IN COURT OF APPEALS
Hennepin County District Court
File No. 9517129
Frank Vogl, Patrick B. Hennessy, A.R., Hazel J. Uy, A.R., Best & Flanagan, LLP, Suite 4000, 225 South Sixth Street, Minneapolis, MN 55402 (for respondent)
Charles E. Gillin, Sarah Sanville, Jardine, Logan & OíBrien, PLLP, Suite 2100, 444 Cedar Street, St. Paul, MN 55101-2160 (for appellants Jillianís)
Dan Biersdorf, 4100 Multifoods Tower, 33 South Sixth Street, Minneapolis, MN 55402 (for appellant Harborage I)
Commissioner, State Department of Human Rights, 190 East Fifth Street, St. Paul, MN 55101
††††††††††† Considered and decided by Randall, Presiding Judge, Stoneburner, Judge, and Huspeni, Judge.*
1. ††††††† Minn. R. Civ. P. 15 does not authorize post-judgment, post-appeal amendments for the purpose of adding new parties.
2. ††††††† The garnishment process set out in Minn. Stat. ßß 571.71- .932 (2000) is the only method by which a judgment creditor can amend a complaint post-judgment and post-appeal to assert a claim against a corporation alleged to be a successor to the judgment- debtor corporation.†
3. ††††††† A corporation that does not acquire any of the assets or liabilities of a judgment-debtor corporation is not a successor of the judgment-debtor corporation even if the business that the judgment debtor-corporation formerly managed continues to operate unchanged under new corporate ownership.
Appellants Jillianís Entertainment Corporation and its wholly owned subsidiary, Jillianís Gatorís of Minneapolis, Inc., (Jillianís) appeal from the district courtís grant of summary judgment to respondent Lori Johns, ruling that Jillianís is the successor corporation of Johnsís former employer, Harborage I, Ltd., and is liable to Johns for judgments entered against Harborage I for damages and attorney fees for Johnsís Title VII and Minnesota Human Rights Act claims of sex discrimination.† Because we determine that, as a matter of law, Jillianís is not Harborage Iís successor, we reverse.
Respondent Lori Johns was a server, hostess and cashier at Gators Bar and Grill at the Mall of America from January to March 25, 1993.† Harborage, Inc. provided the employees for Gators, and Harborage I managed Gators, as well as several other bars at the Mall of America.† In June 1995, Johns sued Harborage, Inc. for employment discrimination under Title VII of the Civil Rights Act of 1964 and the Minnesota Human Rights Act.† Confusion over which corporation was actually Johnsís employer for purposes of her discrimination claims was resolved when the district court determined that Harborage, Inc. (which filed bankruptcy during the lawsuit) and Harborage I were a single integrated enterprise, each of which could be considered Johnsís employer for purposes of the lawsuit.† Johns amended her complaint to add FPM, Ltd. as a defendant.† FPM, Ltd. was the lessee of the Gatorsís premises and held the liquor license for the premises.
After a bench trial, the district court issued findings of fact, conclusions of law and an order for judgment on September 8, 1997, finding that Harborage I, as employer, subjected Johns to a hostile work environment based on her sex.† The district court awarded damages, including punitive damages and attorney fees, to Johns against Harborage I and dismissed all of Johnsís claims against FPM, Ltd.†
Before the district court judgments were entered, Jillianís entered into an Asset Purchase Agreement (APA) with FPM Ltd. (d/b/a Gators), and various other entities, to purchase the assets of Gators and two other bars, the Minnesota Original Sports Bar and Knuckleheads at the Mall of America, Ltd.† Neither Harborage I nor Harborage, Inc. was a party to the APA, but the selling entities share the same mailing address and offices and have common officers with Harborage, Inc. and Harborage I.
††††††††††† In February 1998, Harborage I appealed the district courtís judgments.† On May 12, 1998, the APA closed.† Pursuant to the APA, Jillianís agreed to assume certain of the sellerís liabilities and the sellers retained certain liabilities.† The assumed liabilities are defined in the APA as ďthe Sellerís payables up to an amount equal to the saleable inventory * * * of the Business at the Initial Closing Date * * * plus accrued vacation benefits up to [a specified limit].Ē† Retained liabilities are defined in the APA as ďall liabilities and obligations, absolute or contingent, known or unknown, due or to become due, now existing or hereafter incurred, of Seller and the Partnerships other than the Assumed Liabilities.Ē† On the closing date, Jillianís entered into a Transition Services Agreement with Harborage I pursuant to which Harborage I agreed to continue to provide the same administrative and labor services it previously provided to Gators until identified employees of Harborage I became Jillianís employees.
