Granite State Ins. Co. v. Delta Marine & Envtl. Servs.

GRANITE STATE INSURANCE COMPANY, ET AL. v. DELTA MARINE & ENVIRONMENTAL SERVICES, LLC

CIVIL ACTION NO. 18-9388-WBV-MBN SECTION: D (5)

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF LOUISIANA

January 17, 2020

FINDINGS OF FACT AND CONCLUSIONS OF LAW

I. PROCEDURAL HISTORY

This matter concerns an outstanding default judgment issued by this Court in a separate matter in favor of Granite State Insurance Company and Commerce & Industry Insurance Company (collectively, "Plaintiffs"), and against Delta Marine Environmental, LLC ("Delta Marine").¹ The Judgment, issued on November 20, 2018, in the amount of $304,488.00, represents the outstanding balance owed by Delta Marine for three workers' compensation insurance policies issued by Plaintiffs for three separate policy periods between April 30, 2015 and April 30, 2018.² After the issuance of the November 20, 2018 Judgment, Plaintiffs learned of the existence of Delta Marine and Environmental Services, LLC ("DM&ES"), which Plaintiffs believe is a successor in interest of Delta Marine. As a result, Plaintiffs commencedthis action to enforce the November 20, 2018 Judgment against DM&ES based upon successor liability or, alternatively, the single-business enterprise theory of liability.

The issue to be resolved before this Court is straightforward: whether DM&ES is a mere continuation of Delta Marine or, in the alternative, whether DM&ES and Delta Marine are a single business enterprise. If DM&ES is determined to be either a continuation of Delta Marine or a single business enterprise with Delta Marine, the second issue before the Court is whether DM&ES is liable in privity for the default judgment entered against Delta Marine in the prior case.

The parties in this matter originally agreed to proceed in this matter on cross-motions for summary judgment in lieu of trial.³ Thereafter, the Court held a status conference with counsel and requested that counsel provide the Court with a joint statement of undisputed facts in an effort to determine whether cross-motions for summary judgment would be appropriate.⁴ After reviewing the joint statement of undisputed facts,⁵ the Court determined that genuine issues of material fact remained in dispute and that the matter would proceed to trial.⁶ The Court subsequently denied the parties' cross-motions for summary judgment,⁷ and set the matter for a bench trial.

During the final pre-trial conference, counsel agreed to submit the matter for decision on the papers, including the parties' respective summary judgment briefs,trial exhibits, and oral argument.⁸ The matter proceeded by bench trial, with the parties presenting oral argument on November 13, 2019.⁹ The parties thereafter submitted respective Proposed Findings of Fact & Conclusions of Law.¹⁰ The Court has carefully considered the evidence and the arguments of counsel. Pursuant to Rule 52 of the Federal Rules of Civil Procedure, the Court hereby enters the following findings of fact and conclusions of law. To the extent that any findings of fact constitute conclusions of law, the Court hereby adopts them as such. To the extent any conclusions of law constitute findings of fact, the Court hereby adopts them as such.

II. FINDINGS OF FACT

1.

On October 7, 2014, Patrick Berrigan and Houston McVea registered Delta Marine Environmental, LLC ("Delta Marine") with the Louisiana Secretary of State.¹¹

2.

Delta Marine began operating in approximately October 2014.¹²

3.

Christopher Meredith began working for Delta Marine in October 2014.¹³

4.

Guy Sergi began working for Delta Marine in January 2015.¹⁴

5.

Sergi and Meredith served in managerial/supervisory positions during the entirety of their tenure at Delta Marine.¹⁵

6.

Delta Marine had a line of credit with Hancock Whitney Bank.¹⁶

7.

Delta Marine's line of credit with Whitney Bank was set to freeze on July 20, 2017. Delta Marine attempted to find a buyer before July 20, 2017, but such efforts were unsuccessful.¹⁷

8.

On July 20, 2017, Patrick Berrigan, Guy Sergi, Christopher Meredith, Houston McVea and Scott Satter entered into a Unanimous Written Consent concerning Delta Marine, Conrad Schimmel and DM&ES.¹⁸

9.

The Unanimous Written Consent includes the following provision:

WHEREAS, in lieu of ceasing operations, in its entirety, [Delta Marine], along with all of its undersigned Members and Manager, hereby consent to the [Delta Marine] entering into an agreement with Mr. Conrad Schimmelland/or Delta Marine and Environmental Services, LLC, the entity Mr. Schimmell intends to form (collectively referred to hereinafter as "Schimmell"), as more particularly described hereinafter."¹⁹

10.

On August 1, 2017, Schimmel registered Delta Marine & Environmental Services, LLC ("DM&ES") with the Louisiana Secretary of State.²⁰

11.

DM&ES was organized as a member-managed limited liability company with Schimmel as its sole member.²¹

12.

