Bennett v. MC No. 619, Inc.

• Decision Date: 25 November 1998
• Docket Number: No. 97-350,97-350
• Citation: 586 N.W.2d 512
• Parties: Todd BENNETT and Mason City Human Rights Commission, Appellants, v. MC # 619, INC., Appellee, CRW # 644, Inc., Appellee.
• Court: Iowa Supreme Court

Page 512

586 N.W.2d 512

Todd BENNETT and Mason City Human Rights Commission, Appellants, v. MC # 619, INC., Appellee, CRW # 644, Inc., Appellee.

No. 97-350.

Supreme Court of Iowa.

Nov. 25, 1998.

Randall E. Nielsen of Pappajohn, Shriver, Eide & Nicholas, P.C., Mason City, for appellants.

Dennis W. Johnson of Dorsey & Whitney LLP, Des Moines, for appellee, MC # 619, Inc.

David A. Tank of Davis, Brown, Kuehn, Shors & Roberts, P.C., Des Moines, for appellee, CRW # 644, Inc.

Considered by CARTER, P.J., and LAVORATO, NEUMAN, SNELL, and CADY, JJ.

LAVORATO, Justice.

Todd Bennett filed suit against the defendants, MC # 619, Inc. (MC) and CRW # 644, Inc. (CRW), claiming they were liable as successor corporations for an unpaid judgment on his employment discrimination claim. The unpaid judgment was against a prior owner of the restaurant where Bennett had worked. The district court granted MC's motion for summary judgment but denied CRW's motion for summary judgment. Both motions asserted Bennett's claim was barred under the doctrine of res judicata. The court also denied Bennett's motion for summary judgment against both defendants. Bennett appeals from the district court order granting MC's motion for summary judgment and denying his own motion for summary judgment against MC. CRW cross-appeals from the district court order denying its motion for summary judgment. We affirm on both the appeal and cross-appeal. We remand for further proceedings.

I. Facts.

Bennett filed a complaint with the Mason City Human Rights Commission against Bonanza Family Restaurant in Mason City and Michael Bitz, one of the restaurants assistant managers. Bennett alleged that on April 5, 1987, Bitz terminated his employment at the restaurant in retaliation for Bennett's earlier filing of a sex discrimination complaint against the restaurant.

An administrative law judge (ALJ) heard the complaint and issued a proposed decision which the commission adopted. The commission determined that the restaurant and Bitz had discriminated against Bennett in violation of the Mason City Human Rights Ordinance and that Bennett was entitled to $7077.87 in back pay and $7500 in emotional distress damages, together with interest and attorney fees.

The commission remanded the case to the ALJ in response to a motion by Bennett. Bennett claimed that the Mason City restaurant had been sold and he needed to determine the identity of the new owners. The ownership issue arose because Bonanza Family Restaurant and Bitz challenged the ALJ's proposed decision on the ground that Bonanza Family Restaurant was not a legal entity.

In the remand order the commission directed the ALJ to conduct "further proceedings on the issue of the identities of the parties against whom the judgment in the decision is to be rendered, and the identity of the present owners of Bonanza Family Restaurant." While the case was pending on remand, Bennett moved to amend the complaint to add as respondents, Family Restaurants, Inc., a South Dakota corporation, and MC, an Iowa corporation. Bennett contended that Family Restaurants, Inc. owned and operated the Bonanza Family Restaurant in Mason City on the date of the incident. He also contended that MC succeeded Family Restaurants, Inc. as the owner and operator of the Bonanza Family Restaurant in Mason City.

The ALJ granted the amendment and later held a hearing on the following issues: (1) whether Bonanza Family Restaurant should be replaced as a respondent by Family Restaurants, Inc.; (2) whether MC may be held to have assumed the liabilities of respondent Bonanza Family Restaurant or Family Restaurants, Inc. for the damages the commission awarded Bennett; and (3) the proper amount of attorney fees to be awarded.

At the beginning of the hearing, Bennett and Family Restaurants, Inc. agreed that Family Restaurants, Inc. should be substituted for Bonanza Family Restaurant as a respondent and the commission's decision should be entered against Family Restaurants, Inc. instead of Bonanza Family Restaurant. The substitution confirmed the true state of affairs: When Bennett's employment was terminated, Family Restaurants, Inc. owned and operated Bonanza Family Restaurant in Mason City. "Bonanza Family Restaurants" was merely a trade name.