††††††††††† On November 17, 1998, this court affirmed the district courtís decision, except as to punitive damages.† On January 13, 1999, we awarded Johns $12,500 in attorney fees and expenses incurred on appeal.† Judgment in this amount was entered against Harborage I on February 24, 1999.† In March 1999, Johns learned that Harborage Iís assets had been largely liquidated and Harborage I was unable to satisfy any part of Johnsís judgments.
††††††††††† Johns then moved the district court to amend her complaint to add Jillianís as defendants, asserting that ďbeyond any reasonable doubtĒ Jillianís is a successor to Harborage I and is liable for the judgment.† Harborage I did not oppose the motion which was granted by the district court on September 30, 2000.† Jillianís was served with the amended complaint.† Jillianís answered denying that it is Harborage Iís successor and denying that Jillianís had any contractual relationship with either Harborage I or Harborage, Inc.
††††††††††† After Jillianís was added to the complaint as a defendant, Johns served a Garnishment Summons and Garnishment Non-Earnings Disclosure on Jillianís.† Jillianís responded timely, denying liability.† Johns then moved for summary judgment against Jillianís in the underlying lawsuit to which Jillianís had been added as a defendant.
††††††††††† Johns argued that Jillianís purchased all of the operating assets of a number of affiliates of Harborage I, all of which shared common offices and officers with Harborage I.† Johns also argued that because Jillianís entered into agreements with Harborage I whereby former employees of Harborage, Inc. became Jillianís employees and because Jillianís continues to operate Gatorís essentially unchanged from when Harborage I operated the business, Jillianís ďwas and is a direct successor, contractually and otherwise, as employer, of the employees and business operations of the Gatorís in the Mall of America.Ē†
††††††††††† Jillianís filed a cross motion for summary judgment, objecting to the procedure by which it was made a defendant and denying that it is a successor to Harborage I.† Jillianís argued that it did not purchase any assets from Harborage, Inc. or Harborage I, or merge with, or acquire or assume any liability of those businesses in any way.† Jillianís noted that Harborage I is an existing entity separate from Jillianís.
The district court denied the partiesí request for oral argument on the summary judgment motions, granted Johnsís motion for summary judgment, and denied Jillianís motion for summary judgment.† The district court ordered the judgments amended to add Jillianís as judgment debtors, ruling that under federal or state law, Jillianís is a successor of Harborage I and is liable for the judgments against Harborage I.† Jillianís appeals.
I. †††††††† Did the district court abuse its discretion by granting Johnsís post-judgment, post-appeal motion to amend the complaint to add Jillianís as a defendant?
II. ††††††† Did the district court err by determining as a matter of law that Jillianís is a successor of Harborage I?
III.†††††† If Jillianís is Harborage Iís successor, is Jillianís liable for the judgments Johns obtained against Harborage I, including the award of attorney fees by the district court and this court?
I.††††††††† Post-judgment, post-appeal amendment to complaint
Whether a complaint may be amended post-judgment, post-appeal to add a defendant appears to be an issue of first impression in Minnesota.† Minn. R. Civ. P. 15.01 provides in relevant part:
A party may amend a pleading once as a matter of course at any time before a responsive pleading is served. * * * Otherwise a party may amend a pleading only by leave of court * * * and leave of court shall be freely given when justice so requires.
