Ed Peters Jewelry Co. v. C & J Jewelry Co.

UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT

No. 96-1642

ED PETERS JEWELRY CO., INC.,

Plaintiff, Appellant,

v.

C & J JEWELRY CO., INC., ET AL.,

Defendants, Appellees.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF RHODE ISLAND

[Hon. Francis J. Boyle, Senior U.S. District Judge]

Before

Torruella, Chief Judge,

Aldrich and Cyr, Senior Circuit Judges.

Robert
Corrente, with whom Corrente,
Brill
&
Kusinitz,
Ltd.,
Sanford J. Davis
and
McGovern & Associates
were on brief for appellant.
John A. Houlihan
, with whom
Edwards & Angell
and
Marc A. Crisafulli
were on brief for appellees Fleet National Bank and Fleet Credit Corp.
James
J.
McGair, with whom McGair
&
McGair was on brief for
appellees C & J Jewelry Co., Inc. and William Considine, Sr.

August 29, 1997

CYR, Senior Circuit Judge. Plaintiff Ed Peters Jewelry

Co., Inc. ("Peters") challenges a district court judgment entered

as a matter of law pursuant to Fed. R. Civ. P. 50(a) in favor of

defendants-appellees on Peters' complaint to recover $859,068 in

sales commissions from Anson, Inc. ("Anson"), a defunct jewelry

manufacturer, its chief executive officer (CEO) William Considine,

Sr. ("Considine"), its secured creditors Fleet National Bank and

Fleet Credit Corporation (collectively: "Fleet"), and C & J Jewelry

Company ("C & J"), a corporate entity formed to acquire Anson's

operating assets. We affirm the district court judgment in part,

and vacate and remand in part.

I

BACKGROUND

We restrict our opening factual recitation to an

overview, reserving further detail for discussion in connection

with discrete issues. Anson, a Rhode Island jewelry manufacturer,

emerged from a chapter 11 reorganization proceeding in 1983.

Thereafter, Fleet routinely extended it revolving credit, secured

by blanket liens on Anson's real property and operating assets.

In January 1988, Anson executed a four-year contract

designating Peters, a New York corporation, as one of its sales

agents. Peters serviced Tiffany's, an account which represented

roughly one third of all Anson sales. By the following year,

The facts are related in the light most favorable to appellant
Peters, the nonmoving party. See Fed. R. Civ. P. 50(a);
Coyante v.
Puerto Rico Ports Auth., 105 F.3d 17, 21 (1st Cir. 1997).

2

however, Anson had fallen behind in its commission payments to

Peters. During 1991, in response to Anson's dire financial straits

and the adverse business conditions prevailing in the domestic

jewelry industry at large, Fleet restructured Anson's loan

repayment schedule and assessed Anson an $800,000 deferral fee. In

1992, after determining that Anson had not achieved the pre-tax,

pre-expense earnings level specified in the 1991 loan restructuring

agreement, Fleet waived the default and loaned Anson additional

monies, while expressly reserving its right to rely on any future

default. Anson never regained solvency. See Fleet Credit Memo

(10/14/93), at 6 ("[Anson] is . . . technically insolvent, with a

negative worth of $6MM at 12/31/92.").

Fleet and Anson entered into further loan restructuring

negotiations in April 1993, after Fleet determined that Anson had

not achieved the prescribed earnings target for December 1992.

Fleet gave Anson formal written notice of the default.

During May 1993, Considine, Anson's CEO, submitted a

radical "restructuring" proposal to Fleet, prompted by the fact

that Anson owed numerous creditors, including Peters, whose claims

represented a serious drain on its limited resources. Considine

recommended that Fleet foreclose on Anson's assets, that Anson be

dissolved, and that a new company be formed to acquire the Anson

assets and carry on its business. The Considine recommendation

stated: "If Fleet can find a way to foreclose [Anson] and sell

certain assets to our [new] company that would eliminate most of

the liabilities discussed above [
viz., including the Peters debt],

3

then we would offer Fleet . . . $3,250,000." The $3,250,000 offer

to Fleet also contemplated, however, that the new company would

assume all Anson liabilities to essential trade creditors. Other-

wise, Fleet was to receive only $2,750,000 for the Anson assets

following the Fleet foreclosure and Fleet would assume "all the

liabilities and the problems attached to it and, hopefully, be able

to work them out."

Fleet agreed, in principle, to proceed with the proposed

foreclosure sale, noting reservations respecting only the foreclo-

sure price and the recommendation by Considine that the debt due

Peters neither be satisfied by Anson nor assumed by the new

company. In the latter regard, Fleet advised that its "counsel

[was] not convinced that you will be able to do this without

inviting litigation," and that "there may be a problem on this

issue."

In October 1993, Fleet gave Anson formal notice that its

operating assets were to be sold in a private foreclosure sale to

a newly-formed corporation: C & J Jewelry. Ostensibly out of

concern that Tiffany's might learn of Anson's financial difficul-

ties, and find another jewelry manufacturer, Fleet did not invite

competing bids for the Anson operating assets.

Meanwhile, Peters had commenced arbitration proceedings

against Anson, demanding payment of its unpaid sales commissions.

Peters subsequently secured two arbitration awards against Anson

for $859,068 in sales commissions. The awards were duly confirmed

by the Rhode Island courts.

4

On October 22, 1993, Anson ceased to function; C & J

acquired its operating assets in a private foreclosure sale from

Fleet and thereupon continued the business operations without

interruption. After the fact, Anson notified Peters that all Anson

operating assets had been sold to C & J at foreclosure, by Fleet.

C & J was owned equally by the Considine Family Trust and

Gary Jacobsen. Considine, Gary Jacobsen and Wayne Elliot, all

former Anson managers, became the joint C & J management team.

Jacobsen and Considine acquired the Anson operating assets from

Fleet for approximately $500,000 and Fleet immediately deposited

$300,000 of that sum directly into various accounts which had been

established at Fleet in the name of C & J. The $300,000 deposit

was to be devoted to capital expenditures by C & J. Fleet itself

financed the remainder of the purchase price (approximately $1.4

million), took a security interest in all C & J operating assets,

and received $500,000 in C & J stock warrants scheduled to mature

in 1998. C & J agreed to indemnify Fleet in the event it were held

liable to any Anson creditor. See Credit Agreement q 8.10.

Considine received a $200,000 consulting fee for negotiating the

sale.

In December 1993, Fleet sold the Anson real estate for

$1.75 million to Little Bay Realty, another new company incorporat-

ed by Considine and Jacobsen. Considine and Jacobsen settled upon

the dual-company format in order to protect their real estate

investment in the event C & J itself were to fail. The two

principals provided an additional $500,000 in capital, half of

5

which was used to enable Little Bay Realty to acquire the Anson

real estate from Fleet. The remainder was deposited in a Little

Bay Realty account with Fleet, to be used for debt service. Fleet

in turn advanced the $1.5 million balance due on the purchase

price. Little Bay leased the former Anson business premises to C

& J.

In April 1994, Peters instituted the present action in

federal district court, alleging that Anson, C & J (as Anson's

"successor"), Considine, and Fleet had violated Rhode Island

statutory law governing bulk transfers and fraudulent conveyances,

and asserting common law claims for tortious interference with

contractual relations, breach of fiduciary duty, wrongful foreclo-

sure, and "successor liability." The complaint essentially alleged

that all defendants had conspired to conduct a sham foreclosure and

sale for the purpose of eliminating Anson's liabilities to certain

unsecured creditors, including the $859,068 debt due Peters in

sales commissions.

The defendants submitted a motion in limine to preclude

the testimony of two witnesses
former banker Richard Clarke and

certified public accountant John Mathias who were to have

provided expert testimony on the value of the Anson assets.

Ultimately, their testimony was excluded by the district court on

the grounds that their valuation methodologies did not meet minimum

standards of reliability and, therefore, their testimony would not

have aided the jury.

Finally, after Peters rested its case in chief, the

6

district court granted judgment as a matter of law for all

defendants on all claims. The court essentially concluded that

neither Peters nor other Anson unsecured creditors had been wronged

by the private foreclosure sale, since Fleet had a legal right to

foreclose on the encumbered Anson assets which were worth far less

than the amount owed Fleet.

II

DISCUSSION

A. Exclusion of Expert Testimony

Many of the substantive claims asserted by Peters depend

largely upon whether Fleet was an oversecured creditor, i.e.,

whether the Anson assets were worth more than the total indebted-

ness Anson owed Fleet as of the October 1993 foreclosure. Other-

wise, since Fleet had a legal right to foreclose on all the Anson

assets, there could have been no surplus from which any Anson

unsecured or judgment creditor, including Peters, could have

recovered anything. Thus, evidence on the value of the Anson

assets at the time of the Fleet foreclosure was critical.

Peters proffered the testimony of CPA John Mathias on the

value of the Anson assets. During voir dire, Mathias testified

that the total Anson indebtedness to Fleet amounted to $9,828,000,

but that the total value of its assets was $12,738,500. The

A breakdown of the Mathias methodology follows:

Asset Maximum Average Minimum
Value Value Value

7

district court granted the motion in limine in all respects.

1. Standard of Review

Peters tendered the Mathias testimony pursuant to Fed. R.

Evid. 702, which requires trial courts to assess expert-witness

proffers under a three-part standard.
Bogosian v.
Mercedes-Benz of

N.A.,
Inc., 104 F.3d 472, 476 (1st Cir. 1997). The trial court

first must determine whether the putative expert is "qualified by

'knowledge, skill, experience, training, or education.'" Id.

(citation omitted). Second, it inquires whether the proffered

testimony concerns "'scientific, technical, or other specialized

knowledge.'" Id. (citation omitted). Finally, it must perform its

gatekeeping function, by assessing whether the testimony "will

assist the trier of fact to understand the evidence or to determine

a fact in issue." Id. Thus, the trial court must decide whether

Accounts Receivable 1,500.000 1,500,000 1,500,000
Other Sales (Unrecorded) 418,000 409,000 400,000
Other Sales (Backlog) 400,000 400,000 400,000
Inventory 2,648,000 2,648,000 2,648,000
Machinery/Equipment 450,000 375,000 300,000
Real Estate 2,941,000 2,941,000 2,941,000
Intangible assets 2,714,000 1,998,500 1,283,000
Net Operating Losses 1,442,000 1,267,000 1,092,000
Life Insurance Policy 1,200,000 1,200,000 1,200,000

Total (Avg) 12,738,500
(less) Fleet Debt (9,828,000)
Amount Fleet Oversecured 2,910,500

Evidence Rule 702 provides: "If scientific, technical, or
other specialized knowledge will assist the trier of fact to
understand the evidence or to determine a fact in issue, a witness
qualified as an expert by knowledge, skill, experience, training,
or education, may testify thereto in the form of an opinion or
otherwise." Fed. R. Evid. 702.

