Pop 3 Ravinia, LLC v. Embark Holdco Mgmt., LLC
| Decision Date | 22 June 2022 |
| Docket Number | A22A0127 |
| Citation | 364 Ga.App. 414,875 S.E.2d 401 |
| Parties | POP 3 RAVINIA, LLC v. EMBARK HOLDCO MANAGEMENT, LLC |
| Court | Georgia Court of Appeals |
Thomas M. Byrne, Valerie Strong Sanders, Atlanta, for Appellant.
William A. DuPre IV, Michael P. Kohler, Atlanta, Robert Foust Parsley, for Appellee.
POP 3 Ravinia, LLC sued Embark Holdco Management, LLC, among others, to recover unpaid rent and other expenses under a commercial lease. Embark was not a party to the lease, but Ravinia claimed that Embark was liable as a successor to the tenant, either because Embark was a "mere continuation" of the now-defunct tenant or because Embark and the tenant had effectuated a "de facto merger." The trial court granted Embark's motion for summary judgment, concluding that equitable considerations cut against imposing liability under the continuation doctrine and that the elements of a de facto merger were not satisfied.
We affirm in part and reverse in part. We agree with the trial court that the evidence, even viewed favorably to Ravinia, does not establish all the elements of a de facto merger. But that evidence would allow a jury to conclude that Embark is a "mere continuation" of Access Holdco under the established elements of the corporate continuation doctrine. As we will explain below, we are skeptical that equitable considerations beyond those elements are properly considered under Georgia's version of that doctrine. But even if this equitable doctrine has some flexibility, we do not think that the additional factors Embark and the trial court injected into the analysis apply in Embark's favor here.
In 2010, Access Insurance Holdings, Inc., as tenant, entered into an agreement with CRT Ravinia, LLC, as landlord, to lease about 77,000 square feet of space in an Atlanta office building known as Three Ravinia Drive.1 The lease was to run for 10 years, until December 2020. In 2016, CRT Ravinia assigned its interest in the lease to Appellant POP 3 Ravinia, LLC. Also in 2016, Access Insurance Holdings assigned its interest in the lease to an affiliated company, Access Holdco Management, LLC.
Access Holdco's business was administering policies and claims for insurance carriers—it was what's called a managing general agent. Access Holdco did this work for "nonstandard" auto insurance carriers: carriers who offer insurance to insureds who, because of a lack of driving history or a poor driving record, are unable to qualify for standard auto insurance. Most of the policies Access Holdco serviced were issued by a single affiliated insurance carrier, Access Insurance Company.
In March 2018, following investigations by insurance regulators in California and Texas, Access Insurance Company was placed into a receivership and enjoined from selling insurance. Having suddenly lost its primary source of revenue, Access Holdco defaulted on $55 million in secured debt, and the creditor began exercising its default remedies.
Faced with possible liquidation, Access Holdco's majority owner, private equity firm Altamont Capital Partners LLC, set about to salvage its investment in the company. According to an Altamont executive, Altamont believed "that there was asset value [in Access Holdco] that ... we could harvest if we bought the debt at a price that made sense." So in May 2018, an Altamont subsidiary called ACP Insurance Finance, Inc. purchased Access Holdco's debt from the creditor.
In the months that followed, Altamont marketed the company to third-party buyers. During that time, Access Holdco laid off more than 200 employees. In the meantime, ACP Insurance Finance—again, a subsidiary of Altamont, which also owned Access Holdco—demanded more than $21 million in debt payments, which Access Holdco paid.
In August 2018, Access Holdco formally converted from a Georgia LLC to a Delaware LLC. Nine days later, on August 23, 2018, Access Holdco initiated a proceeding known as an assignment for the benefit of creditors ("ABC") in the Delaware Chancery Court. An ABC is an alternative to bankruptcy, sanctioned under the laws of some states, in which the debtor voluntarily transfers its assets to a fiduciary assignee, who is responsible for selling the assets and distributing the proceeds to creditors. See 9 NORTON BANKR. L. & PRAC. 3 D §§ 171:1 - 171:2 (Apr. 2022) ; see also Jonathan P. Friedland, STRAT. ALT. DIS. BUS. § 10:1 (Jan. 2022) ().2 To start the process, Access Holdco assigned its assets to certain fiduciary entities ("ABC Entities"), which in turn filed an ABC petition in the Chancery Court.
