The Opportunity Fund, LLC v. Epitome Systems, Inc. et al

Filing 47

ORDER granting in part and denying in part 34 Motion to Dismiss for Failure to State a Claim. Signed by Judge Algenon L. Marbley on 11/27/2012. (cw)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF OHIO
EASTERN DIVISION

THE OPPORTUNITY FUND, LLC
Plaintiff,
v.
EPITOME SYSTEMS, INC., et al.,
Defendants.

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Case No. 2:11-CV-528
JUDGE ALGENON L. MARBLEY
Magistrate Judge Elizabeth
Preston Deavers

OPINION & ORDER
I. INTRODUCTION
This matter is before the Court on Defendant Savana, Inc.’s (“Savana”) Motion to
Dismiss the Amended Complaint Pursuant to Rules 12(B)(2), 12(B)(3), and 12(B)(6) of the
Federal Rules of Civil Procedure (“Motion”). (Doc. 34.) For the reasons stated below,
Defendant’s Motion is GRANTED in part and DENIED in part.
II. BACKGROUND
In May 2008, Plaintiff, The Opportunity Fund, LLC (“Opportunity Fund”), an Ohio
company, became an “investing entity” in Epitome Systems, Inc. (“Epitome”), a Delaware
corporation based in Pennsylvania that provided client companies with business information
processing services. This transaction was memorialized with a Loan and Security Agreement
that granted some number of investing entities,1 including Opportunity Fund, a security interest
in Epitome’s assets as collateral for funds lent. (Doc. 26, Ex. A.) According to the terms of the
Agreement, collateral assets consisted of a comprehensive list of Epitome’s current and future

1

 The text of the document suggests the presence of at least one other investing entity: Vision Opportunity Master
Fund, Ltd. 

personal property, including intangibles like stock, intellectual property, computer software
rights, and customer lists.
In July 2008, in connection with the Loan and Security Agreement, Epitome executed a
Secured Promissory Note (the “Note”) (Doc. 26, Ex. B) in which it promised to repay
Opportunity Fund the lent sum of $100,000 plus interest on or before August 31, 2008. The
Note contains a successor clause, which states: “This Note shall be binding upon Maker
[Epitome] and its successors and shall inure to the benefit of the Payee [Opportunity Fund] and
its successors and permitted assigns.” (Doc. 26, Ex. B at 6.) The Note also contains a choice of
law and forum selection clause which directs that the laws of New York State govern “[a]ll
questions concerning the construction, validity, enforcement and interpretation” of the Note, and
that “all legal proceedings concerning the interpretations, enforcement and defense” of the Note
are to be “commenced in the state and federal courts sitting in the City of New York, Borough of
Manhattan.” (Doc. 26, Ex. B at 6-7.) Opportunity Fund alleges that Epitome failed to comply
with the terms of the Note and that the $100,000 loan was never repaid.
In March 2009, a Bill of Sale and Transfer Statement (“Bill of Sale”) (Doc. 26, Ex. C)
was executed which sold Epitome, or some part of its assets, to Savana, a Delaware corporation
with its primary place of business in Pennsylvania. The Bill of Sale lists Sovereign Bank as the
seller. The Bill of Sale indicates that the buyer, Savana, paid Sovereign $400,000 for their
purchase, less a $60,000 expense reimbursed by the seller.
Plaintiff alleges that “the March 16, 2009 Bill of Sale [of Epitome to Savana] was in fact
a de facto consolidation or merger and/or Savana is merely a continuation of the business of
Epitome and/or the March 16, 2009 transaction was entered into fraudulently for the purpose of
escaping liability.” (Doc. 26 at ¶ 12.) In Plaintiff’s conception of transaction, Savana was a
2

newly formed company whose first act was the acquisition of Epitome in its entirety. Epitome as
previously organized ceased operations in the wake of the transactions. Savana continues to
conduct the business of Epitome under the Epitome name. The business continues to serve the
same customers. (See Doc. 39 at 3-4, Ex. C.) Savana has retained top officers of Epitome to run
the business. In particular, Epitome’s founder is President of the new company, and Epitome’s
Chief Financial Officer is the new entity’s Chief Administrative Officer. (Doc. 39, Exs. C, D.)
Plaintiff has included as Exhibits electronically available public records for Epitome’s business
entity registration in Pennsylvania (Doc. 39, Ex. A) and Delaware (Doc. 39, Ex. B). Neither
evinces any information identifying ownership interests in Epitome.
In contrast, Defendant Savana contends that it purchased only some of Epitome assets,
and in doing so did not assume any of Epitome’s liabilities or obligations. Defendant
characterizes the transaction at issue as a mere asset purchase at a public sale orchestrated by
Sovereign Bank, which had seized the assets as collateral when Epitome defaulted on a secured
loan. Defendant argues Sovereign’s exercise of this post-default remedy was proper under the
Uniform Commercial Code and denies that there is any continuity or commonality of ownership
between itself and Epitome. (See Docs. 35, 40.) Savana has submitted no sworn affidavits in
support of these contentions.
In June 2011, Opportunity Fund filed a Complaint asserting breach of contract,
conversion, promissory estoppel and unjust enrichment claims against named defendants
Epitome and Savana. (Doc. 1.) After multiple futile attempts to serve process on Epitome
through the agents so designated in Epitome’s Pennsylvania and Delaware business entity
records, Plaintiff concluded that Epitome no longer existed due to its purchase by Savana.
Plaintiff therefore amended its Complaint to name Savana as the sole defendant. (Doc. 26.)
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Defendant Savana now moves to dismiss Plaintiff’s Amended Complaint pursuant to Fed. R.
Civ. P. 12(b)(2) for lack of personal jurisdiction, pursuant to Rule 12(b)(3) due to the presence of
a forum selection clause in the Note, and pursuant to Rule 12(b)(6) for failure to state a claim on
which relief can be granted. The Court discusses each asserted ground for dismissal in turn.
III. MOTIONS
A. Personal Jurisdiction
Defendant Savana seeks dismissal of the claims against it for lack of personal jurisdiction
pursuant to Federal Rule of Civil Procedure 12(b)(2). “Because personal jurisdiction is a
threshold determination linked to any subsequent order issued by the court,” The Kroger Co. v.
Malease Foods Corp., 437 F.3d 506, 510 (6th Cir. 2006), the Court turns to Defendant’s Rule
12(b)(2) argument first. For the reasons set forth below, Defendant’s Rule 12(b)(2) motion to
dismiss for lack of personal jurisdiction is DENIED.
1. Standard of Review
Plaintiff bears the burden of establishing that personal jurisdiction over a defendant
exists. Air Prods. & Controls, Inc. v. Safetech Int'l, Inc., 503 F.3d 544, 549 (6th Cir. 2007)
(citing Serras v. First Tenn. Bank Nat'l Ass'n, 875 F.2d 1212, 1214 (6th Cir. 1989)). Where, as
here, “the district court relies solely on written submissions and affidavits to resolve a Rule
12(b)(2) motion, rather than resolving the motion after either an evidentiary hearing or limited
discovery, the burden on the plaintiff is ‘relatively slight,’ and ‘the plaintiff must make only a
prima facie showing that personal jurisdiction exists in order to defeat dismissal.’” Id. (quoting
Am. Greetings Corp. v. Cohn, 839 F.2d 1164, 1169 (6th Cir. 1988); Theunissen v. Matthews, 935
F.2d 1454, 1458 (6th Cir. 1991)). Plaintiff can make this showing by “‘establishing with
reasonable particularity sufficient contacts between [the Defendants] and the forum state to
4

support jurisdiction.’” Neogen Corp. v. Neo Gen Screening, Inc., 282 F.3d 883, 887 (6th Cir.
2002) (quoting Provident Nat'l Bank v. California Savings Loan Ass'n, 819 F.2d 434, 437 (3d
Cir. 1987)). In deciding a Rule 12(b)(2) motion, the Court “construe[s] the facts in the light most
favorable to the non-moving party,” and “does not weigh the controverting assertions of the
party seeking dismissal.” CompuServe Inc. v. Patterson, 89 F.3d 1257, 1262 (6th Cir. 1996)
(emphasis in original) (citing Theunissen, 935 F.2d at 1459).
2. Law and Analysis
a. Introduction

