9510617, Henry - Ruling R's Motion
Commission on Human Rights and Opportunities, :ex rel. Robert Henry, Complainant
CHRO # 9510617 Edwards Super Food Stores, Respondent
September 1, 1999
Ruling on Respondents’ Motion to Dismiss and Commission’s Motion for Stay
Ahold USA, Inc. (Ahold) and The Stop & Shop Companies, Inc. (Stop & Shop) moved to be dismissed as respondents on June 30, 1999. A telephonic status conference was held on July 26, 1999 to discuss the best way to gather the factual information necessary to determine whether the motion to dismiss should be granted. All parties agreed not to have an evidentiary hearing on the motion but rather to submit specific requests for documents and/or questions concerning the corporate structure of the respondents to Attorney Kappelman, counsel for the respondent Ahold and respondent Stop & Shop. In response to said requests, Attorney Kappelman produced two affidavits, a corporate organization chart, materials concerning the incorporation of Ahold and Stop & Shop and the Agreement of Purchase and Sale of Assets and Assignment of Leases (Agreement). The last document is proprietary in nature and therefore not open to public inspection.
Respondents assert that while Ahold is the parent company of Edwards Supermarkets1 (Edwards), it is a separate and distinct business entity from Edwards and therefore that its corporate veil should not be pierced. Respondents further claim that Stop & Shop is not a successor business entity to Edwards and therefore successor liability should not attach. The complainant and commission dispute respondents’ assertions.
Standard for a Motion to DismissA motion to dismiss is an appropriate means to challenge a tribunal’s jurisdiction to hear an action. Jolly, Inc. v. Zoning Board of Appeals, 237 Conn. 184 (1996); Upson v. State, 190 Conn. 622 (1983). In considering a motion to dismiss, facts are to be construed in the light most favorable to the non-moving party, in this case, the complainant/commission. Every reasonable inference is to be drawn in the non-moving party’s favor. New England Savings Bank v. Bedford Realty Corp., 246 Conn. 594, 608 (1998); Pamela B. v. Ment, 244 Conn. 296, 308 (1998). The moving party bears a substantial burden to sustain a motion to dismiss.
Ahold is the parent corporation of Edwards. There are two alternative theories recognized by the courts by which the corporate veil may be pierced and cause liability to attach to a parent corporation. "Under Connecticut law, the corporate veil may be pierced under either the ‘instrumentality’ or ‘identity’ rule." United Electrical Contractors, Inc. v. Progress Builders, Inc., 26 Conn.App. 749, 755 (1992). The instrumentality rule requires proof of three elements:
- [c]ontrol, not mere majority or complete stock control, but complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own;
- that such control must have been used by the defendant to commit fraud or wrong, to perpetrate the violation of a statutory or other positive legal duty, or a dishonest or unjust act in contravention of plaintiff’s legal rights; and
- the aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of. (Citations omitted.) Angelo Tomasso, Inc. v. Armor Construction & Paving, Inc., 187 Conn. 544, 553 (1982).
Based on a review of the documents and affidavits submitted for this ruling, I find that Ahold does not meet this test.
Ahold admits that it acquired 100% of the outstanding stock of Stop & Shop on July 24, 1996. Waterman Affidavit ¶ 4; Harlow Affidavit ¶ 7. Ahold also concedes that it became the sole shareholder of Edwards when it entered into the Agreement. Waterman Affidavit ¶ 5. As the court in Toshiba America Medical Systems, Inc. points out, "the corporate shield should not be lightly disregarded to hold a stockholder liable, even when, as in the present case, there is but one stockholder. ‘To do so would be to act in opposition to the public policy of this state as expressed in legislation concerning the formulation and regulation of corporations.’" (Citation omitted.) Toshiba America Medical Systems, Inc. v. Mobile Medical Systems, Inc., 53 Conn. App. 484, 489 (1999) cert. denied, 249 Conn. 930, 1999 WL 603708 (July 7, 1999). Although Ahold owns the majority of stock of both Edwards and Stop & Shop, such ownership does not automatically presume complete domination of a subsidiary’s finances, policy and business practice.
