E-Quest Management, L.L.C. and Odyssey OneSource, Inc. v. Robbie Shaw

Opinion issued March 28, 2013
In The
Court of Appeals
For The
First District of Texas
————————————
NO. 01-11-00296-CV
———————————
E-QUEST MANAGEMENT, LLC AND ODYSSEY ONESOURCE, INC.,
Appellants
V.
ROBBIE SHAW, Appellee
On Appeal from the 212th District Court
Galveston County, Texas
Trial Court Case No. 08CV0414
OPINION
Appellants, E-Quest Management, LLC (“E-Quest”) and Odyssey
OneSource, Inc. (“Odyssey”), challenge the trial court’s judgment, entered after a
trial to the court, in favor of appellee, Robbie Shaw, in Shaw’s suit against them
for successor liability. In five issues, E-Quest and Odyssey contend that they have
been “prevented from proper presentment” of this appeal due to the trial court’s not
making their requested findings of fact and conclusions of law; the trial court
entered judgment against Odyssey in violation of the statute of limitations; the trial
court’s judgment does not conform to Shaw’s pleadings; Shaw lacked standing to
pursue any successor-liability claim; Texas statutory law precludes Shaw’s
successor-liability claim; and the evidence is legally and factually insufficient to
support the trial court’s findings of fact.
We reverse and render.
Background
In her third amended petition, 1 Shaw alleged that on December 4, 2001,
Retirement Living Management, Inc. (“RLM”) terminated her employment and,
while at RLM, she was “treated differently because of her race, such that the terms
and conditions of her employment were . . . affected.” In October 2002, Shaw
filed suit against RLM, and in May 2004, the district court entered a judgment
against RLM, awarding Shaw $11,825 in damages, $54,365 in attorney’s fees,
reinstatement of her employment, and $200 per month from the date of the
judgment until her reinstatement. Shortly thereafter, RLM filed for bankruptcy
protection, and E-Quest and Odyssey “took over the assets of RLM and continued
1
In her first amended petition, filed on April 23, 2008, Shaw brought claims only
against E-Quest. Shaw did not bring suit against Odyssey until December 9, 2009.
2
the daily operations of RLM.” In regard to her successor-liability claims, Shaw, in
her petition, asserted,
Defendants E-Quest and Odyssey should be held responsible should it
be determined that RLM does not have the financial capabilities to
pay a judgment. Defendants E-Quest and Odyssey have continued the
operations and work force of the predecessor employers, and they also
had notice of its predecessor’s legal obligation when the assets of
RLM were transferred to them. Since RLM is liable, but does not
have the financial capability to pay a judgment, then Defendants E-
Quest and Odyssey would have the ability and responsibility to
provide adequate relief directly, including the required reinstatement
of [Shaw].
At trial, Elmo Robinson testified that he was the president of RLM until he
moved to Odyssey in May 2004. RLM managed retirement communities, hired
employees, performed “all the human resources services,” and provided
administrative and record-keeping services. Robinson had been “involved” in
Shaw’s previous “discrimination lawsuit” against RLM, during which he was
deposed.
On March 26, 2004, after the jury returned its verdict in the RLM lawsuit,
but before the trial court signed its judgment, Robinson registered E-Quest as a
limited liability corporation with the Texas Secretary of State. Robinson, E-
Quest’s registered agent, David Clement, and Sandra Paulson, jointly own E-
Quest. Clement, who had been vice president of RLM, is E-Quest’s vice president,
and Paulson, who had been the secretary of RLM, is E-Quest’s secretary.
Although RLM’s offices were located in a different suite, E-Quest’s offices are
3
located in the same building. And Robinson admitted that E-Quest assumed some
of the properties that had been previously managed by RLM and E-Quest and
RLM shared “some” of the same employees and officers, but not all of them. On
May 10, 2004, Odyssey and E-Quest signed an agreement to act as “co-employers”
in their business. Specifically, regarding Carriage Inn, the property at which Shaw
previously worked, Odyssey and E-Quest “essentially took over the responsibility
that [RLM] had before.” However, at no time did RLM, Odyssey, or E-Quest have
an ownership interest in the property; they only performed “property management”
functions.