8

the proposed testimony, including the methodology employed by the

witness in arriving at the proffered opinion, "rests on a
reliable

foundation and is
relevant to the facts of the case." Id. at 476,

479 (citing Daubert v. Merrell
Dow
Pharms.,
Inc., 509 U.S. 579,

591, (1993)) (emphasis added);
Vadala v.
Teledyne Indus., Inc.
, 44

F.3d 36, 39 (1st Cir. 1995). Finally, the circumspect and deferen-

tial standard of review applicable to Rule 702 rulings contemplates

their affirmance absent manifest trial-court error. Bogosian, 104

F.3d at 476 (noting that "an expert witness's usefulness is almost

always a case-specific inquiry"); see also United
States v.

Schneider, 111 F.3d 197, 201 (1st Cir. 1997) ("In [determining] .

. . relevance, . . . reliability, helpfulness[,] the district court

has a comparative advantage over an appeals panel . . . [and] is

closer to the case.").

2. Total Anson Indebtedness

The district court ruled that the proffered testimony

from Mathias, fixing the total Anson indebtedness to Fleet at

$9,828,000, was patently flawed. For one thing, Mathias admitted

The United States Supreme Court has granted certiorari in
Joiner v. General
Elec.
Co., 78 F.3d 524 (11th Cir. 1996), cert.
granted, 117 S. Ct. 1243 (1997), wherein the Eleventh Circuit held
that Daubert requires appellate courts to employ a more stringent
standard than "abuse of discretion" in reviewing trial court
"gatekeeping" rulings at the summary judgment or directed judgment
stage. See
Cortes-Irizarry v.
Corporacion Insular de Seguros
, 111
F.3d 184, 189 n.4 (1st Cir. 1997);
compare
Joiner, 78 F.3d at 529,
and
In re Paoli R.R. Yard PCB Litig.
, 35 F.3d 717, 749-50 (3d Cir.
1994) (same),
with
Duffee v.
Murray Ohio Mfg. Co.
, 91 F.3d 1410-11,
1411 (10th Cir. 1996) (
Daubert requires customary abuse-of-discre-
tion review), and Buckner v. Sam's
Club,
Inc., 75 F.3d 290, 292
(7th Cir. 1996) (same). As the district court ruling was proper
under either standard, we need not opt between them.

9

not including the $800,000 deferral fee Anson owed Fleet in

connection with the 1991 loan restructuring, see supra Section I,

even though he did not question its validity. Moreover, Mathias

conceded that he had no independent knowledge regarding the total

Anson indebtedness, but compiled the $9,828,000 figure from

unspecified Fleet documents. Thus, Peters adduced no competent

evidence that the total Anson indebtedness was less than

$10,628,000.

3. Value of the Fleet Security Interest

The district court ruled, for good reason, that the

methodology Mathias used to arrive at the $12,738,500 total

valuation for the Anson assets was internally inconsistent and

unreliable. First, on deposition in February 1996 Mathias had

valued the Anson assets at only $10,238,000, roughly equal to the

total indebtedness Anson owed Fleet. After Fleet moved for summary

judgment, however, Mathias revised the valuation on Anson's assets

upward by approximately $2.5 million
well above the total Fleet

indebtedness. Thus, the "moving target" nature of the valuation

alone provided ample reason for the district court to scrutinize

the Mathias methodology with special skepticism. Against this

backdrop, therefore, the deferential standard of review looms as a

very high hurdle for Peters. We turn now to the principal factors

which accounted for the increased valuation.

a. Net Operating Losses

Mathias valued Anson's $5 million net operating loss

("NOL") at approximately $1,267,000. Of course, an NOL

10

"carryforward" may have potential value to the taxpayer ( viz.,

Anson) if it can be used to offset future taxable income.
Mathias

conceded, however, that his inclusion of the NOL carryforward as an

Anson asset was "inconsistent," since an NOL normally cannot be

transferred, with certain exceptions inapplicable here ( e.g., a

change in the ownership of a corporate taxpayer through qualified

stock acquisitions). Thus, the Anson NOL carryforward would have

been valueless to a third-party purchaser at foreclosure.

Mathias, on the other hand, included the $1,267,000 NOL

in tallying Anson assets on the theory that the Fleet foreclosure

extinguished Anson's future right to utilize the NOL, thereby

effectively "destroying" the asset. The Mathias thesis is beside

the point, however, since the appraisal was designed to determine

the value of Fleet's security interest in Anson's assets at the

date of foreclosure (
i.e., the value Fleet might reasonably expect

to realize were the assets sold and applied to the Anson debt),
not

the value of the NOL while Anson continued to function as a going

concern. Thus, Mathias effectively conceded that the value of the

Fleet security interest in the NOL was zero.

b. Keyman Life Insurance Policy

Mathias proposed to testify that the keyman insurance

policy Anson owned on the life of a former director was worth $1.2

million. The valuation was derived from a Fleet document assessing

The Internal Revenue Code allows NOLs to be carried back 3
years, and forward 15 years. See 26 U.S.C. S 172(b).

11

Fleet's collateral position, in which the $1.2 million figure

reflected the
net
proceeds payable to the beneficiary (
i.e., Fleet)

at the death of the insured.

The district court correctly concluded that the Mathias

appraisal was patently inflated. As previously noted, the only

material consideration, for present purposes, was the policy's

value at the time Fleet foreclosed in October 1993, when the

insured had a life expectancy of seven years and the cash value was

only $62,000. At the very most, therefore, an arm's-length

purchaser would have paid an amount equal to $1.2 million,

discounted to present value.

Indeed, pressed by the district court, Mathias conceded

that he had not calculated "present value," but then estimated it

at "somewhere in the vicinity of $800,000." Mathias likewise

conceded that he had not taken into account the annual premium

($75,000) costs for maintaining the policy seven more years,

totaling $525,000. Thus, Mathias effectively conceded that the

policy might fetch only $275,000, some $925,000 below the proffered

valuation. Absent any suggestion that accepted accounting

principles would countenance such deficiencies, the district court

acted well within its discretion in excluding the Mathias valua-

tion.

As there has been no demonstration that the appraisal

"rest[ed] on a reliable [methodological] foundation,"
Bogosian, 104

Although its face value was $1.5 million, the policy had been
pledged to Fleet to secure a $300,000 loan.

12

F.3d at 477, 479, with respect to the net operating losses and the

keyman insurance policy, the most optimistic valuation to which

Mathias supportably might have testified was $10,271,500,
see
supra

Section II.A.2 $356,500 less than the total Anson indebtedness

to Fleet even assuming all other property values ascribed by

Mathias were reasonably reliable, such as intangible assets (
e.g.,

goodwill, trade reputation, going-concern value, etc.) totaling

$1,998,500, see Rev. Rul. 68-609, 1968-2 C.B. 327; the $2,648,000

valuation given Anson's inventory; and the $2,941,000 real estate

valuation.

B. The Rule 50(a) Judgments on Substantive Claims

1. Standard of Review

Judgments entered as a matter of law under Rule 50(a) are

reviewed de novo, to determine whether the evidence, viewed most

favorably to the nonmoving party, Peters, could support a rational

jury verdict in its favor. See Fed. R. Civ. P. 50(a); Coyante v.

Puerto
Rico
Ports
Auth., 105 F.3d 17, 21 (1st Cir. 1997). Of

course, Peters was not entitled to prevail against the Rule 50(a)

motion absent competent evidence amounting to "'more than a mere

scintilla.'" Id. (citation omitted).

2. The Peters Claims

The gravamen of the substantive claims for relief

asserted by Peters is that Fleet colluded with Considine and

Jacobsen to rid Anson of certain burdensome unsecured debt, thereby

effecting a partial "private bankruptcy" discharge under the guise

of the Fleet foreclosure, which advantaged Considine and Jacobsen

13

at the expense of Peters and other similarly situated Anson

unsecured creditors. The Peters proffer included: (1) the March

1993 decision by Fleet to declare Anson in default, which coincided

with the Peters demand for payment from Anson on its sales commis-

sions; (2) the August 1992 decision by Fleet to waive a default

involving a shortfall much larger than the March 1993 default; (3)

the 1993 negotiations with Fleet, in which Considine and Jacobsen

made known their intention that C & J not assume the unsecured debt

Anson owed Peters; (4) the decision to arrange a private foreclo-

sure sale by Fleet, thus ensuring that C & J alone could "bid" on

the Anson operating assets; and (5) the payments made to select

unsecured Anson creditors (
i.e., essential trade creditors) only.

The district court ruled that Peters' failure to

establish that Anson's assets were worth more than its total

indebtedness to Fleet was fatal to all claims for relief. It noted

that, as an unsecured creditor of Anson, Peters was simply experi-

encing a fate common among unsecured creditors who lose out to a

partially
secured creditor (hereinafter: "undersecured creditor")

which forecloses on their debtor's collateral. As the district

court did not analyze the individual claims for relief, we now turn

to that task.

a. Fraudulent Transfer Claims

Peters first contends that the jury reasonably could have

found defendants' transfer of the Anson assets fraudulent under

R.I. Gen. Laws SS 6-16-1
et
seq., which provides that a "transfer"

is fraudulent if made "[w]ith actual intent to hinder, delay, or

14

defraud any creditor of the debtor." Id. S 6-16-4(a)(1).

Normally, it is a question of fact whether a transfer was made with

actual intent to defraud. At least arguably, moreover, Peters

adduced enough competent evidence to enable the jury to infer that

defendants deliberately arranged a conveyance of the Anson assets

with the specific intent to leave the Peters claim unsatisfied.

Nonetheless, under the plain language of the Rhode Island statute,

the actual intent of the defendants was immaterial as a matter of

law.

The statute covers only a "[fraudulent]
transfer made or

obligation incurred by a debtor." Id. S 6-16-4(a) (emphasis

added). The term "transfer" is defined as "every mode, direct or

indirect, absolute or conditional, voluntary or involuntary, of

disposing of or parting with an asset or an interest in an asset,

and includes payment of money, release, lease, and creation of a

lien or other encumbrance." Id. S 6-16-1(l). However, the term

The Rhode Island fraudulent transfer statute lists eleven
"badges of fraud," from which a factfinder might infer actual
fraudulent intent: "(1) The transfer or obligation was to an
insider; (2) The debtor retained possession or control of the
property transferred after the transfer; (3) The transfer or
obligation was . . . concealed; (4) Before the transfer was made or
[the] obligation was incurred, the debtor had been sued or
threatened with suit; (5) The transfer was of substantially all the
debtor's assets; (6) The debtor absconded; (7) The debtor removed
or concealed assets; (8) The value of the consideration received by
the debtor was [not] reasonably equivalent to the value of the
asset transferred or the amount of the obligation incurred; (9) The
debtor was insolvent or became insolvent shortly after the transfer
was made or the obligation was incurred; (10) The transfer occurred
shortly before or shortly after a substantial debt was incurred;
and (11) The debtor transferred the essential assets of the
business to a lienor who transferred the assets to an insider of
the debtor." R.I. Gen Laws S 6-16-4(b).

