Playmark Inc. v. Perret

1

PLAYMARK INC., et al., v. JAMES P. PERRET

No. 0091-2020

Court of Special Appeals of Maryland

December 9, 2021

Circuit Court for Montgomery County Case No. 464579V

Berger, Friedman, Gould, ^[**] JJ.

OPINION ^[*]

Friedman, J James Perret entered into a contract to perform services for (AAA) Sport Systems, Inc. ("AAA"). AAA no longer exists, and its corporate successors, Playmark, Inc. ("Playmark") and Pro Recreation, LLC ("Pro Rec"), now seek to avoid paying. We hold that Playmark and Pro Rec each bear successor liability for the contractual obligations of AAA and, therefore, affirm the circuit court's judgment for breach of contract in favor of Perret as well as the circuit court's declaration of Perret's right to receive future payments. Additionally, however, we hold that Playmark and Pro Rec are also statutorily obligated to pay Perret under Maryland's Wage Payment and Collection Law and, therefore, reverse the circuit court's pretrial dismissal of that claim. We remand for appropriate proceedings.

FACTUAL BACKGROUND

I. Corporate History

In the mid-1980s, Tilford Jones created AAA, a Maryland corporation engaged in the business of selling, constructing, and installing playground equipment, tennis courts, and tennis backboards. Although Jones was initially the sole owner of AAA, sometime after marrying Sarah Rodowsky in 1987, Rodowsky became a joint owner of the company.^[1]

In 2005, Jones and Rodowsky split AAA into two new limited liability companies: Sportco, LLC ("Sportco") and Sport Systems, LLC ("Sport Systems"), each of which they also jointly owned.^[2] The assets of AAA were divided between the two new companies. Sportco received AAA's physical assets, such as intellectual property, trucks, and other equipment. Sport Systems, which was created as the operating arm of the business, received AAA's less tangible assets, including the company's employees, contracts, clients, and goodwill. Thereafter, the two companies continued to operate together, with Sportco leasing trucks and other equipment to its sole customer, Sport Systems. In turn, Sport Systems fulfilled contracts for the manufacture, installation, and distribution of tennis courts, tennis backboards, and playground equipment, just as AAA had previously done. Sportco and Sport Systems were also formed on the same day, and the companies shared an address in Ijamsville, Maryland.

In 2017, Jones and Rodowsky's personal relationship soured, and they began divorce proceedings. As part of their divorce settlement, they entered into a Business Management Agreement ("BMA") to divide their ownership of Sportco and Sport Systems. The purpose of the BMA was for "each party [to] have sole control and ownership of a new entity." Accordingly, Jones formed Pro Rec to carry on the tennis court and tennis backboard divisions of the businesses. Rodowsky formed Playmark to carry on the playground services division of the businesses. Today, Pro Rec, solely owned by Jones, and Playmark, solely owned by Rodowsky, carry on these businesses. We have created the following graphical representation of the corporate history, each transfer numbered in the order in which we address them in the discussion below:^[3]

(Image Omitted).

II. Perret's Employment History

In the late 1990s, AAA hired James Perret as a salesperson. Perret was rapidly promoted to general manager in 1998, at which time he signed an Employee Non-Competition and Confidentiality Agreement ("Non-Compete Agreement") with AAA. The Non-Compete Agreement prohibited Perret from engaging in a range of competitive behaviors while employed by AAA and for three years thereafter. In 2000, Perret and AAA entered into an Executive Management Agreement ("EMA"), in which AAA promised to provide Perret with retirement benefits if he continued in its employment. As relevant to this appeal, if Perret continued to work in a managerial capacity from 2000 to 2015, AAA agreed to pay Perret $25, 000 per year for the next ten years, for a total of $250, 000. The payments were to be made quarterly, on January 1st, March 1st, June 1st, and October 1st, of each year.

Perret continued working for AAA and its successors until June of 2018, not only fulfilling, but surpassing the fifteen-year term set forth in the EMA. In accordance with the terms, Sport Systems made payments to Perret from 2015 through 2018. By the time Jones and Rodowsky split Sport Systems and Sportco into Playmark and Pro Rec, see supra Figure 1, transfers #3 and #4, they had already paid Perret a total of $100, 000.