After the hearing, the ALJ made the following findings. Besides the Bonanza Family Restaurant in Mason City, Family Restaurants, Inc. owned and operated two other Bonanza Family Restaurants, the "East" and "West" Bonanza Family Restaurants in Cedar Rapids. Rodney Charles Converse and Kevin Close formed MC in early October 1990 to own and operate the Bonanza Family Restaurant in Mason City. Family Restaurants, Inc. transferred ownership of Bonanza Family Restaurant in Mason City to MC on October 15, 1990, several months before the ALJ had issued his proposed decision awarding damages to Bennett. At the time of this transfer, MC also took over the Cedar Rapids "East" Bonanza Family Restaurant. Family Restaurants, Inc. remained the owner of the Cedar Rapids "West" Bonanza Family Restaurant.

The ALJ also made findings regarding Bennett's allegations that MC as a successor in interest was liable for the damages ordered by the commission. In regard to the successor liability issue, the ALJ followed First Judicial District Department of Correctional Services v. Iowa Civil Rights Commission, 315 N.W.2d 83 (Iowa 1982). Pursuant to that case, the ALJ required Bennett to prove that (1) MC had notice of Bennett's claim; (2) Family Restaurants, Inc. was presently unable to pay the damages ordered by the commission; and (3) substantial continuity of business operations existed between Family Restaurants, Inc. and MC. See id. at 90. The ALJ found that Bennett had proved elements (1) and (3), but not (2).

The commission adopted the ALJ's decision. Notwithstanding Bennett's request to do so, the commission did not retain jurisdiction over MC in the event Bennett was unable to collect from Family Restaurants, Inc. Bennett did not seek judicial review.

Later, Bennett and the commission filed suit in district court to obtain an enforceable judgment against Family Restaurants, Inc. for the damages the commission had awarded. See Iowa Code § 216.17(2). Family Restaurants, Inc. defaulted and the district court entered judgment for the amount of such damages.

Bennett attempted to levy execution on the Cedar Rapids "West" Bonanza Family Restaurant, believing it still belonged to Bonanza Family Restaurants, Inc. In fact, the owner of the real estate on which the restaurant was located terminated Family Restaurants, Inc.'s lease on March 23, 1992. The owner of the real estate was also the sole shareholder of CRW, the entity that took over the operation of the Cedar Rapids "West" Bonanza Family Restaurant, leased its equipment, and leased the premises.

Several months later, Bennett discovered that Family Restaurants, Inc. had filed bankruptcy. Eventually, Bennett received $138.29 from the bankruptcy, representing his pro rata share of assets for unsecured creditors. In November 1993, the state of South Dakota administratively dissolved Family Restaurants, Inc. for failing to file annual reports.

II. Present Proceedings.

Following these events, Bennett filed the present action against MC and CRW. Count I seeks relief against both defendants on the theory of successor liability. Count II seeks relief against both defendants on the grounds of fraudulent conveyance. Count III seeks attorney fees.

Both defendants moved for summary judgment. Bennett also moved for summary judgment against both defendants. The district court granted MC's motion, stating that "principles of res judicata prevent plaintiff from re-litigating claims previously litigated or which could have been litigated in the administrative action." The court overruled Bennett's and CRW's motions for summary judgment, concluding that "genuine issues of material fact exist which preclude the court from granting summary judgment on behalf of either party."

Bennett appealed from the ruling granting MC's motion for summary judgment and the ruling denying his own motion for summary judgment against MC. He did not appeal from the ruling denying his motion for summary judgment against CRW. CRW cross-appealed from the ruling denying its motion for summary judgment.

III. Scope of Review.

On rulings regarding motions for summary judgment, our review is for errors at law. Iowa R. App. P. 4; Johnson v. Nickerson, 542 N.W.2d 506, 510 (Iowa 1996). Summary judgment is appropriate only when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Iowa R. Civ. P. 237(c); Johnson, 542 N.W.2d at 510.

Bennett and MC agree that as between them there is no genuine issue of material fact and that the issue is purely a legal one. Our task therefore is only to determine whether the district court correctly applied the law. See Hoefer v. Wisconsin Educ. Ass'n Ins. Trust, 470 N.W.2d 336, 338 (Iowa 1991).

As between Bennett and CRW, Bennett contends there are genuine issues of material fact as the district court found. CRW argues to the contrary and therefore insists it is entitled to a judgment as a matter of law. Our task as between these two parties is to determine whether there are genuine issues of material fact. Daboll v. Hoden, 222 N.W.2d 727, 731 (Iowa 1974). As the moving party, CRW has the burden to show absence of any genuine issue of material fact and that it is entitled to judgment as a matter or law. Id. We review all material properly before the court in the light most favorable to the opposing party--in this case Bennett. Id.

IV. Issues on Appeal.

A. Res judicata/claim preclusion and successor liability. On appeal, Bennett contends the district court should not have granted MC's motion for summary judgment and should have granted his motion for summary judgment on the issue of res judicata regarding the successor...