15

"asset" "does not include . . . (1) Property to the extent it is

encumbered by a valid lien." Id. 6-16-1(b) (emphasis added). As

Fleet unquestionably held a valid security interest in all Anson

assets, and Peters did not establish that their fair value exceeded

the amount due Fleet under its security agreement, see supra

Section II.A, the Anson property conveyed to C & J did not

constitute an "asset" and no cognizable "transfer" occurred under

section 6-16-4(a). See
also
Richman v.
Leiser, 465 N.E.2d 796, 798

(Mass. App. Ct. 1984) ("A conveyance is not established as a

fraudulent conveyance upon a showing of a fraudulent intention

alone; there must also be a resulting diminution in the assets of

the debtor available to [unsecured] creditors.").

b. The Wrongful Foreclosure Claim and
Uniform Commercial Code ("UCC") S 9-504

Peters claimed that Fleet, in combination with the other

defendants, conducted a "wrongful foreclosure" by utilizing its

right of foreclosure as a subterfuge for effectuating Anson's

fraudulent intention to avoid its lawful obligations to certain

unsecured creditors. Thus, Peters contends, Fleet violated its

duty to act in "good faith,"
see R.I. Gen. Laws S 6A-1-203 ("Every

contract or duty within title 6A imposes an obligation of good

faith in its performance or enforcement."), thereby entitling

Peters to tort damages. The "good faith" claim likewise fails.

As Peters adduced no competent evidence that Fleet

concocted the March 1993 default by Anson, it demonstrated no

trialworthy issue regarding whether Anson remained in default at

the time the foreclosure took place in October 1993. Specifically,

16

Peters proffered no competent evidence to counter the well-

supported ground relied upon by Fleet in declaring a default under

the 1991 loan restructuring agreement; namely, that Anson failed to

meet its earnings target for 1992. See
supra Section I. Nor is it

material that Fleet had waived an earlier default by Peters in

1992, particularly since Fleet at the time expressly reserved its

right to act on any future default. See id. Thus, Fleet's legal

right to foreclose was essentially uncontroverted at trial.

The Peters argument therefore reduces to the proposition

that a secured creditor, with an uncontested right to foreclose

under the terms of a valid security agreement, nonetheless may be

liable on a claim for wrongful foreclosure should a jury find that

the secured creditor exercised its right based in part on a

clandestine purpose unrelated to the default.
But
see
Richman, 465

N.E.2d at 799 ("To be a 'collusive foreclosure,' a foreclosure must

be based on a fraudulent mortgage, or it must be irregularly

conducted so as to claim a greater portion of the mortgagor's

property than necessary to satisfy the mortgage obligation.")

(citations omitted). Since Peters cites and we have found
no

Rhode Island case articulating the exact contours of a wrongful

foreclosure claim by an unsecured creditor under R.I. Gen. Laws S

6A-1-203, in the exercise of our diversity jurisdiction we are at

liberty to predict the future course of Rhode Island law. See

Vanhaaren v. State
Farm
Mut.
Auto.
Ins.
Co., 989 F.2d 1, 3 (1st

Cir. 1993). Nevertheless, having chosen the federal forum, Peters

is not entitled to trailblazing initiatives under Rhode Island law.

17

See Carlton v. Worcester Ins. Co., 923 F.2d 1, 3 (1st Cir. 1991);

Porter v. Nutter, 913 F.2d 37, 40-41 (1st Cir. 1990). Nor do its

citations
none purporting to apply Rhode Island law
persuade

us that the Rhode Island courts would countenance the freewheeling

"wrongful foreclosure" claim it advocates.

Tellingly, none of the cited cases involved a plaintiff who
had prevailed without demonstrating actual prejudice; that is, that
the secured creditor had neither a present contractual right to
foreclose nor a comprehensive lien claim balance exceeding the
value of the collateral.
We briefly note the more significant distinguishing features
which make the cited authorities inapposite. First, in Voest-
Alpine Trading USA
v.
Vantage Steel Corp.
, 732 F. Supp. 1315, 1324-
25 (E.D. Pa. 1989),
aff'd, 919 F.2d 206 (3d Cir. 1990), a foreclo-
sure and resale were set aside, not as constituting a wrongful
foreclosure under the common law, but under the Pennsylvania
Fraudulent Conveyance Act, see Pa. Stat. Ann. tit. 39, S 357
(repealed 1993). Moreover, whereas Peters failed to show that the
Anson assets were even arguably worth more than the Anson indebted-
ness to Fleet, see supra Section II.A., in Voest-Alpine, 732 F.
Supp. at 1322, 1325, where the collateral was worth "at least $1
million" and the $1.5 million secured indebtedness was backed by
personal guarantees of $300,000 as well, the district court
concluded that the plaintiff had been "prejudiced" because it might
have received partial payment had the debtor been forced into a
chapter 7 liquidation or chapter 11 reorganization.
Second, in Limor
Diamonds,
Inc. v. D'Oro
by
Christopher
Michael, Inc.
, 558 F. Supp. 709 (S.D.N.Y. 1983), the plaintiff, who
had sold the debtor diamonds without obtaining a perfected purchase
money security interest, sued both the debtor and a secured
creditor which had foreclosed on the debtor's entire inventory,
including the diamonds, as after-acquired property subject to its
perfected security interest. The plaintiff alleged a conspiracy to
convert the diamonds, on the ground that the defendants had induced
the plaintiff to
deliver the diamonds even as the secured creditor
was poised to foreclose on any after-acquired collateral. Id. at
711-12. Thus, the species of bad faith alleged in Limor was
qualitatively different from any involved here, since Peters had
supplied Anson with no goods or assets which could have become
subject to the Fleet security interest.
Third, in Mechanics
Nat'l
Bank
of
Worcester v. Killeen, 384
N.E.2d 1231 (Mass. 1979), a "wrongful foreclosure" claim was upheld
where no default had occurred. Id. at 1235-36. In the instant
case, of course, there is no suggestion that Peters was not in
default under its loan restructuring agreement with Fleet.

18

Thus, the Peters contention that the jury would need to

delve further into what motivated Fleet to exercise its legitimate

contractual right to foreclose lacks significant foundation in the

cited authorities. See also, e.g., E.A.
Miller,
Inc. v. South

Shore
Bank, 539 N.E.2d 519, 523 (Mass. 1989) ("The [UCC] defines

'[g]ood faith' as 'honesty in fact in the conduct or transaction

concerned[,]' [and] [t]he essence of bad faith, in this context, is

not the [secured creditor's] state of mind but rather the attendant

bad actions.") (citations omitted). Consequently, Peters is left

to its argument that the Fleet decision to conduct a private

foreclosure sale, rather than solicit potential competing buyers at

a public sale, rendered the foreclosure sale "commercially

unreasonable," in violation of the
objective "good faith" require-

ment established in R.I. Gen. Laws S 6A-1-203.
See,
e.g.,
American

Sav.
&
Loan
Ass'n v. Musick, 531 S.W.2d 581, 587 (Tex. 1975)

(wrongful foreclosure involves irregularities in sale which

Finally, Peters relies on Sheffield
Progressive,
Inc. v.
Kingston
Tool
Co., 405 N.E.2d 985 (Mass. App. Ct. 1980), which
upheld a denial of a motion to dismiss a "collusive foreclosure"
claim that collateral worth over $3 million had been sold in a
private foreclosure sale for only $879,159, the
full amount of the
secured debt. Id. at 987. The decision was based not on a showing
of subjective "bad faith" on the part of the secured creditor,
however, but on an objective determination that if the allegations
were proven true, it would mean that the debtor effectively would
have "released," for no consideration, an unencumbered equity
interest worth over $2 million otherwise available to unsecured
creditors, id., clearly a commercially unreasonable sale. See
Thomas v. Price, 975 F.2d 231, 239 (5th Cir. 1992); see also
Bezanson v. Fleet
Bank
-
N.H., 29 F.3d 16, 20-21 (1st Cir. 1994)
(affirming finding of commercial unreasonableness where secured
creditor turned down purchase offer of $3.4 million, which would
have left equity for other creditors). Peters, on the other hand,
failed to prove that Anson had any equity in its operating assets
when Fleet foreclosed. See supra Section II.A.

19

contributed to inadequate price).

Fleet maintained at trial that its decision to conduct

a private sale was reasonable because the publicity attending a

public sale would frighten off Tiffany's, Anson's principal client,

thereby virtually assuring the failure of any successor company

which acquired the Anson operating assets. Thus, Fleet plausibly

reasoned that the anticipated publicity attending a nonprivate sale

would tend to depress the sales price. Peters, on the other hand,

failed to offer any evidence of commercial unreasonableness which

dealt adequately with the justification relied upon by Fleet.

Rather, Peters relied exclusively upon its proffer of testimony

from Richard Clarke, a former banker who would have testified,

categorically, that private foreclosure sales, at which the secured

creditor solicits no third-party bids, are unreasonable per se.

Ultimately, commercial reasonableness poses a question of law,
though its resolution often depends on an assessment of the
constituent facts in dispute, such as the actual circumstances
surrounding the particular sale (e.g., sales price, bid solicita-
tion, etc.). See
Dynalectron Corp.
v.
Jack Richards Aircraft Co.
,
337 F. Supp. 659, 663 (W.D. Okla. 1972). The factfinder must
consider all aspects of the disposition, however, as no single
factor, including the sales price, is dispositive. See Bezanson,
29 F.3d at 20 (N.H. law); RTC v. Carr, 13 F.3d 425, 430 (1st Cir.
1993) (Mass. law).

Peters now suggests that the district court misunderstood and
oversimplified the Clarke testimony, and that Clarke merely meant
that most reasonable private sales would need to be promoted among
interested third parties if possible. We have reviewed the
proffered Clarke testimony in its entirety, however, and find no
sound basis for suggesting that the district court abused its
discretion in concluding that it would have confused the jury.
See
Bogosian, 104 F.3d at 476. In other words, as we see it, a sale in
which third-party bids are actively solicited is not a "private"
sale, at least absent considerations not apparent here.

20

Quite the contrary, however, under the Rhode Island UCC,

private sales are expressly permitted. See R.I. Gen. Laws 6A-9-

504(3) (noting that "[d]isposition of the collateral may be by

public or private proceedings . . . but every aspect of the

disposition including the method, manner, time, place, and terms

must be commercially reasonable"). "A sale of collateral is not

subject to closer scrutiny when the secured party chooses to

dispose of the collateral through a private sale rather than a

public sale. Indeed, the official comment to [UCC] section [9-504]

indicates that private sale may be the preferred method of

disposition. . . . The only restriction placed on the secured

party's disposition is that it must be commercially reasonable."

Thomas v. Price, 975 F.2d 231, 238 (5th Cir. 1992). In order to

prove the private foreclosure sale commercially unreasonable,

Peters would have had to demonstrate that the means employed by

Fleet did not comport with prevailing trade practices among those

engaged in the same or a comparable business, see, e.g., In
re

Frazier, 93 B.R. 366, 368 (Bankr. M.D. Tenn. 1988),
aff'd, 110 B.R.

827 (M.D. Tenn. 1989), whereas Clarke simply testified that he

invariably solicited bids in foreclosure sales. Clarke did not

testify that the steps taken by Fleet, confronted in October 1993

with the concern that Tiffany's might withdraw its indispensable

jewelry orders, did not comport with reasonable private foreclosure

practice in such circumstances. As to the latter point, Clarke

simply stated that he did not know.

