ATLANTIC RESORT DEVELOPMENT v. INNSEASON MANAGEMENT INC (2019)

MEMORANDUM AND ORDER PURSUANT TO RULE 1:28

The plaintiff, Atlantic Resort Development, L.P. (Atlantic Resort), brought this action against William Curran and two of his companies, Curran Management Services, Inc. (Curran Management) and InnSeason Management, Inc. (InnSeason), to collect on a judgment entered against Curran Management in 2012. Following a jury-waived trial, the Superior Court judge found in favor of Atlantic Resort on its claim of successor liability against InnSeason and dismissed the remaining claims, including equitable claims against William Curran (Curran) to pierce the corporate veil and for unjust enrichment.³ InnSeason appeals from the judgment against it.

Meanwhile, after learning that InnSeason's assets had become encumbered following the entry of judgment, Atlantic Resort filed two emergency motions, one to file a late notice of appeal and the other to amend the judgment to hold Curran personally liable. The Superior Court judge granted Atlantic Resort's motion to file a late notice of appeal but declined to amend the judgment. Atlantic Resort cross-appeals from the order denying its motion to amend or alter the judgment. We affirm the judgment against InnSeason, but vacate the order denying Atlantic Resort's motion to amend or alter the judgment and remand for reconsideration of that motion.

Background. Curran Management was in the business of marketing and selling timeshare interests. At all relevant times, Curran owned ninety percent of Curran Management ⁴ and was its president, as well as one of its two directors. During 2008 and 2009, the financial crisis was negatively affecting the timeshare industry, causing Curran to restructure his business operations and, ultimately, close Curran Management at the end of 2010.

Curran is also the sole owner of InnSeason, as well as its president and one of its two directors.⁵ Curran has used InnSeason as a central funding agent for the various other companies that he has controlled, including Curran Management, moving assets and liabilities between companies “at his direction.” Specifically with respect to Curran Management, company expenses were paid for by InnSeason but were recorded on Curran Management's books. By the end of 2010, Curran Management's books reflected over $ 4 million in intercompany debt owed to InnSeason.

When Curran Management closed, its balance sheet was consolidated with InnSeason's balance sheet. InnSeason extinguished the intercompany debt in exchange for the assets of Curran Management, primarily in the form of accounts receivable.⁶ In addition, Curran Management's accounts payable, as well as over $ 4 million in shareholder debt owed to Curran, were also transferred to InnSeason. At the same time, Curran Management's employees became InnSeason's employees, and InnSeason began conducting most of the business that Curran Management previously had conducted.

Meanwhile, Atlantic Resort -- one of the entities for which Curran Management had marketed and sold timeshare interests -- filed a lawsuit against Curran Management in the beginning of 2010.⁷ Nearly two years after Curran Management closed, Atlantic Resort obtained a judgment against Curran Management in the amount of $ 1,054,012.62, including prejudgment interest. Insofar as Curran Management never paid the judgment, Atlantic Resort brought this action against Curran, Curran Management, and InnSeason. The judge concluded that InnSeason was the successor of Curran Management and thus liable for the underlying judgment. The judge also concluded that this remedy at law prevented Atlantic Resort from prevailing on its equitable claims against Curran. Following the April 10, 2018 entry of judgment, however, Atlantic Resort learned that (1) InnSeason previously had guaranteed $ 40 million in loans from Resorts Funding, LLC (Resorts) to various companies controlled by Curran, and (2) the judgment against InnSeason caused it to be in default of that guaranty and, thus, on May 22, 2018, InnSeason granted Resorts a secured lien on all of InnSeason's assets.

1. InnSeason's appeal. The judge concluded that Atlantic Resort established its claim of successor liability under theories of “de facto merger” and “mere continuation” of the predecessor. InnSeason argues that successor liability may not be imposed under either theory here, where Curran Management did not become InnSeason for the purpose of eliminating Curran Management's corporate debt. We review this question of law de novo. Goddard v. Goucher, 89 Mass. App. Ct. 41, 44 (2016).