“Personal jurisdiction over an out-of-state defendant arises from certain minimum
contacts with [the forum] such that maintenance of the suit does not offend traditional notions of
fair play and substantial justice.” Air Prods., 503 F.3d at 549 (quoting Int'l Shoe Co. v.
Washington, 326 U.S. 310, 316 (1945)) (internal quotations omitted). When a federal court sits
in diversity, “[t]he exercise of personal jurisdiction is valid only if it meets both the state longarm statute and constitutional due process requirements.” Calphalon Corp. v. Rowlette, 228 F.3d
718, 721 (6th Cir. 2000) (citing Nationwide Mut. Ins. Co. v. Tryg Int’l Ins. Co., Ltd., 91 F.3d
790, 793 (6th Cir. 1993)).
Here, Plaintiff argues that this Court has jurisdiction over Defendant Savana not because
of its own contacts with Ohio, but because it is successor to Epitome. As the Sixth Circuit has
explained:
federal courts have consistently acknowledged that it is compatible with due
process for a court to exercise personal jurisdiction over an individual or a
corporation that would not ordinarily be subject to personal jurisdiction in that
court when the individual or corporation is an alter ego or successor of a
corporation that would be subject to personal jurisdiction in that court.

5

Estate of Thompson v. Toyota Motor Corp. Worldwide, 545 F.3d 357, 362 (6th Cir. 2008)
(quoting Patin v. Thoroughbred Power Boats Inc., 294 F.3d 640, 653 (5th Cir. 2002)).
Accordingly, in evaluating Defendant’s 12(b)(2) motion, the Court assesses first whether
Plaintiff has made the requisite prima facie statutory and constitutional showing with respect
Epitome, and then determines whether personal jurisdiction can be imputed to Savana as
Epitome’s successor.
b. Ohio's Long Arm Statute

Ohio's long-arm statute grants Ohio courts personal jurisdiction over a non-resident
defendant “as to a cause of action arising from the person's ... [t]ransacting any business in
[Ohio].” Ohio Rev. Code § 2307.382(A)(1); Slate Rock Construction Co., Ltd. v. Admiral Ins.
Co., No. 2:10-cv-1031, 2011 WL 3841691 at *2 (S.D. Ohio Aug. 30, 2011). The Supreme Court
of Ohio has broadly construed the meaning of “transacting any business in Ohio,” which does
not require physical presence in Ohio. Ky. Oaks Mall Co. v. Mitchell's Formal Wear, 559 N.E.2d
477, 470-80 (Ohio 1990); Goldstein v. Christiansen, 638 N.E.2d 541, 544 (Ohio 1994).
The facts pled regarding Epitome’s interactions with Plaintiff constitute “transacting
business in Ohio” within the broad meaning of the statute. Epitome and Opportunity Fund – an
Ohio corporation with its primary place of business in Ohio – together executed the May 2008
Loan and Security Agreement. That agreement lists Opportunity Fund as an “investing entity” in
Epitome and grants Opportunity Fund a security interest in all of Epitome’s assets, including its
stock, intellectual property, customer lists, etc., as collateral for Opportunity Fund’s investments.
(See Doc. 26, Ex. A at 1-5.) Epitome and Opportunity Fund also together executed the June 2008
Secured Promissory Note, which memorializes Plaintiff’s six-figure investment in Epitome and
created an ongoing obligation for Epitome to repay that loan with interest. Plaintiff’s assertion
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of these transactions is sufficient to make a prima facie showing that personal jurisdiction over
Epitome is authorized under Ohio’s long arm statute.
c. Due Process

In evaluating whether personal jurisdiction comports with due process, the Court must
determine whether there are sufficient minimum contacts between the nonresident defendant and
the forum state so as not to offend “‘traditional notions of fair play and substantial justice.’” Bird
v. Parsons, 289 F.3d 865, 871-72 (6th Cir. 2002) (quoting Int'l Shoe Co. v. Washington, 326 U.S.
310, 316 (1945)). Jurisdiction may be found to exist “either generally, in cases in which a
defendant's ‘continuous and systematic’ conduct within the forum state renders that defendant
amenable to suit in any lawsuit brought against it in the forum state, or specifically, in cases in
which the subject matter of the lawsuit arises out of or is related to the defendant's contacts with
the forum.’” Thompson, 545 F.3d at 361 (6th Cir. 2008) (quoting Nationwide, 91 F.3d at 793).
Here, as there is no indication that Epitome had ‘continuous and systematic’ contact with Ohio,
the relevant inquiry is whether the constitutional requirements for specific jurisdiction are met in
this case.
Specific jurisdiction “often may be premised on a single act of the defendant.”
Nationwide, 91 F.3d at 794 (citing McGee v. Int’l Life Ins. Co., 355 U.S. 220, 222 (1957)). “The
nature and quality of the act, as well as the circumstances surrounding its commission, must be
examined to determine whether personal jurisdiction exists in each case.” Id. (citing Int’l Shoe,
326 U.S. at 318). The Sixth Circuit has devised a three-part test for determining the “outer limits
of in personam jurisdiction based on a single act:”
First, the defendant must purposefully avail himself of the privilege of acting in
the forum state or causing a consequence in the forum state. Second, the cause of
action must arise from the defendant's activities there. Finally, the acts of the
defendant or consequences caused by the defendant must have a substantial
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enough connection with the forum state to make the exercise of jurisdiction over
the defendant reasonable.
Payne v. Motorists' Mut. Ins. Cos., 4 F.3d 452, 455 (6th Cir. 1993) (quoting Southern Mach. Co.
v. Mohasco Indus., 401 F.2d 374, 381 (6th Cir. 1968)). As discussed below, the Court finds all
three requirements satisfied.
i. Purposeful Availment
With respect to interstate contractual obligations, “parties who reach out beyond one state
and create continuing relationships and obligations with citizens of another state are subject to
regulation and sanctions in the other State for the consequences of their activities.” Nationwide,
91 F.3d at 795 (quoting LAK, Inc. v. Deer Creek Enterprises, 885 F.2d 1293, 1300 (6th Cir.
1989)) (quoting Burger King Corp. v. Rudzewicz, 471 U.S. 462, 473 (1985)) (internal quotations
omitted). The purposeful availment requirement “ensures that a defendant will not be haled into
a jurisdiction solely as a result of random, fortuitous, or attenuated contacts.” Id. (quoting LAK,
885 F.2d at 1300) (quoting, Burger King, 471 U.S. at 475) (internal quotations omitted). Thus,
“the existence of a contract with a citizen of the forum state, standing alone, will not suffice to
confer personal jurisdiction over a foreign defendant.” Id. (citing Burger King, 471 U.S. at 475).
Rather, “prior negotiations and contemplated future consequences, along with the terms of the
contract and the parties' actual course of dealing ... must be evaluated in determining whether the
defendant purposefully established minimum contacts within the forum.’” Id. (quoting Burger
King, 471 U.S. at 479).
Epitome’s alleged contacts with Ohio satisfy this standard. In executing the Loan and
Security Agreement and Secured Promissory Note, Epitome purposely entered an ongoing
relationship with the Plaintiff Ohio corporation in order to gain the benefit of Opportunity Fund’s
8

