The Use of Substantive Consolidation in Bankruptcy Cases: A Historical and Legal Analysis, Study notes of Introduction to Business Management

Download The Use of Substantive Consolidation in Bankruptcy Cases: A Historical and Legal Analysis and more Study notes Introduction to Business Management in PDF only on Docsity! No. 05-628 IN THE SUPREME COURT OF THE UNITED STATES OCTOBER TERM 2005 ----------------------------------- In the Matter of Acme Chemical Industrial Products, Inc., Debtor Acme Chemical Industrial Products, Inc., Petitioner, v. Jean Tien, Respondent. On Writ of Certiorari to the United States Court of Appeals for the Thirteenth Circuit ----------------------------------------------- BRIEF FOR RESPONDENT Team 32 Counsel for Respondent R 32 i QUESTIONS PRESENTED I. Whether the equitable powers of the federal courts include the power to order the remedy of substantive consolidation of debtor estates under the Bankruptcy Code? II. Whether the power to sell assets free and clear of interests under § 363(f) of the Bankruptcy Code permits a sale free and clear of successor liability claims? R 32 iv VI. PUBLIC POLICY REQUIRES THE DOCTRINE OF SUCCESSOR LIABILITY TO APPLY, AND MS. TIEN’S EMPLOYMENT DISCRIMINATION CLAIM NOT BE EXTINGUISHED........................................................................................................21 CONCLUSION ............................................................................................................................23 APPENDIX ....................................................................................................................................A R 32 v TABLE OF AUTHORITES United States Supreme Court Cases: Atlas Life Ins. Co. v. W.I. Southern, Inc., 306 U.S. 563 (1939) .....................................................7 Cooper Indus. v. Aviall Services., 543 U.S. 157 (2004)................................................................16 Dodd v. United States, 125 S.Ct. 2478 (2005)...............................................................................16 Engine Mfrs Ass’n v. S. Coast Air Quality Management Dist., 541 U.S. 246 (2004) ..................16 Golden State Bottling Co., Inc. v. N.L.R.B., 414 U.S. 168 (1973) .........................................18, 19 Gordon v. Washington, 295 U.S. 30 (1935) ....................................................................................7 Grupo Mexicano de Desarrollo, S.A. v. Alliance Bond Fund, Inc., 527 U.S. 308 (1999) ......6, 7, 8 Guaranty Trust Co. of N.Y. v. York, 326 U.S. 99 (1945) ...............................................................7 Hibbs v. Winn, 542 U.S. 88 (2004) ...............................................................................................16 Local Loan Co. v. Hunt, 292 U.S. 234 (1934).................................................................................7 Norwest Bank Worthington v. Ahlers, 485 U.S. 197 (1988).........................................................11 Robinson v. Campbell, 16 U.S. 212 (1818).....................................................................................6 Sampsell v. Imperial Paper & Color Corp., 313 U.S. 215 (1941) ...................................................7 Stainback v. Mo Hock Ke Lok Po, 336 U.S. 368 (1949) ................................................................7 United States Circuit Court Cases: Arnold Graphics Industries, Inc. v. Independent Agent Center, Inc., 775 F.2d 38 (2d Cir. 1985) ........................................................................................................................................19 B.F. Goodrich v. Betkoski, 99 F.3d 505 (2d Cir. 1996) ................................................................19 Bud Antle, Inc. v. Eastern Foods, Inc., 758 F.2d 1451 (11th Cir. 1985).......................................18 Chemical Bank N.Y. Trust Co. v. Kheel, 369 F.2d 845 (2d Cir. 1966) ....................................8, 12 Drabkin v. Midland-Ross Corp. (In re Auto-Train Corp., Inc.), 810 F.2d 270 (D.C. Cir. R 32 vi 1987) ..................................................................................................................................11, 14 Fish v. East, 114 F.2d 177 (10th Cir.1940)......................................................................................9 Flora Mir Candy Corp. v. R.S. Dickson & Co. (In re Flora Mir Candy Corp.), 432 F.2d 1060 (2d Cir. 1970) .................................................................................................................................12 In re Bonham, 229 F.3d 750 (9th Cir. 2000) .................................................................................11 In re Owens Corning, 419 F.3d 195 (3rd Cir. 2005).....................................................................7,8 James Talcott, Inc. v. Wharton (In re Continental Vending Mach. Corp.), 517 F.2d 997 (2d Cir. 1975) ....................................................................................................................................9, 11 Musikiwamaba v. ESSI, Inc., 760 F.2d 740 (7th Cir. 1996) .......................................18, 19, 20, 21 Philadelphia Elec. Co. v. Hercules, Inc., 762 F.2d 303 (3rd Cir. 1985) ........................................18 Polius v. Clark Equipment Company, 802 F.2d 75 (3rd Cir. 1986) ..............................................19 Reider v. F.D.I.C. (In re Reider), 31 F.3d 1102 (11th Cir. 1994)....................................................9 Rego v. ARC Water Treatment Co. of Pa., 181 F.3d 396 (3rd Cir. 1999) ..............................17, 22 Rojas v. TK Communications, Inc., 87 F.3d 745 (5th Cir. 1996)..................................................22 Union Savings Bank v. Augie/Restivo Baking Co., Ltd. (In re Augie/Restivo Baking Co., Ltd.), 860 F.2d 515 (2d Cir. 1988).........................................................................................10, 13, 14 United Mine Workers of America 1992 Benefit Plan v. Leckie Smokeless Coal Co. (In re Leckie Smokeless Coal Co.), 99 F.3d 573 (4th Cir. 1996)........................................................................17 United States v. Carolina Transformer Co., 978 F.2d 832 (4th Cir. 1992)...................................20 United States v. Sutton, 786 F.2d 1305 (5th Cir. 1986).................................................................11 United States District Court Cases: Allied Corp. v. Acme Solvents Reclaiming, Inc., 812 F.Supp. 124 (N.D. Ill. 1993) ....................20 Atlantic Richfield Co. v. Blosenski, 847 F.Supp. 1261 (E.D. Pa. 1994).......................................20 R 32 ix Raslavich, Stephen, Scott P. Shectman, Leonard P. Goldberger, and Amy E. Vulpio, Charting a Course Through an Unsettled Environment: A Look at the Law of Successor Liability for Environmental Claims, 14 J. Bankr. L. & Prac. 3 Art. 1 (2005) .............................................19 Robinson, Edward V., The Holding Corporation, 18 Yale Rev. 390 (1910).................................10 Thornton, William H., The Continuing Presumption Against Substantive Consolidation, 105 Banking L.J. 448 (1988) ..........................................................................................................13 Tucker, J. Maxwell, Grupo Mexicano and the Death of Substantive Consolidation, 8 Am. Bankr. Inst. L. Rev. 427 (2000) .......................................................................................................8, 10 Willett, Sabin, The Doctrine of Robin Hood: A Note on “Substantive Consolidation”, 4 DePaul Bus. & Com. L.J. 87, 100 (2005)...............................................................................................8 R 32 x OPINIONS BELOW The opinion and order of the District Court is unreported. The opinion and order of the United States Court of Appeals for the Thirteenth Circuit is also unreported, but is set out in the record. (R. at 2-25). STATEMENT OF JURISDICTION The statement of jurisdiction is omitted pursuant to Rule VIII of the Fourteenth Annual Judge Conrad B. Duberstein National Bankruptcy Moot Court Competition Rules. STATUTORY PROVISIONS INVOLVED Several provisions of the Bankruptcy Code and selected Federal Rules of Bankruptcy Procedure are relevant to discussion of the questions involved in this case. These include § 105(a), § 302(b), § 363(f), § 541, § 1123(a)(5)(C), Rule 1001(a), and Rule 1015, and are reproduced in the Appendices. R 32 1 STATEMENT OF THE CASE Petitioner, Acme Chemical Industrial Products, Inc. (“ACME”) is a leading distributor of soda ash and calcium chloride, products which are produced by its two wholly-owned subsidiaries, Trona Ash Products Company, Inc. (“TAPCO”) and Chemical America Product Company, Inc. (“CAPCO”). (R. at 2-3). While TAPCO and CAPCO produce the soda ash and calcium chloride, respectively, ACME serves as the global distributor of the products. (R. at 4). TAPCO and CAPCO sell their products exclusively to ACME, and ACME manages the daily operations of both companies, though TAPCO operates at a facility located in Wyoming, and CAPCO is centralized in Michigan. (R. at 4). Over the past decade, various circumstances have led to an