On cross-examination, Robinson conceded that he had participated in
RLM’s bankruptcy proceedings, during which RLM’s assets, estimated to be worth
between $50,000 and $100,000, were turned over to the bankruptcy trustee. And
RLM had “over 200” creditors, including Shaw, when it filed for bankruptcy. He
explained that E-Quest and Odyssey did not “acquire anything” from RLM
because all of its assets were turned over to the bankruptcy trustee. Robinson
further distinguished RLM from E-Quest by explaining,
[RLM] was to hire and provide employees for the retirement
communities performing all of the human resource functions that a
company would perform. E-Quest did none of that. E-Quest simply
was a company that could contract with [Odyssey] and at the same
time provide some record keeping, administrative services to
retirement communities. It’s a pass through organization with no
employees including myself. . . . E-Quest simply bills the retirement
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communities, those funds are paid to E-Quest who in turn passes them
through to [Odyssey].
Robinson had jointly owned RLM with Robert McKee, but McKee was not
involved in either E-Quest or Odyssey. And no officer or shareholder of RLM was
ever an officer or shareholder of Odyssey. Robinson, along with Clement and
Gibson, fronted the initial capital to start E-Quest.
Mark Turner, an employee of Odyssey, explained that it was a “professional
employer’s organization” that never had any contact with RLM. First Odyssey
Group entered a contract with E-Quest on May 10, 2004 to provide “HR out-
sourcing, payroll, safety and loss control, . . . [and] worker’s compensation”; it
then assigned the contract to Odyssey on January 1, 2005. After entering the
agreement, Odyssey enrolled any employee referred to it by E-Quest into its own
payroll records and benefit programs, while E-Quest managed the “day to day
operation of the employees” and had the most “direct control over the hiring and
firing of employees.”
After hearing the evidence, the trial court awarded Shaw “all damages” to
which she was “entitled as described, outlined or otherwise stated” in the previous
judgment she received against RLM: $11,825.80 in damages, reinstatement
“together with all seniority and other company benefits,” “$200 per month from
May 14, 2004 until actual reinstatement,” $54,365 in attorney’s fees, and $3,240 in
costs. In their initial briefing to this Court, E-Quest and Odyssey argued, among
5
other issues, that the trial court had erred in not entering findings of fact or
conclusions of law despite their timely request. On agreement of the parties, we
abated the appeal for the trial court to enter its findings of fact and conclusions of
law, which it entered on September 22, 2011.
The trial court concluded that “E-Quest and Odyssey are the successors-in-
interest to [RLM] under the doctrine of successor liability” and “[RLM’s]
bankruptcy does not deprive [Shaw] of the ability to assert her successor liability
claim.” The trial court found that:
1. [Shaw] filed a lawsuit against [RLM], alleging race
discrimination and retaliation.
2. [Shaw] obtained a jury verdict against [RLM].
...
4. Shortly after [Shaw] obtained a jury verdict . . ., E-Quest was
created.
5. Around the time that E-Quest was created, E-Quest and
Odyssey began negotiations. Thereafter, E-Quest and Odyssey
entered into a formal contractual relationship.
6. Prior to filing for bankruptcy, [RLM] failed to abide by the
terms of the judgment, and [Shaw] was never compensated . . . .
7. [RLM] filed for Chapter 7 bankruptcy in the United States
Bankruptcy Court for the Southern District of Texas.
8. [RLM’s] bankruptcy case is closed.
9. E-Quest and Odyssey had notices of [RLM’s] legal obligations,
specifically, [Shaw’s] lawsuit, jury verdict, and/or judgment
6
against [RLM], to [Shaw] when the assets of [RLM] were
transferred to E-Quest and Odyssey.
10. At the time of its organization, E-Quest and [RLM] had the
same corporate officers and maintained the same corporate
office.