On the same day the ABC petition was filed, the ABC Entities transferred Access Holdco's assets to a newly-formed company called Embark Holdco Management, LLC. Embark was wholly owned, albeit indirectly, by Altamont.3 Under the agreement, Embark bought all of Access Holdco's assets except its interest in the lease for Three Ravinia Drive. As consideration, ACP Insurance Finance agreed to discharge $27 million of Access Holdco's secured debt and to assume certain liabilities. The net result was the transfer of Access Holdco's assets, free of any secured debt, to Embark.4 Access Holdco was subsequently dissolved. As described by Access Holdco's former operations and facilities director, the purpose of the transfer of assets to Embark was "to continue the Access [Holdco] business without paying certain ... vendors, including [Ravinia]."
Amidst these machinations, the insurance administration business continued. In the days after August 23, 2018, Embark was conducting the same business, using the same assets and employing the same personnel, as Access Holdco had before the asset transfer. Employees continued using the same company-issued computers and email accounts, and their accumulated leave and seniority were carried over from Access Holdco to Embark. The company used the same computer server, which contained all of Access Holdco's historical documents. For several weeks after August 23, Embark continued occupying the office space at Three Ravinia Drive, until it moved into new space in October 2018. The management team at Embark was "exactly the same" as the former management team at Access Holdco. And even before the sale, Access Holdco's accounting team had been instructed to ask vendors to begin directing invoices to Embark and to "get new contracts under the Embark name."
Embark vacated the office space at Three Ravinia Drive in October 2018. Ravinia demanded rent for September 2018 from Access Holdco, and Access Holdco refused, so Ravinia filed suit against Access Holdco and Embark, seeking damages of over $5 million in rent and other expenses recoverable under the lease.5 Following discovery, Embark moved for summary judgment, contending that it could not be held liable under the lease because it neither signed the lease nor assumed any obligations thereunder. In response, Ravinia argued that Embark should be held liable as a successor to Access Holdco, citing principles of common law corporate successor liability. Ravinia contended that Embark remains liable either because (1) Embark is a "mere continuation" of Access Holdco or (2) the asset purchase constituted a "de facto merger" between the two companies.
The trial court granted Embark's motion. Adopting an order prepared by Embark's counsel, the court held that the elements of a "de facto merger" were not satisfied, and it declined to impose liability on Embark as a "mere continuation" of Access Holdco based on certain equitable considerations. In declining to apply the continuation doctrine, the court relied heavily on Acme Sec., Inc. v. CLN Props., LLC (In re Acme Sec., Inc. ) , a federal bankruptcy case in which the federal bankruptcy court declined to impose successor liability, even though the elements of the continuation doctrine were established under Georgia law, concluding that it would not serve the interests of equity under the circumstances. 484 B.R. 475 (Bankr. N.D. Ga. 2012). Without a basis for imposing successor liability, the court concluded, Embark, a non-party to the lease, could not be held liable under it. Ravinia appealed.
On appeal, orders granting or denying summary judgment are reviewed de novo. Johnson v. Omondi , 294 Ga. 74, 76, 751 S.E.2d 288 (2013). Summary judgment is appropriate where no genuine issues of material fact remain and the party seeking summary judgment is entitled to judgment as a matter of law. Id. at 75, 751 S.E.2d 288.
Ravinia's basic claim here is that Embark is liable for rent and other expenses owed to Ravinia by Access Holdco. The underlying legal theory is one of successor liability: that the transfer of assets from Access Holdco to Embark and the circumstances surrounding that transfer made Embark a "successor" to Access Holdco that is liable for its debts. See Davis v. Concord Comm'l Corp. , 209 Ga. App. 595, 596 (1), 434 S.E.2d 571 (1993) ().
Generally speaking, a corporation does not become a successor when it buys another corporation's assets. See, e.g., Carswell v. Nat'l Exchange Bank , 165 Ga. 351 (4), 140 S.E. 755 (1927). But our Supreme Court has listed four common-law exceptions to this general rule, see Bullington v. Union Tool Corp. , 254 Ga. 283, 284, 328 S.E.2d 726 (1985), which "[m]ost jurisdictions recognize," Bud Antle, Inc. v. E. Foods, Inc. , 758 F.2d 1451, 1456 (IV) (11th Cir. 1985). Under these exceptions, a purchasing corporation is a successor liable for the seller's debts if "(1) there is an agreement to assume...
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