increased demand for calcium chloride. (R. at 4-5). However, the average soda ash prices in the United States have fallen. (R. at 5). The increased costs of energy also have caused the production costs to soar for both soda ash and calcium chloride. (R. at 5). As a result of these conditions, ACME and TAPCO have realized minimal income, though CAPCO’s profits have remained strong. (R. at 5). Because of the low soda ash prices and high fuel costs, ACME defaulted with its primary lender, causing a cross-default in ACME’s other existing credit facilities. (R. at 5-6). ACME’s lenders declared all of the credit agreements to be in default, and accelerated the sum due, an amount well in excess of $700 million. (R. at 6). In order to revive its business, ACME, TAPCO, and CAPCO determined that they needed restructuring, a goal that ACME felt would be best achieved by seeking relief under Chapter 11 of the Bankruptcy Code (“Code”). (R. at 6). Additionally, two years ago, several female employees, including the respondent, Ms. Jean Tien (“Ms. Tien”), filed a class action suit against CAPCO, alleging sex and gender discrimination. (R. at 5). The lawsuit is still pending, but if the plaintiffs are successful, their R 32 4 grant whatever remedies are necessary to effectuate the court’s goals, the section must have a statutory basis in the Code. Section 105(a) merely grants the court the power to effectuate other sections of the Code – not to create equitable remedies that do not have a statutory or historical basis. However, if this Court does find that substantive consolidation is a viable remedy that may be exercised by the federal courts, it should not be granted in the present case. Substantive consolidation is a powerful tool, meant to be used sparingly, in extreme circumstances. A presumption against substantive consolidation should exist because of the dramatic effect it can have on creditors’ rights. The most common tests that courts have applied to determine the appropriateness of granting substantive consolidation indicate that creditors’ rights should be given a particular weight. Since Ms. Tien and other similarly-situated creditors will be harmed if CAPCO’s estate is merged with that of ACME and TAPCO, this Court should acknowledge the prejudicial effect that substantive consolidation will have. In addition, joint administration of the estates will accomplish the goals of substantive consolidation, such as ease of administration, without affecting the rights of Ms. Tien and the other creditors of the separate entities. Joint administration, in contrast to substantive consolidation, will not affect any substantive rights of Ms. Tien or other creditors. II. The doctrine of successor liability should be imposed upon SOUSA if the sale of CAPCO’s assets is effectuated. Ms. Tien’s pending employment discrimination claim for gender and sexual discrimination is not an “interest” as contemplated by the Code. To allow CAPCO to use § 363(f) to effectively strip away Ms. Tien and other similarly situated individuals’ claims R 32 5 for employment discrimination would be a manipulative use of the Code that was not likely intended by the drafters. Further, an interpretation of § 363(f) that would contemplate Ms. Tien’s claim as an interest would render the phrase “in such property” meaningless. It is a well established legal principle that all words and phrases in a statute must be interpreted together to give meaning to the particular provision. If SOUSA purchases CAPCO’s assets the sale will result in a de facto merger and a mere continuation. These are both established exceptions that all for the imposition of the doctrine of successor liability. Because SOUSA plans to continue CAPCO’s operations basically unchanged, SOUSA should be held liable for any future judgment Ms. Tien may obtain as a result of her currently pending employment discrimination claim. SOUSA is in the best position to remedy the wrongs Ms. Tien has endured. As a matter of public policy, successor liability should be imposed on SOUSA in the present situation. The doctrine of successor liability in the context of pending employment litigation was designed to ensure that an employee or former employee is made “whole” by obtaining remedial relief (i.e., backpay, reinstatement, or seniority) that the employee, such as Ms. Tien, is unable to obtain because the predecessor has gone out of business. This Court should affirm the decision of the Court of Appeals and impose successor liability because SOUSA is in the best position to make Ms. Tien “whole” if a judgment is obtained. ARGUMENT