. It failed to flag or provide other notice of the propane tank's location;

d. It concealed the propane tank's location, which endangered the life and property of the invitees/licensees that came onto the condominium complex property;

e.  It failed to make use of any safety feature on its tank to stem the flow of gas if the relief valve was damaged or destroyed;

f. It buried the propane tank(s) in an unsafe area, which endangered the life and property of the invitees/licensees that came onto the condominium complex property;  and

g. It failed to place barriers in and/or around the area where the propane gas tank was located.

Defendant JAC filed its Apportionment complaint to seek apportionment of damages from Inergy and others.   JAC alleges that Inergy is PGS' successor in interest.   In Count Two of the Apportionment complaint JAC alleges that plaintiff Town of Portland's and Intervening plaintiff Todd Ghent's damages were caused all or in part due to the negligence of Inergy in one or more of the following ways:

a.  Failing to follow the applicable National Fire Protection Agency codes pertaining to the installation of propane gas tanks and containers, or otherwise design and install the propane tank in such a way as to protect against damage to person and property;

b. Failing to properly bury the tank at the appropriate depth pursuant to applicable National Fire Protection Agency code sections;

c. Failing to warn third parties of the existence of the propane tank;

d. Failing to adequately instruct or warn the end-users of the tank, the condominium association or others, on proper maintenance, safeguards and landscaping, property maintenance or snowplow usage in the vicinity of the tanks;

e.  Failing to properly mark the location of the propane tanks after their installation;

f. Failing to place the tank in a place or position that would have protected it from damage during expected property maintenance, such as snowplowing;  and

g. Failing to install barriers, masonry, landscaping or other protective mechanisms that would have acted to prevent accidental damage to the propane tank valves by landscapers, snow plowers or others.

Discussion of the Law and Ruling

“Practice Book § 17–49 provides that summary judgment shall be rendered forthwith if the pleadings, affidavits and any other proof submitted show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.   In deciding a motion for summary judgment, the trial court must view the evidence in the light most favorable to the nonmoving party.”  (Internal quotation marks omitted.)  Brooks v. Sweeney, 299 Conn. 196, 210, 9 A.3d 347 (2010).  “[T]he genuine issue aspect of summary judgment requires the parties to bring forward before trial evidentiary facts, or substantial evidence outside the pleadings, from which the material facts alleged in the pleadings can warrantably be inferred ․ A material fact has been defined adequately and simply as a fact which will make a difference in the result of the case.”  (Citation omitted;  internal quotation marks omitted.)  Buell Industries, Inc. v. Greater New York Mutual Ins. Co., 259 Conn. 527, 556, 791 A.2d 489 (2002).

“In seeking summary judgment, it is the movant who has the burden of showing the nonexistence of any issue of fact.   The courts are in entire agreement that the moving party for summary judgment has the burden of showing the absence of any genuine issue as to all the material facts, which, under applicable principles of substantive law, entitle him to a judgment as a matter of law.   The courts hold the movant to a strict standard.   To satisfy his burden the movant must make a showing that it is quite clear what the truth is, and that excludes any real doubt as to the existence of any genuine issue of material fact ․ As the burden of proof is on the movant, the evidence must be viewed in the light most favorable to the opponent ․ When documents submitted in support of a motion for summary judgment fail to establish that there is no genuine issue of material fact, the nonmoving party has no obligation to submit documents establishing the existence of such an issue ․ Once the moving party has met its burden, however, the opposing party must present evidence that demonstrates the existence of some disputed factual issue ․ It is not enough, however, for the opposing party merely to assert the existence of such a disputed issue.   Mere assertions of fact ․ are insufficient to establish the existence of a material fact and, therefore, cannot refute evidence properly presented to the court under Practice Book § [17–45].”  (Internal quotation marks omitted.)  Ramirez v. Health Net of the Northeast, Inc., 285 Conn. 1, 10–11, 938 A.2d 576 (2008).

Inergy argues that it is not liable in this case because it is not PGS' successor in interest.   Connecticut courts have held that “ ․ mere transfer of the assets of one corporation to another corporation or individual generally does not make the latter liable for the debts or liabilities of the first corporation.”   Chamalink Corp. v. Merritt Extruder Corp., 96 Conn.App. 183, 187, 899 A.2d 90, 93 (2006).   Liability for a predecessor's debts or liabilities can extend to a successor corporation only when a successor “․ expressly or impliedly agrees to assume the obligations, the purchaser is merely a continuation of the selling corporation, ․ or the transaction is entered into fraudulently to escape liability.”  Id.

Under the Asset Purchase Agreement, Article 5, the sellers retained liability for obligations or liabilities “arising under any Contract that is attributable to any violation, breach or failure to perform occurring prior to Closing.”   The claims asserted against PGS relate to its alleged breach of care in installing and servicing the underground tank, which occurred at the latest in 1992.   This is clearly “prior to Closing,” which occurred in 2006.   Thus there is no evidence that Inergy expressly assumed liability related to the underground tank.   In addition no party has presented any facts to support the finding that Inergy impliedly assumed liability for the tank.

Similarly, the plaintiffs make no claim that the transfer of PGS retail propane business to Inergy was fraudulent.   The Agreement was executed years before the plaintiffs' claims accrued on the date of the accident and, therefore, the transfer was not made with any intent to hinder, delay or defraud any claimant.

