Nationwide Mutual Insurance Co. v. Eagle Window & Door, Inc.

• Decision Date: 06 April 2016
• Docket Number: 2016-UP-168
• Citation: Nationwide Mutual Insurance Co. v. Eagle Window & Door, Inc., 2016-UP-168 (S.C. App. Apr 06, 2016)
• Court: South Carolina Court of Appeals
• Parties: Nationwide Mutual Insurance Company and Gilliam Construction Company, Inc., Respondents, v. Eagle Window & Door, Inc., Appellant. Appellate Case No. 2014-001151

Nationwide Mutual Insurance Company and Gilliam Construction Company, Inc., Respondents,
v.
Eagle Window & Door, Inc., Appellant.

Appellate Case No. 2014-001151

No. 2016-UP-168

Court of Appeals of South Carolina

April 6, 2016

UNPUBLISHED OPINION

Heard November 12, 2015.

Appeal From Spartanburg County J. Mark Hayes, II, Circuit Court Judge

G. Dana Sinkler, Gibbs & Holmes, of Wadmalaw Island, for Appellant

Jason Michael Imhoff and Carl Reed Teague, The Ward Law Firm, PA, both of Spartanburg, for Respondents.

FEW, C.J.

Eagle Window and Door, Inc. (Eagle) appeals the circuit court's order finding Eagle is a "mere continuation" of Eagle & Taylor Company d/b/a Eagle Window and Door, Inc. (EWD) and therefore liable to Nationwide Mutual Insurance Company (Nationwide) for contribution under a theory of successor liability. We affirm as modified.

I. Facts and Procedural History

Gilliam Construction Company, Inc. (Gilliam) contracted with Renaul and Karen Abel for the construction of their home in Spartanburg County in 1999 and 2000. After the project was completed, the Abels discovered certain defects and deficiencies in the home-including leaking windows-and invoked the arbitration clause in their contract with Gilliam. Between the time the windows were made by EWD and the discovery of the defects, EWD's parent company, American Architectural Products Corporation (AAPC) filed for bankruptcy. The assets of EWD were sold to EWD Acquisition, Co., a corporation wholly owned by Linsalata Capital Partners Fund IV, L.P., (Linsalata) and created solely to buy the assets. The consideration paid was $64, 750, 000. EWD Acquisition, Co. thereafter changed its name to Eagle Window and Door, Inc. (Eagle).^[1] Eagle was invited to participate in the arbitration under the Abel/Gilliam construction contract, but declined. The Abels' claim was settled by Nationwide and its insured Gilliam^[2] for $235, 000.^[3]

Nationwide then instituted this contribution action against various defendants, including Eagle, under the Uniform Contribution Among Tortfeasors Act (the Act)^[4] to recover the settlement costs. Nationwide argued Eagle was a "mere continuation" of EWD rendering Eagle liable for contribution to the settlement. Nationwide presented affidavits, requests to admit, and responses to interrogatories regarding the corporate structure of EWD, AAPC, Eagle, and Linsalata-the commonality of officers, directors, and shareholders being central to the issue of successor liability.

The officers of EWD and Eagle are listed below.

EWD Officers		Eagle Officers
Chairman		Chairman	Stephen Perry (Sr. V.P. & CFO of Linsalata)
President	David Beeken	President	David Beeken
Executive V.P	Charles Daoud	Executive V.P	Charles Daoud
V.P. of Finance	Steven Stoppelmoor	V.P. of Finance	Steven Stoppelmoor
V.P. of Engineering	Ronald Vander Weerd	V.P. of Engineering	Ronald Vander Weerd
Treas. & Asst. Scty		Treas. & Asst. Scty.	Gregory L. Taber
Secretary	Jonathan Schoenike	Secretary	Ronald H. Neill
Controller	Andrew Wickman	Controller	Andrew Wickman

With respect to directors and shareholders, EWD was a wholly-owned subsidiary of AAPC. At the time of bankruptcy, AAPC was owned primarily by George Hofmeister who controlled approximately 73% of the shares. AAPC had two directors, Hofmeister and Joseph Dominijanni. Neither Hofmeister nor Dominijanni owns any interest in Linsalata or Eagle.

Stephen Perry, Vice President and Chief Financial Officer of Linsalata, named himself and two additional persons as directors for Eagle-Frank Linsalata and Ronald Neill, an attorney for Linsalata. David Beeken was later added as a director. The record demonstrates the carry-over officers from EWD to Eagle were given a minor ownership interest in Eagle, as delineated in the chart below.

Eagle Ownership

Linsalata	87.9%
Mass Mutual Life Ins. Co.	6.3%
David Beeken	1.7%
Charles A. Doud	1.6%
Ronald Vander Weerd	.2%
Andrew Wickman	>.00005%

With respect to the operation of the companies, the parties do not dispute that Eagle remained in the same facilities, continued manufacturing windows and doors, retained the same employees, and essentially held itself out as an ongoing business.

