United States Court of Appeals
For the First Circuit
No. 02-1066
DEVINE & DEVINE FOOD BROKERS, INC.,
Plaintiff, Appellant,
v.
WAMPLER FOODS, INC. and CUDDY FARMS, INC.,
Defendants, Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Douglas P. Woodlock, U.S. District Judge]
Before
Boudin, Chief Judge,
Torruella and Howard, Circuit Judges.
Louis Cassis, with whom Cassis, Arena & Cayer was on brief,
for appellant.
Joseph D. Steinfield, with whom Alexander W. Moore, C. Dylan
Sanders and Hill & Barlow were on brief, for appellee.
December 17, 2002
HOWARD, Circuit Judge. Devine & Devine Food Brokers
("Devine"), a Massachusetts food broker, appeals the district
court's refusal to impute to Wampler Foods, Inc. ("Wampler"), a
Virginia poultry manufacturer, a contractual obligation to pay
Devine a substantial severance penalty. Devine contends that
Wampler assumed this obligation when Wampler purchased a corporate
division from Cuddy Farms, Inc. ("Cuddy"), the entity with whom
Devine had negotiated the severance provision. We see no basis for
holding Wampler liable for the penalty and accordingly affirm.
I. Background
The genesis of this dispute can be traced to 1987, when
Devine and Cuddy entered into a written food brokerage agreement
("the Agreement") that memorialized an oral contract under which
the parties had operated since 1984. The parties subsequently
added an amendment to the Agreement, providing for a substantial
severance payment to Devine should Cuddy choose to terminate the
Agreement. By its terms, North Carolina law governed the
Agreement.
By August 1994, Wampler and Cuddy had consummated an
Asset Purchase Agreement ("APA") whereby Wampler acquired a
substantial portion of Cuddy's food division in exchange for cash
and newly issued shares of Wampler stock.1 Virginia law governed
1
At that time, Cuddy reorganized itself into two divisions:
the farm division and the food division. Cuddy retained the farm
division. Wampler paid approximately $72 million for Cuddy's food
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the APA. The APA specified the Cuddy liabilities Wampler would
assume with its purchase. The liabilities arising out of the 1987
Cuddy-Devine agreement were not specified.
After the transaction was completed and after an initial
shuffling among brokers, Wampler selected Devine to represent the
Wampler and Cuddy brands in New England. Wampler notified Devine
by letter that they were entering into a new agreement, which
"superceded" any existing contracts with Cuddy.
In due course, Wampler representatives met with Devine
executives, including Joseph and Steven Devine. At this meeting,
Devine took the position that Wampler had assumed Cuddy's
responsibilities under the Cuddy-Devine severance provision.
Wampler, however, was adamant that its purchase of Cuddy's assets
did not obligate it to Devine under the Agreement. On this issue,
the parties reached a "stand off" and agreed to disagree.
On January 4, 1995, Wampler sent a letter to Devine
expanding its area of coverage. The letter reiterated that "[t]his
document will serve as your only brokerage agreement and supercedes
any and all previous agreements or contracts with either Wampler []
or Cuddy Farms." Under the arrangement described in the letter,
Wampler compensated Devine according to its own payment schedules.
division -- $42,500,000 in cash and $30,800,000 in newly issued
shares of Wampler stock, representing a 10% stock interest in
Wampler.
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In the years following, Wampler assigned to Devine new
accounts without reference to the Cuddy termination provision. In
1997, it consolidated the Wampler and Cuddy brands pursuant to a
new appointment letter. The letter contained no severance payment
provision, and Devine did not seek to include such a provision upon
receipt of the letter.
On May 18, 1998, Wampler terminated Devine's brokerage
appointment. Approximately one month later, Wampler notified
Devine by letter of its termination and offered Devine an
"additional lump sum payment of $50,000."
Eventually, Devine filed this diversity action against
Cuddy and Wampler, alleging breach of contract and unfair trade
practices in violation of Mass. Gen. Laws ch. 93A, and seeking from
Wampler and Cuddy the amount due under the severance provision of
the Cuddy-Devine contract. Subsequently, the district court allowed
Cuddy's motion to dismiss on statute of limitations grounds and
Wampler's motion for summary judgment on the ground that Wampler was
not liable to Devine under the severance provision. Devine appeals
only the court's award of summary judgment to Wampler.
II. Breach of Contract
Under generally accepted corporate law principles, the
purchaser of the assets of another corporation does not assume the
debts and liabilities of the transferor. The traditional rule is
subject to four generally recognized exceptions: (1) the purchasing
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corporation expressly or impliedly agrees to assume the selling
corporation's liabilities; (2) the transaction is a merger of the
two entities; (3) the purchaser is a mere continuation of the seller
corporation; and (4) the transaction is a fraudulent attempt to
evade the seller's liabilities. Dayton v. Peck, Stow, & Wilcox Co.,
739 F.2d 690, 692 (1st Cir. 1984); 15 W. Fletcher, Law of Private
Corporations §§ 7122, at 227-243 (1999).