substantial investment capital. Moreover, that relationship contemplated future consequences.
These contracts not only created an ongoing obligation for Epitome to repay its debt to
Opportunity Fund, but also granted the Ohio company a conditional right to $100,000 worth of
Epitome’s assets should it default on its obligations. Epitome’s contacts are therefore hardly
random or fortuitous in nature, but rather a purposeful availment of the privilege of transacting
business on Ohio. See Burnshire Dev., LLC v. Cliffs Reduced Iron Corp., 198 F. App'x 425, 432
(6th Cir. 2006) (holding that the Ohio “transacting any business” standard is coextensive with the
purposeful availment prong of constitutional analysis).
ii. Arising from Activities in Forum State
To establish specific jurisdiction, the cause of action at issue must arise from the
defendant's activities in the forum state. Air Prods., 503 F.3d at 552. To meet this requirement, a
plaintiff must establish at least a “causal connection” between a defendant's activities in the
forum state and the harm to the plaintiff. Neogen, 282 F.3d at 892. “If a defendant's contacts with
the forum state are related to the operative facts of the controversy, then an action will be
deemed to have arisen from those contacts.” CompuServe, 89 F.3d at 1267 (citing Reynolds v.
Int'l Amateur Athletic Fed'n, 23 F.3d 1110, 1119 (6th Cir. 1994)). Here, all of Opportunity
Fund’s claims arise out of Epitome’s alleged failure to repay the Secured Promissory Note
executed with the Plaintiff Ohio corporation. This satisfies the second due process requirement.
iii. Reasonableness
Finally, a defendant’s acts or the consequences thereof must have a substantial enough
connection with the forum state to make the exercise of jurisdiction reasonable. Southern
Machine Co., 401 F.2d at 381. When the first two prongs of the due process inquiry have been
satisfied, Ohio courts will “presume the specific assertion of personal jurisdiction was proper.”
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Cole v. Mileti, 133 F.3d 433, 436 (6th Cir. 1998). When making the “reasonableness” inquiry,
courts consider several factors, “including ‘the burden on the defendant, the interest of the forum
state, the plaintiff's interest in obtaining relief, and the interest of other states in securing the
most efficient resolution of controversies.’” CompuServe, 89 F.3d at 1268 (quoting Am.
Greetings, 839 F.2d at 1169–70).
As a Pennsylvania-based Delaware corporation, Epitome would certainly be burdened by
defending a lawsuit in Ohio. Nevertheless, when it accepted the capital investment from
Opportunity Fund and entered into the Loan and Security Agreement and Note, it assumed that
obligation. While it may be burdensome to defend a suit in Ohio, Epitome “knew when [it]
entered into [business] with [Plaintiff] that [it] was making a connection with Ohio, and
presumably … hoped that connection would work to [its] benefit.” Id.
Moreover, “Ohio has a legitimate interest in protecting the business interests of its
citizens,” Bird, 289 F.3d at 875, and “a strong interest in resolving a dispute involving an Ohio
company.” CompuServe, 89 F.3d at 1268. That another state – here, Pennsylvania or Delaware –
would also have an interest in adjudicating these claims “does not override the other factors
suggesting that personal jurisdiction in Ohio is reasonable.” Bird, 289 F.3d at 876.
Given the presumption of reasonableness that arises from the Court's finding of
purposeful availment and harm arising out of Epitome’s contacts with Ohio, as well as the
Court’s obligation “construe the facts in the light most favorable to the non-moving party,”
CompuServe, 89 F.3d at 1262, the Court finds Epitome’s connections with Ohio substantial
enough to make personal jurisdiction reasonable. Plaintiff’s allegations therefore meet all three
elements necessary to establish specific jurisdiction over Epitome consistent with due process.

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d. Successor Jurisdiction

Having found the exercise of personal jurisdiction proper with respect to Epitome, the
Court now examines whether Savana may be subject to personal jurisdiction as Epitome’s
successor. As discussed above, the Sixth Circuit has explained that “it is compatible with due
process for a court to exercise personal jurisdiction over … an alter ego or successor of a
corporation that would be subject to personal jurisdiction in that court.” Thompson, 545 F.3d at
362. See Hitachi Medical Sys. Am., Inc. v. Branch, No. 5:09-cv-01575, 2010 WL 816344 at *5
(N.D. Ohio Mar. 4, 2010) (“The exercise of jurisdiction over an alter ego is compatible with due
process because a corporation and its alter ego are the same entity-thus, the jurisdictional
contacts of one are the jurisdictional contacts of the other for the purposes of the International
Shoe due process analysis.”) (emphasis in original) (quoting Sys. Div., Inc. v. Teknek Elecs., Ltd.,
253 Fed. Appx. 31, 27 (Fed.Cir. 2007). To apply the successor theory of personal jurisdiction in
a diversity action, courts look to the forum state’s rules of successor liability. See Thompson,
545 F.3d at 362 (applying Ohio law governing piercing the corporate veil in an alter-ego
personal jurisdiction analysis).
In Ohio, “[t]he well-recognized general rule of successor liability provides that the
purchaser of a corporation’s assets is not liable for the debts and obligations of the seller
corporation.” Welco Indus., Inc. v. Applied Cos., 617 N.E.2d 1129, 1132 (Ohio 1993) (citing
Flaugher v. Cone Automatic Mach. Co., 507 N.E.2d 331 (Ohio 1987)). The Ohio Supreme Court
has identified discrete exceptions to the general rule when: “(1) the buyer expressly or impliedly
agrees to assume such liability; (2) the transaction amounts to a de facto consolidation or merger;
(3) the buyer corporation is merely a continuation of the seller corporation; or (4) the transaction
is entered into fraudulently for the purpose of escaping liability.” Id. at 1133 (citing Flaugher,
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507 N.E.2d at 334). Plaintiff argues that the de facto merger, mere continuation, and fraudulent
transaction exceptions apply in this case.
i. De Facto Merger
A de facto merger is “a transaction that results in the dissolution of the predecessor
corporation and is in the nature of a total absorption of the previous business into the successor.”
Welco, 617 N.E.2d at 1134 (citing Flaugher, 507 N.E.2d at 340 (A.W. Sweeney, J., dissenting)).
The hallmarks of de facto merger include: “(1) the continuation of the previous business activity
and corporate personnel, (2) a continuity of shareholders resulting from a sale of assets in
exchange for stock, (3) the immediate or rapid dissolution of the predecessor corporation, and (4)
the assumption by the purchasing corporation of all liabilities and obligations ordinarily
necessary to continue the predecessor’s business operations.” Id. (citing Turner v. Bituminous
Cas. Co., 244 N.W.2d 873, 887 (Mich. 1976)).
Here Plaintiff has alleged that “the March 16, 2009 Bill of Sale [of Epitome to Savana]
was in fact a de facto consolidation or merger.” To this end, Plaintiff contends that Savana
purchased Epitome’s business operation in its entirety, continues to conduct Epitome’s business
and serve its customers under the Epitome name, and has retained much of Epitome’s senior
management. Plaintiff also alleges that Epitome ceased operations and was essentially dissolved
upon its acquisition by Savana. Although Plaintiff makes no allegations regarding the payment
details of the transaction nor the specific identities of the respective stockholders and directors of
Savana and Epitome, it is unclear how Opportunity Fund would have access to such information
for two privately held corporations without the benefit of discovery. Indeed, the publicly
available business entity registration documents for Epitome, both in Pennsylvania and