Furthermore, though Fleet may have foreclosed for any

21

number of subjective reasons, the record indisputably discloses

that it had at least one unimpeachable reason: the uncontested

Anson default under the 1991 loan restructuring agreement.

Consequently, we are not persuaded that the Rhode Island courts

would accept the amorphous "wrongful foreclosure" claim advocated

by Peters in the present circumstances. See Carlton, 923 F.2d at

3. Accordingly, the wrongful foreclosure claim was properly

dismissed.

c. Bulk Transfer Act (UCC S 6-102(1),(2))

Peters alleged that the sale of all Anson operating

assets to C & J constituted a "bulk transfer" under the Rhode

Island Bulk Transfer Act, see R.I. Gen. Laws SS 6A-6-101, et seq.

("BTA"), and that the admitted failure to give prior notification

to other Anson creditors violated the BTA notice provision, thus

entitling Peters to treat the entire transfer as "ineffective,"
id.

S 6A-6-105. Defendants counter that the asset sale fell within an

express BTA exemption because it was nothing more than a

"[t]ransfer[] in settlement or realization of a lien or other

Of course, were Fleet found to have foreclosed on the Anson
assets solely to assist Considine and Jacobsen in defrauding
certain of Anson's unsecured creditors, the foreclosure could prove
less fruitful than Fleet supposed. See infra Section II.B.2(d).
But that is an entirely different question than whether Fleet would
be liable in tort under Rhode Island law.

A "bulk transfer" is "any transfer in bulk and not in the
ordinary course of the transferor's business of a major part of the
materials, supplies, merchandise, or other inventory, . . . [as
well as] a substantial part of the equipment . . . if made in
connection with a bulk transfer of inventory." Id. S 6A-6-102(1),
(2).

22

security interests [ viz., Fleet's undersecured claim against

Anson]." Id. S 6A-6-103(3);
cf.
supra Section II.B.2(a) (compara-

ble "lien" exception under fraudulent transfer statute).

Parry for thrust, relying on
Starman v.
John Wolfe, Inc.
,

490 S.W.2d 377 (Mo. Ct. App. 1973), Peters argues that defendants

are not entitled to claim the "lien" exemption under S

6A-6-103(3). Peters contends, inter alia, that the first and

third prongs in the
Starman test were not met here. It argues that

though Fleet declared a loan default in March 1993, its loan

officers conceded at trial that Fleet had waived more serious

defaults in the recent past and that it had not reassessed whether

Anson was still in default in October 1993,
i.e., at the time Fleet

foreclosed. Second, some of the purchase monies C & J paid for the

Anson assets were not applied to Fleet's secured claim against

Anson. For example, Fleet increased the purchase price for Anson's

assets to cover approximately $322,000 in outstanding checks, drawn

In Starman, an automobile dealership owed approximately
$60,000 to a bank, which held a security interest in all dealership
assets, and owed plaintiff Starman a $3,300 unsecured debt. On its
own initiative, the dealership sold its entire business for $74,000
to third parties, who directly paid the bank's security interest in
full, then paid over the remaining $14,000 to two other creditors
of the dealership. The court held that a transferee must make
three factual showings to qualify for the "lien" exemption under
BTA S 103(3): (1) the transferor defaulted on a secured debt, and
its secured creditor had a present right to foreclose on the
transferor's assets to satisfy its lien; (2) the transferor
conveyed the collateral
directly to the secured party, rather than
a third party;
and (3) the secured party applied
all sale proceeds
to the transferor's debt, rather than remitting part of the
proceeds preferentially to some (but less than all) of the
transferor's other unsecured creditors.
See
Starman, 490 S.W.2d at
382-83. The Missouri court found that the transferor and
transferees had satisfied none of these criteria. Id.

23

on Anson's checking account with Fleet and made payable to Anson's

trade creditors. Further, as a term of the asset sale, Fleet

funnelled half a million dollars in "new capital" back into the

newly created business entity, which C & J then used to pay off

certain trade debts it had assumed from Anson. Both transactions

violated Starman's third or anti-preference prong, says

Peters, because some, but not all, Anson unsecured creditors were

paid with cash not used to reduce or extinguish the $10,628,000

Fleet debt. We cannot agree.

Starman poses no bar to defendants' "lien" exemption

claim under U.C.C. S 6A-6-103(3). First, as we have noted, see

supra Section II.B.2(b), Fleet declared the loan default in March

1993 because Anson had failed to achieve its earnings target for

1992. Thus, the very nature of the default meant that it could not

be cured at any time after December 31, 1992, by which time 1992

year-end earnings were a fait accompli. Under the terms of the

loan restructuring agreement, therefore, Fleet had the unilateral

right to foreclose on the collateral. Furthermore, the previous

Fleet waivers of default were immaterial to the question whether

Fleet had a right to foreclose in October 1993, as the default it

expressly declared in March 1993 was never waived.

Second, the circumstances surrounding the Peters claim

remove it from under the third
Starman prong. In Starman, and in

We hasten to add, however, that Fleet incorrectly suggests
that the Missouri Court of Appeals later "negated" its Starman
holding in Techsonic Indus., Inc. v. Barney's Bassin' Shop, Inc.,
621 S.W.2d 332 (Mo. Ct. App. 1981). Rather, Techsonic jettisoned

24

later cases applying its third prong, see, e.g., Mid-America

Indus.,
Inc. v. Ketchie, 767 P.2d 416, 418-19 (Okla. 1989), the

sale proceeds were more than sufficient to satisfy the secured

claim in full, leaving excess proceeds. The BTA is designed to

prevent transferors
like Anson
from liquidating their assets

without notice to their creditors, and retaining the proceeds.

Here, however, the sale price paid by C & J did not exceed the

amount due Fleet on its secured claim,
see
supra Section II.A, and

Fleet therefore was entitled to apply the entire purchase price

toward the Anson indebtedness. That Fleet chose to devote a

portion of the sale proceeds to certain Anson trade creditors did

not implicate Starman's third prong since those monies were never

only the second prong in the Starman test. A transferee would be
exempt from the BTA even if the transferor conveyed the bulk assets
to a third party, rather than to its secured creditor, so long as
all sale proceeds were applied to the secured debt. The court
rejected the proposition that the BTA requires the secured creditor
and transferee to proceed with the empty formalities of a bifurcat-
ed transfer (i.e., passing the assets from transferor to secured
creditor, from secured creditor to third-party transferee) in order
to claim the "lien exemption." Importantly, however, the
Techsonic
defendants had applied all sale proceeds to the secured debt, see
id. at 334 ("[A]ll proceeds went to the bank."), and the
Techsonic
court therefore had no occasion to reconsider Starman's third
"anti-preference" criterion. Further, other courts have since
acknowledged the continuing efficacy of the third prong in
Starman.
See,
e.g.,
Mid-America Indus., Inc.
v.
Ketchie, 767 P.2d 416, 418-
19 (Okla. 1989) (transfer not exempt where "only a portion of the
proceeds of the sale was paid to the secured creditor"); see also
Ouachita Elec. Coop. Corp.
v.
Evans-St. Clair
, 672 S.W.2d 660, 176-
77 (Ark. Ct. App. 1984) (finding transfer exempt where all proceeds
were applied to secured debts, but expressly distinguishing
Starman
on ground that defendants had not applied all sales proceeds to
secured debt); Schlussel v. Emmanuel
Roth
Co., 637 A.2d 944, 955
n.5 (N.J. Super. Ct. App. Div. 1994) (in dicta, endorsing
Starman's
partial-proceeds rule); American
Metal
Finishers,
Inc. v.
Palleschi, 391 N.Y.S.2d 170, 173 (App. Div. 1977) (same);
Peerless
Packing
Co. v. Malone
&
Hyde,
Inc., 376 S.E.2d 161, 164 (W. Va.
1988).

25

"excess" proceeds. Thus, the district court properly dismissed the

BTA claim.

d. Successor Liability

Next, Peters invokes the "successor liability" doctrine,

by contending that C & J is simply Anson reorganized in another

guise, and therefore answerable in equity for Anson's outstanding

liabilities, including the $859,068 debt due Peters in sales

commissions. See
H.J. Baker & Bro.
v.
Orgonics, Inc.
, 554 A.2d 196

(R.I. 1989).

Under the common law, of course, a corporation normally

may acquire another corporation's assets without becoming liable

for the divesting corporation's debts. See id. at 205; see also

National Gypsum Co.
v.
Continental Brands Corp.
, 895 F. Supp. 328,

333 (D. Mass. 1995); 15 William M. Fletcher,
Fletcher Cyclopedia of

Law
of
Private
Corporations S 7122, at 231 (1991) [hereinafter:

"Fletcher"]. But since a rigid nonassumption rule can be bent to

evade valid claims, the successor liability doctrine was devised to

safeguard disadvantaged creditors of a divesting corporation in

four circumstances. An acquiring corporation may become liable

under the successor liability doctrine for the divesting

corporation's outstanding liabilities if: (1) it expressly or

impliedly assumed the divesting entity's debts; (2) the parties

structured the asset divestiture to effect a
de
facto merger of the

two corporations; (3) the divesting corporation transferred its

assets with actual fraudulent intent to avoid, hinder, or delay its

creditors; or (4) the acquiring corporation is a "mere continua-

26

tion" of the divesting corporation. See H.J.
Baker, 554 A.2d at

205 (citing, with approval, "mere continuation" test set forth in

Jackson v.
Diamond T. Trucking Co.
, 241 A.2d 471, 477 (N.J. Super.

Ct. Law Div. 1968) (recognizing, as distinct exceptions, both the

"actual fraud" and "mere continuation" tests)); Cranston
Dressed

Meat
Co. v. Packers
Outlet
Co., 57 R.I. 345, 348 (1937) (noting

that nonassumption rule applies only "in the absence of fraud");

see also Golden State Bottling Co. v. NLRB, 414 U.S. 168, 182 n.5

(1973);
Western Auto Supply Co.
v.
Savage Arms, Inc.
(
In re Savage

Indus., Inc.), 43 F.3d 714, 717 n.4 (1st Cir. 1994); Philadelphia

Elec. Co. v. Hercules, Inc., 762 F.2d 303, 308-09 (3d Cir. 1985);

Fletcher, at S 7122. This case implicates the third and fourth

successor liability tests.

The district court dismissed the instant successor

liability claim on the ground that Peters could not have been

prejudiced, because Fleet had a legitimate right to foreclose and

Peters did not prove the Anson assets were worth more than the

total Anson indebtedness to Fleet. On appeal, C & J takes

essentially the same position, but with the flourish that the

successor liability doctrine is inapplicable per se where the

divesting corporation's assets were acquired pursuant to an

intervening foreclosure, rather than a direct purchase. See R.I.

Gen. Laws S 6A-9-504(4) ("When collateral is disposed of by a

secured party after default, the disposition transfers to a

purchaser for value all of the debtor's rights therein and

discharges the security interest under which it is made and any

27

security interest or lien subordinate thereto. The purchaser takes

free of all such rights and interests . . . .") (emphasis added).