11. E-Quest and/or Odyssey also hired the majority of [RLM’s]
prior employees.
12. Elmo Robinson, the former president of [RLM], is the current
president of E-Quest.
13. Both Patricia Robinson, formerly known as Patricia Gibson,
and David Clement, who were former officers of [RLM] are
current officers of E-Quest.
14. E-Quest and Odyssey provide services for the properties served
by [RLM]. . . .
15. The communities that E-Quest and Odyssey service require the
same types or categories of employees as previously by [RLM].
16. After [RLM] filed for bankruptcy the services that were
provided by [RLM] are not provided by Odyssey and E-Quest.
17. E-Quest and Odyssey are the successors-in-interest to [RLM]
under the doctrine of successor liability.
18. [RLM] is [Shaw’s] predecessor employer.
19. [RLM] does not have the financial capability to pay [Shaw’s]
judgment.
20. E-Quest and Odyssey have substantially continued the business
operations of [RLM] as E-Quest and Odyssey either use the
same plant, use the same or substantially the same workforce,
use the same or substantially the same supervisory personnel,
the same jobs exist under substantially the same working
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conditions, use the same machinery, equipment and methods of
production and/or produce the same product as [RLM].
21. Defendants E-Quest and Odyssey are liable to [Shaw] for the
satisfaction of [Shaw’s] judgment against predecessor [RLM]
....
After the trial court entered its findings of fact and conclusions of law, we
reinstated this appeal. E-Quest and Odyssey then filed their supplemental brief,
challenging the trial court’s conclusions of law and the legal and factual
sufficiency of the evidence supporting the trial court’s findings of fact.
Standard of Review
We review a trial court’s conclusions of law de novo, and we will uphold the
conclusions if the judgment can be sustained on any legal theory supported by the
evidence. BMC Software Belgium, N.V. v. Marchand, 83 S.W.3d 789, 794 (Tex.
2002); In re Moers, 104 S.W.3d 609, 611 (Tex. App.—Houston [1st Dist.] 2003,
no pet.). Although a trial court’s conclusions of law may not be challenged for
factual sufficiency, we may review the legal conclusions drawn from the facts to
determine whether the conclusions are correct. Marchand, 83 S.W.3d at 794;
Holloway–Houston, Inc. v. Gulf Coast Bank & Trust Co., 224 S.W.3d 353, 357
(Tex. App.—Houston [1st Dist.] 2006, no pet.). If we determine that a conclusion
of law is erroneous, but the trial court nevertheless rendered the proper judgment,
the error does not require reversal. Marchand, 83 S.W.3d at 794.
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Successor Liability
In their fourth issue, E-Quest and Odyssey argue that the trial court erred in
concluding that Shaw can assert a successor-liability claim against them because,
under Texas law, such a claim is “legally barred.” See Act of May 4, 1979, 66th
Leg., R.S., ch. 194, § 1, 1979 Tex. Gen. Laws 422, 422–23 (amended 1987, 1991,
1993, and 1997, recodified 2002) (current version at TEX. BUS. ORGS. CODE ANN.
§ 10.254 (Vernon Supp. 2012)).
In support of her successor-reliability claim, Shaw relies, in large part, on
Rojas v. TK Communications, Inc., 87 F.3d 745 (5th Cir. 1996). In Rojas, a female
employee, who worked for a radio station owned by TK Communications, Inc.
(“TK”), brought a sexual-harassment claim against TK under Title VII of the Civil
Rights Act of 1964. Id. at 746. She later joined Tichenor Media Systems, Inc.
(“Tichenor”), which had bought the radio station, under a theory of successor
liability. Id. The United States Court of Appeals for the Fifth Circuit noted that,
under “general contract principles,” it was undisputed that Tichenor, in its asset-
purchase agreement, “expressly excepted” the discrimination claim. Id. at 749.
However, the court recognized that successor liability “does not arise from
contract” but “labor law principles enunciated in four Supreme Court cases.” Id.
