Crutchfield v. Marine Power Engine Co.
2009 OK 27, 209 P.3d 295, 2009 Okla. LEXIS 27 (2009)
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Rule of Law:
To hold a successor corporation once-removed liable for a predecessor's debts under the 'mere continuation' exception, a creditor must prove that each successive corporation in the chain of asset transfers was a mere continuation of the corporate entity of its predecessor.
Facts:
- In 1996, Steve Crutchfield was hired by Marine Power Engine, Inc. (MP Engine), a boat engine manufacturer, under a contract signed by its president, Walter Allbright.
- In February 1997, MP Engine sold all its assets to Hirel Holdings, Inc. (Hirel), a publicly-held corporation, in exchange for stock.
- Following the sale, MP Engine ceased business operations but continued to exist as a corporate entity with no assets, and Allbright continued to manage the Louisiana operations for Hirel.
- In July 1997, Hirel terminated Crutchfield's employment.
- In late 1997, Hirel, facing insolvency, sold its engine manufacturing assets to Marine Power Holding, L.L.C. (MP Holding), a newly formed company.
- MP Holding was formed by investor John Smallpage, who became the majority shareholder and manager; Walter Allbright was named president.
- MP Holding's purchase agreement expressly declined to assume any of Hirel's liabilities other than those specifically catalogued.
- MP Holding continued the engine manufacturing business, using the 'Marine Power' trade name and copyrights that originated with MP Engine.
Procedural Posture:
- Steve Crutchfield sued Marine Power Engine Company, Hirel, and Walter Allbright in Delaware County District Court (trial court) for unpaid severance.
- The trial court dismissed Hirel and Allbright for lack of personal jurisdiction.
- Marine Power Engine Company made an offer of judgment to Crutchfield, which the trial court entered as an agreed judgment.
- Years later, Crutchfield initiated a garnishment action against Tige Boat, Inc., a customer of MP Holding, to collect on the judgment against MP Engine.
- MP Holding intervened, and a trial was held on the issue of whether MP Holding was liable for MP Engine's debt as a successor corporation.
- The trial court found that MP Holding was a 'mere continuation' of MP Engine and therefore liable, entering a judgment on garnishment.
- MP Holding and Tige (appellants) appealed to the Court of Civil Appeals.
- The Court of Civil Appeals reversed the trial court's decision, finding the evidence did not support the 'mere continuation' theory.
- Crutchfield (petitioner) filed a petition for certiorari with the Supreme Court of Oklahoma.
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Issue:
Does the 'mere continuation' exception to successor non-liability apply to a successor corporation once-removed where there is insufficient evidence of a continuation of the corporate entity at each step of the succession?
Opinions:
Majority - Kauger, J.
No. The 'mere continuation' exception does not apply because liability requires a continuation of the corporate entity, not merely a continuation of business operations. To hold a successor corporation once-removed liable, the plaintiff must establish that an exception to non-liability applies to each transaction in the chain of succession. The test for the 'mere continuation' exception is whether there is a continuation of the corporate entity, which is primarily determined by a common identity of officers, directors, and stockholders. Crutchfield failed to provide sufficient evidence that Hirel was a continuation of MP Engine's corporate entity or that MP Holding was a continuation of Hirel's corporate entity. The trial court erred by focusing on the continuity of business operations—such as the use of the same website and copyrights—rather than the required continuity of the corporate entity itself.
Analysis:
This case establishes a significant precedent in Oklahoma for corporate successor liability, particularly in the context of multi-layered transactions. By requiring a plaintiff to prove that an exception to non-liability applies at each step in a chain of succession, the court increases the burden on creditors seeking to collect from remote successor entities. This decision clarifies that the 'mere continuation' doctrine is narrowly focused on the continuity of corporate ownership and management, not just the continuation of a business enterprise. The ruling protects bona fide asset purchasers from inheriting the liabilities of distant predecessor companies, thereby reinforcing the general rule of corporate successor non-liability.
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