Weather Underground, Incorporated v. Navigation Catalyst Systems, Incorporated et al
Filing
186
APPENDIX re: 178 MOTION for Summary Judgment filed by Epic Media Group, Incorporated. by Epic Media Group, Incorporated (Attachments: # 1 Exhibit 1, # 2 Exhibit 2, # 3 Exhibit 3, # 4 Exhibit 4, # 5 Exhibit 5, # 6 Exhibit 6, # 7 Exhibit 7, # 8 Exhibit 8, # 9 Exhibit 9, # 10 Exhibit 10, # 11 Exhibit 11, # 12 Exhibit 12, # 13 Exhibit 13) (Delgado, William)
Exhibit 1
Page 1
Not Reported in F.Supp.2d, 2010 WL 624261 (S.D.Ill.)
(Cite as: 2010 WL 624261 (S.D.Ill.))
Only the Westlaw citation is currently available.
United States District Court,
S.D. Illinois.
BALDWIN ENTERPRISES, INC., Plaintiff,
v.
RETAIL VENTURES, INC., Defendant.
No. 09-cv-0159-MJR-PMF.
Feb. 18, 2010.
West KeySummaryCorporations and Business
Organizations 101
1649(1)
101 Corporations and Business Organizations
101VI Shareholders and Members
101VI(D) Liability for Corporate Debts and
Acts
101k1646 Contracts and Securities for
Payment of Corporate Liabilities
101k1649 Shareholder Guaranty
101k1649(1) k. In general. Most
Cited Cases
(Formerly 101k218)
A corporation was not the guarantor of obligations under a lease entered into by another corporate entity which merged with a the corporation's
subsidiary. The corporation did not expressly or impliedly assume the lease/guaranty obligations. The
actual merger documents solidly rebutted the assertion of the corporation's liabilities. Further, the reorganization was not a merger or consolidation or
de facto merger of the two corporations, but rather
established the corporation as a parent company.
Jesse Barrett Rochman, Martin L. Daesch, Anthony
J. Soukenik, Bryan P. Cavanaugh, Sandberg,
Phoenix et al., St. Louis, MO, for Plaintiff.
James D. Roberts, John Chen, Chen Nelson
Roberts, Ltd., Chicago, IL, Patrick J. Hewson, Gilbert, Huffman, Prosser,Hewson & Barke, Ltd, Carbondale, IL, for Defendant.
MEMORANDUM AND ORDER
REAGAN, District Judge.
A. Introduction
*1 This lawsuit stems from a commercial lease
agreement executed in 1973, an amendment to (and
guaranty of ) the lease agreement in 2000, and a
multi-layered reorganization and merger in 2003.
The crux of the case is whether, under the guaranty,
the named Defendant in this action is liable to the
named Plaintiff for unpaid rent and damages for
breach of the lease.
Baldwin Enterprises filed this action in the Circuit Court of Bond County, Illinois, from which
Retail Ventures, Incorporated removed the case to
this Court one year ago. The removal notice properly identifies the basis for federal subject matter
jurisdiction-the diversity statute, 28 U.S.C. § 1332.
FN1
FN1. Plaintiff's April 2009 amended complaint, filed in this Court, incorrectly states
the bases for subject matter jurisdiction
and venue (inadvertently repeating the allegations of Illinois jurisdiction and venue
from the original complaint). But jurisdiction and venue do lie in this District.
The discovery deadline has elapsed. The case is
set for trial June 21, 2010, with a June 4, 2010 final
pretrial conference. The January 12, 2010 settlement conference was continued by the Honorable
Philip M. Frazier, United States Magistrate Judge.
The case comes before this Court on timely crossmotions for summary judgment, which were fully
briefed as of February 5, 2010. For the reasons
stated below, the Court denies Plaintiff's motion
and partially grants/partially denies Defendant's
cross-motion.
B. Factual and Procedural Background
FN2
FN2. These undisputed facts are taken
from the documents attached to the plead-
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ings. The lease, the amendment and the
guaranty are attached to the amended complaint at Doc. 24. Unfortunately but understandably, the briefs interchange or misstate the names of the various contracting
parties at certain points (Gramex Corporation vs. Gramex Retail Stores, Inc.;
CLEPA's vs. Baldwin). The Court has endeavored to sort out the who's-who in this
Order.