InnSeason relies on dicta in Milliken & Co. v. Duro Textiles, LLC, 451 Mass. 547, 556 (2008), in which the Supreme Judicial Court stated, “When analyzing a claim for successor liability under theories of ‘de facto merger’ or ‘mere continuation’ of the predecessor, our focus is on whether one company has become another for the purpose of eliminating its corporate debt.” However, InnSeason's argument ignores the remaining analysis in Milliken, which prescribes the factors that courts generally consider in determining whether there has been a de facto merger or a mere continuation of the predecessor.⁸ Id. at 557-558. Milliken explains that no single factor is necessary or dispositive. Id. at 558. In short, Milliken acknowledges that this analysis is fact specific, and nothing in Milliken requires a finding that Curran Management became InnSeason for the purpose of eliminating Curran Management's debt.

We further discern no error in the Superior Court judge's conclusion that Atlantic Resort established its claim of successor liability under theories of “de facto merger” and “mere continuation” of the predecessor. As found by the judge, Curran Management and InnSeason had the same officers, directors, and shareholders.⁹ In addition, Curran Management's assets, accounts payable, and employees were transferred to InnSeason so that InnSeason could continue, without interruption, Curran Management's business of selling timeshare interests. These facts are more than sufficient to establish successor liability under theories of “de facto merger” and “mere continuation” of the predecessor.¹⁰ See Milliken, 451 Mass. at 557-558 (setting forth relevant factors to consider).

2. Atlantic Resort's cross appeal. We next address Atlantic Resort's cross appeal, which pertains solely to the denial of its motion to amend or alter the judgment to hold Curran personally liable. Atlantic Resort argues that the judgment had to be amended to prevent injustice, and thus the judge abused his discretion in failing to do so. Atlantic Resort notes that the judge ruled that it did not succeed on its equitable claims against Curran because it had an adequate remedy at law against InnSeason. Atlantic Resort contends that once its remedy at law was no longer adequate due to the secured lien on all of InnSeason's assets, the judge should have entered a judgment against Curran, individually.

In addressing this argument, we begin by reviewing the applicable standard of review. Atlantic Resort brought its motion to have the judgment amended under Mass. R. Civ. P. 60 (b), 365 Mass. 828 (1974).¹¹ “A motion for relief under rule 60 (b) is directed to the sound discretion of the motion judge, and we review the judge's ruling for abuse of discretion.” Nortek, Inc. v. Liberty Mut. Ins. Co., 65 Mass. App. Ct. 764, 775 (2006). While a motion judge has broad discretion in these matters, that discretion is deemed to have been abused where “the judge made a clear error of judgment in weighing the factors relevant to the decision such that the decision falls outside the range of reasonable alternatives” (citation and quotations omitted). L.L. v. Commonwealth, 470 Mass. 169, 185 n.27 (2014).

With these principles in mind, we turn to whether the judge abused his discretion in declining to amend the judgment. Atlantic Resort filed two emergency postjudgment motions after learning that InnSeason's assets were encumbered, one to file a late notice of appeal and the other to have the judgment amended. In both motions, Atlantic Resort argued that it was entitled to the requested relief because it could not have known about the guaranty or secured lien at an earlier date.¹² Nonetheless, the Superior Court judge granted only the first of those motions. In allowing Atlantic Resort's motion to file a late notice of appeal, the judge explained that Atlantic Resort “could not have avoided the mistake of not appealing the judgment, where the existence of the guaranty was not disclosed until after the appeal period lapsed.” The judge offered no explanation for his denial of Atlantic Resort's motion to have the judgment amended. We are thus left to wonder why the judge denied that motion, where the same newly discovered evidence also had a direct bearing on the judge's sole stated reason for dismissing Atlantic Resort's claims to hold Curran personally liable.¹³ Given these unique circumstances, remand is required so the judge may reconsider the motion and properly explain his reasoning. See Commonwealth v. Grassie, 476 Mass. 202, 215 (2017) (where record is inadequate for appellate court to test motion judge's ruling for abuse of discretion, remedy is to remand for explanation of reasons). See also Kirk v. MacDonald, 21 Mass. App. Ct. 21, 23 (1985).