I. THE GRANT OF SUBSTANTIVE CONSOLIDATION IS AN IMPERMISSIBLE EXPANSION OF THE COURT’S EQUITABLE POWERS. A repeated missive of the Supreme Court throughout the 20th century is that courts of R 32 6 equity may only employ equitable remedies that were available to the courts in 1789, the date of the passage of the Judiciary Act. Robinson v. Campbell, 16 U.S. 212 (1818). In 1999, the Court reiterated this holding in the Grupo Mexicano decision. Grupo Mexicano de Desarrollo, S.A. v. Alliance Bond Fund, Inc., 527 U.S. 308 (1999). As a result, the bankruptcy courts should be estopped from using the doctrine of substantive consolidation to disregard separate and distinct corporate identities unless there is evidence of the doctrine’s existence in the 18th century. Substantive consolidation emerged in the United States as a judicially-created doctrine in the 20th century. It is implausible to believe that this doctrine, based on the theory of “corporate instrumentalities” had any sort of application in 18th century England, where the use of multi- tiered corporations was not yet permitted. The concept of the corporation as a separate and distinct entity was widely emphasized at that time in Europe, making it unreasonable to believe that an 18th century English court would have approved of a remedy forcing two separate and distinct entities to pool their assets and liabilities. a. A federal court sitting as a “court of equity” is limited to such equitable remedies as existed in the English Court of Chancery in 1789. Quite early, the Supreme Court addressed the issue of from what source equitable remedies should be derived. In 1818, a case came before the Court presenting the problem of different equitable practices in different states. Robinson v. Campbell, 16 U.S. 212 (1818). Similar to the rule the respondent advocates today, the Court stated that “to effectuate the purposes of the legislature, the remedies in the courts of the United States, are to be, at common law or in equity, not according to the practice of state courts, but according to the principles of common law and equity, as distinguished and defined in that country from which we derive our knowledge of those principles.” Robinson, 16 U.S. at 223. “That country,” of course, refers to R 32 9 as now, contained no express statutory authorization for consolidation. Reider v. F.D.I.C. (In re Reider), 31 F.3d 1102, 1105 (11th Cir. 1994). Instead, the authority to order substantive consolidation was implied from the bankruptcy court's general equitable powers. Id. The first use of the term “substantive consolidation” did not even occur in a reported opinion until 1975. James Talcott, Inc. v. Wharton (In re Continental Vending Mach. Corp.), 517 F.2d 997, 1004 n.3 (2d Cir. 1975). However, the theme behind the doctrine – disregard of corporate entities in order to treat them as though they were one – has its roots in the state corporate law concept of “instrumentality.” See, e.g., Castleberry v. Branscum, 721 S.W.2d 270 (Tex. 1986); Woods v. Commercial Contractors, Inc., 384 So.2d 1076, 1079 (Ala. 1980); Swiss Cleaners, Inc. v. Danaher, 27 A.2d 806, 809 (Conn. 1942). The instrumentality theory, also known as the “alter ego” doctrine, or “piercing the corporate veil,” allows a court to disregard the corporation fiction and hold individual officers, directors or stockholders liable on the obligations of a corporation when corporate form has been used as part of a basically unfair device to achieve an inequitable result. Castleberry v. Banscum, 721 S.W.2d at 271; see Piercing the Corporate Veil: The Alter Ego Doctrine Under Federal Common Law, 95 Harv. L. Rev. 853 (1982) (tracing the development of the doctrine under both state law and federal law.) In a seminal decision cited by many as early evidence of the existence of substantive consolidation, the 10th Circuit developed a set of factors to aid in determining whether one corporation was merely an instrumentality of another. Fish v. East, 114 F.2d 177, 191 (10th Cir. 1940). Many of these factors are, in fact, quite similar to factors included in modern tests that courts have developed to determine whether substantive consolidation is appropriate. Substantive consolidation as a distinct doctrine began to emerge in the 1960s through a R 32 10 series of cases, though not receiving its current name until 1975. See J. Stephen Gilbert, Substantive Consolidation in Bankruptcy: A Primer, 43 Vand. L. Rev. 207, 220-231 (1990) (examining several cases leading to the present-day doctrine of substantive consolidation). A close examination of