In May 1993, an Illinois partnership named
CLEPA's (as landlord) and a Missouri corporation
named Gramex Corporation (as tenant) entered
into a commercial lease agreement for a property
located at 1400 East Route 40 in Greenville, Illinois
(“the Lease”). The Lease had a 15-year term and
obligated Gramex Corporation to pay annual base
rent of $234,000 in 12 monthly installments of
$21,175.
In November 1999, Value City Department
Stores, Inc. (“Value City”) purchased 100% of the
common stock of Gramex Corporation. Also on that
date, Gramex Corporation assigned all of its rights
and interest under the Lease to Gramex Retail
Stores, Inc. (“Gramex Retail”). Gramex Retail assumed all the obligations and benefits of tenant
Gramex Corporation under the lease. See Assignment at Doc. 24-3, p. 34.
On May 23, 2000, two documents central to
this litigation were executed. First, CLEPA's (as
landlord) and Gramex Retail (as tenant) executed
an Amended Lease. Second, Value City executed a
Guaranty of Lease, whereby Value City guaranteed
Gramex Retail's performance of obligations under
the Amended Lease. Sometime after the Amended
Lease and Guaranty were executed, Baldwin Enterprises, Inc. ( “Baldwin” ) acquired all interest in
CLEPA's, explaining why Baldwin is the named
Plaintiff herein.
In October 2003, Value City underwent a corporate reorganization. The record contains a tangle
of allegations and attestations about what happened
in that reorganization. Carefully scrutinized, the record reveals that Value City became a whollyowned subsidiary of Retail Ventures, Inc. (“RVI”).
Specifically (as described more fully below) via a
transaction known as a triangular merger, Value
City merged into a subsidiary of RVI (as opposed
to merging directly with RVI). The consequences of
that merger are at issue here.
*2 In April 2008, the leased premises were
abandoned, allegedly leaving rent owed, real estate
taxes unpaid, and the parking lot in a state of extreme disrepair. The ultimate question is whether
RVI is liable to Baldwin for the alleged breach (via
the Guaranty executed by Value City). Baldwin
says yes, contending that RVI assumed the liabilities of Value City. RVI says no, maintaining that the
October 2003 reorganization left Value City intact
as a corporation with its own liabilities and did not
render RVI the guarantor under the Guaranty executed by Value City.
In January 2009, Baldwin sued RVI in Illinois
state court. Baldwin alleged that Gramex Retail
abandoned the premises and defaulted on the lease,
that Value City had guaranteed performance of all
lease covenants, and that RVI continued the previous business activity of (and succeeded to the obligations of) Value City, thereby rendering RVI liable to Baldwin for unpaid rent of roughly
$128,000, repair costs of about $84,000, real estate
taxes of $113,000, plus interest, attorney's fees and
costs of this action.
RVI removed the case to the United States District Court in February 2009. Baldwin amended its
complaint in April 2009. The amended complaint
contains two counts. Both counts allege breach of
the Guaranty.
Count I proceeds on a theory of successor liability (against RVI as successor to Value City).
Count II alleges that the Court should pierce the
corporate veil of Value City (to impose liability
against Value City's alter-ego, RVI).
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Baldwin moved for partial summary judgment
on the issue of RVI's successor liability (Count I)
on November 30, 2009. RVI timely opposed Baldwin's motion and cross-moved for summary judgment on January 4, 2010. The motions were fully
briefed February 5, 2010. With that factual and procedural overview, the Court turns to the standards
governing analysis of the pending motions.
C. Applicable Legal Standards
Summary judgment is appropriate where there
are no genuine issues of material fact, and the moving party is entitled to judgment as a matter of law.
Turner v. The Saloon, Ltd., 595 F.3d 679, 2010
WL 424580, *3 (7th Cir. Feb.8, 2010); Durable
Mfg. Co. v. U.S. Department of Labor, 578 F.3d
497,501 (7th Cir.2009), citing FED. R. CIV. P.
56(c). Accord Levy v. Minnesota Life Ins. Co., 517
F.3d 519 (7th Cir.2008); Breneisen v. Motorola,
Inc., 512 F.3d 972 (7th Cir.2008), citing Celotex
Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct.
2548, 91 L.Ed.2d 265 (1986).
In ruling on a summary judgment motion, this
Court must view in the light most favorable to the
nonmovant the evidence plus all inferences reasonably drawn from the evidence. Reget v. City of La
Crosse, 595 F.3d 691, 2010 WL 424581 (7th Cir.