The rules regarding amendment of pleadings are to be liberally construed.† Carlson v. Hennepin County, 479 N.W.2d 50, 54 (Minn. 1992).† Amendment of pleadings is a matter within the discretion of the district court and will not be reversed unless the court abused its discretion.† Brendsel v. Wright, 301 Minn. 175, 178, 221 N.W.2d 695, 696-97 (1974); Dale v. Pushor, 246 Minn. 254, 262, 75 N.W.2d 595, 601 (1956).†
Johns argues that the broad authority to amend a pleading exists even after judgment is entered, citing Minn. R. Civ. P. 15.02 and cases decided pursuant to that rule.† Rule 15.02, however, deals with amending pleadings, even post judgment, to conform to issues tried by express or implied consent of the parties.† Neither Rule 15.02 nor cases decided pursuant to it provide authority for a post-judgment, post-appeal amendment to a complaint to add a new party.†
Cases interpreting the analogous federal rule, Fed. R. Civ. P. 15(a), generally hold that a district court may not consider a motion for leave to amend after judgment is entered, unless the judgment is vacated or set aside under Rule 59 or Rule 60.† 6 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure ß 1489 (2d ed. 1990).† In EEOC v. SWP, Inc., however, a post-judgment amendment was allowed pursuant to Fed. R. Civ. P. 25(c) to add as a defendant a corporation that had purchased all of the assets of the originally named-defendant corporation.† 153 F. Supp. 2d 911, 913-17, 926-27 (N.D. Ind. 2001).
In case of any transfer of interest, the action may be continued by or against the original party, unless the court upon motion directs the person to whom the interest is transferred to be substituted in the action or joined with the original party.
Fed. R. Civ. P. 25(c).† Minnesota has an identical rule, Minn. R. Civ. P. 25.03, but the rule applies only to the transfer of an interest while an action is pending.† 1 David F. Herr & Roger S. Haydock, Minnesota Practice ß 25.6 (1998).† We do not find any authority in this rule for the post-judgment, post-appeal amendment addition of a party and we agree with the majority of the federal decisions holding that post-judgment, post-appeal amendments to add a party are not authorized by Rule 15.
To hold otherwise would enable the liberal amendment policy * * * to be employed in a way that is contrary to the philosophy favoring finality of judgments and the expeditious termination of litigation.
Wright, supra, ß 1489.†
Minnesota has a comprehensive procedure for pursuing collection of a judgment from a successor corporation set out in the statutes governing garnishment.† See Minn. Stat. ß 571.71-.932 (2000).† Here, Johns issued a garnishment summons to Jillianís after she amended the complaint.† See Minn. Stat. ß 571.71 (2000) (permitting a creditor to issue a garnishment summons against any third party as an ancillary proceeding to a civil action at any time after entry of a money judgment in the civil action).† Jillianís timely responded to the garnishment summons, denying liability, stating that it does not owe money to Harborage I and does not possess any property belonging to Harborage I.† Based on this denial, Jillianís should have been discharged pursuant to Minn. Stat.†††††††††† ß 571.79(a) (2000), unless, prior to discharge, Johns had submitted a motion requesting leave to file a supplemental complaint.† In all cases where a garnishee denies liability,
the creditor may move the court at any time before the garnishee is discharged, on notice to both debtor and the garnishee for an order making the garnishee a party to the civil action and granting the creditor leave to file a supplemental complaint against the garnishee and the debtor.† The supplemental complaint shall set forth the facts upon which the creditor claims to charge the garnishee.† If probable cause is shown, the motion shall be granted.
Minn. Stat. ß 571.75, subd. 4 (2000).† Johns did not move to file a supplemental complaint because she had already succeeded in adding Jillianís to the original complaint.
We hold that the district court abused its discretion by not requiring Johns to follow the procedures set out in the garnishment statute and by granting Johnsís post judgment, post appeal amendment to add Jillianís as a party to the original lawsuit.† The garnishment statute provides the only authority for post-judgment addition of an alleged corporate successor to a judgment-debtor as a party, in a supplemental garnishment complaint.† The process permitted by the district court allowed Johns to assert her discrimination claim against an entity that never had any opportunity to defend against the claim, a fundamental violation of due process.
††††††††††† Johns argues that even if the procedure she pursued is flawed, Jillianís is not prejudiced because proceeding under Minn. Stat. ß 571.71 would have resulted in Jillianís being added as a party to the supplemental complaint and summary judgment would have been pursued, putting Jillianís in the identical position that resulted from the process she chose.† We disagree.† Pursuing the garnishment statute would have focused the district court on the necessity to examine whether there is, in fact, probable cause to charge Jillianís as a garnishee.† Johns was allowed merely to assert that Jillianís is Harborage Iís successor in her amended complaint.† Johns completely bypassed an analysis of whether Jillianís is a successor to Harborage I.† Allowing Johns to proceed as she did caused the focus of the district courtís analysis to be misplaced to an analysis of successor liability rather than an analysis of whether Jillianís is Harborage Iís successor.