Ahold, Stop & Shop and Edwards each maintain an independent corporate existence. Waterman Affidavit at ¶ 13. This independence is evidenced by the fact that each of the respondents maintains its own boards of directors and has separate officers. Id. at ¶¶ 14 and 16. Additionally, at all times, Ahold, Stop & Shop and Edwards have each maintained independent control of their own labor and employment matters and entered into separate collective bargaining agreements with the union. Id. at ¶ 15. These facts do not support a finding of complete domination by the parent of the subsidiary necessary under the first prong of the instrumentality test. It is not necessary to look to the other two prongs of the test because the essential element, that of overriding control by the parent over the subsidiary, has not been met.
"Complementing the instrumentality rule is the identity rule." Zaist v. Olson, 154 Conn. 563, 575 (1967). The identity rule requires a plaintiff to show that there was,
. . . such a unity of interest and ownership that the independence of the corporation had in effect ceased or had never begun, [and that] an adherence to the fiction of separate identity would serve only to defeat justice and equity by permitting the economic entity to escape liability arising out of an operation conducted by one corporation for the benefit of the whole enterprise. (Citations omitted.) Zaist at 576.
Once again, the documents and affidavits produced do not support a finding of such a unity of interest and ownership and resulting lack of independence. As the incorporation materials and affidavits make clear, there is no overlap in the officers or membership on the boards of directors and independent business practices, including separate and distinct collective bargaining agreements with the union.
For the above reasons, I find that Ahold is a separate business entity from its two subsidiary corporations, Stop & Shop and Edwards. There is no basis to pierce through the corporate veil, either under the instrumentality or identity rule.
Stop & Shop
The District Court of Connecticut has acknowledged that,
. . . as a general rule, a corporation which purchases all the assets of another company does not become liable for the debts and liabilities of its predecessor, unless:
- the purchase agreement expressly or impliedly so provides;
- there was a merger or consolidation of the two firms;
- the purchaser is a ‘mere continuation’ of the seller; or
- the transaction is entered into fraudulently for the purpose of escaping liability.
Ricciardello v. J.W. Gant & Company, 717 F.Sup. 56 (D.Conn. 1989).
The first criterion is crucial to the present discussion because of the existence of the Agreement. Stop & Shop and Edwards entered into this written contract on October 28, 1996. The lengthy Agreement includes the following provision:
The paragraph cited from the Agreement does not expressly or impliedly provide for the purchaser to become liable for the liabilities of its predecessor, in fact, the Agreement provides for the direct opposite. Paragraph 12 specifically states that Stop & Shop does not assume any liability or obligation of Edwards of any kind. Therefore the first exception of the Ricciardello test is not met.
There was also not a merger or consolidation of the two firms (Stop & Shop and Edwards) as evidenced by the fact that after the Agreement was entered, both firms continued to exist independently, albeit in different geographic locations. Furthermore, the purchaser (Stop & Shop) is not a mere continuation of the seller (Edwards) as both entities continue to exist, until today, with separate and distinct corporate officers and directors. Lastly, there is no claim that the Agreement at issue was entered into fraudulently or for the purpose of escaping liability, the fourth exception to the Ricciardello test.
Although Stop & Shop may be characterized as a successor corporation under the factors laid out in Equal Employment Opportunity Commission v. MacMillan Bloedel Containers, Inc., 503 F.2d 1086 (1974), application of those factors is unnecessary in this case. Courts look to the factors outlined in MacMillan Bloedel, when there is no information in the record as to the treatment of known, pre-existing potential liabilities. The test laid out in MacMillan Bloedel was developed by the courts to determine whether companies should be held liable for the acts of their predecessors with respect to labor relations. "Title VII was molded, to a large degree after the [National] Labor [Relations] Act," Id. at 1091, and usage of the factors identified in those types of cases has been applied in an analogous manner in employment discrimination cases. The court emphasized, however, "that the liability of a successor is not automatic, but must be determined on a case by case basis." Id.