Feb.8, 2010); TAS Distributing Co., Inc. v. Cummins Engine Co., Inc., 491 F.3d 625, 630 (7th
Cir.2007).
When cross-motions for summary judgment are
filed, “we look to the burden of proof that each
party would bear on an issue of trial; we then require that party to go beyond the pleadings and affirmatively to establish a genuine issue of material
fact.” Diaz v. Prudential Ins. Co. of America, 499
F.3d 640, 643 (7th Cir.2007). As the United States
Court of Appeals for the Seventh Circuit has explained, on cross-motions for summary judgment,
the Court must construe “the evidence and all reasonable inferences in favor of the party against
whom the motion under consideration is made.”
Durable, 578 F.3d at 501, citing Rickher v. Home
Depot., Inc., 535 F.3d 661, 664 (7th Cir.2008).
Accord Jefferson v. United States, 546 F.3d 477,
480 (7th Cir.2008).
*3 And when the nonmoving party bears the
burden of proof, he must demonstrate the existence
of a genuine fact issue to defeat summary judgment. Reget, 2010 WL 424581, *2. That is, the
non-movant must provide evidence on which the
jury or court could find in his favor. See Maclin v.
SBC Ameritech, 520 F.3d 781, 786 (7th Cir.2008).
D. Analysis
The central question here is whether Defendant
RVI is the guarantor of obligations under the
Amended Lease and, therefore, on the hook for
damages from any breach of the lease terms. RVI is
not named as the guarantor in the Guaranty. The
first paragraph of the Guaranty reads (Doc. 24-3, p.
1):
THIS GUARANTY OF LEASE ... is entered into
this 23rd day of May 2000, by and between
Value City Department Stores, Inc., an Ohio
corporation (Guarantor), and CLEPA's, an
Illinois partnership (Landlord).
Plainly then, RVI has no direct liability under
the express terms of the Guaranty, and the Court
tackles the thornier issue of whether RVI has successor liability. That depends on what the 2003 reorganization of Value City did to the relationship
between RVI and Value City.
Under Illinois law, the mere transfer of assets
from one corporation to another does not make the
latter liable for the liabilities of the former. Consolidated Services and Const., Inc. v. S.R. McGuire
Builder, 367 Ill.App.3d 324, 305 Ill.Dec. 123, 854
N.E.2d 715, 720 (Ill.App.2006). Illinois recognizes
four exceptions to this general rule, however, and
imposes successor liability where: (1) an express or
implied assumption of the obligations occurred; (2)
the transaction amounted to a merger of the seller
and buyer or a consolidation of the two; (3) the
buyer is a mere continuation of the seller; or (4) the
transaction is fraudulent in that it was entered into
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just to allow the seller to escape its liabilities. Id.
As to Count I, Baldwin argues that RVI is Value
City's successor and thus liable (via the Guaranty)
under three of these theories.
First, Baldwin asserts that successor liability
should be imposed against RVI, because RVI expressly or impliedly agreed to assume Value City's
liabilities. Baldwin supports this assertion with a
statement included in a filing made with the Securities and Exchange Commission under Rule 414 of
FN3
the Securities Act of 1993.
Second, Baldwin
argues that RVI was a mere continuation of Value
City, as the continuity of stock ownership shows.
Third and alternatively, Baldwin contends that there
was a de facto merger of RVI and Value City
(based on, inter alia, the continuity of stock ownership and the identity of shareholders before and
FN4
after the 2003 Value City reorganization).
FN3. Rule 414 provides, in part, that the
registration statement of a predecessor issuer shall be deemed the registration statement of the successor issuer, provided the
succession was effected by a merger or
similar succession under which the successor acquired all assets and assumed all
liabilities and obligations of the predecessor. Pointing to RVI's statement that it
“as successor issuer to Value City” adopts
Value City's registration statement as its
own, Baldwin asserts that “RVI must have
assumed” all liabilities and obligations of
Value City. See Doc. 31, p. 8 & attachments.
share of common stock of Value City was converted into and exchanged for one share of common
stock of RVI. The holders of common shares of
Value City became holders of an identical number
of common shares of RVI. Substantially all the
shareholders of Value City prior to the reorganization were the same shareholders of RVI after the reorganization. And a database search for the ticker
“RVI” generates a search result with the words
“formerly Value City Department Stores, Inc.” See
Doc. 31, pp. 3-5.