The circuit court concluded Eagle was a mere continuation of EWD stating, "a review of Eagle's own website establishes that Eagle is a mere continuation of its predecessor corporation . . . . It is clear from that marketing material that Eagle considers itself a separate and autonomous entity which has designed and manufactured windows in the same city for a century and a half, despite its numerous parent companies." The circuit court stated that even if mere continuation required commonality of officers, directors, and shareholders, Nationwide had proven "that officers, directors, and stockholders remained in the successor corporation from the predecessor corporation."

With respect to its right to contribution, Nationwide presented the testimony of William R. Still, a forensic engineer, and Cindy Thomas, a Nationwide representative. Still testified the Abels' windows were defective and caused damage to their home totaling approximately $211, 000. Cindy Thomas testified two other defendants, Window and Door Concepts, Inc., the window seller, and Hobbit Plastering, the stucco applicator, settled the contribution claims against them for $24, 000 and $41, 000, respectively.

Nationwide moved, over Eagle's objection, to dismiss the other remaining defendants, and the circuit court granted the motion.

The circuit court determined Eagle was the party responsible for the Abels' damages and ordered Eagle to pay $117, 500, half of the $235, 000 settlement, as its pro rata share under the Act. The circuit court further determined that the damages were liquidated and awarded Nationwide prejudgment interest amounting to $70, 258.42.

II. Issues on Appeal^[5]

1. Did the circuit court err in ruling Eagle is liable to Nationwide under a theory of successor liability?

2. Did the circuit court err in finding Nationwide did not fail to plead or prove a design or manufacturing defect in the windows?

3. Did the circuit court err in finding Nationwide was entitled to recover $25, 000 for the amount it contends Gilliam "waived" as payment under its contract with the Abels?

4. Did the circuit court err in permitting Nationwide to unilaterally release Eagle's codefendants?

5. Did the circuit court err in determining the amount Eagle should pay in contribution?

6. Did the circuit court err in allowing prejudgment interest?

III. Standard of Review

"In an action at law tried without a jury, the trial judge's findings have the force and effect of a jury verdict upon the issues and are conclusive on appeal when supported by competent evidence." Mathis v. Brown & Brown of S.C, Inc., 389 S.C. 299, 307, 698 S.E.2d 773, 777 (2010). "Accordingly, [an appellate court's] scope of review is limited to determining whether the findings are supported by competent evidence and correcting errors of law." Id.

"In an action in equity, tried by the judge alone, without a reference, the appellate court has jurisdiction to find facts in accordance with its view of the preponderance of the evidence." Mazloom v. Mazloom, 382 S.C. 307, 316, 675 S.E.2d 746, 751 (Ct. App. 2009). A contribution action is enforced in equity and reviewed under an equitable standard. RIM Assocs.' v. Blackwell, 359 S.C. 170, 179, 597 S.E.2d 152, 157 (Ct. App. 2004).

This appeal requires us to use a split standard of review in that the determination of whether Eagle is a mere continuation is an action at law, but Nationwide's overall entitlement to contribution is a matter arising in equity.

IV. Successor Liability

"[I]n the absence of a statute, a successor or purchasing company ordinarily is not liable for the debts of a predecessor or selling company unless (1) there was an agreement to assume such debts, (2) the circumstances surrounding the transaction warrant[s] a finding of a consolidation or merger of the two corporations, (3) the successor company was a mere continuation of the predecessor, or (4) the transaction was entered into fraudulently for the purpose of wrongfully defeating creditors' claims." Simmons v. Mark Lift Indus., Inc., 366 S.C. 308, 312, 622 S.E.2d 213, 215 (2005) (footnote omitted) (citing Brown v. Am. Ry. Express Co., 128 S.C. 428, 123 S.E. 97 (1924)). "[T]he majority of courts interpreting the mere continuation exception have found it applicable only when there is commonality of ownership, i.e., the predecessor and successor corporations have substantially the same officers, directors, or shareholders." Simmons, 366 S.C. at 312 n.1, 622 S.E.2d at 215 n.1 (emphasis omitted). In Nationwide, the supreme court reversed the dismissal of Nationwide's contribution claim, stating, "If [Nationwide] can establish that [Eagle]'s conduct meets one or more of the Brown tests, then [Eagle] may be liable to [Nationwide]." Nationwide, 394 S.C. at 61, 714 S.E.2d at 326.

We find the evidence supports the circuit court's finding that Eagle is liable to Nationwide because Eagle was a mere continuation of EWD.

Eagle continued manufacturing windows and doors in the same location with the same name and capitalizing on that continuity in its website marketing. Of the eight officers appointed to Eagle post sale, five were officers of pre sale Eagle. Among those five officers were the President and CEO, Executive Vice President, Vice President of Finance, Vice President of Engineering, and Controller.

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