Judge: Craig Griffin, Case: "Sheldon Public Relations v. IPC USA, Inc., et al.", Date: 2023-07-31 Tentative Ruling
On June 30, 2023, the Court, on its own motion, granted reconsideration of its ruling granting Defendant, Truman Arnold Companies dba TACenergy’s (“TAC”) motion for summary judgment (“MSJ”) as to Issue 1. (See ROA 548.) The Court invited the parties to submit opposition and reply briefs. The Court has received and reviewed said briefs and finds that its prior ruling granting TAC’s MSJ was erroneous. TAC’s MSJ on Issue 1 is thus DENIED.
In the MSJ, the TAC Parties argued that TAC completed a divisional merger in July 2022, in which it allocated its fuel distribution business (which is the portion of the business that purchased IPC’s assets) to TACenergy Holdings and TACenergy, and that these new entities assumed all responsibility for this lawsuit on TAC’s behalf. (See ROA 344 at p.12:1-16.) The TAC Parties contended that this action extinguished TAC’s liability. The only authority cited was Hernandez v. Enter. Rent-A-Car Co. of San Francisco (2019) 37 Cal.App.5th 187, 194, in which the court held that “[t]he surviving corporation under a statutory merger is responsible for the liabilities of the merged corporation under both common law and statute.”
The Court previously expressed its view that Hernandez is inapposite to the present situation for a number of reasons. (See ROA 548.) The Court noted that TAC’s summary judgment motion does not explain what constitutes a “divisional merger” under Texas law, or how TAC’s spin off of two of its divisions can be viewed as a “merger” at all.
In their response to the Court’s motion, the TAC Parties argue that whether under Texas or California law, the Court correctly granted summary judgment in TAC’s favor. They cite Kelly v. Corizon Health Inc. (E.D. Mich. Nov. 1, 2022) No. 2:22-CV-10589, 2022 WL 16575763, at *10, which states that under Texas law, “a single business organization may undergo a ‘merger’ in which it divides into two or more new entities. . . . The pre-division corporation may allocate its assets and liabilities freely among the new entities, and each new entity—at least as a matter of Texas law—is liable only for the liabilities assigned to it under the plan of merger.”
They also cite a treatise, 2 Ribstein and Keatinge on Ltd. Liab. Cos. § 14:38, Merger, conversion and division, which states, in part: “Divisions (sometimes referred to as “divisional mergers”) have the effect of dividing a single organization into two or more legally distinct organizations and allocating the assets and liabilities of the dividing organization among the surviving organizations. After this, the assets of each surviving organization shall be subject only to the liabilities allocated to that organization.”
Lastly, they cite Peterson, Goldman & Villani, Inc. v. Ancor Holdings, LP (Tex. App. 2019) 584 S.W.3d 556, 566, which held that “[w]hen a merger takes effect, ‘all liabilities and obligations of each organization that is a party to the merger are allocated to one or more of the surviving or new organizations in the manner provided by the plan of merger.”
The TAC Parties contend that because Frederick Sloan declared in support of the MSJ that “TACenergy assumed all responsibility (if any) for this lawsuit on Truman Arnold Companies’ behalf” (ROA 343, ¶ 6), summary judgment as to TAC was properly granted.
Assuming that, under Texas law, each entity is liable only for the liabilities assigned to it under the plan of merger, the Court finds that TAC failed to meet its initial burden of demonstrating the nonexistence of any triable issue of fact as to whether the new TAC entities were assigned the liabilities at issue in Plaintiff’s complaint. The only evidence cited in support of the TAC Parties’ argument that TAC is not the proper entity was paragraph 6 of the Sloan declaration, which states only that TAC completed a divisional merger under Texas law in which it allocated its fuel distribution business to TACenergy Holdings, LLC and its wholly-owned subsidiary, TACenergy, LLC, and that “TACenergy assumed all responsibility (if any) for this lawsuit on Truman Arnold Companies’ behalf.” (ROA 343 at ¶ 6.) No supporting documentation and no other information related to the divisional merger was provided.
The foregoing is insufficient to meet TAC’s initial burden as the statements do not specify what particular assets and liabilities were assigned to the new TAC entities. Further, it is unclear exactly what is meant by Sloan’s statement that TACenergy assumed all responsibility for this lawsuit. This statement is vague and does not definitively show that the new TAC entities assumed TAC’s liabilities under the divisional merger. The evidence presented is thus insufficient to show that under the plan of merger and under Texas law, TACenergy and TACenergy Holdings were assigned TAC’s assets and liabilities as they relate to this litigation, such that Plaintiff can only recover from said entities.
Moreover, Tex. Bus. Org. Code § 10.008(a)(5) expressly provides that a plaintiff has the option of continuing an existing action against the pre-merger entity, just as if the merger has never occurred. Indeed, in Kelly, supra, cited by TAC, the court ultimately determined that because the defendant survived after the Texas law merger, it could remain as a defendant in the case, despite having transferred the liability at issue to a new company. Kelly, at p. 14.
Additionally, the TAC Parties failed to meet their burden of showing that summary judgment was warranted under California law. As discussed in the Court’s June 30, 2023 minute order, the only California case cited by the TAC Parties, Hernandez v. Enter. Rent-A-Car Co. of San Francisco (2019) 37 Cal.App.5th 187, is inapposite to the present matter and thus does not support granting summary judgment in favor of TAC. In their response to the Court’s motion, the TAC Parties offered no argument as to how Hernandez supports summary judgment in TAC’s favor.
Thus, whether under Texas law or California law, the TAC Parties failed to meet their initial burden of demonstrating that no triable issue of material fact exists as to their contention that TAC is not the correct entity in this litigation.
Accordingly, TAC’s motion for summary judgment as to Issue 1 is DENIED.
Counsel for Plaintiff to give notice.