*4 On Baldwin's summary judgment motion,
the Court views the evidence and all reasonable inferences in the light most favorable to RVI. So construed, the evidence does not support the grant of
Baldwin's motion.
To the contrary, the record before this Court
establishes that RVI did not expressly or impliedly
assume the lease/guaranty obligations. The actual
merger documents solidly rebut the assertion that
RVI assumed Value City's liabilities, and Baldwin
misunderstands the SEC Rule concerning a successor issuer's adoption of a predecessor issuer's registration statement and omitted a portion of the
rule pertinent to the reorganization at issue herein.
RVI corrected and clarified this to the Court's satisfaction. See Doc. 34, pp. 10-11, quoting 17 C.F.R.
230.414.
FN4. The fourth basis for liability was not
argued by Baldwin in support of summary
judgment on Count I (see Docs. 31, p. 11)
but arose in subsequent briefs.
Moreover, the 2003 reorganization was not a
merger or consolidation or de facto merger of
Value City and RVI. (Rather, RVI was formed as
the parent company to Value City, and the Guaranty does not extend to parent companies of Value
City.) Finally, RVI was not a “mere continuation”
of Value City, and the 2003 reorganization was not
structured to allow RVI to fraudulently duck its liabilities.
As to the second and third arguments, Baldwin
stresses the following points regarding the 2003 reorganization. The capital stock of RVI had the same
designations, rights and preferences as the capital
stock of Value City prior to reorganization. Each
RVI submitted a December 2009 declaration
made under penalty of perjury and a December
2008 sworn affidavit from James A. McGrady,
RVI's Chief Financial Officer since its inception as
an Ohio corporation. See Exhibit A to Doc. 34. Mc-
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Grady explained in detail the 2003 corporate reorganization at issue herein, including the following
facts key to the restructuring.
(1) Value City Department Stores, Inc. (referred
to in this Order as “Value City”) was a full-line,
value-price retailer of apparel, accessories, home
furnishings, electronics and seasonal items.
(2) In early 2003, RVI was incorporated as a direct, wholly-owned subsidiary of Value City.
(3) RVI was a holding company operating retail
stores in two segments-Filene's Basement, Inc.
and DSW, Inc. DSW operates shoe stores in 37
states. Filene's Basement operates 36 retail stores
in major metropolitan areas of the Northeast and
Midwest United States.
(4) In July 2003, Value City Merger Sub, Inc.
(“Merger Sub”) was incorporated as one of several direct wholly-owned subsidiaries of RVI.
(5) In August 2003, Merger Sub merged into
Value City. Through this merger, RVI received
newly-issued common shares of Value City in exchange for all the common shares of Merger Sub
held by RVI. All of RVI's common shares that
were owned by Value City were canceled. The
outstanding common shares of Value City (i.e.,
the public shares) were converted into and exchanged for common shares of RVI.
(6) After the 2003 reorganization, Value City remained a separate and distinct corporate entity
that continued to maintain its own assets and liabilities.
McGrady further outlined subsequent corporate
transactions and developments which need not be
discussed in detail to sort out the motions now beFN5
fore the Court
What emerges from the
labyrinth of corporate history before this Court is
that the 2003 reorganization was not a merger or
consolidation of RVI and Value City. Instead, what
happened was this.
FN5. The following points bear mention.
In December 2004, Value City Department
Stores Inc. (simply called “Value City” in
this Order) restructured again, merging
with and into Value City Department
Stores LLC (referred to herein as
“VLLC”). In January 2008, RVI (who had
held 100% of the investment in Value
City) disposed of an 81 % ownership interest in its Value City business to a newly
created entity-VCHI Acquisition Co. In
October 2008, several companies, including Gramex Retail, VLLC and VCHI Acquisition Co. filed for Chapter 11 bankruptcy protection.
*5 Value City formed RVI (a holding company). Next RVI had several entities incorporated
as its wholly-owned subsidiaries. One of those was
Merger Sub, Inc. (“Merger Sub”). Merger Sub
then merged with and into Value City. The transaction left Value City intact as a corporate entity
with its own assets and liabilities. The transaction
did not relieve Value City of its obligations as guarantor of the lease with Baldwin.
The merger agreements and corporate filings
involved in the 2003 reorganization (part of the
substantial record before the undersigned Judge)
corroborate the McGrady declaration and affidavit.