12

Delaware, reveal no information whatsoever about the identity of the ownership interests in the
corporation. (See Doc. 39, Exs. A, B.)
Defendant’s contrary contention that there is no continuity of ownership and no
assumption of ordinary business liabilities or obligations is of no moment: the Court “does not
weigh the controverting assertions of the party seeking dismissal” in evaluating a Rule 12(b)(2)
motion. CompuServe, 89 F.3d at 1262. Nor is the Court persuaded by Defendant’s argument that,
under the Ohio Court of Appeals’ decision in Rondy & Co. v. Plastic Lumber Co., 2011 WL
5377741, C.A. No. 25548, 2011 -Ohio- 5775 (Ohio Ct. App. Nov. 9, 2011), Sovereign Bank’s
involvement bars this transaction from being a de facto merger as a matter of law.
Plastic Lumber considers a situation in which a manufacturer and seller of plastic lumber
products, Plastic Lumber, defaulted on a bank loan secured by the company’s assets. Plastic
Lumber and the bank, Huntington, entered into a formal agreement by which Plastic Lumber
surrendered all its assets to be liquidated in an orderly fashion by a third-party liquidating officer.
The majority – though not all – of those assets were sold to Bright Idea, a newly formed
company fully owned by Plastic Lumber’s primary shareholder. Unlike Plastic Lumber, Bright
Idea’s business was the sale and assembly of plastic lumber products, not their manufacture.
Significantly, the prices of Plastic Lumber’s various assets were all either set by the independent
liquidating officer and the bank, or determined via legitimate public auction. Fully one quarter
of Plastic Lumber’s assets were sold to third parties, rather than to Bright Idea. Plastic Lumber,
2011 WL 5377741 at *1. Under these facts, the Plastic Lumber Court found that “the
transaction at issue was not ‘in the nature of a total absorption of the previous business into the
successor[,]’ and thus d[id] not even seem to fit within the general definition of a de facto merger

13

as defined by the Welco Court.” Id. at *3 (first alteration in original) (quoting Welco, 617 N.E.2d
at 1134).
Savana argues that this case is analogous to Plastic Lumber in every respect because it
bought only some of Epitome’s assets – for cash, not stock – at a public sale of collateral seized
by an independent senior creditor exercising a proper remedy and acting in good faith. This
characterization of the transaction, however, has yet to be proven. Indeed, at this stage in the
proceedings, this Court cannot even weigh Defendant’s assertions against Plaintiff’s allegations
that Savana purchased and absorbed Epitome’s business in its entirety. CompuServe, 89 F.3d at
1262. Accordingly, given that the nature of the sale and Savana’s current business operation
have not yet been established, the Court cannot find that undefined involvement of Sovereign in
the transaction precludes de facto merger as a matter of law.
ii. Mere Continuation and Transaction to Escape Liability
The “mere continuation” exception permits successor liability when the “the acquiring
corporation is just a new hat for, or a reincarnation of, the acquired corporation.” Plastic Lumber,
2011 WL 5377741 at *4 (quoting Welco, 617 N.E.2d at 1134). The mere continuation exception
is based on “the continuation of the corporate entity, not the business operation.” Id. (quoting
Welco, 617 N.E.2d at 1134). This would be the case, for example, “when one corporation sells its
assets to another corporation with the same people owning both corporations.” Id. (quoting
Welco, 617 N.E.2d at 1134). Because “[t]his type of transaction is executed to escape liabilities
of the predecessor corporation, … the inadequacy of consideration is one of the indicia of mere
continuation.” Id. (quoting Welco, 617 N.E.2d at 1134).
The fourth exception, entering into a transaction with fraudulent intent to escape liability,
has similar hallmarks: “[i]ndicia of fraud include inadequate consideration and lack of good
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faith.” Welco, 617 N.E.2d at 1134 (citing Turner, 244 N.W.2d at 887 (Coleman, J., dissenting)).
Plaintiff has alleged that “Savana is merely a continuation of the business of Epitome
and/or the March 16, 2009 transaction was entered into fraudulently for the purpose of escaping
liability.” (Doc. 26 at ¶ 12.) As evidence of this, Plaintiff points to the dissolution of Epitome, as
well as Savana’s retention of Epitome’s senior staff, including the installation of Epitome’s
founder as President of the new company and Epitome’s Chief Financial Officer as Chief
Administrative officer. (Doc. 39 at 3-4, Exs. C, D.) Although continuation of the business
operation is itself insufficient to establish successor liability via mere continuation, it makes
Plaintiff’s allegations of corporate continuation more plausible. Again, given that Savana and
Epitome are both privately held corporations, it is unclear how Plaintiff could have made more
specific factual allegations as to the identities of their respective stockholders without the aid of
discovery. (See Epitome’s Pennsylvania and Delaware business entity registrations, Doc. 39, Ex.
A, Ex. B (containing no information regarding corporate ownership).)
In addition, Plaintiff has presented facts which, when construed in the light most
favorable to the plaintiff, CompuServe, 89 F.3d at 1262, raise the specter of inadequate
consideration – the tell-tale sign that implicates both mere continuation and an impermissible
transaction to escape liability. Specifically, the Bill of Sale indicates that Savana paid the seller
$400,000, less $60,000 in expenses reimbursed by the seller. If indeed Savana only paid
$340,000 to purchase Epitome in its entirety, including all of its assets, that amount would seem
remarkably little consideration in light of the logical inference that Epitome’s assets were
sufficient to secure at least $440,000 in loans not nine months earlier.2

2

The inference is that, if indeed this was a post-default sale of collateral, the value of the collateral sold would not
exceed the amount of the total debt to Sovereign plus expenses. If expenses account for $60,000, the debt to

15

Defendant asserts that there was no continuation of ownership, and argues that, because it
purchased Epitome’s assets from Sovereign, Plastic Lumber precludes recourse to the mere
continuation theory as a matter of law. As in the de facto merger context, this argument is
likewise unavailing. To begin with, as discussed above, Defendant’s characterization of its
relationship to Epitome and of the transaction as a purchase of collateral seized by a senior
creditor are not weighed at this stage of the litigation. CompuServe, 89 F.3d at 1262.
But even if the Court were to infer from the Bill of Sale that the Epitome was sold in
order to pay off the company’s outstanding debt to Sovereign, those facts would not ipso facto
foreclose a finding of successor liability. The Ohio Court of Appeals’ decision in Plastic Lumber
is premised on a number of very particular findings of fact which have not yet been established
in this case.3 Specifically, the Plastic Lumber court held that that the mere continuation
exception did not apply where it was undisputed that:
(1) Huntington was a secured party that held a valid blanket lien on Plastic
Lumber's assets; (2) Huntington instructed Plastic Lumber to hire a restructuring
agent, who ultimately became a liquidating agent, so that Huntington might
realize the most money possible from the sale of Plastic Lumber's assets; (3)
Huntington was entitled, as the secured creditor, to proceed in the manner it did;
(4) the assets of Plastic Lumber that Bright Idea acquired were acquired through
the third party agent and from Huntington; and (5) the assets were sold for fair
and reasonable price given the nature of the assets and the circumstances under
which they were sold.
Plastic Lumber, 2011 WL 5377741 at *4. On that record, the court found “no evidence … which
suggested that Bright Idea purchased the assets of Plastic Lumber for inadequate consideration,

Sovereign would total at least $340,000. Furthermore it appears that at least two other loans were secured by
Epitome’s assets: Opportunity Fund’s $100,000 capital investment and an unknown amount from Vision
Opportunity Master Fund, Ltd., the other investing entity named in the loan and security agreement. (See Doc. 26,
Ex. A at 29.) Together, that would mean at least $440,000 worth of loans were secured in Epitome’s assets. 
3
 The facts of the case are set forth in greater detail in Part III.A.2.d.i, supra. See also Plastic Lumber, 2011 WL
5377741 at *1.