(citing Fall River Dyeing & Finishing Corp. v. NLRB, 482 U.S. 27, 107 S. Ct. 2225
(1987); Howard Johnson Co. v. Detroit Local Joint Exec. Bd., 417 U.S. 249, 94 S.
9
Ct. 2236 (1974); NLRB v. Burns Int’l Sec. Servs., Inc., 406 U.S. 272, 92 S. Ct.
1571 (1972); John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 84 S. Ct. 909
(1964)). And the court explained that those labor law principles extended to
“claims asserted under Title VII and related statutes” and supported the imposition
of successor liability in such cases, explaining,
[T]he successor doctrine arises in the context of discrimination cases
in situations where the assets of a defendant employer are transferred
to another entity. Thus, the purpose of the doctrine is to ensure that an
employee’s statutory rights are not “vitiated by the mere fact of a
sudden change in the employer’s business.” The doctrine allows the
aggrieved employee to enforce against the successor a claim he could
have secured against the predecessor.
Thus, applicability of the doctrine hinges on the need to protect a
plaintiff where the offending entity is substituted by another company.
Id. at 750 (quoting Brennan v. Nat’l Tel. Directory Corp., 881 F. Supp. 986, 992
(E.D. Pa. 1995) (citations omitted)). The court then identified “nine factors to be
considered in determining whether successor liability should be imposed in a
discrimination case”:
(1) whether the successor company had notice of the charge or
pending lawsuit prior to acquiring the business or assets of the
predecessor; (2) the ability of the predecessor to provide relief; (3)
whether there has been substantial continuity of business operations;
(4) whether the new employer uses the same plant; (5) whether he
uses the same or substantially the same work force; (6) whether he
uses the same or substantially the same supervisory personnel; (7)
whether the same jobs exist under substantially the same working
conditions; (8) whether he uses the same machinery, equipment, and
methods of production; and (9) whether he produces the same
product.
10
Id. (quoting Musikiwamba v. ESSI, Inc., 760 F.2d 740, 750 (7th Cir. 1985)). Of
these nine factors, the first two are critical, while the remaining seven simply
“provide a foundation for analyzing the larger question of whether there is a
continuity in operations and the work force of the successor and predecessor
employers.” Id. (quoting Musikiwamba, 760 F.2d at 751).
E-Quest and Odyssey assert that, despite the court’s reasoning in Rojas in
regard to successor liability in the context of Title VII, this case is controlled by
article 5.10 of the Texas Business Corporations Act, which provided,
B. A disposition of any, all, or substantially all, of the property and
assets of a corporation, whether or not it requires the special
authorization of the shareholders of the corporation . . . :
(1) is not considered to be a merger or conversion pursuant
to this Act or otherwise; and
(2) except as otherwise expressly provided by another
statute, does not make the acquiring corporation, foreign
corporation, or other entity responsible or liable for any
liability or obligation of the selling corporation that the
acquiring corporation, foreign corporation, or other
entity did not expressly assume.
Act of May 4, 1979, 66th Leg., R.S., ch. 194, § 1, 1979 Tex. Gen. Laws 422, 422–
23 (amended 1987, 1991, 1993, and 1997, recodified 2002) (emphasis added).
Shaw notes that article 5.10 has been “repealed, and is no longer in effect.”
However, article 5.10 in fact did not expire until January 1, 2010, over a year after
Shaw filed the instant suit. See Act of May 13, 2003, 78th Leg., C.S., ch. 182, § 2,
11
2003 Tex. Gen Laws 267, 595 (expired Jan. 1, 2010). And the relevant part of the
statute has since been recodified in the Texas Business Organizations Code, which
states similarly,
(a) A disposition of all or part of the property of a domestic entity,
regardless of whether the disposition requires the approval of
the entity’s owners or members, is not a merger or conversion
for any purpose.
(b) Except as otherwise expressly provided by statute, a person
acquiring property described by this section may not be held
responsible or liable for a liability or obligation of the
transferring domestic entity that is not expressly assumed by the
person.