They indicate that the 2003 reorganization left
Value City intact as a corporation, with RVI as the
parent and Value City as the subsidiary.
RVI did not merge with Value City. RVI did
not acquire Value City. RVI was formed in a manner that left Value City standing. Yes, Value City's
stock now was held by RVI rather than the former
shareholders. But Value City remained a corporate
entity with its own assets and liabilities (including
obligations under the Guaranty). Counsel have
identified, and this Court has located, no provision
of the Guaranty which prevented Value City from
reorganizing as it did. Nor has Baldwin identified
any provision of the Guaranty which extended or
shifted Value City's obligations to its parent com-
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panies, holding companies or shareholders.
So the record before the Court does not support
Baldwin's various arguments for summary judgment on Count I-that RVI is liable as successor to
Value City by merger, that RVI expressly or impliedly assumed Value City's liabilities, that RVI
was the mere continuation of Value City, or that
RVI and Value City underwent a de facto merger.
Value City continued to operate as a separate business and did not cease all operations after the 2003
reorganization. Value City became a wholly owned
subsidiary of RVI, but Value City was not stripped
of its assets and did not fold. Value City continued
to exist and continued to have its own obligations,
such as those under the Guaranty.
Although this maneuvering may appear improper at first blush, caselaw reveals that triangular
mergers and reverse triangular mergers (see footnote 6 below) are recognized, accepted, and fairly
routine. The United States Court of Appeals for the
Ninth Circuit has defined a triangular merger as: “a
statutory merger of a ‘target’ corporation ... into an
acquiring corporation, with the acquiring corporation using its parent's stock.” Giovanini v. United
States, 9 F.3d 783, 784 n. 6 (9th Cir.1993).
The United States District Court for the Eastern
District of Michigan (citing a Colorado District
Court opinion) described these transactions as popular and legitimate:
The transaction structure, used here to affect a
corporate reorganization, is not uncommon. The
reverse triangular merger is popular precisely because it allows the acquiring company ... to gain
control of the target ... without actually merging
with the target or risking its own assets on the
target's liabilities. See, e.g., Kaufmann v. LVA
Holdings, Inc., No. 05-cv-2140, 2006 U.S. Dist.
LEXIS 49499 at *2 (D.Colo. Oct. 22, 2008) (
“The recognized purpose of this type of merger agreement is to avoid successor liability
which would be the consequence of a direct
merger of two constituent corporations. [It] is
an artful but lawful dodge....”).
*6 Saginaw Property, LLC v. Value City Department Stores, LLC, ---F.Supp.2d ----, slip
copy, 2009 WL 3536616, *8 (E.D.Mich. Oct.30,
2009), emphasis added.
Similarly, in Morgan v. Powe Timber Co., 367
F.Supp.2d 1032 (S.D.Miss.2005), the Court explained:
The transaction at issue ... is a standard method
of acquisition in which a target corporation ... becomes a wholly-owned subsidiary of a parent corporation ... without any change in its corporate
existence.
Such transactions, known as “triangular mergers,” are “common and have a myriad of legitimate justifications.” ...
A triangular merger permits A, the acquiring
company, to acquire control of T, the target company, without A being a constituent corporation,
by forming a new ... subsidiary (S) into which T
is merged.... The advantage of this type of merger
is that T will become a wholly-owned subsidiary
of A without any change in its corporate existence.... Thus, the rights and obligations of T,
the acquired corporation, are not transferred,
assumed or affected.
Morgan at 1037-38, emph. added, citing
Binder v. Bristol-Myers Squibb, Co., 184
F.Supp.2d 762, 772 (N.D.Ill.2001).
Fletcher Cyclopedia of the Law of Corporations reiterates some of the advantages of triangular
mergers mentioned in the above-referenced cases.
Sometimes, it is desirable to have the target corporation merge into a subsidiary of the acquiring
corporation rather than into the acquiring corporation itself. This may be useful if the acquiring
corporation wishes to avoid direct exposure to
the liabilities of the target corporation or if the
merger of the target corporation into the acquir-
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ing corporation is prohibited by applicable law. A
triangular merger involves such a merger and
produces a parent-subsidiary controlled group of
corporations with the subsidiary owning the target corporation's assets, as well as any assets of
its own.
14A Fletcher Cyc. Corp. § 7011 (2009),
emph. added.
The transaction at issue herein is more properly
characterized as a reverse triangular merger, one
FN6
kind of triangular merger.