The plaintiffs argue that Inergy may be liable for PGS' torts under the mere continuation theory and the related continuity of enterprise theory.   The mere continuation theory will impose liability on a successor corporation when the successor corporation is simply a reorganization of the predecessor corporation rather than a new corporate entity.  Beriguette v. Innovative Waste Systems, Inc., 2009 WL 2450773 at *2 (July 7, 2009, Elgo, J.) [48 Conn. L. Rptr. 236].   In Beriguette, the court stated:

As a general rule, “[t]he mere transfer of the assets of one corporation to another corporation or individual ․ does not make the latter liable for the debts or liabilities of the first corporation ․” (Internal quotation marks omitted.)  Chamlink Corp. v. Merritt Extruder Corp., 96 Conn.App. 183, 187, 899 A.2d 90 (2006).   An exception to this principle exists “whenever the successor corporation more closely resembles a reorganized version of its predecessor than an entirely new corporate entity.”  (Internal quotation marks omitted.)  Kelly v. Percher Machine Works, Inc., 910 F.Sup. 30, 36 (D.N.H.1995).   It is not the purpose of the exception to expose to liability any company that merely purchases assets from another company.   See Collins v. Olin Corp., 434 F.Sup.2d 97, 104 (D.Conn.2006) (implying that the mere continuation exception should not be applied in a way that “likely would expose most assets purchasers to post-acquisition successor liability”).   Instead, the mere continuation exception seeks to determine whether “the purchasing corporation [is] merely a ‘new hat’ for the seller.”  (Internal quotation marks omitted.)  Ladjevardian v. Laidlaw–Coggeshall, Inc., 431 F.Sup. 834, 839 (S.D.N.Y.1977).

The plaintiffs argue that the fact that Inergy bought the real property from which PGS operated, used the same vehicles, acquired customer lists and tanks from PGS creates a material issue of fact as to whether Inergy is liable under the mere continuation theory.   Under this argument, merely acquiring assets of a seller corporation would impose liability on the purchaser corporation notwithstanding express limitation of liability.   Clearly, the plaintiffs misapprehend the law.   In order to be liable under the mere continuation theory, there must be an identity of shareholders and directors in the buyer and seller corporations.

In this case after Inergy purchased PGS's business, there was not an identity of shareholders or directors.   At the time of the Asset Purchase Agreement, Inergy was a wholly owned subsidiary of Inergy, L.P. The directors and shareholder of PGS did not have any ownership interest in Inergy.   The directors of PGS did not become directors or board members of Inergy or Inergy, L.P.

“Under the ‘continuity of enterprise’ theory, a mere continuation exists ‘if the successor maintains the same business, with the same employees doing the same jobs, under the same supervisors, working conditions, and production process, and produces the same products for the same customers.’   “ Chamalink, supra, at 188 (citing B.F. Goodrich v. Betkoski, 99 F.3d 505, 519 (2d Cir.1996).

The plaintiffs argue that Inergy is PGS' successor for liability purposes because Inergy hired Daniel Trombley, one of the owners of PGS, as a consultant to assist in the transition of PGS to Inergy.   Inergy has presented evidence that Mr. Trombley ceased to have an ownership interest in PGS and did not manage PGS' former employees.   Instead, Inergy brought Tom Green in to be the manager and instituted its own policies and procedures.   Mr. Trombley explained his responsibilities as a consultant following the sale as follows:

Q. What did you do on a day-to-day basis as a consultant?

A. Same as I was doing before the sale.

Q. And that would include?

A. Everything but direct contact with the employees.

Q. When you say everything but direct contact with employees, what do you mean by that?

A. Small things.   Inergy's manager would have me maybe fill out some small DMV forms.   Very small tasks.

Q. And in that role, were you really just helping the transition of Propane Gas Service over to Inergy?

A. Basically, yes.

Q. Did you have any supervisory capacity over any employees?

A. No.

Q. Did you have any direct contact with any customers?

A. No.

Deposition of D. Trombley, at 93:1–22.

Mr. Trombley admitted that his job duties as a consultant amounted to “pretty much nothing.”  Id. at 27:17–19.   Inergy admits that Mr. Trombley was hired as a consultant.   However, that does not create a material issue of fact with respect to the mere continuation theory or the continuity of enterprise theory, both summarized as follow by the court in Chamalink, supra.

“Under the common law mere continuation theory, successor liability attaches when the plaintiff demonstrates the existence of a single corporation after the transfer of assets, with an identity of stock, stockholders, and directors between the successor and predecessor corporations.”  (Internal quotation marks omitted.)  Graham v. James, 144 F.3d 229, 240 (2d Cir.1998).   Under the “continuity of enterprise” theory, a mere continuation exists “if the successor maintains the same business, with the same employees doing the same jobs, under the same supervisors, working conditions, and production processes, and produces the same products for the same customers.”  B.F. Goodrich v. Betkoski, 99 F.3d 505, 519 (2d Cir.1996).

Chamalink Corp. v. Merritt Extruder Corp, supra at 188.

With completely different shareholders, directors, and a different manager, Inergy could not be construed as the same corporation as PGS no matter what Mr. Trombley's duties were.

Inergy further argues that in the absence of successor liability, it has no liability whatsoever in this case because it did not install the tank or sell, service or supply propane to the Summer Meadows complex.   At the time Inergy purchased the assets of PGS, PGS did not own, service or deliver propane to the underground tank at issue.   Instead, defendant Superior was the exclusive propane supplier to the Summer Meadows Condominiums from 1992 until the date of the accident.   Superior owned the subject tank.   A gas supplier has no duty to inspect and maintain pipes or gas systems that are not under its control.   Eberle v. Conn. Light & Power Co., 15 Conn.Sup. 162, 168 (1947).

For the foregoing reasons, summary judgment enters in favor of Inergy Propane, LLC on Count Six of plaintiff Town of Portland's Complaint, Count Eight of Intervening plaintiff Todd Ghent's Revised Intervening Complaint and Count Two of the Apportionment plaintiff JAC Excavation, LLC's (“JAC”) Apportionment complaint.

By the court,

Aurigemma, J.

Aurigemma, Julia L., J.