TEX. BUS. ORGS. CODE ANN. § 10.254 (Vernon Supp. 2012) (emphasis added).
As reflected in the above statutes, Texas “strongly embraces” a “non-
liability” rule for corporate successors. See Lockheed Martin Corp. v. Gordon, 16
S.W.3d 127, 139 (Tex. App.—Houston [1st Dist.] 2000, pet. denied). Texas law
authorizes a successor to acquire the assets of a corporation without incurring any
of the grantor corporation’s liabilities unless the successor expressly assumes those
liabilities. C.M. Asfahl Agency v. Tensor, Inc., 135 S.W.3d 768, 780–81 (Tex.
App.—Houston [1st Dist.] 2004, no pet.); Lockheed Martin, 16 S.W.3d at 139; see
also McKee v. Am. Transfer and Storage, 946 F. Supp. 485, 487 (N.D. Tex. 1996)
(“The Texas Business & Corporations Act eliminates the doctrine of implied
successor liability.”). Thus, in Texas, there is no successor in interest when an
acquiring corporation does not expressly agree to assume the liabilities of the other
12
party to an agreement because “successor” has a specialized meaning “beyond
simple acquisition.” Sitaram v. Aetna U.S. Healthcare of N. Tex., Inc., 152 S.W.3d
817, 828 (Tex. App.—Texarkana 2004, no pet.).
Shaw cites to no Texas authority applying successor liability as discussed by
federal courts in the context of Title VII or otherwise imposing liability on a
successor company in spite of the Texas rule in support of non-liability. However,
the reasoning supporting the federal application of successor liability is similar to
the reasoning supporting the “mere continuation” exception to limited liability, an
exception “even more liberal” than the de facto merger doctrine. See, e.g.,
Mudgett v. Paxson Mach. Co., 709 S.W.2d 755, 758 & n.4 (Tex. App.—Corpus
Christi 1986, writ ref’d n.r.e.) (listing elements of “mere continuation” doctrine as
whether “the buyer purchased the ‘good will’ and name of the seller, operated the
business in the same place, with the same employees and continued to produce the
same product”) (citing Cyr v. B. Offen & Co., 501 F.2d 1145, 1153 (1st Cir.
1974)); see also Hollowell v. Orleans Reg’l Hosp. LLC, 217 F.3d 379, 390–91 (5th
Cir. 2000) (applying “mere continuation” doctrine under Louisiana law and listing
elements as: “(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
13
(8) whether the successor holds itself out as a continuation of the previous
enterprise”).
However, Texas courts have interpreted article 5.10 as expressly abrogating
the mere continuation doctrine as a means of imposing successor liability. See
Motor Components, LLC v. Devon Energy Corp., 338 S.W.3d 198, 205 (Tex.
App.—Houston [14th Dist.] 2011, no pet.) (“The Texas legislature rejected long
ago the ‘continuation’ doctrine of implied successor liability . . . .”) (citing TEX.
BUS. ORGS. CODE ANN. § 10.254); Shapolsky v. Brewton, 56 S.W.3d 120, 137–38
(Tex. App.—Houston [14th Dist.] 2001, pet. denied) (holding that just as liability
cannot be transferred under “mere continuation” doctrine, company’s contacts
cannot be imputed to successor for purposes of establishing personal jurisdiction),
abrogated on other grounds by Michiana Easy Livin’ Country v. Holten, 168
S.W.3d 777 (Tex. 2005); Mudgett, 709 S.W.2d at 758 (“Certainly if the de facto
merger doctrine is contrary to the public policy of our state, so must be the mere
continuation doctrine.”).