this development shows that it is highly unlikely that an English court sitting in 1789 would have ever used such a remedy, especially when the notion of multi-tiered corporate enterprises. Tucker at 445 (referencing Edward V. Robinson, The Holding Corporation, 18 Yale Rev. 390, 400-07 (1910) (study indicates that it was not until 1832 that a corporation was given authority to hold stock in another corporation)). Substantive consolidation as the courts recognize it today would not have been needed in a society that did not recognize the use of multi-tiered corporations. II. SECTION 105 OF THE BANKRUPTCY CODE SHOULD NOT BE INTERPRETED TO CREATE EQUITABLE REMEDIES THAT DO NOT HAVE A STATUTORY BASIS AND THAT DID NOT EXIST PRIOR TO 1789. The consolidation of bankruptcy cases involving two or more separate debtors is not expressly authorized by the Code; likewise, consolidation is not authorized by the Federal Rules of Bankruptcy Procedure. See Fed.R.Bankr.P. 1015 Advisory Committee Note (acknowledging that the rule does not address the consolidation of cases involving two or more separate debtors); cf. 11 U.S.C. § 302(b) (2000) (authorizing consolidation of the estate of an individual and such individual’s spouse). Courts readily admit that nowhere in the Code is the substantive consolidation of separate corporate estates specifically authorized, but that it is merely a product of “judicial gloss.” In re Augie/Restivo, 860 F.2d 515, 518 (2d Cir. 1988).2 The majority of 2 Note that section 1123(a)(5)(C) of the Code does reference “merger or consolidation of the debtor with one or more persons.” However, this statute provides no authority for the exercise of the remedy of substantive R 32 11 courts, however, have reasoned that the authority to employ such a radical equitable remedy can be found in § 105(a) of the Code. In re Bonham, 229 F.3d 750, 763-764 (9th Cir. 2000); In re Continental Vending Machine Corp., 517 F.2d at 1000 (2d Cir. 1975); Drabkin v. Midland-Ross Corp. (In re Auto-Train Corporation), 810 F.2d 270, 276 (D.C.Cir. 1987); In re Alico Mining, Inc., 278 B.R. 586, 588 (Bankr. M.D. Fla. 2002). Section 105(a) allows the court to issue “any order, process, or judgment…necessary or appropriate to carry out the provisions of this title.” 11 U.S.C. § 105(a) (2000) (emphasis added). Proponents of substantive consolidation argue that § 105(a) is an open-ended authority granted by Congress to the bankruptcy courts to formulate equitable remedies that the court finds “necessary or appropriate.” However, the statute’s plain language indicates that this open-ended interpretation is misguided; the court is required to have a statutory basis on which to use this § 105(a) power. United States v. Sutton, 786 F.2d 1305, 1308 (5th Cir. 1986). The statute permits the court to exercise its equitable powers to effectuate other sections of the Bankruptcy Code; it is not an independent grant of equitable power. Unless Congress provided for substantive consolidation in the Code, section 105(a) cannot be used to create it. Since the doctrine of substantive consolidation is not codified in title 11, § 105(a) cannot be used as the source of the authority for the court to order substantive consolidation. As the Supreme Court has stated, “Whatever equitable powers remain in the bankruptcy courts must and can only be exercised within the confines of the Bankruptcy Code.” Norwest Bank Worthington v. Ahlers, 485 U.S. 197, 206 (1988). III. IN THE ALTERNATIVE, IF THIS COURT FINDS THAT SUBSTANTIVE consolidation, and only deals with the context of a chapter 11 plan. 11 U.S.C. §1123(a)(5)(C) (2000); see Tucker at 448-9. R 32 14 focuses more on balancing the benefits of substantive consolidation against the possible resulting harm that it would cause. Id. The District of Columbia Circuit’s decision in In re Auto-Train Corp. established another frequently used test for determining whether substantive consolidation was appropriate. In re Auto-Train Corp., 810 F.2d 270 (D.C. Cir.1987). This test requires the party seeking to consolidate separate entities to demonstrate that (1) a substantial identity or relation between the two entities, (2) that consolidation is necessary to avoid some harm or realize some benefit, and (3) that consolidation heavily outweighs the harm to creditors who relied on the separate credit of one of the different entities and who would be prejudiced by the substantive consolidation. Id. at 276. Indeed, a substantive consolidation affects the substantive rights of the creditors of the different estates. Applying either of these tests here