Albright v. Varicon, L.L.C.
| Decision Date | 23 January 2014 |
| Docket Number | No. 99967,99967 |
| Citation | 2014 Ohio 209 |
| Parties | ROGER ALBRIGHT, ET AL., TRUSTEES PLAINTIFF-APPELLANT v. VARICON, L.L.C. DEFENDANT-APPELLEE |
| Court | Ohio Court of Appeals |
ATTORNEYS FOR APPELLANT
Jessica Weekley
J. Brian Kenney Co., L.P.A.
Michael P. O'Donnell
Christopher J. Carney
Brouse McDowell, L.P.A.
{¶1} This appeal concerns a dispute over a commercial lease. Plaintiff-appellant, a Connecticut trust whose trustees are Roger Albright and John Labanca ("landlord" or "appellant"), appeals from a decision of the trial court denying its motion for summary judgment and granting summary judgment in favor of defendant-appellee tenant, Varicon, L.L.C. ("tenant" or "appellee"). For the following reasons, we affirm the trial court's decision denying the landlord's motion for summary judgment, reverse its decision granting summary judgment in favor of the tenant, and remand the case for further proceedings consistent with this opinion.
{¶2} This commercial lease case involves three entities — the landlord, the original tenant (not a party in this case), and a corporate entity who purchased the assets of the original tenant and continued to occupy the premises after the original tenant ceased to exist.
{¶3} On December 10, 2007, Innovative Container Operating Company, L.L.C., a South Carolina company (hereafter "ICOC"), entered into a five-year lease with the landlord Roger Albright and John LaBanca, trustees of a Connecticut trust whose office is located in Texas, to rent 41,350 square feet of warehouse and office space in Bedford Heights, Ohio. The rent was $12,182.71 per month, and the lease was to expire December 12, 2012.
{¶4} One year after the lease was signed, the original tenant, ICOC, experienced financial difficulties. On December 31, 2008, ICOC sold almost all its assets to an entity called ICOC Acquisitions, L.L.C., which was formed by business partners Mark Daniels and Rod Grandy for the sole purpose of purchasing the assets from ICOC.
{¶5} ICOC Acquisitions paid four million dollars for ICOC's assets, including its receivables, machinery, equipment, and inventory. Days after the sale of its assets, ICOC was dissolved; the South Carolina secretary of state's website indicates ICOC was "dissolved" as of January 8, 2009.
{¶6} According to Mark Daniel's affidavit, there was no stock transfer in the assets-purchase transaction, and none of the ICOC's former owners participated in the management of ICOC Acquisitions. Nothing in the record indicates who the former owners or principals of the new company are, however.
{¶7} ICOC Acquisitions is in the bulk container business, selling plastic containers and related tracking services. Three months after purchasing the assets of ICOC, on March 9, 2009, ICOC Acquisitions changed its name to Varicon, L.L.C. In its brief, Varicon states that for the purposes of this appeal, ICOC Acquisitions and Varicon are one and the same. We refer to the entity as Varicon in the following.1
{¶8} As evidence of landlord's knowledge of the former tenant ICOC's insolvency, Varicon submitted a letter dated January 5, 2009, addressed to "Colors for Plastics," presumably a creditor of ICOC. The letter informed the recipient that ICOC was no longer able to continue its operations, had sold its assets to ICOC Acquisitions for four million dollars, used the funds to retire ICOC's debts to its senior secured creditor, and was unable to pay its debts to other creditors. The letter stated the buyer corporation "is operating under a different name," without specifying what the new name was. Landlord alleged it never received a copy of this letter.
{¶9} The Bedford Heights lease was specifically referenced in the Asset Purchase Agreement (hereafter "APA") between ICOC and ICOC Acquisitions. Article 5 of the APA, titled "Related Transactions," addressed ICOC's leases. Two sections in Article 5 dealt with the three leases ICOC was currently under: two of them related to locations in South Carolina and one of them was the Bedford Heights lease. Under the APA, the two South Carolina leases were expressly assumed by Varicon.