The U.S. Supreme Court has indicated that an important criterion for imposing successor liability is if the potential successor corporation had notice of the liability and therefore had the ability to negotiate the assumption of such liability at the time of purchase of assets. "Since the successor must have notice before liability can be imposed, ‘his potential liability for remedying unfair labor practices is a matter which can be reflected in the price he pays for the business, or he may secure an indemnity clause in the sales contract which will indemnify him for liability arising from the seller’s unfair labor practices.’" Golden State Bottling Company, Inc., v. National Labor Relations Board, 414 U.S. 168, 94 S.Ct. 414 (1973) citing Perma Vinyl Corp., 164 N.L.R.B. 968, 969 (1967). In the case at hand, there is no dispute that the purchaser, Stop & Shop, had knowledge of complainant’s pending claim. By virtue of the inclusion of Paragraph 12 in the Agreement, Stop & Shop addressed its responsibility for cases of potential liabilities. The two companies entered into a transaction concerning the transfer of twenty-nine stores in four states throughout the Northeast region and any attendant liability; there is no lack of clarity that would require the imposition of the successor liability test.
For the foregoing reasons, I find that although Stop & Shop2 may be the successor-in-interest to Edwards, the Agreement excluding the assumption of liabilities is explicit and therefore, no successor liability attaches with respect to Stop & Shop.
Motion for Stay
On August 20, 1999, the commission filed a Motion for Stay based on a request for a declaratory ruling currently pending before the commission concerning the interpretation of disability under state and federal law. The commission asserts that a declaratory ruling will likely be issued by the commission in four to five months. The ruling may thereafter be appealed to the superior court, which would potentially further delay the matter, perhaps for up to another year or more. General Statutes § 4-175. While a declaratory ruling from the commission may have persuasive authority, it is no more binding than a final decision in a contested case proceeding before the commission and therefore does not require an immediate halt to all proceedings which may be related to its subject matter. See General Statutes §§ 4-166 and 4-176(h).
Due to the fact that a declaratory ruling is persuasive only and due to the uncertainty of time of final issuance of the ruling, I do not grant the Motion.
For the foregoing reasons, the motion to dismiss with respect to both Ahold and Stop & Shop is hereby GRANTED and the motion for stay of the proceedings is hereby DENIED.
Date: September 8, 1999
Time: 2 p.m.
Location: Room # 445, 4th Floor, 21 Grand Street, Hartford, CT.
Please note: the status conference may be held by telephone if desired by the parties. In that event, the public hearings administrator, Ann Galer-Pasternak (860-541-3452), should be notified to obtain the necessary information.
2. The dates for public hearing remain in effect as January 5-7, 2000.
It is so ORDERED.
Dated at Hartford, this _____ day of September, 1999.
Lara L. Manzione
Presiding Human Rights Referee
C: Neil Johnson, Esq.
Robert J. Brothers, Jr., Esq. (Hand Delivery)
Duncan J. Forsyth, Esq.
Andrew C. Meyer, Esq.
Lisa J. Damon, Esq.
Lynn A. Kappelman, Esq.
Raymond P. Pech, Esq. (Hand Delivery)
Honorable Jon P. FitzGerald, Settlement Human Rights Referee (Hand Delivery)
1 The affidavit of Jonathan W. Harlow, Jr. indicates that Edwards Supermarkets is an operating division of First National Supermarkets, Inc. and does not exist as a separate entity. ¶ 9. This ruling will continue to refer to Edwards as respondent (rather than First National) because Edwards is the initially named respondent in this matter.
2 The Motion for Stay was filed by Cynthia Watts Elder, the Executive Director of the Commission. The Regulations of Connecticut State Agencies provide that "[t]he case in support of the complaint shall be presented by the Commission. The Commission shall be represented by Commission Counsel, as provided in section 46a-55 of the Connecticut General Statutes, or the Attorney General, as the case may be." Section 46a-54-92 of the Regulations. Attorneys practicing before the Commission are required to file appearances in accordance with section 46a-54-31 of the Regulations. Since no party objected to her filing of the Motion, I will treat it as if it were properly filed.