Clardy v. Sanders

Decision Date23 June 1989
Docket NumberNo. 87-1070,87-1070
Citation551 So.2d 1057
PartiesDebby D. CLARDY, as executrix of the Estate of Thomas Eugene Clardy, deceased; and Clardy Realty, Inc. v. Martha Hoffman SANDERS.
CourtAlabama Supreme Court

Michael B. Beers of Beers, Anderson, Jackson & Smith, Montgomery, and Julian P. Hardy of Pritchard, McCall, Jones, Spencer & O'Kelley and Karon O. Bowdre and Deborah Alley Smith of Rives & Peterson, Birmingham, for appellants.

Richard M. Jordan and Randy Myers, Montgomery, and W. Sidney Fuller, Andalusia, for appellee.

William M. Cunningham, Jr. of Sintz, Campbell, Duke, Taylor & Cunningham, Mobile, for amicus curiae Ala. Defense Lawyers Assoc., in support of appellant.

JONES, Justice.

This appeal by the defendants, from an adverse judgment based on a jury verdict in a wrongful death case, raises the following issues: Whether the trial court erred 1) in denying Clardy Realty, Inc.'s motion for directed verdict on the grounds of insufficiency of the evidence and the inapplicability of the "successor corporation liability" doctrine; 2) in denying the defendants' constitutional challenge to Alabama's punitive damages award in wrongful death cases; and 3) in rejecting the defendants' post-judgment motion for a remittitur on non-constitutional grounds. We affirm.

Background Facts and Statement of the Case

Thomas Eugene Clardy and James K. Kervin were racing their automobiles late one evening. In an attempt to pass, Clardy swung into the opposite lane and struck a car being driven in the opposite direction by Norma Hoffmann, a 16-year-old female. Both Clardy and Hoffman were killed.

Clardy owned a real estate proprietorship called Clardy Realty. Following Clardy's death, Debby Clardy, the widow of Thomas Eugene Clardy, incorporated Clardy Realty. Mrs. Clardy was also named the executrix of her late husband's estate.

Originally, Martha Hoffmann Sanders, Norma's mother, filed a two-count complaint under Ala.Code 1975, § 6-5-391, against Mrs. Clardy, as the executrix of The jury returned a verdict in favor of Kervin's father, but against the other defendants in the amount of $2.75 million in punitive damages. Judgment was entered in accordance with the verdict. The trial judge conducted an extensive post-trial evidentiary hearing and issued a "Hammond order" 1 setting forth the factors used in determining that the verdict was not excessive.

Clardy's estate, and against Kervin, alleging negligence and wantonness. Later, Mrs. Sanders amended her complaint to add as a defendant Clardy Realty, Inc., alleging that Clardy was acting within the scope of his authority at the time of the accident, and to add Kervin's father, under a theory of negligent entrustment. Kervin had received five speeding tickets in a two-year period before the accident, and had also been drinking that night.

The Statement of the Facts

The following facts are undisputed: 1) Clardy had a blood alcohol level of .21% at the time of the accident; 2) Clardy was racing his truck with the car driven by Kervin; 3) Clardy was driving approximately 80 mph; and 4) Clardy was in Hoffman's lane when he struck her car head-on.

Other facts (taken from the evidence as viewed in a light most favorable to the plaintiff) are as follows: Clardy left his house at about 11:00 P.M. on the night of the accident. There is a dispute over where he was going, but there was testimony to the effect that he was going to check on some of his rental property. A "Clardy Realty" sign was in Clardy's truck at the time of the accident, and the accident occurred near some property owned by Clardy. As previously stated, all of the testimony, which included that of several eyewitnesses, showed that the accident was entirely the combined and concurring fault of Clardy and Kervin. The accident occurred between 1:00 and 1:30 A.M. on August 30, 1986.

On October 17, 1986, Mrs. Clardy incorporated her husband's business under the name Clardy Realty, Inc. She testified that she did so on the advice of her accountant and lawyer, and not in response to the litigation arising from the accident. According to Mrs. Clardy, the assets and liabilities of Clardy Realty were assumed by Clardy Realty, Inc. No consideration passed between the estate of Clardy and Clardy Realty, Inc. The location, manner of operation, and personnel of Clardy Realty remained the same following the incorporation. The only major change that occurred was Mrs. Clardy's becoming the licensed broker for the corporation, the position her husband had held in the proprietorship.

