The opinion of the court was delivered by: WILLIAM G. BASSLER
Plaintiff Glynwed, Inc. ("Glynwed") and defendant Danco/Plastock, Inc. ("Danco/Plastock") have filed cross-motions for summary judgement. Glynwed seeks a determination that Danco/Plastock is the corporate successor of defendants Plastimatic, Inc. ("Plastimatic") and Danco Products, Inc. ("Danco"). Danco/Plastock argues that it cannot, as a matter of law, be the corporate successor of those corporations. For the reasons set forth below, the Court finds that Danco/Plastock is the corporate successor of Plastimatic and Danco.
This action arises out of a ten year commercial lease agreement between plaintiff Glynwed and Milsay Associates ("Milsay") for the lease of a portion of a multi-tenancy building in Fairfield, New Jersey. The lease commenced August 1, 1986 and was to end July 31, 1996.
In December of 1989, Glynwed assigned all of its interest in the lease to Roplac, Inc. ("Roplac") when Glynwed and Roplac entered into an Agreement for Purchase and Sale of Assets. Milsay consented to the Assignment and Assumption. In April of 1990, Roplac changed its name to Plastimatic, Inc., one of the defendants herein.
In December of 1990, Rostra Holdings ("Rostra Holdings"), whose principals were Walter Rose (Chairman of the Board of Plastimatic), John Strautnieks (Secretary and member of the Board of Plastimatic), and Donn Hartley (Vice President and member of the Board of Plastimatic), solicited opportunities to acquire another plastic injection molding company. Rostra Holdings sent a letter to Gregory Goulette, President and sole shareholder in Danco, defendant herein, an injection molding company in Connecticut. Goulette contacted Hartley, and in January through March of 1991, the two men planned the consolidation of Danco and Plastimatic. Rose, Hartley and Strautnieks, the principals of Plastimatic, formed a company called Rostra Danco, Inc. ("Rostra Danco") to purchase the stock of Danco Products, and on March 8, 1991, Rostra Danco acquired 100% of Danco's stock from Goulette in exchange for 10% of Rostra Danco's stock.
The Rostra Danco principals decided to abandon Plastimatic's New Jersey facility and physically consolidate Danco and Plastimatic at Danco's Connecticut facility. Sometime in early June of 1991, Plastimatic took all of its assets and left the leased premises without notice to either Glynwed, the lessee/assignor, or Milsay, the lessor. Plastimatic left its New Jersey facility and entered into a joint production agreement with Danco's Connecticut plant. Plastimatic ceased paying rent to Milsay effective June of 1991, despite demands from Milsay and Glynwed, with approximately five years remaining on the lease.
After the move to Connecticut, Danco and Plastimatic essentially operated as one entity. Rostra Danco prepared single reports for shareholders, referring to the company as "Danco/Plastimatic." The two companies kept their own identities for accounting and legal purposes, however.
On July 29, 1991, Plastimatic and its secured lender, the Connecticut National Bank ("CNB"), entered into a Forbearance Agreement which expired on December 31, 1991. Plastimatic was in default under the terms of the original finance agreements and the Forbearance Agreement, and, by letter dated February 11, 1992, CNB demanded full payment.
On October 17, 1991, Danco's secured lender, Fleet National Bank ("Fleet"), advised Danco that it considered Danco in default because, as required by the loan agreement, Danco had failed to show a profit in the prior six months and had failed to provide Fleet with a $ 60,000 cash collateral reserve. On December 31, 1991 Fleet and Danco reached a Forbearance Agreement by which Danco agreed that all of its obligations to Fleet would become due and payable in full on March 31, 1992. Danco was only able to pay $ 5,000 of the $ 31,000 installment it owed Fleet at the termination of the Agreement. Danco was in default under the terms of the finance agreement and the Forbearance Agreement and, by letter dated May 22, 1992, Fleet demanded full payment.
Plastimatic and Danco negotiated with Fleet and CNB, from at least February of 1992, to have a new corporation, Danco/Plastock, purchase the assets of Plastimatic and Danco at a secured party sale pursuant to section 9-504 of the Uniform Commercial Code ("UCC"). Plastimatic and Danco agreed to turn over their assets to CNB and Fleet for sale at a secured party sale. The sale was conducted on June 12, 1992 by Thomas Industries of New Haven, Connecticut. Prior to the sale, Thomas Industries notified over 700 prospective purchasers of the sale by direct mail and placed advertisements in industry trade journals. Danco and Plastimatic also mailed notices of the sale to all of their creditors, including Glynwed and Milsay. Thomas Industries valued the collateral and determined that the minimum bid should be $ 1,850,000.