A reverse triangular
merger also produces a parent-subsidiary controlled
group with the acquiring corporation as the parent,
but the subsidiary of the acquiring corporation
merges into the target in this form of reorganization. 14A Fletcher Cyc. Corp. § 70.11.30. Reverse
triangular mergers are useful if the target corporation has valuable franchises or licenses that cannot
be readily transferred. Id. Reverse triangular mergers also may qualify for tax benefits if they meet
certain requirements. Id.
FN6. In a triangular merger, the acquiring
company (A) takes control of the target
company (T) by forming a new subsidiary
(S), and then T merges into S (with S surviving). In a reverse triangular merger, the
same events occur except that S merges into T (leaving T surviving). See Morgan,
367 F.Supp.2d at 1038.
Stated simply, a triangular merger allows an
acquiring company to avoid successor liability by
leaving a surviving subsidiary intact, thereby not
taking on the target corporation's obligations. As
the Northern District of California has elaborated:
a “reverse triangular merger” of the sort performed here (merger of the target with a specially
formed subsidiary of the acquirer, which then becomes the sole shareholder of the newly merged
subsidiary), does not effect a “de facto” merger
unless the transaction has been structured to disadvantage creditors or shareholders.
*7 In re McKesson HBO C, Inc. Securities
Litig., 126 F.Supp.2d 1248, 1277 (N.D.Cal.2000).
In an unreported decision from this District
Court, the Honorable J. Phil Gilbert carefully examined a triangular merger akin to the one in the
case sub judice. In Cima v. Wellpoint Health Networks, Inc., 2008 WL 4671707 (S.D.Ill.2008), the
defendant had created a wholly owned subsidiary
for the purpose of merging with a target corporation. The target corporation became the subsidiary,
and the defendant became the parent.
Judge Gilbert expressed doubt that this transaction would impose successor liability on the defendant/parent, remarking that plaintiffs had neither
pointed to a provision of the merger under which
defendant assumed the obligations in question nor
identified any provision of law that would impose
such liability on defendant. Id. at *2.
Saginaw Property is even more factually parallel to the case at bar. Saginaw Property actually involved the same underlying corporate events at issue in the instant case-the 2003 restructuring of
Value City (as well as the subsequent reorganizations and sales referenced in the parties' briefs,
mentioned in footnote 5 above).
Saginaw Property is not binding on the undersigned Judge. It is a District Court opinion from another Circuit, and the Judge was analyzing a different lease and guaranty, involving property located
in Michigan, and applying Michigan law. By contrast, the case at bar involves a lease and guaranty
FN7
on a parcel of Illinois property.
FN7. The Saginaw Court applied Michigan
law to interpret the contract before it
(noting that the parties there had not raised
a choice of law issue but impliedly relied
on Michigan law). Here, the Lease and
Guaranty call for the application of Illinois
law. See Doc. 24-1, p. 19; Doc. 24-3, p. 3.
And the merger plan and agreement involving Value City, RVI and Merger Sub
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states that Ohio law governs. See Doc.
13-4, p. 5.
But resolution of both cases centers on the effect of the Value City 2003 reorganization, so
Saginaw Property-though not controlling-is instructive. And, on the motions and on record before
it, this Court concludes (as Judge Ludington did
four months ago in Saginaw Property ) that the
2003 reorganization did not abolish Value City, dissolve Value City, or liquidate Value City. Value
City became a wholly owned subsidiary of RVI, but
Value City still existed. It continued to operate, it
was not stripped of its assets, and it was not relieved of its obligations under the Guaranty. Furthermore, there is no evidence in the record before
this Court that the triangular merger was employed
to fraudulently escape liability or to defraud shareholders.
For these reasons, Baldwin's arguments for
summary judgment on Count I fail. The Court must
deny Baldwin's motion for partial summary judgment (Doc. 30) and grant RVI's cross-motion for
summary judgment on that claim (Count I-breach
of lease guaranty based on successor liability).
Which leaves RVI's cross-motion for summary
judgment on Count II-breach of lease guaranty
based on piercing the corporate veil.
Count II can be summarized as follows. RVI
exercised substantial or complete control over the
administration and management of Value City after
the 2003 reorganization. RVI and Value City shared
the same principal offices, management, directors,
and assets after the reorganization. RVI's control
over Value City was so complete that Value City
had no existence of its own post-reorganization.
