Alan Weinshel v. Southcoast Physicians Group, Inc. ( 2023 )

NOTICE: Summary decisions issued by the Appeals Court pursuant to M.A.C. Rule
23.0, as appearing in 97 Mass. App. Ct. 1017 (2020) (formerly known as rule 1:28,
as amended by 73 Mass. App. Ct. 1001 [2009]), are primarily directed to the parties
and, therefore, may not fully address the facts of the case or the panel's
decisional rationale. Moreover, such decisions are not circulated to the entire
court and, therefore, represent only the views of the panel that decided the case.
A summary decision pursuant to rule 23.0 or rule 1:28 issued after February 25,
2008, may be cited for its persuasive value but, because of the limitations noted
above, not as binding precedent. See Chace v. Curran, 71 Mass. App. Ct. 258, 260
n.4 (2008).
COMMONWEALTH OF MASSACHUSETTS
APPEALS COURT
22-P-685
ALAN WEINSHEL
vs.
SOUTHCOAST PHYSICIANS GROUP, INC.
MEMORANDUM AND ORDER PURSUANT TO RULE 23.0
The plaintiff, Alan Weinshel, appeals from the award of
summary judgment to the defendant, Southcoast Physicians Group,
Inc. (SPG), concerning the plaintiff's claim of breach of
contract on a successor liability theory. On appeal, the
plaintiff claims the motion judge erred by finding as a matter
of law that SPG was not a successor-in-interest to New Bedford
Medical Associates, P.C. (NBMA). We affirm.
Discussion. We review the allowance of a motion for
summary judgment de novo. See Williams v. Stewart Health Care
Sys. LLC, 480 Mass. 286, 290 (2018). Summary judgment is
appropriate when there are no genuine issues of material fact,
and the moving party is entitled to a judgment as a matter of
law. See Mass. R. Civ. P. 56 (c), as amended, 436 Mass. 1404(2002). We view the facts in the light most favorable to the
nonmoving party. See Premier Capital, LLC, v. KMZ, Inc., 464
Mass. 467, 474-475 (2012).
This dispute arises from SPG's purchase of NBMA in 2014.
In anticipation of the acquisition, the plaintiff ended his
employment with NBMA and executed a Separation Agreement and
Medical Records Custody Agreement (agreements). Under the
agreements, NBMA would release medical records to the plaintiff
for any patient that elected to be treated by him at his new
practice. The plaintiff claimed the patient records he received
pursuant to the agreements were insufficient and filed suit
against SPG in 2019, claiming SPG was liable as a successor to
NBMA for failing to provide adequate records. The judge found
no basis for successor liability and allowed SPG's motion for
summary judgment.
The plaintiff claims the motion judge erred by determining
that SPG was not a successor-in-interest to NBMA. Our law
generally does not impose a predecessor's liabilities on a
successor unless "(1) the successor expressly or impliedly
assumes liability of the predecessor, (2) the transaction is a
de facto merger or consolidation, (3) the successor is a mere
continuation of the predecessor, or (4) the transaction is a
fraudulent effort to avoid [the] liabilities of the
predecessor." Milliken & Co., v. Duro Textiles, LLC, 451 Mass.
547, 556 (2008), quoting Guzman v. MRM/Elgin, 409 Mass. 563, 566
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(1991). The plaintiff claims on appeal that SPG should be
liable under the de facto merger exception.1
We consider four factors to determine whether a transaction
was a de facto merger:
"[W]hether (1) there is a continuation of the enterprise of
the seller corporation so that there is continuity of
management, personnel, physical location, assets, and
general business operations; whether (2) there is a
continuity of shareholders which results from the
purchasing corporation paying for the acquired assets with
shares of its own stock, this stock ultimately coming to be
held by the shareholders of the seller corporation so that
they become a constituent part of the purchasing
corporation; whether (3) the seller corporation ceases its
ordinary business operations, liquidates, and dissolves as
soon as legally and practically possible; and whether (4)
the purchasing corporation assumes those obligations of the
seller ordinarily necessary for the uninterrupted
continuation of normal business operations of the seller
corporation."
Cargill, Inc., v. Beaver Coal & Oil Co., 424 Mass. 356, 360
(1997). While no single factor is necessary or sufficient,
courts pay particular attention to the continuation of
management, officers, directors, and shareholders. See id. The
focus of the de facto merger analysis is "whether one company
has become another for the purpose of eliminating its corporate
debt." See Milliken, 451 Mass. at 556.
To establish the first factor, the plaintiff was required
to show that there was continuation of enterprise, mainly
1 The motion judge found none of the other exceptions applicable
and the plaintiff raises no claim relative to them on appeal.
