Crutchfield v. Marine Power Engine Co.

• Citation: 2009 OK 27,209 P.3d 295
• Decision Date: 05 May 2009
• Docket Number: No. 103,342.,103,342.
• Parties: Steve CRUTCHFIELD, Plaintiff/Garnishor/Appellee, v. MARINE POWER ENGINE COMPANY, Defendant, and Tige Boats, Inc., Garnishee/Appellant, and Marine Power Holding, L.L.C., Appellant.
• Court: Supreme Court of Oklahoma

209 P.3d 295

2009 OK 27

Steve CRUTCHFIELD, Plaintiff/Garnishor/Appellee, v. MARINE POWER ENGINE COMPANY, Defendant, and Tige Boats, Inc., Garnishee/Appellant, and Marine Power Holding, L.L.C., Appellant.

No. 103,342.

Supreme Court of Oklahoma.

May 5, 2009.

CERTIORARI TO THE COURT OF CIVIL APPEALS, DIVISION IV; Honorable Robert G. Haney, Trial Judge

¶ 0 A year after Steve Crutchfield was hired by Marine Power Engine, Inc. (MP Engine), all of its assets were purchased by Hirel Holdings, Inc. (Hirel). A few months later, Crutchfield was terminated and given a severance package which included unreimbursed expenses and medical benefits. After some of the severance package remained unpaid, he brought an action against MP Engine. Subsequently, a portion of Hirel's assets were purchased by Marine Power Holding, L.L.C. (MP Holding), and Crutchfield and MP Engine entered an agreed judgment. After the judgment remained unpaid, Crutchfield filed a garnishment affidavit against MP Engine and Tige Boat, Inc. (Tige), a debtor of MP Holding. MP Holding and Tige each filed answers. The trial court determined that MP Holding and Tige were liable, and they moved for a new trial. The trial court denied the motion, and MP Holding and Tige appealed. The Court of Civil Appeals reversed and remanded. On certiorari, we reverse and hold that: 1) in order to establish the liability of a successor corporation once-removed, each corporation along the chain of succession must meet one of the exceptions to liability found in Pulis v. United States Elec. Tool Co., 1977 OK 36, ¶ 5, 561 P.2d 68; 2) because there was no continuation of the corporate entity along the chain of corporate succession, the trial court erred by finding that MP Holding was a "mere continuation" of MP Engine; and 3) Title 12 O.S. Supp.2002 § 1190(B)(1) does not provide for an award of attorney fees and costs to a putative judgment debtor in a trial of a garnishment action; and 4) Tige, as a prevailing garnishee, is entitled to an award of reasonable attorney fees incurred at trial and on appeal and an award of costs incurred at trial.

CERTIORARI PREVIOUSLY GRANTED; COURT OF CIVIL APPEALS OPINION VACATED; TRIAL COURT REVERSED AND CAUSE REMANDED.

Steven R. Hickman, Tulsa, OK, for Plaintiff/Appellee.

Joe M. Fears, Tulsa, OK, for Defendants/Appellants.

KAUGER, J.:

¶ 1 The first impression issue presented is whether Marine Power Holding, L.L.C. (MP Holding), a successor company once-removed from Marine Power Engine, Inc. (MP Engine), is liable for a judgment taken against MP Engine. As a general rule, when one company sells or otherwise transfers all its assets to another company, the successor is not liable for the debts and liabilities of the seller. There are exceptions to the rule. In Pulis v. United States Elec. Tool Co., 1977 OK 36, ¶ 5, 561 P.2d 68, we delineated the exceptions as being applicable when:

1) an agreement exists to assume such debts or liabilities;

2) the corporations are consolidated or merged;

3) the transaction was fraudulent; or

4) the purchasing corporation is a mere continuation of the selling company.

The trial court found that the mere continuation exception was applicable and that MP Holding was liable for the judgment. For the "mere continuation" exception, the test is not whether there is a continuation of business operations, but whether there is a continuation of the corporate entity. We hold that: 1) in order to establish the liability of a successor corporation once-removed, each corporation along the chain of succession must meet a Pulis exception to liability; 2) because there was insufficient evidence of a continuation of the corporate entity along the chain of corporate succession, the trial court erred by finding that MP Holding was a "mere continuation" of MP Engine; 3) 12 O.S. Supp.2002 § 1190(B)(1) does not provide for an award of attorney fees and costs to a putative judgment debtor in a trial of a garnishment action; and 4) as prevailing garnishee, Tige is entitled to an award of reasonable attorney fees incurred at trial and on appeal and an award of costs incurred at trial.

FACTS

¶ 2 On February 1, 1996, Steve Crutchfield (Crutchfield) was hired as vice-president of sales by MP Engine, a manufacturer of boat engines domiciled in Ponchatoula, Louisiana. Crutchfield's employment contract designated his employer as Marine Power Engine Company, a name under which MP Engine did business. MP Engine was incorporated in 1984.¹ See the attached exhibit for a timeline delineating the events in this cause.