We do not agree.

First and foremost, existing case law overwhelmingly

confirms that an intervening foreclosure sale affords an acquiring

corporation no automatic exemption from successor liability. See,

e.g.,
Glynwed, Inc.
v.
Plastimatic, Inc.
, 869 F. Supp. 265, 273-75

(D.N.J. 1994) (collecting cases); Asher v. KCS
Int'l,
Inc., 659

So.2d 598, 600 (Ala. 1995); G.P.
Publications,
Inc. v. Quebecor

Printing-St.
Paul,
Inc., 481 S.E.2d 674, 679-80 (N.C. Ct. App.

1997);
see
also
Upholsterers' Int'l Union Pension Fund
v.
Artistic

Furniture
of
Pontiac, 920 F.2d 1323, 1325, 1327 (7th Cir. 1990).

Nor has C & J cited authority supporting its position.

Second, by its very nature the foreclosure process cannot

preempt the successor liability inquiry. Whereas liens relate to

assets (viz., collateral), the indebtedness underlying the lien

appertains to a person or legal entity (viz., the debtor). Thus,

although foreclosure by a senior lienor often wipes out junior-lien

interests in the same collateral, see, e.g., Levenson v. G.E.

Capital
Mortgage
Servs.,
Inc., 643 A.2d 505, 512 (Md. Ct. Spec.

App. 1994), rev'd on other grounds, 657 A.2d 1170 (Md. 1995), it

does not discharge the debtor's underlying obligation to junior

lien creditors. See,
e.g.,
Trustees of MacIntosh Condominium Ass'n

v.
FDIC, 908 F. Supp. 58, 64 (D. Mass. 1995) ("'As a result of the

first mortgage foreclosure the second mortgage lien was extin-

guished but not the second mortgage debt.'") (quoting Osborne v.

28

Burke, 300 N.E.2d 450, 451 (Mass. App. Ct. 1973)). As one might

expect, therefore, UCC S 9-504 focuses exclusively on the effect a

foreclosure sale has upon subordinate liens, see R.I. Gen. Laws S

6A-9-504(4),
supra, rather than any extinguishment of the underly-

ing indebtedness. Whereas the successor liability doctrine focuses

exclusively on debt extinguishment, be the debt secured or unse-

cured.

Following the October 1993 foreclosure sale by Fleet, the

then-defunct Anson unquestionably remained legally obligated to

Peters for its sales commissions, even if the lack of corporate

wherewithal rendered the obligation unenforceable as a practical

matter. True, Fleet might have sold the Anson assets to an entity

with no ties to Anson, but that is beside the point, since the

Peters successor liability claim alleges that C & J is Anson in

disguise. As Peters simply seeks an equitable determination that

C & J, as Anson's successor, is liable for the sales commissions

It is for this reason that the successor liability doctrine
often proves problematic in bankruptcy proceedings. In contrast to
UCC S 9-504, the Bankruptcy Code expressly permits sales free and
clear of liens, and of any other " interest" in the collateral.
See, e.g., 11 U.S.C. S 363(f) ("The trustee may sell property . .
. free and clear of any interest in such property . . . .")
(emphasis added); S 727 (discharge in liquidation); S
1141(d)(discharge in reorganization). Thus, arguably at least,
such "interest[s]" might be thought to encompass successor
liability claims by unsecured creditors. But
see,
e.g.,
Wilkerson
v.
C.O. Porter Mach. Co.
, 567 A.2d 598, 601-02 (N.J. Super. Ct. Law
Div. 1989) (finding successor liability doctrine applicable
notwithstanding entry of S 363 order). Unlike a bankruptcy court,
however, a secured creditor and its nonbankrupt debtor lack the
power either at common law or by statute to effect a
discharge of underlying third-party debts, even for the most
beneficent of reasons.

29

Peters earned from Anson,
see
Glynwed, 869 F. Supp. at 274-75, its

claim in no sense implicates any lien interest in any former Anson

asset. Third, successor liability is an equitable doctrine, both

in origin and nature. See, e.g., Chicago
Truck
Drivers,
Helpers

and
Warehouse
Workers
Union
(Indep.)
Pension
Fund v. Tasemkin,

Inc., 59 F.3d 48, 49 (7th Cir. 1995);
The Ninth Ave. Remedial Group

v. Allis-Chalmers Corp., 195 B.R. 716, 727 (N.D. Ind. 1996) ("The

successor doctrine is derived from equitable principles . . . .");

Stevens v. McLouth
Steel
Prods.
Corp., 446 N.W.2d 95, 100 (Mich.

1989); Uni-Com
N.W.,
Ltd. v. Argus
Publ'g
Co., 737 P.2d 304, 314

(Wash. Ct. App. 1987). Moreover, the UCC, as adopted in Rhode

Island, see R.I. Gen. Laws S 6A-9-103, provides that generally

applicable principles of equity, unless expressly preempted, are to

supplement its provisions. See G.P.
Publications, 481 S.E.2d at

680; see also Ninth
Dist.
Prod.
Credit
Ass'n v. Ed
Duggan,
Inc.,

821 P.2d 788, 794 (Colo. 1991) (en banc); see also Sheffield

Progressive, Inc.
v.
Kingston Tool Co.
, 405 N.E.2d 985, 988 (Mass.

App. Ct. 1980) (UCC Article 9 does not preempt Uniform Fraudulent

Conveyance Act). Moreover, R.I. Gen. Laws S 6A-9-504 neither

explicitly nor impliedly preempts the successor liability doctrine.

Finally, the fact that C & J acquired the Anson assets

indirectly through Fleet, rather than in a direct sale from Anson,

does not trump the successor liability doctrine as a matter of law,

since equity is loath to elevate the form of the transfer over its

substance, and deigns to inquire into its true nature. See

Glynwed, 869 F. Supp. at 275 (collecting cases);
G.P. Publications
,

30

481 S.E.2d at 679-80; see also Bangor
Punta
Operations,
Inc. v.

Bangor
&
Aroostook
R.
Co., 417 U.S. 703, 713 (1974) ("In such

cases, courts of equity, piercing all fictions and disguises, will

deal with the substance of the action and not blindly adhere to the

corporate form."); Young v. Higbee
Co., 324 U.S. 204, 209 (1945)

(same); Henry
F.
Mitchell,
Co. v. Fitzgerald, 231 N.E.2d 373,

375-76 (Mass. 1967) (same). Thus, were C & J otherwise qualified

as Anson's "successor" under Rhode Island law, because its

principals acted with intent to evade the Peters claim,
see
infra,

there would be no equitable basis for treating the asset transfer

by foreclosure differently than a direct transfer from Anson to C

& J. See A.R. Teeters
&
Assocs.,
Inc. v. Eastman
Kodak
Co., 836

P.2d 1034, 1039 (Ariz. Ct. App. 1992) ("Successor liability is

based upon the theory 'that the assets of a private corporation

constitute a trust fund for the benefit of its creditors . . . .'")

(citation omitted). Consequently, we reject the contention that C

& J's acquisition of Anson's assets through the Fleet foreclosure

pursuant to R.I. Gen. Laws S 6A-9-504, warranted dismissal of the

successor liability claim as a matter of law.

Thus, Peters was entitled to attempt to prove that C & J,

as Anson's "successor," became liable for the Anson debt to Peters

because C & J is a "mere continuation" of the divesting corporate

entity. See Nissen Corp. v. Miller, 594 A.2d 564, 566 (Md. 1991)

("'The [mere continuation] exception is designed to prevent a

situation whereby the specific purpose of acquiring assets is to

place those assets out of reach of the predecessor's creditors. In

31

other words, the purchasing corporation maintains the same or

similar management and ownership but wears a "new hat."'")

(citation omitted). The "mere continuation" determination turns

upon factfinding inquiries into five emblematic circumstances: (1)

a corporation transfers its assets; (2) the acquiring corporation

pays "less than adequate consideration" for the assets; (3) the

acquiring corporation "continues the [divesting corporation's]

business"; (4) both corporations share "at least one common officer

who [was] instrumental in the transfer"; and (5) the divesting

corporation is left "incapable of paying its creditors." See H.J.

Baker, 554 A.2d at 205 (adopting,
inter
alia, the factors set forth

in Jackson, 241 A.2d at 477).

C & J relies heavily, indeed almost exclusively, on
Casey

v.
San-Lee Realty, Inc.
, 623 A.2d 16 (R.I. 1993), wherein the Rhode

Island Supreme Court identified five factual considerations which

contradicted the contention that San-Lee Realty was a "successor"

corporation. Id. C & J then argues that all five factual

considerations in Casey appertain here. By disregarding the

distinctive procedural posture in which the
Casey appeal presented

itself, however, C & J fundamentally misdirects its reliance.

Unlike the judgment as a matter of law at issue here, the

Casey court affirmed a judgment entered for the defendants

following a bench trial in which the trial judge made factual

findings directly pertinent to the "mere continuation" theory.
See

id. at 19 ("The findings of fact made by a trial justice, sitting

without a jury, are to be given great weight."). Thus, Casey

32

provides no support for the proposition that the particular factual

considerations credited by the trial court, qua factfinder, would

permit a trial court, sitting with a jury, to enter judgment as a

matter of law.

We emphasize the misplaced reliance on Casey because it

points up the fundamental flaw underlying the Rule 50 dismissal

below. The Baker court was careful to note that the "mere

continuation" inquiry is multifaceted, and normally requires a

cumulative, case-by-case assessment of the evidence by the

factfinder. See H.J.
Baker, 554 A.2d at 205; see also Cranston

Dressed
Meat, 57 R.I. at 350 (affirming judgment for plaintiff

based on findings of fact); Steel
Co. v. Morgan
Marshall
Indus.,

Inc., 662 N.E.2d 595, 600-01 (Ill. App. Ct. 1996) (trialworthy

issue of fact precluded directed verdict); Burgos v. Pulse

Combustion, Inc.
, 642 N.Y.S.2d 882, 882-83 (App. Div. 1996);
Bryant

v. Adams, 448 S.E.2d 832, 839-40 (N.C. Ct. App. 1994) ("mere

continuation" inquiry implicates issues of fact precluding summary

judgment); Bagin v. IRC Fibers Co., 593 N.E.2d 405, 408 (Ohio Ct.

App. 1991) (genuine issue of fact relating to "mere continuation"

inquiry precluded summary judgment for defendant);
cf.
Dickinson v.

Ronwin, 935 S.W.2d 358, 364 (Mo. Ct. App. 1996) ("Although none of

the badges of fraud existing alone establishes fraud, a concurrence

of several of them raises a presumption of fraud.").

Thus, although a Rule 50 dismissal may be warranted where

the trial court has determined the evidence insufficient to permit

a rational jury to find for the plaintiff, we are not presented

33

with such a case. Rather, viewed in the light most favorable to

Peters, see Fed. R. Civ. P. 50(a); Coyante, 105 F.3d at 21, its

evidentiary proffer generated a trialworthy issue of material fact

respecting all five factual inquiries identified in
H.J. Baker
, as

we shall see.