I. The Insufficiency-of-the-Evidence Issue

Under Clardy Realty, Inc.'s first allegation of error, it poses the following propositions: "A. Speculative evidence cannot support the verdict against Clardy Realty, Inc.; B. Theories of successor corporation liability are not applicable to impose liability on Clardy Realty, Inc.; and C. The trial court's erroneous charge to the jury concerning the presumption of agency by the owner of the vehicle constitutes reversible error." 2 As a premise for its "insufficiency" argument, Clardy Realty, Inc., contends that the plaintiff failed to meet her burden of making a prima facie showing that Clardy was on business for the proprietorship at the time of the accident. This argument misperceives the relationship between Clardy as an individual, and Clardy as the sole proprietor of Clardy Realty. Whether Clardy, at the time of the accident, was on business for Clardy Realty is of no legal consequence as to the liability of either Clardy's estate or Clardy Realty, Inc., under the successor liability doctrine. Clardy the individual and Clardy Realty, a sole proprietorship, are but a single legal

entity; and the two separate capacities (Clardy as an individual, and Clardy as a sole proprietor) can not be separated into two legal entities for the purpose of testing Clardy Realty, Inc.'s liability as a successor in interest to the liabilities of Clardy's estate.

II. The Successor Liability Issue

The failure of Clardy Realty, Inc.'s respondeat superior argument, however, does not answer the ultimate question concerning the application of the "successor corporation liability" theory. Under this prong of its argument, Clardy Realty, Inc., contends that it could not legally succeed to the debts and obligations of Clardy Realty, because the proprietorship ceased to exist upon Clardy's death and before Clardy Realty, Inc., came into existence; and, further, that the plaintiff did not seek to substitute Clardy Realty, Inc., for Clardy's estate, but sued Clardy Realty, Inc., as an additional defendant, thus impermissibly enhancing the plaintiff's award of punitive damages.

Clardy Realty, Inc.'s first contention is to the effect that there could be no continuity of operations due to the break in time between Clardy's death and Clardy Realty, Inc.'s legal existence. This argument fails, both factually and legally. Factually, the time span between Clardy's death and Clardy Realty, Inc.'s incorporation was far too brief to allow any appreciable change in the business operations of the firm; and the evidence of record does not support a finding of any material change in the firm's operation. Legally, the test of the doctrine's application is not so tenuous or restrictive as to depend exclusively upon the "continuity of operations" element.

The requisite alternative elements of the "successor corporation liability" theory are stated in Andrews v. John E. Smith's Sons Co., 369 So.2d 781 (Ala.1979):

"As a general rule, where one company sells or otherwise transfers all its assets to another company, the transferee is not liable for the debts and liabilities of the transferor unless (1) there is an express agreement to assume the obligations of the transferor, (2) the transaction amounts to a de facto merger or consolidation of the two companies, (3) the transaction is a fraudulent attempt to escape liability, or (4) the transferee corporation is a mere continuation of the transferor. 15 Fletcher, Cyclopedia Corporations § 7122 (Perm. ed. 1973); 19 Am.Jur.2d § 1546."

369 So.2d at 785. Under appropriate instructions, and the facts disclosed of record, the jury was authorized to conclude that one or more of these elements was present, and, thus, that Clardy Realty, Inc., succeeded to the liabilities of Clardy Realty.

The second aspect of Clardy Realty, Inc.'s argument (the recovery against both the estate and Clardy Realty, Inc.) is more difficult of resolution, and, indeed, contains a ring of logic. Ordinarily, the application of the "successor liability doctrine" does not contemplate that both entities will be held liable for a single obligation arising from a single culpable act or other legal obligation. To be sure, if the doctrine is held to apply, the successor entity is ordinarily fully chargeable with the liability, but not the predecessor entity.

The parties agree that this issue has not been directly addressed in the Alabama cases. Authorities from other jurisdictions have been cited by the parties and thus consulted by us in our effort to resolve this issue. See Tift v. Forage King Industries, Inc., 108 Wis.2d 72, 322 N.W.2d 14 (1982); Plaza Express Co. v. Middle State Motor Freight, Inc., 40 Ill.App.2d 117, 189 N.E.2d 382, n. 4 (1963); Jones v. Eppler, 266 P.2d 451, n. 9, 10 (Okla.1953); and Acorn Lumber Co. v. Friedlander Box Co., 240 Ill.App. 425 (1926). Specifically, we adopt the rationales and the holdings of the Tift and Jones decisions. The Tift court held:

"It should be emphasized that the corporate rule that exempts a successor company from the liabilities of its predecessor when it has purchased the assets "Two of these exceptions, the first and the fourth, are unrelated to the problem at hand, for where there is an express or implied assumption of the selling corporation's liabilities--tort, contract, or both--the problem is obviated; and where the transaction is...

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