Invoking the first of these four principles Devine
contends that Wampler assumed Cuddy's liabilities under the
severance provision by means of an implied contract between Wampler
and Cuddy. To sufficiently persuade us on that score, Devine must
demonstrate that, as with an express contract claim, Wampler
manifested its assent to assume the Cuddy-Devine contract. 1 Corbin
on Contracts, § 1.19, at 55 (Rev. Ed. 1993); LiDonni, Inc. v. Hart.,
355 Mass. 580, 583 (1969). A prima facie case of implied assumption
of contract is established where a corporation accepted the benefits
of a contract with knowledge of its terms. See Framingham Sav. Bank
v. Szabo, 617 F.2d 897, 900 (1st Cir. 1980) (applying Massachusetts
law).
The record before us does not permit such a finding. On
several occasions, Wampler explicitly informed Devine that the Cuddy
contract was superceded. Wampler's notice of the Cuddy-Devine
contract was not an effort to stand in the shoes of Cuddy and assume
Cuddy's liabilities in toto, but an arrant warning to the contrary.
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It is of no moment that the Cuddy-Devine contract was still in
effect during the parties' business dealings; Wampler was neither
a party to that contract nor did it indicate to Devine an intent to
assume the Cuddy contract wholesale.
To be sure, Wampler adopted many of the contract's terms
in appointing Devine as its New England broker. But Devine points
to no evidence suggesting that, concomitant with Wampler's
designation of Devine as its broker, Wampler acquiesced in all of
the provisions of the Cuddy agreement. Even though Wampler
earnestly wanted to secure Devine's services, Devine's refusal to
acknowledge that its arrangement with Wampler contained no severance
penalty is simply insufficient to create such a provision. 1 Corbin
on Contracts, § 2.8, at 133-34 (1993); see also Meehan v.
Shaughnessy, 404 Mass. 419, 445 n. 22 (1989). We see no basis in
this case to create by operation of law contract terms that the
parties failed to secure through negotiation.
Devine also posits that the APA brought about a de facto
merger between Wampler and Cuddy, rendering Wampler responsible for
Cuddy's liabilities. E.g., Kaiser Found. Health Plan v. Clary &
Moore, P.C., 123 F.3d 201, 205 (4th Cir. 1997); Crawford Harbor
Assocs. v. Blake Constr. Co., 661 F.Supp. 880, 885 (E.D. Va. 1987).
Under Virginia law, no one factor is dispositive in determining
whether an asset purchase transaction is in fact a merger. Instead,
courts have identified four factors that serve as useful analytical
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guideposts: 1) continuity of enterprise, 2) common identity of the
management and shareholders in the purchasing entity; 3) termination
of the normal operations of selling corporation; and 4) assumption
by the purchaser of the seller's obligations necessary for the
continuation of the seller's routine business operations.2 Id.
While not dispositive, the factor that typically tips the scales in
favor of finding a merger is continuity of ownership, usually taking
the form of an exchange of stock for assets. Crawford Harbor, 661
F.Supp. at 884.
The evidence here does not support Devine's de facto merger
argument. Although Cuddy acquired a 10% stock interest in Wampler
and retained some of Cuddy's managers and clients, Devine emphasizes
form over substance in suggesting that these factors render the
transaction a merger when all other circumstances support a contrary
conclusion. There was neither a wholesale continuity of management
or ownership nor a liquidation of the selling corporation. Indeed,
Cuddy survived the merger and continues to do business today. There
is no allegation that the transaction was a mere ruse to avoid the
2
Although the record does not disclose that the district
court made a formal choice-of-law determination, the parties have
addressed the implied contract claim under Massachusetts law and
the merger claim with resort to the law of Virginia. Where the
significant events occurred in Massachusetts, and the APA by its
terms was to be governed by Virginia law, we have no occasion to
challenge these choice-of-law determinations. See, e.g., Fisher v.
Trainor, 242 F.3d 24, 29 n.2 (1st Cir. 2001); New Ponce Shopping
Ctr. v. Integrand Assur. Co., 86 F.3d 265, 267 (1st Cir. 1996).
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seller's liabilities.3 To find a de facto merger here would be to
stretch the doctrine beyond its logical limits.
III. Unfair Trade Practices
Devine's final claim of error is that the district court
should not have entered summary judgment on its unfair trade
practices claim. Here, the appellant has made no showing that
Wampler's acts fall within "the penumbra of some common-law,
statutory, or other established concept of unfairness; is immoral,
unethical or unscrupulous. . ." Linkage Corp. v. Trustees of Boston
Univ., 425 Mass. 1, 27 (1997) (quoting PMP Assocs., Inc. v. Globe
Newspaper Co., 366 Mass. 593, 596 (1975)(internal quotation marks
omitted). After scouring the record, we find nothing in Wampler's
conduct that would give rise to an actionable claim under Chapter
93A. It may be that Wampler wanted to have it both ways by securing
Devine's services without the termination clause. But Wampler was
up front in expressing this desire. It is not necessarily an unfair
trade practice to get the better of the bargain.
IV. Conclusion
For the reasons set forth above, we affirm the district court's
award of summary judgment to Wampler on Devine's breach of contract
and unfair trade practice claims.
3
A primary purpose of the de facto merger exception is to
protect dissenting shareholders or creditors from a transaction
that is a ploy to avoid the seller's liabilities. 15 W. Fletcher,
Law of Private Corporations §§ 7045.10, at 32-34 (Rev. Ed. 199).
Courts commonly appeal to this doctrine where the asset transfer in
question was neither an arms-length bargain nor supported by
adequate consideration. E.g., Crawford Harbor, 661 F.Supp. at 884.
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Affirmed. Costs to appellee.
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