(i) "Transfer" of Assets

Anson transferred all its operating assets, thereby

enabling C & J to continue the identical product line without

interruption. H.J.
Baker, 554 A.2d at 205. C & J nonetheless

contends that a cognizable "transfer" could not have occurred,

because Anson did not convey all its assets to C & J; that is, it

conveyed its real property to Little Bay Realty. See Casey, 623

A.2d at 19 (finding no transfer where, inter alia, not all

corporate assets were conveyed). We disagree.

Under the first
Baker criterion, the plaintiff need only

demonstrate "a transfer of corporate assets."
H.J. Baker
, 554 A.2d

at 205. That is, it is not necessary, as a matter of law, that a

single corporation acquire all the divesting corporation's assets,

though the relative inclusiveness of any such asset transfer may

Since the district court judgment must be vacated in any
event, we assume arguendo that Rhode Island law would require
Peters to make adequate showings on all five Baker factors, even
though Baker expressly adopted the New Jersey model for the "mere
continuation" test, under which "[n]ot all of these factors need be
present for a de facto merger or continuation to have occurred."
Luxliner P.L. Export, Co.
v.
RDI/Luxliner, Inc.
, 13 F.3d 69, 73 (3d
Cir. 1993) (citing Good v. Lackawanna
Leather
Co., 233 A.2d 201,
208 (N.J. Super. Ct. 1967)). Indeed, the Baker court itself did
not even discuss the "inadequate consideration" element in arriving
at its determination that the acquiring company qualified as a
"successor." See H.J. Baker, 554 A.2d at 205.

34

prove to be a very pertinent factual consideration which the

factfinder would take into account in the
overall mix. Cf.
Casey,

623 A.2d at 19 (noting that divesting corporation conveyed only

three-fifths of its assets). In this respect, Baker accords with

the law in other jurisdictions.
See,
e.g., G.P. Publications
, 481

S.E.2d at 679 (successor liability doctrine concerns "the pur-

chase[] of all or
substantially
all the assets of a corporation");

cf. Dickinson, 935 S.W.2d at 364 (recognizing, as badge of fraud,

"the transfer of all or nearly all of the debtor's property")

(emphasis added); supra note 7.

Yet more importantly, however, this is not an instance in

which the divesting corporation transferred its real estate to a

third corporation which was beyond the de facto control of the

principals of the corporation which acquired the operating assets.

Considine and Jacobsen deliberately structured the overall

transaction so as to keep the Anson operating assets and real

property under the ownership of two separate entities, C & J and

Little Bay Realty respectively, concurrently established and

controlled by them. Once again, therefore, since the successor

liability doctrine is equitable in nature, it is the substance of

the overall transaction which controls, rather than its form. See

Glynwed, 869 F. Supp. at 275. Thus, the fact that C & J leased the

real property from Little Bay is not controlling, since C & J

Rather, the ostensible purpose was to immunize Little Bay
from a possible C
&
J failure, which likewise explains why the
October 1993 agreement contemplated no cross-collateralization.

35

(through Considine and Jacobsen) retained de facto control of the

former Anson real estate following its transfer to Little Bay.

See,
e.g., H.J. Baker
, 554 A.2d at 205 (focusing on fact that two

companies "operated from the same manufacturing plant," not on

whether they both owned the premises). Accordingly, viewing the

evidence in the light most favorable to Peters, we cannot conclude,

as a matter of law, that no cognizable "transfer" occurred.

(ii) "Inadequate Consideration"

Peters likewise adduced sufficient evidence from which a

rational jury could conclude that the operating assets were

transferred to C & J for "inadequate consideration." Id. The

second Baker factor rests on the theory that inadequate consider-

ation is competent circumstantial evidence from which the

factfinder reasonably may infer that the transferor harbored a

fraudulent intent to evade its obligations to creditors. See,

e.g., Ricardo
Cruz
Distribs.,
Inc. v. Pace
Setter,
Inc., 931 F.

Supp. 106, 110 (D.P.R. 1996) ("a fraudulent transfer of property

from the seller to the buyer, evinced by inadequate consideration

for the transfer"); Casey Nat'l Bank v. Roan, 668 N.E.2d 608, 611

(Ill. App. Ct.) ("Proof of fraud in fact requires a showing of an

actual intent to hinder creditors, while fraud in law presumes a

fraudulent intent when a voluntary transfer is made for no or

inadequate consideration and directly impairs the rights of

creditors."),
appeal
denied, 675 N.E.2d 631 (1996);
cf.
Dickinson,

935 S.W.2d at 364 (recognizing "inadequacy of consideration" as

badge of fraud); supra note 7. On the other hand, a valuable

36

consideration negotiated at arm's-length between two distinct

corporate entities normally is presumed "adequate," particularly if

the divesting corporation's creditors can continue to look to the

divesting corporation and/or the sales proceeds for satisfaction of

their claims. See A.R.
Teeters, 836 P.2d at 1040; see also Arch

Mineral Corp. v. Babbitt, 894 F. Supp. 974, 986 n.11 (S.D. W. Va.

1995) (one inquiry is whether divesting corporation retains

sufficient assets from which to satisfy creditor claims), aff'd,

104 F.3d 660 (1997);
Eagle Pac. Ins. Co.
v.
Christensen Motor Yacht

Corp., 934 P.2d 715, 721 (Wash. Ct. App. 1997) (inquiring whether

divesting corporation is "left unable to respond to [the]

creditor's claims").

The total consideration for all Anson assets in this case

was less than $500,000. Fleet effectively wrote off its outstand-

ing balances ($10,628,000) on the Anson loan in 1993, and provided

C & J and Little Bay Realty "new" financing totaling approximately

$2.9 million. See Fleet Credit Memo (10/14/93), at 4 ("This

[agreement] is to involve forgiveness of some of [Fleet's] legal

balance in conjunction with a significant equity injection.")

(emphasis added). Thus, though normally loans obtained by buyers

to finance asset acquisitions would be considered in calculating

the total consideration paid, here the two newly-formed acquiring

Because the conveyances to C & J and Little Bay allegedly
comprised part of an integrated scheme to defraud certain Anson
creditors, we weigh the total consideration involved in both
transactions. Our conclusion would be precisely the same, however,
were we to consider only the operating-assets sale to C & J.

37

companies actually incurred no "new" indebtedness to Fleet. In

fact, if the two companies were determined to be Anson's "succes-

sors," the asset sale would have gained them loan forgiveness

approximating $7.728 million (
i.e., $10,628,000, less new indebted-

ness of only $2.9 million), given their total exoneration from

Anson's preexisting indebtedness to Fleet. Since the "new" Fleet

loans cannot count as "consideration," at least as a matter of law,

C & J and Little Bay paid a combined total of only $1 million in

additional cash consideration for the Anson operating assets and

real estate, of which $550,000 was immediately reinjected into the

two acquiring companies for capital improvements and debt service.

See supra Section I. As a practical matter, therefore, C & J and

Little Bay acquired all the Anson assets for only $450,000.

Although Peters utterly failed to demonstrate that the

Anson assets were worth as much as $12,738,000, see supra Section

II.A., it nevertheless adduced competent evidence as to their

minimum value. Thus, the trial record would support a rational

inference that the assets transferred by Anson had a fair value of

just under $4 million. Fleet documents indicate that the book

The district court implied that the fact that Considine and
Jacobsen injected new capital into the two acquiring companies was
dispositive of the "mere continuation" inquiry. We cannot agree,
however, that an injection of new capital at these minimal levels
precluded a finding of fraudulent intent as a matter of law.
Rather, assuming the reconfigured business were to escape, inter
alia, the $859,068 debt due Peters, the $450,000 invested by
Considine and Jacobsen could be considered quite a bargain.
Finally, the remaining $550,000 in new capital was directed back
into the C & J and Little Bay coffers, where it served as an
immediate benefit to Considine and Jacobsen, not a detriment.

38

value of the operating assets approximated $5.2 million; Fleet's

conservative estimate of their value approximated $2.11 million;

and its conservative valuation of the real property was $1.78

million. Therefore, with a total
minimum asset value just under $4

million, and a de facto purchase price below $500,000, a rational

jury could conclude that C & J and Little Bay acquired the Anson

assets at 12.5 cents on the dollar.

At these minimal levels, adequacy of consideration

presents an issue for the factfinder. See Nisenzon v. Sadowski,

689 A.2d 1037, 1042-43 (R.I. 1997) (under R.I. fraud conveyance

statute, adequacy of consideration is for factfinder, and review-

able only for clear error); see also Pacific
Gas
&
Elec.
Co. v.

Hacienda Mobile Home Park, 119 Cal. Rptr. 559, 566 (Cal. Ct. App.

1975) ("Adequacy of consideration is a question of fact to be

determined by the trier of fact."); Gaudio v. Gaudio, 580 A.2d

1212, 1221 (Conn. App. Ct. 1990) ("[T]he adequacy of the consider-

ation in an action to set aside a fraudulent conveyance is an issue

of fact.");
Textron Fin. Corp.
v.
Kruger, 545 N.W.2d 880, 884 (Iowa

Ct. App. 1996) ("We refrain, however, from adopting any mathemati-

cal rules to determine the adequacy of consideration. All the

facts and circumstances of each case must be considered."). On the

present record, therefore, it was error to determine as a matter of

law that no rational factfinder could conclude that 12.5% of fair

value was "inadequate" consideration for the Anson assets. See,

e.g., Miner v. Bennett, 556 S.W.2d 692, 695 (Mo. Ct. App. 1977)

("The assumption by the grantees of the mortgages in an amount

39

equal to approximately
one
fourth of the value of the property was

not an adequate consideration for the transfer.") (emphasis added).

Moreover, even assuming
arguendo that the circumstantial

evidence of fraudulent intent presented by Peters, in the way of

demonstrating "inadequate consideration," could not have survived

the Rule 50(a) motion for judgment as a matter of law, Peters

adduced competent direct evidence of actual fraudulent intent as

well. Actual fraud is a successor liability test entirely indepen-

dent of the circumstantial "mere continuation" test. See H.J.

Baker, 554 A.2d at 205 (describing "mere continuation" test as

"[a]n exception," not as "the" exception, to the general rule of

"nonassumption"; citing, with approval, Jackson, 241 A.2d at 477,

which recognized the "actual fraud" test as distinct from the "mere

continuation" test, see id. at 475); Cranston
Dressed
Meat, 57

R.I. at 348 (noting that "nonassumption" presumption applies only

"in the absence of fraud"); see also Joseph
P.
Manning
Co. v.

Shinopoulos, 56 N.E.2d 869, 870 (Mass. 1944) (UFCA case) ("[A]t

common law, if the conveyance is made and received for the purpose

of hindering, delaying or defrauding creditors it is fraudulent and

can be set aside without regard to the nature or amount of

consideration."); Eagle
Pacific, 934 P.2d at 721 (noting that,

besides the separate "mere continuation" theory, "[s]uccessor

liability may also be imposed where the transfer of assets is for

the fraudulent purpose of escaping liability").

Baker focused on the "mere continuation" test simply because
there was no evidence of actual fraudulent intent.