There is no evidence in the record sufficient to support Johnsís bald assertion that Jillianís is Harborage Iís successor.† We conclude that Jillianís was substantially prejudiced by the flawed procedure and is entitled to reversal on the procedural issue alone.
Even if Johnsís mere assertion of successorship is sufficient probable cause of successorship to permit Johns to pursue a supplemental complaint against Jillianís,† Jillianís should have been granted summary judgment because, as a matter of law, it is not a successor to Harborage I.††
Harborage, Inc. supplied labor and Harborage I managed Gators prior to Jillianís acquisition of the assets of FPM, Ltd. and other entities that allowed Jillianís to become the owner of Gators.† Harborage I is not a party to the APA by which Jillianís acquired Gators, and Harborage I continued to exist as a separate corporation after Jillianís closed on the APA.† Jillianís entered into a separate contract with Harborage I pursuant to which Harborage I provided transition management services and labor for Jillianís.† Johns asserts that this separate contract made Harborage I a party to the APA because people were the only assets of Harborage I and those people were ďacquiredĒ by Jillianís when they became Jillianís employees.† We disagree.†
A corporation is an artificial person, created by law, or under authority of law, as a distinct legal entity, with rights and liabilities which are independent from those of the natural persons composing the corporation.† Ordinarily two or more corporations are considered separate and distinct entities even though the same individuals are the incorporators of, or own stock in, the several corporations, and even though such corporations may have the same persons as officers.
Di Re v. Cent. Livestock Order Buying Co., 246 Minn. 279, 283-84, 74 N.W.2d 518, 523 (1956) (footnotes omitted) (holding that, in the absence of fraud or other wrongful purpose, a subsidiary must be treated as a legal entity separate and apart from the parent).
Johns also argues that Jillianís is the successor to Harborage I because the selling entities shared the same address as Harborage I and had the same persons as officers.† But Johns does not allege fraud nor does she contend that Jillianís shared offices or officers with Harborage I or that Harborage I and any of the selling entities were a ďsingle, integrated operation.Ē
††††††††††† A ďsuccessorĒ corporation is:
A corporation that, through amalgamation, consolidation, or other assumption of interests, is vested with the rights and duties of an earlier corporation.
Blackís Law Dictionary 1446 (7th ed. 1999).† Here, Jillianís did not amalgamate, consolidate or otherwise assume the rights and duties of Harborage I.†
Johns completely ignores the requirement that Jillianís must be a successor to Harborage I and instead focuses on successor liability as established by federal case law for successor corporations.† Johns erroneously imports an analysis of the factors that establish successor liability to assert that Jillianís is Harborage Iís successor.† The factors developed in federal case law for successor liability have nothing to do with determining whether a corporation is a successor.† The federal cases cited by Johns all support her argument for successor liability but none are relevant to the issue of whether the new corporation is, in fact, a successor.†
Johns has made a very persuasive case that the law of successor liability developed in federal courts for Title VII actions should apply to discrimination claims in Minnesota despite Minnesotaís narrower approach to corporate successor liability.† By statute:
The transferee is liable for the debts, obligations, and liabilities of the transferor only to the extent provided in the contract or agreement between the transferee and transferor or to the extent provided by this chapter or other statutes of this state.
Minn. Stat. ß 302A.661, subd. 4 (2000) (emphasis added).† The Minnesota Human Rights Act, which by case law applies principles developed by federal courts in Title VII cases, may well be one of the ďother statutesĒ referred to in Minn. Stat. ß 302A.661, subd. 4,† justifying application of federal successor liability law to discrimination claims in Minnesota.† Under the facts of this case, however, we do not reach this issue.†
Because Jillianís is not a successor to Harborage I, the district court erred by concluding that Jillianís is liable for Johnsís judgments against Harborage I.† Because
Jillianís is not liable for the judgments against Harborage I, we do not reach Jillianís argument about the propriety of making it liable for the attorney feesí awards of the district court and this court.
††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††††† Dated:† June 18, 2002
* Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to Minn. Const. art. VI, ß 10.