Here, it is undisputed that neither E-Quest nor Odyssey “expressly assumed”
liability for Shaw’s judgment against RLM. Shaw argues that we should
nevertheless extend the successor-liability doctrine from Rojas to the present case
because the above cited Texas cases “do not involve employment discrimination
claims.” She notes that in Rojas the Fifth Circuit stated that the doctrine of
14
successor liability “has been extended to claims asserted under Title VII and
related statutes.” Rojas, 87 F.3d at 750. As stated by the Texas Supreme Court,
one of the purposes of the Texas Commission on Human Rights Act (“TCHRA”) is
to “provide for execution of the policies of Title VII of the Civil Rights Act of
1964 and its subsequent amendments.” Quantum Chem. Corp. v. Toennies, 47
S.W.3d 473, 476 (Tex. 2001) (citing TEX. LABOR CODE ANN. § 21.001(1)).
“Therefore, analogous federal statutes and cases interpreting them guide our
reading of the TCHRA.” Id. (citing NME Hosps., Inc. v. Rennels, 994 S.W.2d 142,
144 (Tex. 1999)).
However, as Shaw concedes in her brief, successor liability, as discussed by
the federal courts, is a “common law” doctrine, like the “mere continuation”
doctrine. It is not based on a statutory interpretation of Title VII, but rather
“derived from equitable principles.” See, e.g., Brzozowski v. Correctional
Physician Servs., Inc., 360 F.3d 173, 178 (3rd Cir. 2004); Ed Peters Jewelry Co. v.
C & J Jewelry Co., 124 F.3d 252, 265 (1st Cir. 1997) (“[S]uccessor liability is an
equitable doctrine, both in origin and nature.”). And, unlike in Rojas, where the
plaintiff brought suit under Title VII and directly joined the defendants in that suit,
Shaw brings her claim under neither Title VII or the TCHRA. Rather, Shaw seeks
to recover on a judgment entered long ago, presumably for violations of the
15
TCHRA. And, again, Shaw cites us to no Texas authority imposing successor
liability under such circumstances.
Shaw does note that a federal district court has applied successor liability to
claims brought under the TCHRA. See Mendez v. Ameri-Forge Corp., No. Civ.A.
H-01-0523, 2005 WL 2241009, at *4 (S.D. Tex. Sept. 15, 2005). Although the
federal district court in Mendez did provide a brief analysis of the applicability of
successor liability to the plaintiff’s claims brought under both Title VII and the
TCHRA, it ultimately resolved the case by concluding that the plaintiff had failed
to timely prosecute the action. Id. at *4–5; but see McKee, 946 F. Supp. at 487
(declining to apply successor liability to Texas wrongful-termination claim,
brought along with claim under Americans with Disabilities Act, because of Texas
statute limiting successor liability to those expressly assumed); Schutze v. Fin.
Computer Software, No. 04-CV-0276-H, 2006 WL 2842008, at *9–10 & n.2 (N.D.
Tex. Sept. 29, 2006) (concluding it “clearly true” that successor liability could not
apply to plaintiff’s Texas discrimination claims and assuming, without deciding,
that doctrine could not apply to plaintiff’s statutory discrimination claims brought
under TCHRA). As a result, Mendez is inapplicable here.
In light of the express statutory mandate precluding the imposition of
implied successor liability under Texas law, we conclude that Shaw’s successor-
liability claim is precluded by Texas statute. See Act of May 4, 1979, 66th Leg.,
16
R.S., ch. 194, § 1, 1979 Tex. Gen. Laws 422, 422–23 (amended 1987, 1991, 1993,
and 1997, recodified 2002); TEX. BUS. ORGS. CODE ANN. § 10.254; see also Motor
Components, LLC, 338 S.W.3d at 205 (“The Texas legislature rejected long ago
the ‘continuation’ doctrine of implied successor liability . . . .”); Lockheed Martin,
16 S.W.3d at 139.
Accordingly, we hold that the trial court erred in concluding otherwise.
Conclusion
Having held that the trial court erred in concluding that Shaw’s successor-
liability claim is not barred by Texas law, we need not address the remaining issues
of E-Quest and Odyssey. We reverse the judgment of the trial court and render a
take-nothing judgment in favor of E-Quest and Odyssey.
Terry Jennings
Justice
Panel consists of Justices Jennings, Higley, and Sharp.
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