¶ 3 Crutchfield's employment contract was signed by Walter E. Allbright, Jr. (Allbright), president and sole director of MP Engine. In February 1997, MP Engine's assets were purchased in exchange for stock by Hirel Holdings, Inc. (Hirel). Hirel was a publicly-held Delaware corporation traded on the NASDAQ exchange and based in Pompano Beach, Florida.² Hirel wholly owned several subsidiaries, including Hirel Technologies, Inc., a Florida-based producer of boat engines. Hirel planned to continue building engines at the Louisiana facility using Hirel's patented multi-port fuel injection system. MP Engine continued to exist as a corporate entity, but ceased doing business and retained no assets. Allbright continued to manage operations in Louisiana. He was not named an officer or director of Hirel, but instead reported to Hirel management in Florida.

¶ 4 On July 1, 1997, as a result of Hirel's new sales priorities, Crutchfield was terminated, and his employer agreed to pay him four months severance, including payment for medical insurance and outstanding expenses. On November 7, 1997, Crutchfield, a resident of Oklahoma, filed a petition in Delaware County District Court alleging that he was owed $10,163.97 in unreimbursed expenses and unpaid medical insurance premiums. Marine Power Engine Company, Hirel, and Allbright were named as defendants. On April 4, 1998, the trial court dismissed Hirel and Allbright as defendants for lack of personal jurisdiction.

¶ 5 At some time in late 1997, Hirel notified Allbright that it was approaching insolvency. In order to preserve operations, Allbright located John Benton Smallpage, Jr. (Smallpage), an investor. Smallpage formed MP Holding to purchase certain of Hirel's assets. On December 31, 1997, MP Holding agreed to pay $300,000 in cash and assume $2.4 million of Hirel's liabilities in order to purchase the engine manufacturing operation in Louisiana, facilities in California, Washington, and New Jersey, several accounts receivable, and the rights to several trademarks, copyrights, and patents. MP Holding expressly declined to assume any of Hirel's liabilities other than those catalogued in the purchase agreement.³ MP Holding did not purchase all of Hirel's assets, although it is unclear from the record whether Hirel continued to exist and operate with the assets it retained.⁴ Smallpage was the majority shareholder in MP Holding and was named manager. Allbright was named president of MP Holding. MP Holding's corporate charter provides that the corporation is domiciled in Harahan, Louisiana, a town located roughly 45 miles away from the manufacturing operation in Ponchatoula.

¶ 6 On April 3, 2001, Marine Power Engine Company made an offer of judgment to Crutchfield in the amount of $10,163.47. Crutchfield accepted the offer without amendment, and on April 11, 2001, the trial court entered the agreed judgment.

¶ 7 On August 15, 2005, Crutchfield filed a garnishment affidavit against Tige Boat, Inc. (Tige) and Marine Power Engine Company. Tige, a customer of MP Holding, owed MP Holding approximately $20,000. MP Holding filed an answer on August 15, 2005, and Tige filed an answer on August 17, 2005. Each corporation argued that it owed no money to Crutchfield. Crutchfield filed an election to take issue with each answer, and a hearing was held on December 7, 2005. At the hearing, the trial court found that because it was a mere continuation of MP Engine, MP Holding was liable for the judgment and Tige was liable as garnishee. The trial court also awarded $600 in attorney fees to Crutchfield. On February 7, 2006, the final garnishment order was filed, and MP Holding and Tige filed a joint motion to reconsider.⁵ On April 18, 2006, the trial court recast the motion to reconsider as a motion for a new trial and denied the motion.⁶ MP Holding and Tige filed a joint petition in error on May 12, 2006.

¶ 8 The cause was assigned to the Court of Civil Appeals on December 18, 2006. On March 9, 2007, the Court of Civil Appeals reversed the findings of the trial court and remanded the cause. In its opinion, the Court of Civil Appeals determined that: 1) the evidence did not support that MP Holding was a mere continuation of MP Engine; 2) although MP Holding was entitled to an award of attorney fees and costs incurred at trial, it was not entitled to an award of appeal-related attorney fees and costs.

¶ 9 On March 29, 2007, Crutchfield filed a petition for certiorari. Later that same day, MP Holding and Tige filed a motion with the Court of Civil Appeals to reconsider the denial of appeal-related attorney fees and costs. On April 4, 2007, we issued an order recasting the motion to reconsider as a petition for rehearing in the Court of Civil Appeals.⁷ On April 24, 2007, the Court of Civil Appeals granted rehearing and issued an order granting MP Holding and Tige's request for an award of appeal-related attorney fees and costs. On May 1, 2007, Crutchfield filed an amended petition for certiorari that included an objection to the award of appeal-related attorney fees and costs. We granted certiorari on September 10, 2007. The cause was assigned to this office on January 7, 2009.

¶ 10 In a garnishment action, when a judgment creditor takes issue with a garnishee's answer, the issue stands for trial as a civil action and is in the nature of an equitable proceeding.⁸ When reviewing an action in...