As planned, on May 29, 1992 Rose, Hartley, and Strautnieks formed a new corporation, Danco/Plastock, to bid on the assets of Danco and Plastimatic at the secured party sale. Danco/Plastock was capitalized with $ 500,000 in unsecured loans, convertible into 50% of the corporation's common stock, and a secured loan of $ 590,000 and rent concessions from the landlord of Danco/Plastimatic's facility. Danco/Plastock also obtained debt financing from CNB, Plastimatic's secured lender, in the form of a revolving loan of up to $ 1,000,000.
Of the two bidders which appeared at the sale on June 12, 1992, Danco/Plastock was the only one that actually placed a bid. Danco/Plastock's bid of $ 1,687,369.40 was accepted by the creditors, and Danco/Plastock purchased the assets of Danco and Plastimatic by Secured Party Bills of Sale.
Glynwed filed a complaint for declaratory relief on April 10, 1992, prior to the sale, against Plastimatic and Danco, seeking declarations as to their payment obligations under the lease and for repair of the premises. On or around June 29, 1992, Glynwed's counsel received a letter from counsel for Plastimatic and Danco which indicated that both defendants' assets had been sold at the secured party sale and that counsel had been directed not to defend the matter further.
On July 14, 1992, this Court issued an ex parte temporary restraining order against Plastimatic and Danco, restraining them from transferring or liquidating their assets. On July 16, a second ex parte order was issued against Danco/Plastock, restraining it from transferring any of its assets pending a show cause hearing. This order was amended by agreement of the parties to allow Danco/Plastock to conduct its day-to-day business. The show cause hearing was held before this Court on September 15, 1992, at which time Danco/Plastock had neither been served with process nor added as a party-defendant to this action. On September 16, the Court denied Glynwed's application for a preliminary injunction against Danco/Plastock, and dissolved the temporary restraints against Danco/Plastock, Danco, and Plastimatic.
Glynwed then sought leave to amend its complaint to name Danco/Plastock as a defendant on the theories that Danco/Plastock is a successor-in-interest to Plastimatic and Danco and that the transfer of assets to Danco/Plastock was a fraudulent conveyance. Danco/Plastock argued before Magistrate Judge Hedges that it should not be so joined because this Court lacked in personam jurisdiction over it. Judge Hedges considered Danco/Plastock's arguments, and in a letter-opinion and order of October 27, 1992 decided that in personam jurisdiction over Danco/Plastock did exist. This Court subsequently found that Judge Hedges' decision was neither clearly erroneous nor contrary to law, and therefore denied Danco/Plastock's appeal of Judge Hedges' order.
In March of 1994, Glynwed and Danco/Plastock filed cross-motions for summary judgment. On June 13, 1994 the Court heard oral argument on the cross-motions. Based on the written submissions of the parties and the oral argument of counsel, the Court, for the reasons set forth below, will grant Glynwed's motion for summary judgment on the issue of successor liability with respect to the de facto consolidation/mere continuation theory; Glynwed's motion for summary judgment on all other theories of successor liability will be denied. Danco/Plastock's cross-motion for summary judgment on the theory that UCC section 9-504 precludes a finding of successor liability for the commercial debt of an alleged predecessor corporation will also be denied.
A. Summary Judgment Standard
The standard for granting summary judgment pursuant to Federal Rule of Civil Procedure 56 is a stringent one. Summary judgment is appropriate only if all the probative materials of record "show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c); Hersh v. Allen Prods. Co., 789 F.2d 230, 232 (3d Cir. 1986); Lang v. New York Life Ins. Co., 721 F.2d 118, 119 (3d Cir. 1983). In determining whether there remain any genuine issues of material fact, the court must resolve all reasonable doubt in favor of the nonmoving party. Meyer v. Riegel Prods. Corp., 720 F.2d 303, 307 n.2 (3d Cir. 1983); Smith v. Pittsburgh Gage & Supply Co., 464 F.2d 870, 874 (3d Cir. 1972). Significantly, "at the summary judgment stage the judge's function is not himself to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986).
Under the standards announced by the Supreme Court's trilogy in Celotex Corp v. Catrett, 477 U.S. 317, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986), Anderson, 477 U.S. 242, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986), and Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 89 L. Ed. 2d 538, 106 S. Ct. 1348 (1986), "the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment." Anderson, 477 U.S. at 247-48 (emphasis in original). Indeed, where the moving party has made a properly supported motion for summary judgment, it is incumbent upon the nonmoving party to come forward with specific facts to show that there is a genuine issue of material fact for trial. Id. at 248. Thus, once the moving party has carried its burden of establishing the absence of genuine issues of material fact, the nonmoving party "may not rest upon mere allegations or denials" of its pleading, Fed. R. Civ. P. 56(e), but must produce sufficient evidence that will reasonably support a jury verdict in its favor, id. at 249; J.E. Mamiye & Sons, Inc. v. Fidelity Bank, 813 F.2d 610, 618 (3d Cir. 1987) (Becker, J., concurring), and not just "some metaphysical doubt as to material facts." Matsushita, 475 U.S. at 586.