16

or that the transaction was conducted to escape the liabilities of Plastic Lumber.” Id. at *5.
Here, in contrast, the legitimacy of Epitome’s sale and the adequacy of consideration are
in dispute. Without the hallmarks of formality, legitimacy, and adequacy that characterize the
asset seizure, liquidation and public auction in Plastic Lumber, Sovereign’s apparent listing in
the chain of ownership does not foreclose a mere continuation theory of successor liability.
Indeed, it would be incredibly problematic if a company could shirk all secured debt obligations
save one by nominally surrendering all its assets to a chosen creditor and then, clothed in a new
corporate form, buying those assets back for the low price of a single outstanding debt. Thus, at
this pre-evidentiary stage, the Court does not find recourse to mere continuation barred as a
matter of law. If this case is indeed analogous to Plastic Lumber, Savana will have the
opportunity to so prove as the record develops.   
In light of the above, Plaintiff’s allegations are sufficient to make a prima facie showing
of successor status for the purposes of establishing personal jurisdiction over Savana. See Dow
Corning Corp. v. Jie Xiao, et al., No. 11-10008-BC, 2011 WL 2015517 at *15 (E.D. Mich. May
20, 2011) (finding allegations that defendant is a successor created to shield assets from liability
to be sufficient for prima facie showing of personal jurisdiction); Gorge v. Rapid Advance, LLC,
No. 10-11474, 2011 WL 679842 at *4-5 (E.D. Mich. Feb. 16, 2011) (finding allegations that
defendant is a successor by virtue of “mere continuation” theory sufficient for prima facie
showing of personal jurisdiction); Weather Underground, Inc. v. Navigation Catalyst Sys. Inc.,
No. 09-10756, 2011 WL 2414415 at *5 (E.D. Mich. June 10, 2011) (finding allegations of
defendant’s alter-ego status sufficient for prima facie showing of personal jurisdiction).
The Court notes, however, that Plaintiff’s prima facie showing is merely that. A threshold
determination that personal jurisdiction exists “does not relieve [the plaintiff] […] at the trial of
17

the case in chief from proving the facts upon which jurisdiction is based by a preponderance of
the evidence.’” Hitachi, 2010 WL 816344 at *8 (quoting Serras, F.2d at 1215) (changes in
original) (internal quotations omitted).
e. Conclusion

Plaintiff has met its burden and made the requisite prima facie showing that this Court’s
personal jurisdiction over Savana is proper. Defendant’s Rule 12(b)(2) motion to dismiss for
lack of personal jurisdiction is therefore DENIED.
B. Forum Selection Clause
Defendant moves pursuant to Federal Rule of Civil Procedure 12(b)(3) to dismiss this
action in light of the forum selection clause contained in the Note. The Sixth Circuit, however,
has stated unequivocally that “a forum selection clause should not be enforced through dismissal
for improper venue under FRCP 12(b)(3) because these clauses do not deprive the court of
proper venue.” Wong v. PartyGaming Ltd., 589 F.3d 821, 829 (6th Cir. 2009). Accordingly, the
Court declines to use Rule 12(b)(3) to that effect here. Defendant’s motion to dismiss pursuant
to Rule 12(b)(3) is DENIED.
Because Defendant has made no other motions regarding the Note’s forum selection
clause, the Court’s ability to consider this matter is severely constrained.4 When presented with a
procedurally improper 12(b)(3) motion asserting a forum selection clause defense, the Court
may, sua sponte, analyze the question under the common law doctrine of forum non conveniens.

4

 Forum non conveniens or a 28 U.S.C. § 1404(a) motion to transfer venue would both have been appropriate
mechanisms through which to enforce the forum selection clause at issue in this case. In addition, there is debate
among district courts in this Circuit as to whether a forum selection clause may be enforced via a Rule 12(b)(6)
Motion. See Carillo v. ITFCO Industries, Inc., 2011 WL 4538079 (M.D. Tenn. Sept. 29, 2011) (collecting cases and
deciding that 12(b)(6) is not a proper mechanism for forum selection clause enforcement). As Defendant has made
no such argument, however, this Court does not consider the question here. 

18

Wong v. Partygaming Ltd., 589 F.3d 821, 830 (6th Cir. 2009). A court balances three factors in
the forum non conveniens analysis: (1) the existence of an adequate alternate forum; (2) any
relevant public factors that favor another venue; and (3) any relevant private factors that favor
another venue. See Stewart v. Dow Chemical Co., 865 F.2d 103, 106 (6th Cir. 1989). Sua sponte
invocation of the doctrine is appropriate if the court already possesses “facts relevant to the issue
of forum non conveniens.” Estate of Thomson, 545 F.3d 357, 364-65 (6th Cir. 2008) (citing
Chamber v. NASCO, 501 U.S. 32, 44 (1991)).
Here, the Court does not possess sufficient information to weigh the doctrine's factors
and make a determination. To assess whether dismissal under forum non conveniens is
warranted, the Court must assess public and private factors, of which the validity of a forum
selection clause in a contract is only one. See Kerobo v. Southwestern Clean Fuels, Corp., 285
F.3d 531, 537-38 (6th Cir. 2002) (explaining, in the context of a motion to transfer, that when a
district court weighs public and private factors related to venue, “[a] forum-selection clause in a
contract is one of the factors to consider in this calculus [and] ‘should receive neither dispositive
consideration... nor no consideration’”) (quoting Steward Org. Inc. v. Ricon Corp., 487 U.S. 22,
31 (1988)). Accordingly, “[i]t would be unfair to both parties to make this determination based
on the arguments presented in their briefs that only address facts relevant to the standards for
12(b) motions, not forum non conveniens.” Arcelormittal Tubular Prods. Shelby, Inc. v. Uranie
Int’l, S.A., No. 1:09-cv-1821, 2011 WL 1230271 at *4 (N.D. Ohio Mar. 30, 2011) (denying
enforcement of forum selection clause via Rule 12(b)(3) and declining to analyze forum non
conveniens sua sponte). As such, the court declines at this time to analyze the forum selection
clause defense, sua sponte, under the doctrine of forum non conveniens.