3
through continuity of operational management. See Cargill, 424
Mass. at 360. Nine of NBMA's executive leaders, who were also
shareholders, became employees of SPG. However, none of the
NBMA executives retained their management titles or roles at
SPG, except one who transitioned from chief financial officer at
NBMA to director of business operations at SPG. The lack of
continuity of management and direction from the NBMA officers
after the acquisition weighs heavily against the application of
this factor. Contrast Cargill, supra at 360-361 (holding buyer
corporation was successor where employees and managers all
maintained their same positions).
Continuity of personnel, physical location, assets, and
general business operations may also indicate continuation of
enterprise. See Cargill, 424 Mass. at 360. SPG acquired NMBA's
assets, including equipment, phone numbers, name, and patient
medical records, and continued to provide medical services at
NBMA's physical location.2 There was therefore some degree of
operational continuity. See id. at 360-61 (successor company
2 The assets SPG acquired included the patient medical records
the plaintiff sought. However, it was undisputed that under the
NBMA-SPG Asset Purchase Agreement (APA), NBMA retained its
liabilities under any contract not specifically assigned to SPG,
including its agreements with the plaintiff. The APA also
provided that NBMA would have reasonable access to patient
records for seven years after closing. These provisions
indicate that although SPG acquired NBMA's patient records, the
APA authorized NBMA to retrieve and transfer records to the
plaintiff under the agreements.
4
used same name, telephone numbers, trucks, and equipment as
predecessor). However, as the motion judge found, an asset
transfer without continuity of management is more akin to a
corporate acquisition than a merger. See Aldrich v. ADD Inc.,
437 Mass. 213, 219 (2002) ("mere purchase of an asset does not
make the purchaser the 'successor' of the seller, bound by the
seller's contractual obligations with other parties");
Martignetti Grocery Co. v. Alcoholic Beverages Control
Commission, 96 Mass. App. Ct. 729, 734 (2019) (de facto merger
is "in essence a continuation of the predecessor's operations").
This factor is therefore not satisfied.
The second factor, continuity of shareholders, is present
when the purchasing corporation exchanges its own stock as
consideration for the predecessor's assets. See Cargill, 424
Mass. at 360. Here, SPG did not pay for NBMA's assets with
shares of its own stock and none of NBMA's physician-owner
shareholders received any stock in SPG. Contrast id. at 358,
361 (sole shareholder of predecessor became director and
shareholder with 12.5 percent interest in successor). This
factor therefore does not apply.
The third factor is satisfied if the seller entity ceases
its ordinary business operations, liquidates, and dissolves as
soon as legally and practicably possible. See Cargill, 424
Mass. at 360. The lack of formal dissolution of a company does
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not preclude the finding of a de facto merger because successor
liability can be imposed where a corporation ceases all of its
ordinary business operations but continues to exist solely as a
legal entity. See Milliken, 451 Mass. at 558. In Milliken, for
example, the court reasoned that the predecessor corporation
fundamentally ceased to exist even though it never dissolved,
because it no longer had offices, employees, or operations.id.
at 558-559. Here, NBMA stopped seeing patients when SPG
acquired it, but it maintained its corporate status for two
years to wind down the business. SPG agreed to make employees
available to NBMA at NBMA's expense during that period, and NBMA
performed some corporate functions, including sending patient
records to the plaintiff, albeit in an unsatisfactory form.
These facts are sufficiently distinct from Milliken to justify a
different result. See Milliken, 451 Mass. at 559. Accordingly,
the third factor does not apply in this case.
Lastly, under continuity of operations, we consider whether
the purchasing entity took steps to ensure continuation of the
seller's business. See Cargill, 424 Mass. at 362. SPG does not
dispute that it continued the enterprise of NBMA by providing
medical services to some of NBMA's patients. As noted above,
SPG also acquired most of NBMA's assets and retained some of its
employees. See id. (successor functioned in same manner as
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predecessor with same employees, product, and services). This
last factor is therefore satisfied.
Balancing the four factors, however, the lack of continuity
of ownership and control outweighs the single applicable factor
of operational continuity. See Cargill, 424 Mass. at 360(highlighting importance of continuation of management and
shareholders). The motion judge properly determined that the
acquisition was not a de facto merger and SPG was not subject to
successor liability.3
Judgment affirmed.
By the Court (Meade,
Desmond & Hand, JJ.4),
Clerk
Entered: April 13, 2023.
3 The plaintiff claims, for the first time on appeal, that the
court should impose successor liability because of the equitable
nature of the doctrine or by recognizing "continuity of
enterprise" without the transfer of ownership. "An issue not
raised or argued below may not be argued for the first time on
appeal." Century Fire & Marine Ins. Corp. v. Bank of New
England-Bristol County, N.A., 405 Mass. 420, 421 n.2 (1989).
Accordingly, these claims are waived.
4 The panelists are listed in order of seniority.
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