On August 4, 2017, Schimmel negotiated an Equipment Bill of Sale on behalf of DM&ES, with DM&ES listed as the buyer and Delta Marine listed as the seller, in the amount of $12,000.00.²²

13.

Pursuant to the August 4, 2017 Bill of Sale, DM&ES purchased from Delta Marine, "all email addresses, all phone numbers, [and] website (www.deltames.com)."²³

14.

On September 5, 2017, Schimmel entered into a second Equipment Bill of Sale on behalf of DM&ES, with Delta Marine listed as the seller and DM&ES listed as the buyer, in the amount of $254,626.50.²⁴

15.

Pursuant to the second Equipment Bill of Sale, DM&ES purchased from Delta Marine certain equipment, including "pumps, hoses, hand tools misc equipment, goodwill."²⁵

16.

Prior to purchasing assets from Delta Marine through the two Equipment Bills of Sale, DM&ES was not separately performing any services for customers.²⁶

17.

Delta Marine and DM&ES serve customers in the same industry.²⁷

18.

DM&ES purchased Delta Marine's customer list and acquired some customers from Delta Marine.²⁸

19.

Delta Marine and DM&ES both provide cargo cleaning of cargo holds of ships.²⁹

20.

Delta Marine initially operated out of locations in Slidell and Arabi in 2015, before moving to a location at 13080 Chef Menteur Highway in New Orleans, Louisiana (the "Chef Menteur Property"), in approximately February 2016.³⁰

21.

DM&ES initially operated out of the Chef Menteur Property, before moving to a location at 61134 St. Tammany Avenue in Slidell, Louisiana 70460 (the "St. Tammany Property"), in the beginning of 2018.³¹

22.

In a February 24, 2016 email, Delta Marine employee Patrick Berrigan's email signature block identified his employer as "Delta Marine & Environmental Services, LLC."³²

23.

The majority, if not all, of Delta Marine's employees became employees of DM&ES, at least initially.³³

24.

Guy Sergi and Christopher Meredith served in supervisory and management positions for Delta Marine,³⁴ and continued to serve in supervisory and management positions at DM&ES.³⁵

25.

Delta Marine sold its Chef Menteur property to CPMM, LLC, an entity owned by Patrick Berrigan.³⁶

III. CONCLUSIONS OF LAW

1.

The Court has diversity jurisdiction under 28 U.S.C. § 1332 because the parties are citizens of different states and the requisite amount in controversy is satisfied.

2.

Plaintiff Granite State Insurance Company is a citizen of Illinois and New York. Plaintiff Commerce and Industry Insurance Company is a citizen of New York. Defendant Delta Marine & Environmental Services, LLC is a citizen of Louisiana because its sole member, Conrad Schimmel, is a citizen of Louisiana.

3.

The amount in controversy in this case exceeds $75,000.00, as Plaintiffs seek to enforce a default judgment in the amount of $304,448.00.

4.

Venue is appropriate in this district.

5.

The Fifth Circuit, applying Louisiana law, has held that a newly organized corporation is liable for the debts of an older corporation where the circumstances surrounding the creation of the new corporation show that the new corporation is merely a continuation of the predecessor.³⁷

6.

The purpose of this "mere continuation" exception to the rule of non-liability is to prevent two corporations from merging, while limiting the liability of the surviving corporation by structuring the transaction as a sale of assets.³⁸ Accordingly, as noted by Louisiana courts, "A threshold requirement to trigger a determination of whether successor liability is applicable under the 'continuation' exception is that one corporation must have purchased all or substantially all of the assets of another."³⁹

7.

In Hollowell, the Fifth Circuit held that a district court should consider the following eight factors to determine whether an entity is operating as a "mere continuation" of another entity:

1. retention of the same employees;

2. retention of the same supervisory personnel;

3. retention of the same production facility in the same physical location;

4. production of the same product;

5. retention of the same name;

6. continuity of assets;

7. continuity of general business operations; and

8. whether the successor holds itself out as a continuation of the previous enterprise.⁴⁰

8.

After reviewing the exhibits submitted by the parties, the Court concludes that a majority of the Hollowell factors weigh in favor of finding that DM&ES is operating as a mere continuation of Delta Marine.

9.

With respect to the first Hollowell factor, retention of the same employees, the evidence establishes that after its legal formation, DM&ES retained most of Delta Marine's employees.⁴¹

10.

With respect to the second Hollowell factor, retention of the same supervisory personnel, the Court finds that Guy Sergi and Christopher Meredith served insupervisory and managerial positions for Delta Marine,⁴² and continued to serve in supervisory and managerial positions at DM&ES.⁴³

11.

Regarding the third Hollowell factor, retention of the same production facility in the same physical location, the evidence shows that Delta Marine and DM&ES operated in the same two physical locations. At its inception, Delta Marine briefly operated out of a building located at...