RVI is merely the alter-ego of post-reorganization
Value City, so the Court must pierce the corporate
veil to un-do the unfair consequences of the 2003
reorganization.
*8 Count II also alleges that piercing the corporate veil is warranted, because RVI stripped valuable assets of Value City through a series of reor-
ganizations, mergers and spin-offs designed to allow RVI to avoid its obligations. In rejecting Baldwin's claim for successor liability (ruling against
Baldwin on Count I), this Court found the record
devoid of evidence that the 2003 reorganization-the
reverse triangular merger-was designed to disadvantage shareholders or defraud creditors. The
Court rejected Baldwin's argument that RVI was
the mere continuation of Value City following the
2003 reorganization. The Court emphasized that
Value City was not reduced to an empty shell and
that Value City remained intact as a subsidiary of
RVI. Moreover, Value City retained assets and continued to operate its own subsidiary companies
(including Filene's and DSW) after the 2003 reorganization.
All this led the Court to conclude that RVI was
not liable as Value City's successor to obligations
under the Guaranty. But Count II goes further. It alleges that RVI stripped pre-reorganization Value
City of valuable assets through a series of several
reorganizations, mergers and spin-offs. The materials before the Court indicate that the “series of
transactions” referenced by Baldwin in Count II
(Doc. 24, p. 11) include a December 2004 Value
City reorganization (a merger with Value City Department Stores, LLC or “VLLC”), VLLC's disposition of assets in January 2005, and the January
2008 sale of VLLC.
Baldwin has not moved for summary judgment
on Count II. RVI has moved for summary judgment
on Count II, but RVI has not met its burden of
proof as to that count. Nearly all of RVI's lengthy
brief (Doc. 34) and extensive supporting materials
relate to the question of successor liability alone
(Count I).
Unlike the detailed argument and citation to
legal authority offered to defeat Baldwin's successor liability claim, Doc. 34 contains nearly no
argument or cases supporting summary judgment
for RVI on the piercing-the-veil claim. Indeed,
Doc. 34 suggests that RVI was not really attempting to address the issue of piercing the corporate
© 2011 Thomson Reuters. No Claim to Orig. US Gov. Works.
Page 9
Not Reported in F.Supp.2d, 2010 WL 624261 (S.D.Ill.)
(Cite as: 2010 WL 624261 (S.D.Ill.))
veil. In discussing successor liability, RVI referred
to the well-established principle that a parent corporation typically is not liable for the actions of its
subsidiary, even a wholly-owned subsidiary, and
then stated (Doc. 34, p. 12, emph.added):
of the amended complaint-the breach of lease guaranty claim predicated on a theory of piercing the
corporate veil.
The only type of exception to this general rule is
a “piercing the corporate veil” theory which
has not been raised by Baldwin in this case. In
order to pierce a subsidiary's corporate veil to
hold the parent liable, there needs to be an exercise of control over the subsidiary in such a manner as to commit a fraud or illegal ct....
S.D.Ill.,2010.
Baldwin Enterprises, Inc. v. Retail Ventures, Inc.
Not Reported in F.Supp.2d, 2010 WL 624261
(S.D.Ill.)
IT IS SO ORDERED.
END OF DOCUMENT
Since fraud is not an issue here, RVI could not be
held liable for the obligations of [Value City].
But Baldwin has raised a claim of piercing the
corporate veil in Count II. RVI may have misconstrued the fact Baldwin did not seek summary judgment on that ground as meaning that Baldwin did
not have a claim based on that theory of liability.
*9 RVI has demonstrated an absence of genuine issues of material fact and an entitlement to
judgment as a matter of law on the successor liability claim (Count I). But RVI clearly has not made
that showing as to Count II. So the Court must deny
RVI's motion to the extent it seeks judgment on
Count II.
E. Conclusion
No genuine issues of material fact remain, and
RVI is entitled to judgment as a matter of law on
Baldwin's successor liability claim (Count I).
The Court DENIES Baldwin's motion for partial summary judgment (Doc. 30). The Court
GRANTS in part and DENIES in part RVI's
cross-motion for summary judgment (Doc. 37).
RVI's motion is granted as to Count I and denied as
to Count II.
At the close of this case, the Clerk of Court
SHALL ENTER JUDGMENT in favor of RVI
and against Baldwin on Count I (the successor liability claim). Remaining for disposition is Count II
© 2011 Thomson Reuters. No Claim to Orig. US Gov. Works.
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