19

C. Failure to State a Claim
Finally, Defendant Savana moves to dismiss Plaintiff’s action for “failure to state a claim
on which relief can be granted” pursuant to Federal Rule of Civil Procedure 12(b)(6).
Specifically, Defendant argues that Plaintiff’s successor liability claims are inadequately pled
and fail as a matter of law. Defendant also argues that each of the underlying claims to which
successor liability is pendant – Breach of Contract (Count I), Conversion (Count II), Promissory
Estoppel (Count III) and Unjust Enrichment (Count IV) – also fail as a matter of law under the
facts alleged. Defendant’s motion to dismiss is GRANTED as to Count II and DENIED as to
Counts I, III and IV.
1. Standard of Review
Federal Rule of Civil Procedure 12(b)(6) permits dismissal of a complaint for “failure to
state a claim upon which relief can be granted.” Fed. R. Civ. P. 12(b)(6). A complaint must
contain a “short and plain statement of the claim showing that the pleader is entitled to relief.”
Fed. R. Civ. P. 8(a). Although a plaintiff need not plead specific facts, the complaint must “give
the defendant fair notice of what the claim is, and the grounds upon which it rests.” Nader v.
Blackwell, 545 F.3d 459, 470 (6th Cir. 2008) (quoting Erickson v. Pardus, 551 U.S. 89, 93
(2007)). The plaintiff’s ground for relief must entail more than “labels and conclusions, and a
formulaic recitation of the elements of a cause of action will not do.” Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 555 (2007). The plaintiff has satisfied Rule 12(b)(6) if he or she pled
enough facts “to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S.
662, 663 (2009).
In evaluating a Rule 12(b)(6) motion, the Court accepts Plaintiff’s factual allegations as
true, and “the complaint is construed liberally in favor of the party opposing the motion.” Davis
20

H. Elliot Co. v. Caribbean Util. Co., Ltd., 513 F.2d 1176, 1182 (6th Cir. 1975) (citing L'Orange
v. Medical Protective Co., 394 F.2d 57, 59 (6th Cir. 1968)). “Furthermore, such a motion should
not be granted ‘unless it appears beyond doubt that the plaintiff can prove no set of facts in
support of his claim which would entitle him to relief.’” Id. (quoting Conley v. Gibson, 355 U.S.
41, 45-46 (1957)).
2. Law and Analysis
a. Choice of Law

In briefing this Motion to Dismiss, the parties have argued the sufficiency of Plaintiff’s
claims under Ohio law. Yet the contract at issue – the Note – contains a choice of law clause
which is unequivocal in its selection of New York law to govern “[a]ll questions concerning the
construction, validity, enforcement and interpretation of th[e] Note.” (Doc. 26, Ex. B, pp.6-7.)5
Thus, this Court cannot not take as given that Ohio law should be applied this case.
“In a diversity case, a federal district court ‘is obligated to apply the choice of law rules
of the state in which it sits.’” Slate Rock Constr., 2011 WL 3841691 at *2 (quoting Security Ins.
Co. v. Kevin Tucker & Assoc., 64 F.3d 1001, 1005 (6th Cir. 1995)). Ohio has adopted § 187 of
the Restatement (Second) of Conflict of Laws, under which “parties’ choice-of-law provisions
are enforceable unless [1] ‘the chosen state has no substantial relationship to the parties or the
transaction and there is no other reasonable basis for the parties’ choice, or [2] application of the
law of the chosen state will be contrary to the fundamental policy of a state having a greater

5
 The Note’s choice of law clause states:
All questions concerning the construction, validity, enforcement and interpretation of this Note
shall be governed by and construed and enforced in accordance with the internal laws of the State
of New York, without regard to the principles of conflicts of law thereof.
(Doc. 26, Ex. B at 6.) 

21

material interest in the issue than the chosen state and such state would be the state of the
applicable law in the absence of a choice by the parties.’” Century Bus. Servs., Inc. v. Barton,
967 N.E.2d 782, 793 (Ohio App. 2011) (quoting Schulke Radio Prods., Ltd. v. Midwestern
Broad. Co., 453 N.E.2d 683, syllabus (Ohio 1983)).6 Neither exception applies here.
Given New York State’s apparent lack of connection to either the parties or the
transaction, the first exception would initially seem germane. As the Sixth Circuit has made
clear, however, this exception “rarely, if ever, appl[ies] as a practical matter because contracting
parties rarely make a choice of law without a good reason.” DaimlerChysler Corp. Healthcare
Benefits Plan v. Durden, 448 F.3d 918, 924 n.2 (6th Cir. 2006). Rather, “[t]his exception is
merely intended to preclude, for example the application of ‘foreign law which has been chosen
by the parties in the spirit of adventure or to provide mental exercise for the judge.’ ” Id. (quoting
Rest.2d Conflict of Laws § 187 cmt. f). The selection of New York law to govern a financial
instrument is hardly so “adventurous” a choice. Thus, as it is not the function of the judiciary to
speculate as to the mindset of the parties, this Court will presume they acted on a rational basis.
See Rest.2d Conflict of Laws § 187 cmt. f (“The parties to a multistate contract may have a
reasonable basis for choosing a state with which the contract has no substantial relationship. For
example, .... parties to a contract for the transportation of goods by sea between two countries
with relatively undeveloped legal systems should be permitted to submit their contract to some
well-known and highly elaborated commercial law.”).  

6

 This analysis is applied “even when the parties have set forth a choice of law and indicated that it is to be applied
‘without regard to principles of conflicts [sic] of law[s].’” Century Bus. Servs., 967 N.E.2d at 793 n.6 (alterations in
original) (quoting Greif Packaging, LLC v. Ryder Integrated Logistics, Inc., No. L-09-1259, 2010 WL 3610588 at
*3 (Ohio App. Sept. 17, 2010)). 

22

Nor does the second exception apply. Given the involvement of an Ohio corporation,
Ohio may indeed have a materially greater interest in the outcome of this dispute than does New
York, which has no connection to either party. There is, however, no indication that New York
law with respect to successor liability or common law contract and quasi-contract claims would
be fundamentally contrary to Ohio public policy.
Having determined that the Note’s choice of law clause falls within neither enumerated
exception, the Court finds the clause enforceable. Accordingly, the proper substantive law to
apply is that of New York, and Plaintiff’s assertion of successor liability against Savana, as well
is its underlying claims for breach of contract (Count I), conversion (Count II), promissory
estoppel (Count III), and unjust enrichment (Count IV), must be analyzed for adequacy under
New York law. The Court will consider each seriatim.
b. New York Successor Liability

New York applies the same general rules for successor liability as does Ohio. Thus, “a
corporation that purchases the assets of another corporation is generally not liable for the seller's
liabilities,” New York v. Nat’l Serv. Indus., Inc., 460 F.3d 201, 209 (2d Cir. 2006), unless: “‘(1)
[the buyer] expressly or impliedly assumed the predecessor's tort liability, (2) there was a
consolidation or merger of seller and purchaser, (3) the purchasing corporation was a mere
continuation of the selling corporation, or (4) the transaction is entered into fraudulently to
escape such obligations.’” Id. (quoting Schumacher v. Richards Shear Co., 451 N.E.2d 195, 198
(N.Y. 1983)).
i. De Facto Merger
The de facto merger exception “originated in cases where the seller's shareholders
retained their interest in the transferred assets through an ownership interest in the purchasing
23

corporation, while freeing the assets from the claims of the seller's creditors by disguising the
transaction as an asset sale. Cargo Partner AG v. Albatrans Inc., 207 F.Supp.2d 86, 94-95
(S.D.N.Y. 2002), aff'd 352 F.3d 41 (2d Cir. 2003). In such cases, “courts determined that the
form of the transaction did not accurately portray its substance, and they imposed successor
liability upon the purchaser.” Id. Although “[t]he New York Court of Appeals has not directly
addressed whether a de facto merger creates liability for a successor corporation, … [the Second
Circuit] and lower New York courts have held that it does.” Nat’l Serv. Industries, 460 F.3d at
209 (quoting Cargo Partner AG v. Albatrans, Inc., 352 F.3d 41, 45 (2d Cir. 2003)).
A de facto merger occurs “when a transaction, although not in form a merger, is in
substance ‘a consolidation or merger of seller and purchaser.’” Nat’l Serv. Industries, 460 F.3d at
209 (internal quotations omitted) (quoting Cargo Partner AG, 352 F.3d at 45). Under New York
law, “hallmarks of a de facto merger include: (1) continuity of ownership; (2) cessation of
ordinary business and dissolution of the acquired corporation as soon as possible; (3) assumption
by the purchaser of the liabilities ordinarily necessary for the uninterrupted continuation of the
business of the acquired corporation; and (4) continuity of management, personnel, physical
location, assets, and general business operation.” Nat’l Serv. Industries, 460 F.3d at 209. “In
New York, courts have found the continuity of ownership requirement satisfied where the
shareholders of the selling corporation retain only an indirect interest in the assets that were
sold.” Hayden Capital USA, LLC v. Northstar Agri Indus., LLC, No. 11 Civ. 594(DAB), 2012
WL 1449257, *5 (S.D.N.Y. Apr. 23, 2012) (citing In re New York City Asbestos Litig., 15
A.D.3d 254, 256 (N.Y. 2005) (“The first criterion, continuity of ownership, exists where the
shareholders of the predecessor corporation become direct or indirect shareholders of the
successor corporation as the result of the successor's purchase of the predecessor's assets, as
24