Jones and Rodowsky told Perret that they would continue making payments to him under the EMA even after this corporate change. For example, when Perret resigned in June of 2018, Jones and Rodowsky were already planning this corporate restructuring, and Rodowsky sent Perret a letter on Sport Systems' letterhead indicating that the terms of the EMA were still in effect. Also in June of 2018, Sport Systems' attorney, Michael Rowan, sent a letter to Perret ("2018 Rowan Letter") telling Perret how the two new entities, Playmark and Pro Rec, would handle the remaining payments:

This letter serves to clear up obligations going forward. Ms. Rodowsky and Mr. Jones are in the process of dividing up what was known as Sport Systems, LLC. The obligations you owe to the entity and them will flow to their entities and likewise the obligations the entity owes to you will flow to these new entities.

Mr. Jones' successor entity is named Pro Recreation, LLC, dba Sport Systems. Ms. Rodowsky will continue to operate Sport Systems, LLC, which will operate as Eagle Play Structures or a new name.

Further, given the split of the Sport Systems, LLC, Ms. Rodowsky and Mr. Jones have agreed their new entities will each be 50% responsible for the payments due to you under the [EMA].

(emphasis added). Moreover, the BMA, by which Jones and Rodowsky divided up Sportco and Sport Systems amongst themselves, explicitly provided that "Perret shall be paid $25, 000.00 per year for six years, commencing in 2018, and each party's newly formed company [Playmark and Pro Rec] shall bear one-half the annual cost ($12, 500.00) of the same." Despite these assurances that the payments would continue, no further payments were made.

PROCEDURAL HISTORY

In March of 2019, Perret filed suit in the Circuit Court for Montgomery County against Playmark and Pro Rec; their predecessor, Sport Systems; and Jones and Rodowsky, individually. Perret alleged that the missed payments^[4] (1) were a breach of the EMA, and (2) violated the Maryland Wage Payment and Collection Law ("Wage Act").^[5] Md. Code, Labor and Employment ("LE") §3-501 et seq. Perret also sought a declaratory judgment that he was entitled to receive the quarterly EMA payments from Playmark and Pro Rec going forward. Before trial, the circuit court dismissed Perret's claims against Jones and Rodowsky in their individual capacities. The court also dismissed Perret's claim under the Wage Act.

After a two-day bench trial, the circuit court entered judgment for breach of contract in favor of Perret and against Playmark and Pro Rec for the five quarterly EMA payments that were then overdue. The circuit court also entered a declaratory judgment that Perret was entitled to receive the quarterly EMA payments from Playmark and Pro Rec going forward. Perret moved for reconsideration of the pre-trial dismissal of the Wage Act claim, but the circuit court denied that motion.

Playmark and Pro Rec noted timely appeals of the breach of contract and declaratory judgments. Perret noted a timely cross-appeal of the circuit court's pre-trial dismissal of his claim under the Wage Act.

DISCUSSION

On appeal, Playmark and Pro Rec argue that they are not obligated to pay Perret under the EMA. They advance two primary arguments: first, that Playmark and Pro Rec are not corporate successors to AAA; and second even if they are AAA's successors, they did not assume liability for AAA's obligation to Perret. On cross-appeal, Perret argues that the circuit court erred in dismissing his claim under the Wage Act. As we explain below, we conclude that the circuit court did not err in finding that Playmark and Pro Rec had an obligation to pay Perret under the EMA. We, thus, affirm the circuit court's breach of contract judgment against Playmark and Pro Rec for the overdue payments they owe to Perret as well as the circuit court's declaratory judgment that Perret has a right to receive the remaining future payments from Playmark and Pro Rec. We also hold, however, that the circuit court erred in dismissing Perret's claim under the Wage Act and, thus, reverse and remand for additional proceedings.

I. Contractual Obligation to Pay Under the EMA

We turn first to the question of whether Playmark and Pro Rec are obligated to make good on AAA's promise to pay Perret under the EMA. Although Perret initially entered into the EMA with AAA, AAA no longer exists. We are, therefore, tasked with determining whether and how liability for the obligation passed from AAA to the subsequent companies owned by Jones and Rodowsky: first to Sportco and Sport Systems, and later to Playmark and Pro Rec.

As a general rule of Maryland corporate law, a corporation that acquires all or part of the assets of another corporation is not liable for the debts and liabilities of its predecessor.^[6] Nissen Corp. v. Miller, 323 Md 613, 617, 632 (1991). A corporation can, however, be held liable for its predecessor's obligations if two criteria are met. First, the corporation must be a "successor," which is defined by statute as "(1) a new corporation formed by consolidation; (2) a corporation or other entity surviving a merger; (3) a corporation acquiring stock in a share...