Parker v. Western Dakota Insurors, Inc., 20682.

Decision Date02 February 2000
Docket NumberNo. 20682.,20682.
Citation2000 SD 14,605 N.W.2d 181
PartiesRenee PARKER, Plaintiff and Appellee, v. WESTERN DAKOTA INSURORS, INC., a South Dakota Corporation, Defendant and Appellant.
CourtSouth Dakota Supreme Court

Michael P. Reynolds of Quinn, Day & Barker, Rapid City, for plaintiff and appellee.

J. Crisman Palmer of Gunderson, Palmer, Goodsell & Nelson and Roger W. Damgaard and Melanie L. Carpenter of Woods, Fuller, Shultz & Smith, Rapid City, for defendant and appellant.

KONENKAMP, Justice.

[¶ 1.] Western Dakota Insurors, Inc., an insurance agency, appeals a decision requiring it to pay a percentage of commissions that First American Systems, Inc., another insurance agency, agreed to pay its employee, Renee Parker. The circuit court reasoned that because Western Dakota purchased First American's income generating assets, including its "book of insurance business," it thereby incurred the obligation to honor First American's contract with its employee. We reverse that ruling because Western Dakota's purchase excluded assumption of First American's liabilities. We affirm the order denying Parker's claim for unjust enrichment.

Facts

[¶ 2.] Renee Parker was employed as a salaried insurance sales agent and manager with First American Systems from June 1982 to December 1992. In 1988, the president and principal owner of First American, Tom Lane, made known his plans to retire. Parker expressed concern to Lane about her future. If he sold the company's insurance business, the new owner would acquire all future renewal commissions, and the income from the clients Parker had helped to build and nurture would be lost. To induce Parker to remain with First American, and to bind her not to compete with the company should she later choose to leave, Lane agreed on behalf of First American to pay her a percentage of the commissions the company received after her employment ended. On June 2, 1988, they executed a written agreement in which they "set forth in writing their respective rights, duties, responsibilities and entitlements." The agreement stated in part:

(3) Upon termination of her employment with [First American] ... she shall be entitled to that percentage as hereinafter set forth of renewal commissions received by [First American] for all products sold, serviced and handled by a producer during the term of this agreement for so long as [First American] renews such insurance with the same insurance carrier or company. Parker's percentage for such renewal commissions received by [First American] shall be fifty percent (50%) for all group health and fifty-six point two five percent (56.25%) for all other products of insurance. Parker's entitlements hereunder, if any, shall be paid monthly commencing upon termination of her employment....
* * *
(6) Parker expressly agrees and states that any and all insurance business at any time or times secured by [Parker] while contracted by [First American], or during the term of this Agreement, is and shall be the permanent and exclusive property of [First American], and that all records relating to its business, including without limitation financial information, personnel information, lists of customers and accounts, sales information, renewal and expiration dates, and use and control of expirations of all insurance business, shall be and remain the absolute and sole property of [First American]....
* * *
(10) This Agreement shall inure to the benefit of and shall be binding upon [First American], its successors and assigns, including without limitation any person, partnership, or corporation which may [acquire] all or substantially all of [First American's] assets and business or unto which [First American] may be consolidated or merged. It is further agreed that this Agreement is, however, personal unto Parker and shall not be assignable by Parker....

[¶ 3.] In October 1988, Lane sold First American to E.J. Smith and First American Holding Company. In 1992, the new owners informed the company's insurance agents their commissions were to be substantially decreased and new commission agreements would need to be signed. Parker's percentage of renewals under her agreement would thus be reduced. Not wanting to give up her contract rights, she elected to resign in December 1992. In 1993, First American paid her in accord with paragraph three of her contract. When, in 1994, Parker learned that First American was about to be sold again, this time to a competing agency, Western Dakota, she spoke with its president, Gary Larson. She asked him if he was aware that she had a contract with First American. Larson responded that Western Dakota was "not interested in the obligations" of First American and that if a purchase took place, it would be of the "books of business and selected assets."