occurs in a stock-for-assets transaction.”); Cargo Partner, 207 F.Supp.2d at 104–105 (S.D.N.Y.
2002) (“The fact that the seller's owners retain their interest in the supposedly sold assets
(through their ownership interest in the purchaser) is the ‘substance’ which makes the transaction
inequitable.”) (emphasis in original)).
As the Court has discussed at length, see Part III.A.2.d.i., supra, Plaintiff’s allegations
related to the post-transaction cessation of Epitome, the uninterrupted continuation of Epitome’s
business operations, the transfer of Epitome’s assets in full, and the continuity of management in
the form of several of Epitome’s senior officers, are sufficient to make Rule 12(b)(2)’s required
prima facie showing that the de facto merger exception applies. The Court likewise concludes
that these allegations, when accepted as true and construed in the light most favorable to the
Plaintiff, Davis H. Elliot, 513 F.2d at 1182, are sufficient to make Plaintiff’s assertion of de facto
merger “plausible on its face.” Iqbal, 556 U.S. at 663, and “give the defendant fair notice of what
the claim is, and the grounds upon which it rests.” Nader, 545 F.3d at 470.
Given that the retention of an indirect interest in sold assets can establish continuity of
ownership under New York law, Hayden Capital USA, 2012 WL 1449257 at *5, the undefined
involvement of Sovereign in the sale of Epitome does not as a matter of law preclude a finding of
de facto merger. Although Plaintiff will ultimately have to prove that Epitome’s stockholders did
retain such an interest, it is unclear how Opportunity Fund, as a third party, could access
information regarding the details of Savana’s purchase of Epitome or the respective identities of
those private corporations’ stockholders without the benefit of discovery. Cf. Michaels Bldg. Co.
v. Ameritrust Co., N.A., 848 F.2d 674, 680 (6th Cir. 1988) (“Especially in a case in which there
has been no discovery, courts have been reluctant to dismiss the action where the facts
underlying the claims are within the defendant's control.”) (discussing the exception to Fed. R.
25

Civ. P. 9(b)’s heightened pleading standard for fraud in cases “where the information is only
within the opposing party’s knowledge”). Accordingly, reading all inferences in favor of the nonmoving party, the Court cannot say that Plaintiff can prove no set of facts which would entitle it
to relief from Savana on the basis of de facto merger. Davis H. Elliot Co., 513 F.2d at 1182 (6th
Cir. 1975) (quoting Conley, 355 U.S. at 45-46).
ii. Mere Continuation and Transaction to Escape Liability
The mere continuation exception “is designed to prevent a situation whereby the specific
purpose of acquiring assets is to place those assets out of reach of the predecessor's creditors....
Thus, the underlying theory of the exception is that[ ] if [a] corporation goes through a mere
change in form without a significant change in substance, it should not be allowed to escape
liability.” Hayden Capital USA, 2012 WL 1449257 at *5 (alterations in original) (internal
quotations omitted) (quoting Societe Anonyme Dauphitex v. Schoenfelder Corp., No. 07 Civ.
489, 2007 WL 3253592 at *6 (S.D.N.Y Nov. 2, 2007)).
The mere continuation rule applies in New York when “the purchasing corporation …
represent[s] merely a ‘new hat’ for the seller. That is, it is not simply the business of the original
corporation which continues, but the corporate entity itself. ” Cargo Partner, 207 F.Supp.2d at
95 (internal citations omitted) (quoting Ladjevardian v. Laidlaw-Coggeshall, Inc., 431 F.Supp.
834, 839 (S.D.N.Y. 1977)). Mere continuation “requires actual dissolution of the seller,” Cargo
Partner, 207 F.Supp.2d at 95 (citing Shumacher, 59 N.Y.2d at 244): “[t]he successor-buyer is
not in existence prior to the purchase of the predecessor's assets, and the predecessor-seller does
not survive the sale of the assets.” Alvarado v. Dreis & Krump Mfg. Co, 1 Misc.3d 912(A), 2004
WL 258117 at *2 (N.Y. Super. Ct. Jan. 23, 2004)) (citing Greenlee v. Sherman, 142 A.D.2d 472,
476 (N.Y.A.D. 1989)). Other factors “considered by New York courts to be indicative of the
26

‘mere continuation’ exception are that the business of the successor is the same as the business of
the predecessor, the business employs the same work force, and the predecessor's officers and
directors become the officers and directors of the successor.” Id. (citing Mitchell v. Suburban
Propane Gas Corp., 182 A.D.2d 934 (N.Y.A.D. 1992)).
In New York, the de facto and mere continuation exceptions have largely subsumed the
exception for transactions undertaken to escape liability has been largely subsumed by. See
Cargo Partner, 207 F.Supp.2d 86, 94-95 (discussing the mere continuation and de facto merger
exceptions). New York courts have noted, however, that “‘a purchase of assets may ordinarily
be arranged so as to insulate the purchaser from the seller’s liabilities’ so long as the purchase is
‘for fair consideration and undertaken in good faith as a bone fide transaction.” Connecticut
Indem. Co. v. 21st Century Transp. Co., Inc., No. 99-cv-7735(ILG), 2001 WL 868340 at *7
(E.D.N.Y Jul. 27, 2001) (quoting Gardner v. Fyr-Fyter Co., 47 A.D.2d 591, 591 (N.Y.A.D.
1975)). Thus, the absence of fair consideration and good faith can weigh in favor of finding that
the transaction was, in substance, one “with a concomitant assumption of liabilities.” Gardener,
47 A.D.2d at 591 (holding that questions as to whether an asset sale was ‘for fair consideration
and undertaken in good faith as a bona fide transaction” created “factual issues which preclude
the granting of summary judgment” regarding de facto merger).
Here, as discussed in Part III.A.2.d, supra, Plaintiff has alleged that Savana was a new
corporation whose first act was the purchase of Epitome in whole, and that Epitome was
dissolved following the transaction. Plaintiff has also alleged that Savana continued Epitome’s
business to the same customers under the management of Epitome senior officers. In addition,
Plaintiff argues the transaction was merely an attempt to remove assets from the reach of
Epitome creditors like itself, an allegation supported by the seemingly low purchase price paid
27

by Savana.7 While not conclusive evidence of the continuation of the corporate entity, these are
“factors considered by New York courts to be indicative of the ‘mere continuation’ exception.”
Id. That plaintiff did not plead specific detail as to stockholders in common is not fatal where, as
here, the identity of such stockholders identity is not publicly accessible for privately held
corporations absent discovery. Cf. Michaels Bldg. Co., 848 F.2d at 680 (“Especially in a case in
which there has been no discovery, courts have been reluctant to dismiss the action where the
facts underlying the claims are within the defendant's control.”) (discussing exceptions to Fed. R.
Civ. P. 9(b)’s heightened pleading standard for “information … only within the opposing party’s
knowledge”). Reading all inferences in the light most favorable to the non-moving party,
Plaintiff’s assertion of mere continuation is plausible and the Court cannot say that Plaintiff can
prove no set of facts that would establish successor liability via mere continuation. Davis H.
Elliot Co., 513 F.2d at 1182 (quoting Conley, 355 U.S. at 45-46).
iii. Conclusion
Plaintiff’s allegations are therefore sufficient at this stage of the litigation to sustain
claims against Savana predicated on Defendant’s successor liability. Thus, to the extent
Plaintiff’s allegations state claims against Eptiome, they likewise state claims against Savana.
c. Breach of Contract

