Anthony Wayne Corp. v. Elco Fastening Sys., LLC
| Decision Date | 19 February 2016 |
| Docket Number | CAUSE NO. 3:13CV1406-PPS |
| Parties | ANTHONY WAYNE CORPORATION, Plaintiff, v. ELCO FASTENING SYSTEMS, LLC, ELCO INDUSTRIES, INC., ELCO TEXTRON, INC., TINNERMAN PALNUT, INC., and A. RAYMOND TINNERMAN MANUFACTURING, INC., Defendants. |
| Court | U.S. District Court — Northern District of Indiana |
Plaintiff Anthony Wayne Corporation (AWC) owns property in Logansport, Indiana which it has leased over the years to a series of manufacturing companies. Since 1972, the series of lessees (in chronological order) has included defendants Elco Industries, Inc., Elco Textron, Inc., Tinnerman Palnut, Inc. and, most recently, A. Raymond Tinnerman Manufacturing, Inc. AWC has pretty much been an absentee landlord; a representative from the company has been to the property precisely once in the last 30 years. AWC brought this case after learning that the property's soil and groundwater are contaminated, requiring environmental cleanup, and that the building on the property is in a deteriorated condition with repairs estimated in excess of $660,000.
The third amended complaint asserts environmental claims under Indiana law and CERCLA, as well as claims for breach of the lease, waste, and nullification of Elco Fastening Systems, LLC's certificate of cancellation under Delaware law. Now before me are motions for summary judgment by the Elco defendants and A. Raymond Tinnerman Manufacturing.1 Summary judgment is appropriate where "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
The following facts are undisputed. The Logansport property consists of a one-story industrial building of approximately 23,000 square feet. [DE 93-6 at 2.] The Plaintiff AWC bought the Logansport property in 1972 from K.L.K. Manufacturing, but leased the warehouse back to K.L.K. for its continued manufacturing operations. Later that year, Elco Industries took an assignment of K.L.K.'s interest in the lease. [DE 48-1.] Elco Industries used the property for metal plating operations for more than 20 years. In 1995, Elco shifted its use of the property strictly for storage, as a warehouse for raw material, and negotiated a reduction in the rent that was formalized in the execution of a new lease between AWC and Elco on May 1, 1995. [DE 48-3.] AWC commissioned an appraisal of the property in 2001. The appraisal report noted that the building was in"at best fair condition," had boarded-up windows, and was "in the disintegration stage of transition." [DE 87-13 at 4, 5, 6.]
By 2005, Elco Textron was the lessee under the 1995 Lease. In October of 2005, Elco Textron assigned its rights in the lease to Tinnerman Palnut. [DE 48-5.] A. Raymond Tinnerman's (ART) occupancy of the property began four years later in 2009. A "Consent of Landlord" was executed by AWC's Vice President Frank Silva on October 19, 2009, approving Tinnerman Palnut's assignment of the leasehold to ART. [DE 31-7.] AWC did not inspect the property at that time. In fact, as I mentioned at the outset, other than the 2001 appraisal AWC commissioned, the only inspection of the property from 1972 to 2013 by AWC occurred once in the mid-1990's when Thomas Silva, then President of AWC, visited and confirmed that the building was being used only as a warehouse for storage, and not for any manufacturing processes. [DE 87-4 at 4, 5.]
A document executed by AWC and Tinnerman Palnut on April 11, 2006 extended the 1995 Lease to April 30, 2010. [DE 48-6 at 2.] A further lease extension to April 30, 2014 was prepared for AWC and ART, but was never executed. [DE 48-8 at 2.] AWC offers that it made efforts to get the lease extension signed after ART took over the property, but discontinued the effort once ART had made three months of lease payments. [DE 94 at 3.] As a result, AWC readily admits that "it does not have a signed lease with A. Raymond Tinnerman." [DE 87-18 at 2.] ART vacated the property and returned the keys to AWC in February 2013.
Shortly before that, on January 18, 2013, AWC's President Frank Silva visited the property and was "appalled" by its condition, which included a collapsing, leaking roof. [DE 87-4 at 5 (p.36:3).] A subsequent building inspection disclosed significant damage to the roof and walls from water infiltration, a number of broken windows, and other needs for significant repair. [DE 94-4 at 3, 6.] The inspector ascribed the building's condition to neglect that furthered the deterioration. [DE 94-5 at 4 (19:15-18).]