40

Peters adduced direct evidence that Considine and

Jacobsen entered into the asset transfer with the specific intent

to rid the business of all indebtedness due entities not essential

to its future viability, including in particular the Peters sales

commissions. Peters notified Anson in March 1993 that it intended

to pursue Anson vigorously for payment of its sales commissions.

See Dickinson, 935 S.W.2d at 364 (recognizing, as badge of fraud,

"transfers in anticipation of suit or execution"); supra note 7.

The intention to evade the Peters debt is explicitly memorialized

in Jacobsen's notes, and yet more explicitly in the May 5, 1993

memo from Considine to Fleet ("If Fleet can find a way to foreclose

the company [
viz., on its security interests in Anson's real estate

and operating assets] and sell certain assets to our company that

would eliminate most of the liabilities discussed above, then we

would offer Fleet . . . $3,250,000."). Thereafter, Fleet

presciently forewarned Considine that its counsel was "not

convinced that you will be able to do this [i.e., shed the Peters

debt] without inviting litigation," and then insisted on an

indemnification clause from C & J should any such litigation

eventuate,
see Credit Agreement q 8.10 (Oct. 26, 1993). Moreover,

it is immaterial whether Considine believed that this evasive

maneuver was essential to ensure the solvency and success of the

Anson business; fraudulent intent need not be malicious. See

Balzer & Assocs., Inc. v. The Lakes on 360, Inc., 463 S.E.2d 453,

455 (Va. 1995) ("[M]alicious intent is not an element required to

41

prove the voidability of the transfer.").

(iii) " Continuation of Business"

Furthermore, Peters proffered ample evidence on the third

factor in the
Baker test, by demonstrating that C & J did "continue

[Anson's] business." H.J.
Baker, 554 A.2d at 205. Among the

considerations pertinent to the business continuity inquiry are:

(1) whether the divesting and acquiring corporations handled

identical products; (2) whether their operations were conducted at

the same physical premises; and (3) whether the acquiring corpora-

tion retained employees of the divesting corporation.
See
id.;
see

also Bagin, 593 N.E.2d at 407 ("The gravamen of the 'mere

continuation' exception is whether there is a continuation of the

corporate entity. Indicia of the continuation of the corporate

entity would include the same employees, a common name, the same

product, the same plant.") (citation omitted).

C & J was incorporated in October 1993 for the specific

purpose of acquiring the assets of the then-defunct Anson. See

Asher, 659 So.2d at 599-600 (noting relevance of fact that

Once again in mistaken reliance on Casey, C & J points out
that the Casey court found no evidence of fraudulent intent.
However, that determination was based on a finding that the
original transferor had no knowledge of the plaintiff's potential
lawsuit at the time of the asset transfer; hence, could not have
effected the transfer with fraudulent intent to evade the debt it
owed the plaintiff. See Casey, 623 A.2d at 19. The Casey court
expressly noted, however, that "the consideration in this case
would not have validated a transfer of assets if the transfer were
made with notice of the existence of a claim of a creditor." Id.
at 19 n.4. Not only is it undisputed that the C & J principals
knew of the Peters claim prior to October 1993, but Peters adduced
direct evidence that the asset transfer was structured with the
specific intent to evade the Peters debt.

42

divesting corporation ceased business operations soon after asset

transfer, then liquidated or dissolved); Steel Co., 662 N.E.2d at

600 (noting significance of circumstantial evidence that acquiring

corporation "was incorporated on the same day that [predecessor]

ceased . . . ."). Peters adduced evidence that C & J not only

continued manufacturing the same jewelry products as Anson, see

H.J.
Baker, 554 A.2d at 205 (noting that two companies "sold

virtually identical [] products"), but conducted its manufacturing

at the same physical premises and continued servicing Anson's

principal customer, Tiffany's. Moreover, its uninterrupted

continuation of the Anson manufacturing business was prominently

announced to Anson's customers in an October 1993 letter from C &

J. See
Glynwed, 869 F. Supp. at 277 (purchasing corporation "held

itself out to the world '"as the effective continuation of the

seller."'") (citations omitted); Kleen
Laundry
&
Dry
Cleaning

Servs.,
Inc. v. Total
Waste
Mgt.,
Inc., 867 F. Supp. 1136, 1142

(D.N.H. 1994) ("This seamless client transfer reveals that the

defendant purchased and operated a complete business and, in so

doing, tacitly held itself out to the public as the continuation of

[] Portland Oil."); cf. United
States v. Mexico
Feed
&
Seed
Co.,

764 F. Supp. 565, 573 (E.D. Mo. 1991) (noting that the acquiring

corporation continued production of the same product lines and held

itself out to the public as a continuation of the divesting

corporation), aff'd in relevant part, 908 F.2d 478, 488 (8th Cir.

1992). In its October 1993 letter, C & J stated that it had

"acquired all of the assets of Anson," that it was its "intention

43

to build on [Anson's '55-year heritage of quality'] to reestablish

the Anson brand as the pre-eminent one [in the jewelry market],"

and that C & J had therefore " retained all of the former Anson

employees [including Anson's 'current retail sales representation']

the core of any business." (Emphasis added.) See H.J. Baker,

554 A.2d at 205; see also Cyr v. B.
Offen
&
Co.,
Inc., 501 F.2d

1145, 1153-54 (1st Cir. 1974) (same employees continued to produce

same products in same factory); Mexico
Feed, 764 F. Supp. at 572

(noting relevance of finding that acquiring entity retained "same

supervisory personnel" or "production facilities"). Finally, in

order to facilitate the product-line continuation, C & J specifi-

cally assumed responsibility for, and paid off, all indebtedness

due Anson's "essential" trade creditors. See Asher, 659 So.2d at

600 (noting that "purchasing corporation [expressly] assumed those

liabilities and obligations of the seller [ e.g., trade debts]

ordinarily necessary for the continuation of the [seller's] normal

business operations"). Thus, the Peters proffer handily addressed

the third factor in the Baker inquiry.

(iv) Commonality of Corporate Officers

Fourth, Peters adduced sufficient evidence at trial that

C & J and Anson had "at least one common officer [viz., Considine

or Jacobsen] who [was] instrumental in the [asset] transfer."
H.J.

Baker, 554 A.2d at 205. C & J responds, inappositely, that the

respective ownership interests held by the principals in the

divesting and acquiring corporations were not identical, as

Considine owned 52% of the Anson stock, whereas Jacobsen and the

44

Considine Family Trust were equal shareholders in C & J.

The present inquiry does not turn on a complete identity

of ownership ( i.e., shareholders), however, but on a partial

identity in the corporate managements (i.e., "officers"). Thus,

the fact that Jacobsen not only held a corporate office in both

Anson and C & J but was instrumental in negotiating the asset

transfer to C & J was sufficient in itself to preclude a Rule 50

dismissal under the fourth prong, even if he were not an Anson

shareholder. See H.J.
Baker, 554 A.2d at 205 (noting that "the

management [of the two companies] remained substantially the

same").

Further, the same result obtains even if we were to

assume that the "one common officer" referred to in Baker

must be a shareholder as well. Prior to Baker, the Rhode Island

Supreme Court did not require complete identity between those who

"controlled" the two corporations or the asset transfer, whether

their "control" derived from stock ownership or from their manage-

ment positions. For example, the court had upheld a judgment for

plaintiff, following trial, even though the officers and incorpora-

tors of the divesting and acquiring corporations were not the same,

on the ground that the
principals involved in the sale "all had a[]

[common] interest in the transaction." Cranston Dressed Meat, 57

R.I. at 349; cf. Casey, 623 A.2d at 19 (finding no successor

liability where two corporations shared
no stockholders, officers,

or directors);
cf.
also
Glynwed, 869 F. Supp. at 277 ("[C]ontinuity

of ownership, not uniformity, is the test."); Park v. Townson
&

45

Alexander, Inc.
, 679 N.E.2d 107, 110 (Ill. App. Ct. 1997) ("We note

that the continuity of shareholders necessary to a finding of mere

continuation does not require complete identity between the

shareholders of the former and successor corporations.").

Considine easily fits the bill here. After all, "C & J" stands for

something and Jacobsen conceded at trial that Considine "partici-

pates in the management of C & J Jewelry." Moreover, Considine

admitted that no C & J decision could be taken without Considine's

prior approval.

C & J heavily relies as well on the fact that Considine,

individually, held no direct ownership interest in C & J, but

instead had conveyed his interest to the Considine Family Trust.

Once again, however, as equity looks to substance not form, see

Glynwed, 869 F. Supp. at 275, the fact that Considine established

a family trust to receive his ownership interest in C & J did not

warrant a Rule 50 dismissal, especially in light of his concession

that he actively participates in the management of C & J. See

Fleet Credit Memo (10/14/93), at 1 ("[T]hese transactions will be

considered a Troubled Debt Restructure ('TDR') because of

Considine's effective control of the assets both before and after

the contemplated transaction."); id. at 14 (noting that Considine

would be a "Principal" of C & J, although his "involvement in day-

to-day operations will be limited"). Moreover, such intra-family

transfers may be nominal only, and thus may constitute circumstan-

tial evidence of a fraudulent, manipulative intent to mask the

continuity in corporate control. See Park, 679 N.E.2d at 110

46

("[W]hile the spousal relationship between the owners of the

corporations does not in itself establish a continuity of share-

holders, it is certainly a factor which can be considered."); The

Steel
Co., 662 N.E.2d at 600 ("We cannot allow the law to be

circumvented by an individual exerting control through his

spouse.");
Hoppa v.
Schermerhorn & Co.
, 630 N.E.2d 1042, 1046 (Ill.

App. Ct. 1994) (noting that the fact that former joint tenant

shareholder's interest was reduced to 2%, and that an additional

family member was shareholder of successor corporation, did not

preclude finding of continuity); cf. Dickinson, 935 S.W.2d at 364

(recognizing "a conveyance to a spouse or near relative" as a badge

of fraud);
supra note 7 ("The debtor retained possession or
control

of the property"). Focusing on the transactional substance, rather

than its form, therefore, we cannot conclude that a rational

factfinder could not decide that Considine used the family trust to

camouflage his ultimate retention of control over the Anson jewelry

manufacturing business which C & J continued to conduct, without

interruption, after Anson's demise. See National
Gypsum, 895 F.

Supp. at 337 ("The intended result in all cases is the same, to

permit the owners of the selling corporation to avoid paying

creditors without losing control of their business.") (emphasis

added).

(v) Insolvency of Divesting Corporation

Finally, C & J does not dispute that Anson is a defunct

corporation, consequently unable to pay its debt to Peters. See

Nelson v. Tiffany
Indus., 778 F.2d 533, 535-36 (9th Cir. 1985)

47

("Justification for imposing strict liability upon a successor to

a manufacturer . . . rests upon . . . the virtual destruction of

the plaintiff's remedies against the original manufacturer caused

by the successor's acquisition of the business."); The Ninth Ave.

Remedial Group
, 195 B.R. at 727 ("The successor doctrine is derived

from equitable principles, and it would be grossly unfair, except

in the most exceptional circumstances, to impose successor

liability on an innocent purchaser when the predecessor is fully

capable of providing relief . . . .").