[¶ 4.] In May 1994, Western Dakota purchased substantially all First American's income generating assets. These assets consisted of "all client or customer lists, including expiration and renewal dates, customer data, all insurance dailies and all records and information with respect thereto, files and right to renewal commissions." Based on a formula, the purchase price was fixed to a percentage of "the commissions from the renewals of the business being purchased," to be paid as received over a period of years. No stock transfers took place as part of the purchase agreement, and no director or shareholder of First American was made a director or shareholder in Western Dakota. The purchase contract specifically excluded "any of [First American's] debts or accounts payable and other liabilities." Western Dakota paid First American $100,000 in advance to be applied toward the percentage of commissions it would pay in the future.

[¶ 5.] Although Parker's agreement entitled her to a portion of First American's commissions, First American never shared with her any part of Western Dakota's payments. Neither did Western Dakota make any payments to her, even after she demanded that it honor her contract. Following the sale to Western Dakota, First American filed for Chapter 7 bankruptcy and ceased business operations. Travelers Indemnity Company, as a secured creditor, took control of the remaining assets and sold them, accumulating approximately $1.3 million to pay over $2 million in liabilities.

[¶ 6.] Parker sued Western Dakota for breach of contract, conversion, and unjust enrichment. The circuit court reviewed the First American-Western Dakota agreement, found it unambiguous, and ruled that, as a matter of law, Western Dakota became obligated to Parker because it "purchased" Parker's contract with First American. Consequently, the court granted judgment to Parker on her claim for breach of contract. With liability issues decided, the only question remaining was the amount of damages. The parties agreed to waive a jury trial and to try the damage issue to the court. In its judgment, the court ruled that Western Dakota owed Parker $34,102 in back compensation. Moreover, in accord with the Parker Agreement, Western Dakota was also ordered to pay monthly Parker's percentage of commissions received.

[¶ 7.] Western Dakota appeals, raising eleven separate legal issues. We consider the following two questions dispositive: (1) Did Western Dakota expressly or impliedly purchase or assume the Parker Agreement when it entered into the purchase agreement with First American? (2) Was Western Dakota entitled to dismissal of Parker's unjust enrichment claim as a matter of law? Our review is de novo as contract interpretation is a question of law. Olsen v. Airheart, 531 N.W.2d 571, 572 (S.D.1995).

Analysis and Decision
1. Assumption of the Parker Agreement

[¶ 8.] Western Dakota's asset purchase did not list or include by reference the Parker Agreement. Indeed, the purchase agreement specifically excluded First American's liabilities. Nonetheless, Parker argues that by purchasing the right to renewal commissions, Western Dakota either expressly or impliedly assumed the terms and conditions of the Parker Agreement.

[¶ 9.] A contract obligation is ordinarily due only to those with whom it is made, and generally corporations purchasing assets of other corporations will not be subject to the sellers' liabilities. Hamaker v. Kenwel-Jackson Mach., Inc., 387 N.W.2d 515, 518 (S.D.1986) (citing Leannais v. Cincinnati, Inc., 565 F.2d 437, 439 (7th Cir.1977); Downtowner, Inc. v. Acrometal Prod. Inc., 347 N.W.2d 118, 121 (N.D.1984)). Nonetheless, courts finding certain linkages between a seller and buyer corporation will in some instances conclude that an asset purchase carries with it liabilities attendant with those assets. Four exceptions have developed to create successor liability:

(1) when the purchasing corporation expressly or impliedly agrees to assume the selling corporation's liability;

(2) when the transaction amounts to a consolidation or merger of the purchaser and seller corporations;

(3) when the purchaser corporation is merely a continuation of the seller corporation; or

(4) when the transaction is entered into fraudulently to escape liability for such obligations.

Id. (citing Jones v. Johnson Mach. & Press Co., 211 Neb. 724, 320 N.W.2d 481, 483 (1982)). Here, we examine only the first exception as that is the one Parker believes pertains to Western Dakota. All these exceptions, we caution to explain, evolved under the traditional rules applicable to corporate law. They have, however, undergone some expansion under the law of products liability. Strict liability in tort for defective products applies regardless of negligence or privity. Liability for defective products rests on the need to compensate eligible plaintiffs; thus, the burden of economic loss is shifted not just to the manufacturer of the defective product, but also at times to the successor manufacturer who by purchasing assets from the predecessor is able to continue making the same or similar...

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