ELCO DEFENDANTS' MOTION FOR SUMMARY TUDGMENT
The Corporate Dissolution Issue - Count V
There are three Elco defendants named in the third amended complaint. Count V of the complaint is labeled "Nullification of Certificate of Cancellation." In a moment I will describe what that means because there is nothing intuitive about it. But to get there one first needs to understand the corporate history of the three Elco defendants. In essence, they are the same company with different names. Here's the history: Elco Industries, Inc. was incorporated in Delaware on March 11, 1969. [DE 91-20 at 1.] It changed its name to Elco Textron Inc. on November 20, 1995. [DE 91-21 at 1-2.] On April 3, 2006, Elco Textron Inc. converted to a Delaware limited liability company and became Elco Fastening Systems LLC. [DE 91-22 at 1.] The LLC's certificate of cancellation was filed on May 31, 2012. [DE 91-25 at 1-2.]
Elco's first argument for summary judgment is that the cancellation of Elco Fastening Systems LLC under Delaware Law in 2012 rendered it impervious to this suit,which was filed in 2013. If Elco properly wound up its corporate business in 2012, then any claim against them would be a nonstarter. Count V of the amended complaint — the one labeled "Nullification of Certificate of Cancellation" — is AWC's effort to avoid the effect of the corporate dissolution.
Fed.R.Civ.P. 17(b)(2) provides that a corporation's capacity to be sued is determined "by the law under which it was organized." Elco invokes §18-803(b) of Delaware's LLC Act:
Upon dissolution of a limited liability company and until the filing of a certificate of cancellation as provided in § 18-203 of this title, the persons winding up the limited liability company's affairs may, in the name of, and for and on behalf of, the limited liability company, prosecute and defend suits, whether civil, criminal or administrative....
6 Del. Code §18-803(b). The ramifications of this provision include that "[a] limited liability company cannot be sued under Delaware law once the company's certificate of cancellation has been filed unless the plaintiff successfully seeks to have the company's certificate of cancellation nullified on the ground that the company was not 'wound up' in compliance with Delaware law." Soroof Trading Development Co., Ltd. v. GE Fuel Cell Systems, 842 F.Supp.2d 502, 520 (S.D.N.Y. 2012).
Like the plaintiff in Soroof, AWC seeks nullification of Elco's certificate of cancellation, contending in Count V that Elco "should have anticipated Anthony Wayne's claims" but, in violation of 6 Del. Code §18-804(b)(3), "failed to make reasonable provision to pay Anthony Wayne's claims." [DE 76 at ¶¶64, 65.] What §18-804(b)(3) requires is that a dissolving LLC:
make such provision as will be reasonably likely to be sufficient to provide compensation for claims that have not been made known to the limited liability company or that have not arisen but that, based on facts known to the limited liability company, are likely to arise or to become known to the limited liability company within 10 years after the date of dissolution.
This requirement is also subject to limitations "[i]f there are insufficient assets." §18-804(b). Elco argues both that it had no assets at the time of dissolution and that any liability to AWC was not foreseeable so as to trigger the set-aside provision. In Soroof, because it was undisputed that the LLC "had no assets available to pay potential claims at the time of dissolution" and was "obligated to make provision for claims only 'to the extent of assets available therefor,'" the LLC was entitled to summary judgment dismissing all the claims against it. Soroof, 842 F.Supp.2d at 520-21.
Here AWC offers the affidavit of John R. Clark, who is identified as the former Executive Vice President, General Counsel and Secretary of Elco Fastening LLC.2 Clark attests that after Elco Textron sold its assets related to the property to Tinnerman Palnut on November 4, 2005, the company was converted into Elco Fastening Sytems LLC in April 2006, and between 2006 and 2010, "sold off its remaining assets." [DE 91-24 at ¶5.] Elco contends that "it is undisputed" that as of the filing of the certificate of cancellation, Elco Fastening "did not have any assets remaining" and therefore "had noobligation to set aside funds for some future, potential claim by Anthony Wayne." [DE 90 at 24.]
AWC's response is to suggest that the disposition of Elco's assets was largely in the nature of redistribution to related companies, so that Elco was capable of setting aside assets for future claims. [DE 92 at 7.] But AWC cites no authority suggesting that an LLC only benefits from the protections of the statute if it goes involuntarily belly-up as opposed to reorganized out of business by its corporate family. The statutory references to the availability of assets make no distinctions as to where previous assets have gone or why, and provide no basis for conclusions about the relevance of "fraudulent transfers" or anything of that sort. Although "allowing entities to dissolve in order to avoid any contractual or other obligations would fly in the face of any rational public policy," that concern is addressed by the Delaware LLC Act's requirement of set-asides based on known facts giving rise to potential liability. Novartis Corporation v. ...
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