3. Conclusion. We affirm the judgment against InnSeason. We vacate the order denying Atlantic Resort's motion to alter or amend the judgment and remand for reconsideration of that motion.

So ordered.

Affirmed in part; vacated in part and remanded.

FOOTNOTES

3.   Atlantic Resort also brought claims under the Uniform Fraudulent Transfer Act, G. L. c. 109A, and the Consumer Protection Act, G. L. c. 93A.

4.   Curran's wife owned the remaining ten percent of Curran Management.

5.   Dennis Ducharme, one of Curran's business associates, was at all relevant times the treasurer, secretary, and second director of both Curran Management and InnSeason.

6.   The only assets not transferred to InnSeason were Curran Management's one percent interests in five limited liability companies, all partially owned by Curran, and those assets were instead transferred to Curran for no consideration.

7.   Atlantic Resort also brought claims against Curran and one of his other companies, but those claims were barred by the statute of limitations.

8.   “The terms ‘de facto merger’ and ‘mere continuation’ are often used by courts interchangeably.” Milliken, 451 Mass. at 556 n.15. Thus, many of the same factors are applicable to both theories. See id. at 557-558. Under the “de facto merger” theory, courts generally look to “whether (1) there is a continuation of the enterprise of the seller corporation so that there is continuity of management, personnel, physical location, assets, and general business operations; whether (2) there is 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; whether (3) the seller corporation ceases its ordinary business operations, liquidates, and dissolves as soon as legally and practically possible; and whether (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., 424 Mass. 356, 359-360 (1997). Under the “mere continuation” theory, courts look for “continuity of directors, officers, and stockholders; and the continued existence of only one corporation after the sale of assets.” McCarthy v. Litton Indus., Inc., 410 Mass. 15, 23 (1991).

9.   While Curran's wife owned ten percent of Curran Management, the judge found that Curran was, effectively, the sole shareholder of both companies.

10.   InnSeason also argues that Atlantic Resort's claim for successor liability must fail because Curran Management has not been formally dissolved. However, “the mere fact that a corporate entity has not been formally dissolved does not preclude a finding of a de facto merger.” Milliken, 451 Mass. at 558. Here, as in Milliken, Curran Management has ceased to exist for all practical purposes. Id. at 559.

11.   Atlantic Resort moved to amend or alter the judgment under Mass. R. Civ. P. 60 (b) (2), (3), and (6).

12.   In its motion to file a late notice of appeal, Atlantic Resort argued that because InnSeason had not previously disclosed the guaranty and secured lien, the failure to file a timely notice of appeal was due to excusable neglect. See Mass. R. A. P. 4 (c), as amended, 378 Mass. 928 (1979). Similarly, in its motion for amendment of the judgment, Atlantic Resort argued that the guaranty and secured lien were newly discovered evidence which could not have been discovered in time to move for a new trial. See Mass. R. Civ. P. 60 (b) (2), 365 Mass. 828 (1974).

13.   InnSeason argues that Atlantic Resort still had an adequate remedy at law despite its inability to collect on its judgment. We disagree. See New England Bank v. Lewis, 8 Pick. 113, 118 (1829) (“[A] judgment against insolvent debtors, without satisfaction, cannot be considered an adequate remedy”); Collins Mfg. Co. v. Wickwire Spencer Steel Co., 14 F.2d 871, 874 (D. Mass. 1926) (remedy at law not adequate where corporation was entirely divested of its assets). We also decline Atlantic Resort's suggestion that we reach and decide its claims for personal liability directly on appeal, as they involve contested questions of fact which are best resolved by the trier of fact in the first instance. In the absence of an explanation by the trial judge for his denial of the motion for amendment of the judgment on Atlantic Resort's rule 60 (b) motion, however, we express no view at present on the question whether it would be an abuse of discretion for the judge to decline to reach the questions of Curran's personal liability on remand for reasons other than those he gave for declining to reach those questions in his trial decision.