Count I of Plaintiff’s Amended Complaint asserts claims against Savana, as successor to
Eptiome, for breach of contract. To establish a claim for breach of contract under New York
law, a party must prove: “(1) a contract; (2) performance of the contract by one party; (3) breach
by the other party; and (4) damages.” Command Cinema Corp. v. VCA Labs, Inc., 464 F.Supp.2d
191, 198 (quoting Terwilliger v. Terwilliger, 206 F.3d 240, 245-46 (2d Cir. 2000)). Plaintiff has

7

 See text accompanying note 2, supra.

28

alleged that: (1) the Note constitutes a valid and enforceable contract; (2) Opportunity Fund
substantially performed on that contract in making the $100,000 loan to Epitome; (3) Epitome
breached the contract by failing to repay the loan; and (4) Opportunity Fund has been damaged
by the breach in the amount of $100,000 plus interest. Thus, Plaintiff has stated a claim against
Epitome, and, by extension, a claim against Savana as successor to Epitome, on which relief can
be granted. Savana’s argument that Savana was not party to the Note simply begs again the
question of claims predicated on successor liability, which this Court has addressed and
dispatched at length, above. Defendant’s motion to dismiss Count I pursuant to Rule 12(b)(6) is
therefore DENIED.
d. Conversion

Count II of Plaintiff’s Amended Complaint asserts claims against Savana, as successor to
Eptiome, for conversion. Conversion is “any unauthorized exercise of dominion or control over
property by one who is not the owner of the property that interferes with and is in defiance of a
superior possessory right of another in the property.” Command Cinema, 464 F.Supp.2d at 199
(quoting Schwartz v. Capital Liquidators, Inc., 984 F.2d 53, 53 (2d Cir. 1993)). Under New
York Law, “[a] conversion claim may only succeed if the party alleges a wrong that is distinct
from any contractual obligations.” Id. (citing Briarpatch Ltd. L.P. v. Geisler Roberdeau, Inc.,
148 F.Supp.2d 321, 328 (S.D.N.Y. 2001)). Thus, “[t]here is no conversion action where damages
are sought for breach of contract.” Id. (citing Peters Griffin Woodward, Inc. v. WCSC, Inc., 88
A.D.2d 883 (N.Y.A.D. 1982). Here, Plaintiff has alleged no wrong distinct from Epitome’s
breach in failing to repay the $100,000 Note. Plaintiff’s claim for conversion therefore fails as a
matter of law. Defendant’s motion to dismiss Count II pursuant to Rule 12(b)(6) is GRANTED.

29

e. Promissory Estoppel

Count III of Plaintiff’s Amended Complaint asserts claims against Savana, as successor
to Eptiome, for promissory estoppel. A cause of action for promissory estoppel under New York
law “requires the plaintiff to prove three elements: 1) a clear and unambiguous promise; 2)
reasonable and foreseeable reliance on that promise; and 3) injury to the relying party as a result
of the reliance.” Ashland Inc. v. Morgan Stanley & Co., Inc. ., 700 F.Supp.2d 453, 472 (S.D.N.Y.
2010) (quoting Kaye v. Grossman, 202 F.3d 611, 615 (2d Cir.2000)). A claim for promissory
estoppel “may proceed jointly with a breach of contract claim only where it is not clear that a
valid contract exists.” Brenner v. Brenner, No. CV 10-4857, 2012 WL 3597247 at *7 (E.D.N.Y.
Aug. 20, 2012) (quoting BLD Prods., LLC v. Viacom, Inc., No. 10 Civ. 2625, 2011 WL 1327340
at *15 (S.D.N.Y. Mar. 31, 2011)). Where a contract’s enforceability is at issue, however,
“plaintiffs are ‘entitled to plead the alternative theory of promissory estoppel in the event it is
later determined there is no enforceable contract.’” Id. (quoting Polargrid LLC v. Videsh
Sanchar Nigam Ltd., No. 04-cv-9578, 2006 WL 903184 at *3 (S.D.N.Y. Apr. 7, 2006)).
Here, Defendant Savana has yet to answer to Plaintiff’s Complaint. Accordingly, it is not
yet clear whether Defendant will contest the validity and enforceability of the Note. To the
extent that Defendant chooses to contest this issue, Plaintiff is “entitled to plead the alternative
theory of promissory estoppel.” Id. In the event it is later determined there is no enforceable
contract, Plaintiff has stated a claim for promissory estoppel against Epitome – and by extension
Savana – in alleging that: (1) the Note contains a clear promise to repay the $100,000 loan with
interest by August 31, 2008; (2) Plaintiff’s reliance was reasonable and foreseeable in light of
Plaintiff’s business relationship with Epitome; and (3) Plaintiff was injured by loss of those

30

funds as a result of its reliance. Defendant’s motion to dismiss Count III pursuant to Rule
12(b)(6) is DENIED.
f. Unjust Enrichment

Count IV of Plaintiff’s Amended Complaint asserts claims against Savana, as successor
to Eptiome, for unjust enrichment. Pursuant to New York law, “where a plaintiff has paid the
defendant money pursuant to an unenforceable agreement, he may obtain restitution damages
under an implied-in-law contract theory where there is found to be no enforceable contract, but
in equity and good conscience the defendant should not retain the amounts paid to him.”
Kermaneshah v. Kermanshah, No. 08-cv-409, 2010 WL 1904135 at *6 (S.D.N.Y. May 11, 2010)
(citing Hamlin Beach Camping, Catering, & Concessions Corp. v. State, 303 A.D.2d 849, 358
(N.Y.A.D. 2003); RTC Props., Inc. v. Bio Res., Ltd., 295 A.D.2d 285, 744 N.Y.S.2d 173
(N.Y.A.D. 2002)). While a plaintiff “initially may raise both breach of contract and unjust
enrichment claims, a plaintiff cannot prevail on both because the determination that an
enforceable contract existed necessarily precludes an unjust enrichment claim based on the same
underlying agreement.” Id.
Here, Plaintiff alleges that it paid $100,000 to Epitome on the expectation that it would
repay those moneys, with interest, pursuant to the Note – an act which Epitome allegedly failed
to perform. At this early stage in the litigation, there has yet been no finding as to whether the
Note constitutes a valid, enforceable contract. Accordingly, Plaintiff may maintain its claim for
unjust enrichment against Epitome – and by extension, Savana – unless and until the Note is
found to be an enforceable contract. Defendant’s motion to dismiss Count IV pursuant to Rule
12(b)(6) is therefore DENIED.

31

IV. CONCLUSION
For the foregoing reasons, Defendant’s Motion to Dismiss is GRANTED as to Count II
of the Plaintiff’s Amended Complaint and DENIED as to Counts I, III and IV.
IT IS SO ORDERED.
s/ Algenon L. Marbley
Algenon L. Marbley
United States District Judge
Dated: November 27, 2012

32