Accordingly, since the Peters proffer, at the very least,

generated a trialworthy dispute under each of the five Baker

factors, the Rule 50 motion was improvidently granted.

e. Tortious Interference with Contract

The tortious interference claim alleges that Fleet and

Considine acted in concert not only to extinguish the debt Anson

owed Peters for sales commissions, but caused Anson and C & J to

displace Peters prematurely as the sales representative for the

Tiffany's account. The parties agree that the tortious interfer-

ence claim required that Peters prove: (1) a sales-commission

contract existed between Anson and Peters; (2) Fleet and Considine

Anson retained but one asset the keyman life insurance
policy
under which Fleet, not Anson, was the named beneficiary.
See supra Section II.A.3(b).

Peters did not name Fleet in the successor liability count
proper, nor seek to amend its complaint when the omission was
brought to its attention at trial. Consequently, we deem any
independent claim against Fleet abandoned. See
Rodriguez v.
Doral
Mortgage Corp.
, 57 F.3d 1168, 1172 (1st Cir. 1995) (abjuring trial
by ambush).

48

intentionally interfered with the sales-commission contract, and

(3) their tortious actions damaged Peters.
See
Jolicoeur Furniture

Co. v.
Baldelli, 653 A.2d 740, 752 (R.I.),
cert.
denied, 116 S. Ct.

417 (1995);
Smith Dev. Corp.
v.
Bilow Enters., Inc.
, 308 A.2d 477,

482 (R.I. 1973). With respect to the first and third prongs, there

is no dispute that Fleet and Considine knew of the Peters contract

to serve as Anson's sales representative to Tiffany's, or that

Peters sustained damages due to the premature termination of its

sales-commission contract, without receiving payment for its

outstanding commissions.

With respect to the disputed second criterion ( viz.,

intent), Peters need only establish that Fleet or Considine acted

with "legal malice
an intent to do harm
without
justification."

Mesolella v. City of Providence, 508 A.2d 661, 669-70 (R.I. 1986)

(emphasis added); see Friendswood
Dev.
Co. v. McDade
&
Co., 926

S.W.2d 280, 282 (Tex. 1996) (noting that defendant may assert

defense of "justification," by demonstrating that the alleged

interference was merely an exercise of its own superior or equal

legal rights, or a good-faith claim to a colorable albeit mistaken

legal right); see also Shaw v. Santa
Monica
Bank, 920 F. Supp.

1080, 1087 (D. Haw. 1996);
Greenfield & Co. of N.J.
v.
SSG Enters.
,

516 A.2d 250, 257 (N.J. Super. Ct. 1986). Proof of "[actual]

[m]alice, in the sense of spite or ill will, is not [only not]

required," Mesolella, 508 A.2d at 669-70, it is immaterial, see

Texas
Beef
Cattle
Co. v. Green, 921 S.W.2d 203, 211 (Tex. 1995)

("[I]f the trial court finds as a matter of law that the defendant

49

had a legal right to interfere with a contract, then the defendant

has conclusively established the justification defense, and the

motivation behind assertion of that right is irrelevant."); see

also
Belden
Corp. v.
InterNorth, Inc.
, 413 N.E.2d 98, 101 n.1 (Ill.

App. Ct. 1980); Kan-Sa
You v. Roe, 387 S.E.2d 188, 192 (N.C. Ct.

App. 1990).

Since the successor liability claim was dismissed

improvidently,
see
supra Section II.B.2(d), the tortious interfer-

ence claim against Considine should have been submitted to the jury

as well. Since a party normally cannot "interfere" with his own

contract,
see
Baker v.
Welch, 735 S.W.2d 548, 549 (Tx. App. 1987),

Considine's status as Anson's CEO and controlling shareholder is

pertinent. As its contracting agent, Considine is Anson, and thus

had a qualified privilege to terminate the Peters contract.

Nonetheless, specialized rules apply to tortious

interference claims against corporate agents. Agency liability is

precluded only if the agent either acted in the "best interests" of

its principal (viz., Anson), see Texas
Oil
Co. v. Tenneco,
Inc.,

917 S.W.2d 826, 831-32 (Tx. App. 1994), or, at the very least, did

not act solely to advance his own personal interests,
see
Stafford

v. Puro, 63 F.3d 1436, 1442 (7th Cir. 1995) ("Directors and

officers are not justified in acting solely for their own benefit

or solely in order to injure the plaintiff because such conduct is

contrary to the best interests of the corporation."); Powell v.

Feroleto Steel Co.
, 659 F. Supp. 303, 307 (D. Conn. 1986);
Phillips

v. Montana
Educ.
Ass'n, 610 P.2d 154, 158 (Mont. 1980); see also

50

Holloway v. Skinner, 898 S.W.2d 793, 796 (Tex. 1995) (noting that

the personal benefit exception is the logically necessary corollary

to the "rule that a party cannot tortiously interfere with its own

contract").

Since Anson was insolvent, see infra Section II.B.2(f),

Considine's own investment in Anson was negligible at best, and the

trial record discloses that he not only acted intentionally to

evade Anson's obligation to Peters, but at the same time negotiated

for himself a $200,000 consulting fee. Thus, the circumstantial

evidence and the Considine memoranda to Fleet generated a

trialworthy issue as to whether Considine acted with "legal

malice." See Mesolella, 508 A.2d at 669-70; see, e.g., Dallis v.

Don
Cunningham
&
Assocs., 11 F.3d 713, 717-18 (7th Cir. 1993)

(upholding jury verdict against corporate officer who had directed

corporation not to pay plaintiff his sales commissions, and where

the officer's "own compensation . . . skyrocketed" during the

relevant time period); see also, e.g., Chandler v. Bombardier

Capital,
Inc., 44 F.3d 80, 83 (2d Cir. 1994) (upholding jury

verdict against corporate officer who induced plaintiff's dismiss-

al, then personally took charge of plaintiff's department). This

is not a call the district court could make on a motion for

judgment as a matter of law.

On the other hand, the tortious interference claim

against Fleet fails because Peters did not name Fleet as a

defendant in this count, nor move to amend when Fleet brought the

omission to Peters' attention. Cf. supra note 23. Even if Peters

51

had not abandoned its claim, moreover, it cites no apposite

supporting case law. See Carlton, 923 F.2d at 3 (plaintiff who

selects federal forum not entitled to trailblazing interpretations

of state law). Fleet unquestionably had a valid legal right to

foreclose on Anson's assets in March 1993, and the total Anson

indebtedness to Fleet exceeded the proven value of the Fleet

collateral. As this constituted an independent and legally suffi-

cient "justification" for the Fleet foreclosure, a finding of

"legal malice" appears to have been precluded as a matter of law.

See Friendswood
Dev., 926 S.W.2d at 282 ("justification" is the

exercise of one's own legitimate legal rights); cf. Keene
Lumber

Co. v. Levanthal, 165 F.2d 815, 820 (1st Cir. 1948) (finding

tortious interference where defendants made false representations

to unsecured creditor, and attempted to avoid the unsecured

creditor's claims by foreclosing upon sham chattel mortgages).

f. Breach of Fiduciary Duty

Finally, Peters claims that Considine breached a

fiduciary duty to Peters, since the value of the shareholders'

investment in an insolvent company is negligible, and the

corporation's directors thereafter become trustees of "the

creditors to whom the [company's] property . . . must go." Olney

v. Conanicut
Land
Co., 16 R.I. 597, 599 (1889) (emphasis added);

see Unsecured
Creditors'
Comm. v. Noyes (In
re
STN
Enters.), 779

F.2d 901, 904-05 (2d Cir. 1985); Association of Mill and Elevator

Mut. Ins. Co.
v.
Barzen Int'l, Inc.
, 553 N.W.2d 446, 451 (Minn. Ct.

App. 1996); Whitley v. Carolina Clinic, 455 S.E.2d 896, 900 (N.C.

52

Ct. App. 1995). Considine responds that Peters failed to establish

that he converted any of the Anson assets to his personal use, and

further that he could not have done so, because Fleet had a

comprehensive lien on all operating assets. We disagree.

A breach of fiduciary duty need not amount to a conver-

sion in order to be actionable. "[D]irectors and officers [of

insolvent corporations] may not pursue personal endeavors inconsis-

tent with their duty of undivided loyalty to . . . the

corporations' stockholders and creditors." American Nat'l Bank of

Austin v.
MortgageAmerica Corp.
(
In re MortgageAmerica Corp.
), 714

F.2d 1266, 1276 (5th Cir. 1983); see National Credit Union Admin.

Bd. v.
Regine, 749 F. Supp. 401, 413 (D.R.I. 1990) (as a fiduciary,

director must "place the interests of the corporation before his

own personal interests"). Whereas, the present record discloses,

for example, that Considine negotiated a $200,000 consulting fee

for himself as part of the October 1993 agreement, see supra

Section I, and Peters received nothing. Therefore, the jury must

determine whether Considine breached his duty as an Anson director:

If, then, the director be a trustee, or one
who holds a fiduciary relation to the credi-
tors, in case of insolvency he cannot take
advantage of his position for his own benefit
to their loss. The right of the creditor does
not depend on fraud or no fraud, but upon the
fiduciary relationship.

Olney, 16 R.I. at 602.

In addition, Peters maintained, without citing to Rhode

Island authority, that Fleet must be held answerable for inducing

Considine to breach his fiduciary duty to the bypassed Anson credi-

53

tors. Fleet correctly counters that it cannot be held liable,

however, since its comprehensive lien on the Anson operating assets

precludes a finding that Peters was a "creditor[] to whom the

[company's] property . . . must go." Olney, 16 R.I. at 599.

Moreover, even assuming the Rhode Island courts were to recognize

such a cause of action, Peters would have had to show that: (1)

Considine breached a fiduciary duty; (2) Fleet knowingly induced or

participated in the breach; and (3) Peters sustained damages from

the breach. Whitney v. Citibank,
N.A., 782 F.2d 1106, 1115 (2d

Cir. 1986). We are unable to discern how Peters could succeed on

a tortious inducement-to-breach claim which is essentially "analo-

gous to a cause of action for intentional interference with

contractual relations." Id. Thus, for the reasons discussed in

relation to the tortious interference claim against Fleet, see

supra Section II.B.2(e), we affirm the dismissal of the present

claim as well.

III

CONCLUSION

Accordingly, the district court judgment is affirmed

insofar as it dismissed all claims against Fleet; the judgments in

favor of C & J and Considine are affirmed, except for the successor

liability claim against C & J and the claims for tortious interfer-

ence with contract and breach of fiduciary duty against Considine,

which claims are remanded to the district court for further

54

proceedings consistent with this opinion.

SO ORDERED.

We note also that though we have adverted to various
numerical figures, drawn from the trial record, to demonstrate in
broad outline that Peters did generate trialworthy factual disputes
appropriately left to the trier of fact, we do not suggest that the
court, on remand, is in any way bound by these figures, as
distinguished from the legal principles espoused in our opinion.

55