{¶10} However, Section 5.5 (titled "Sublease Agreement") stated that ICOC Acquisition "shall have entered into" a sublease agreement with ICOC regarding the Bedford Heights warehouse. Meanwhile, in Schedule 1.1 of the APA ("List of Assets"), the security deposit of the Ohio lease was listed as an asset.
{¶11} Furthermore, Schedule 3.2 of the APA stated that
{¶12} In moving for summary judgment, Varicon submitted a copy of a "Sublease Agreement" between ICOC and ICOC Acquisitions, which stated a sublease was effective as of January 1, 2009, and the sublease would provide for a twice-renewable 30-day sublease between those two entities. The agreement was signed by officers of ICOC and ICOC Acquisitions. It was not dated, however.
{¶13} Although the APA required the landlord's consent, the evidence does not contain the landlord's consent to the sublease, written or otherwise. In fact, there is no evidence that the landlord was even aware of the sublease agreement or its terms.
{¶14} The sublease, pursuant to its terms, expired April 2009, but Varicon continued to occupy the premises and paid rents for 20 more months. On December 30, 2011, Mark Daniels sent a correspondence to landlord, stating: "Please allow this letter to serve as notice of our intent to terminate our current month-to-month tenancy" regarding the subject premises. The termination was to be effective January 31, 2012. Despite the reference to the month-to-month tenancy, Varicon, in moving for summary judgment, did not submit evidence showing how and when the purported "month-to-month" lease came into existence. Despite the notice of "termination," Varicon remained on the premises and continued to pay rent through March 2012.
{¶15} Landlord filed a complaint in the common pleas court to recover rents from April 2012 to December 2012 (when the five-year lease was to expire), totaling $109,689.39, plus outstanding utility bills of $1,900.82.
{¶16} Both parties then moved for summary judgment. The trial court denied the landlord's motion for summary judgment, but granted summary judgment in favor of Varicon, holding that Varicon was not liable for the balance of the lease because it did not "impliedly assume" the five-year lease.
{¶17} On appeal, appellant landlord raises two assignments of error for our review. Under the first assignment of error, landlord claims the trial court erred in denying its motion for summary judgment. Under the second assignment of error, appellant landlord claims the trial court erred in granting Varicon's motion for summary judgment. We address these claims together.
{¶18} We review summary judgment de novo. Grafton v. Ohio Edison Co., 77 Ohio St.3d 102, 105, 671 N.E.2d 241 (1996).
(2) the moving party is entitled to judgment as a matter of law; and
(3) it appears from the evidence that reasonable minds can come to but one conclusion, and viewing such evidence most strongly in favor of the party against whom the motion for summary judgment is made, that conclusion is adverse to that party.
Temple v. Wean United, Inc., 50 Ohio St.2d 317, 327, 364 N.E.2d 267 (1977).
{¶20} March v. Steed Ents., 5th Dist. Muskingum No. CT 2012-0058, 2013-Ohio-4448, ¶ 18-19, citing Welch v. Ziccarelli, 11th Dist. Lake No. 2006-L-229, 2007-Ohio-4374. The moving party seeking summary judgment "bears the initial burden of informing the trial court of the basis for the motion and identifying those portions of the record before the trial court that demonstrate the absence of a genuine issue of fact on a material element of the nonmoving party's claim." Dresher v. Burt, 75 Ohio St.3d 280, 293, 662 N.E.2d 264 (1996).
{¶21} This case concerns successor liability as it applies to claims sounding in contract. The issue is whether a corporation who purchased the assets of another corporation may be held liable for the contractual obligations of the seller corporation. The law regarding successor liability was discussed by the Supreme Court of Ohio in Welco Indus., Inc. v. Applied Cos., 67 Ohio St.3d 344, 617 N.E.2d 1129 (1993).
{¶22} In Welco, the Supreme Court of Ohio reiterated the well-established general rule of successor liability: the purchaser of a corporation's assets is not liable for the debts and obligations of the seller corporation, unless one of the exceptions applies. Id. at 346-347. A successor corporation may be held liable when "(1) the buyer corporation expressly or impliedly agrees to assume such liability; (2) the transaction amounts to a defacto 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 347.
To continue reading
Request your trial