Opinion
16-P-807
03-21-2017
Ian BELL v. ONEIGHTY C TECHNOLOGIES CORPORATION.
MEMORANDUM AND ORDER PURSUANT TO RULE 1:28
The plaintiff, Ian Bell, appeals from the dismissal of his amended complaint against defendant Oneighty C Technologies Corporation (OCTC).
Background . Ian Bell loaned $A250,000 to Bio Defense Corporation (Bio Defense) pursuant to a convertible loan agreement. When the loan matured, Bell requested repayment. Payment was not made. In the interim, Boston Local Development Corporation (BLDC), a senior secured creditor of Bio Defense, foreclosed and acquired all assets and property of Bio Defense. In particular, BLDC secured three patents of Bio Defense and then purchased them at a public auction sale. Thereafter, Bio Defense ceased operations. OCTC purchased the patents from BLDC. As relevant here, Bell filed suit against OCTC as the corporate successor to Bio Defense. Also as relevant here, Bell's amended complaint alleged successor corporate liability, breach of contract, unjust enrichment, fraudulent transfer, and unfair and deceptive business practices. A judge of the Superior Court dismissed these claims for failure to state a claim upon which relief can be granted. This appeal followed.
Biodefense owned patents to a product called "Mail Defender," which could be used as a counterterrorism effort.
During the term of the loan, David Smith, the then-chief executive officer of Bio Defense, advised Bell that the loan could not be repaid at that time but assured him it would be repaid.
On October 6, 2014, final judgment entered in favor of OCTC only. Subsequently, a stipulation of dismissal entered against David Smith, see note 3, supra , and a default judgment entered against Bio Defense. Bell essentially conceded at oral argument that the fraudulent transfer claim fails to state a claim. We agree that Bell has not stated such a claim because OCTC purchased the assets of Bio Defense through an intermediary. Accordingly, the dismissal of this claim was proper.
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Discussion . We review de novo the dismissal of a complaint pursuant to Mass.R.Civ.P. 12(b)(6), 365 Mass. 754 (1974). Cook v. Patient Edu, LLC , 465 Mass 548, 549 (2013). See Iannacchino v. Ford Motor Co ., 451 Mass. 623, 636 (2008), quoting from Bell Atl. Corp . v. Twombly , 550 U.S. 544, 557 (2007) ("What is required at the pleading stage are factual ‘allegations plausibly suggesting [not merely consistent with]’ an entitlement to relief"). In assessing the adequacy of the complaint we must take the facts alleged as true and draw all reasonable inferences from them in the light most favorable to the nonmoving party, here the plaintiff. See Golchin v. Liberty Mut. Ins. Co ., 460 Mass. 222, 223 (2011). The plaintiff "need only surmount a minimal hurdle to survive a motion to dismiss for failure to state a claim." Bell v. Mazza , 394 Mass. 176, 184 (1985).
a. Successor corporate liability . Most jurisdictions, including Massachusetts, follow the traditional corporate law principle that the liabilities of a selling predecessor corporation are not imposed upon the successor corporation that purchases its assets, unless "(1) the successor expressly or impliedly assumes liability of the predecessor, (2) the transaction is a de facto merger or consolidation, (3) the successor is a mere continuation of the predecessor, or (4) the transaction is a fraudulent effort to avoid liabilities of the predecessor." Guzman v. MRM/Elgin , 409 Mass. 563, 566 (1991). See McCarthy v. Litton Indus., Inc ., 410 Mass. 15, 21 (1991). The public policy underlying the imposition of successor liability is the fair remuneration of innocent corporate creditors. See Cargill, Inc . v. Beaver Coal & Oil Co ., 424 Mass. 356, 362 (1997). Here, Bell alleged that OCTC acquired all the assets of Bio Defense and the fact that they were purchased through an intermediary is not dispositive. Bell alleged that OCTC is a mere continuation of Bio Defense as OCTC conducts the same business and has the same management. The "mere continuation" theory of successor liability "envisions a reorganization transforming a single company from one corporate entity into another."McCarthy v. Litton Indus., Inc ., supra at 21-22. "[T]he indices of a ‘continuation’ are, at a minimum: continuity of directors, officers, and stockholders; and the continued existence of only one corporation after the sale of assets." Id . at 23. However, no single factor is dispositive and the facts of each case must be examined independently. Milliken & Co . v. Duro Textiles, LLC , 451 Mass. 547, 558 (2008).
Here, paragraphs 18 through 25 of the amended complaint set forth allegations sufficient to overcome a motion to dismiss under the mere continuation theory of successor corporate liability. "Doubt or misgivings whether the present claim can be ranked as provable (or even credible), ... is not a proper basis for dismissal." Wrightson v. Spaulding , 20 Mass. App. Ct. 70, 72 (1985). Thus, "[i]f a complaint lacks merit, the defendant should take the appropriate steps to cause the matter to be brought within the purview of rule 56(b), 365 Mass. 824 (1974)." Ibid .
b. Breach of contract and unjust enrichment . The judge dismissed these claims based upon his dismissal of the successor corporate liability claim. This too was error, as these claims and the successor corporate liability claim were sufficient to withstand a motion to dismiss. To survive a motion to dismiss, a plaintiff need not advance the correct legal theory but merely must provide a "short and plain statement of the claim showing that the pleader is entitled to relief." Whitinsville Plaza, Inc . v. Kotseas , 378 Mass. 85, 89 (1979), quoting from Mass.R.Civ.P. 8(a)(1), 365 Mass. 749 (1974). Here, that is exactly what Bell has done.
c. Unfair and deceptive business practices . The judge dismissed this claim upon his ruling that the amended complaint failed to support the breach of contract and fraudulent transfer claims and therefore Bell could not establish a parallel G. L. c. 93A claim. As it was error to dismiss the breach of contract and unjust enrichment claims, it was also error to dismiss the G. L. c. 93A claim.
Conclusion . So much of the judgment entered on October 6, 2014, as dismissed Bell's claims against OCTC for breach of contract (count II), unjust enrichment (count IV), successor corporate liability (count VI), and unfair and deceptive business practices (count VIII) is vacated and the case is remanded for further proceedings. The remainder of the judgment is affirmed.
So ordered .
Vacated and remanded in part; affirmed in part .