results in substantive consolidation not being appropriately available to ACME and its related entities. Under Augie/Restivo, Ms. Tien’s reliance on CAPCO’s independence, legal existence, and economic viability should prevent CAPCO from being absorbed and consolidated into ACME as a unitary entity. Likewise, under the Auto-Train test, it is respectfully submitted that the Court should be mindful of the harm that would occur to Ms. Tien and others similarly situated if CAPCO were consolidated. c. Joint administration should be used instead of substantive consolidation to avoid detrimental impact to the creditors of the separate and distinct entities while still ensuring administrative efficiency. A joint administration pursuant to Federal Rule of Bankruptcy Procedure 1015(b) of the separate cases pending in the bankruptcy court, as distinguished from a substantive consolidation, is not opposed by Ms. Tien as no substantive rights of creditors are affected in a R 32 15 joint administration. Fed. R. Bankr. P. 1015. In fact, a joint administration of the cases is more likely than substantive consolidation to effectuate the goals of bankruptcy, namely to “secure the just, speedy, and inexpensive determination of every case and proceeding.” Fed. R. Bankr. P. 1001(a). Joint administration is a procedure by which courts hear two or more related cases of entities that have filed bankruptcy petitions as a single case. Gill v. Sierra Pacific Construction, Inc. (In re Parkway Calabasas Ltd.), 89 B.R. 832, 83 (Bankr. C.D. Cal. 1988). Joint administration typically involves the appointment of a single trustee to administer the related cases, the maintenance of a single case file, claims register, and docket in the clerk's office, and the combining of notices concerning the estate for the purpose of making case administration easier and less expensive than in separate cases, without affecting the substantive rights of creditors. Id. There is no merging of assets and liabilities of the debtors, and creditors of each debtor continue to look to that debtor for payment of their claim. Id.; see Advisory Committee Notes, Fed. R. Bankr. P. 1015. In the present case, joint administration would be useful because ACME managed the daily operations of TAPCO and CAPCO, including operational, sales, marketing, and financial matters; further, the three companies utilized a centralized cash management system operated by ACME. (R. at 4). Joint administration pursuant to Rule 1015 would allow for administrative efficiency in managing the estates. However, to go beyond that to order substantive consolidation would ultimately prejudice Ms. Tien and other similarly situated creditors. IV. THE PENDING EMPLOYMENT DISCRIMINATION CLAIMS (I.E., THE SEX AND GENDER DISCRIMINATION CLAIMS) AGAINST CAPCO DO NOT CONSTITUTE “INTERESTS” IN PROPERTY AS CONTEMPLATED BY § 363(F) R 32 16 OF THE CODE. Ms. Tien’s employment discrimination claim is not an interest as contemplated by § 363(f) of the Code. Section 363(f) provides that “the trustee may sell property under subsection (b) or (c) of this section free and clear of any interest in such property of an entity other than the estate...” 11 U.S.C. § 353(f) (2000). Section 363(f) authorizes the sale of assets free and clear of specific interests in the property being sold. Unsecured, nonpriority claimants, like Ms. Tien, have no specific interest in a debtor’s property. Consequently, the debtors cannot utilize § 363(f) of the Bankruptcy Code to effectively “strip away” CAPCO’s contingent employment discrimination liabilities via a sale of assets to SOUSA under the Code. The bankruptcy court is NOT a haven for employers/ debtors who are guilty of egregious sexual and gender discrimination. a. The term “interest” is not defined by the Bankruptcy Code. The term “interest” is not defined by § 363(f) or any other section of the Code (e.g. § 541). While the phrase “any interest” alone can be construed broadly, section 363(f) uses three additional words: “in such property.” 11 U.S.C. § 363(f) (2000) It is a clearly established principle in statutory interpretation that all words and phrases must be interpreted together so that no words or phrases are rendered meaningless. Dodd v. United States, 125 S.Ct. 2478 (2005).3 The entire phrase “any interest in such property” must be closely analyzed in order to determine the proper scope of a sale “free and clear of any interest in such property” under § 363(f). The three additional words of “in such property” define the scope of “any interests.” Fairchild Aircraft Inc. v. Cambell (In re Fairchild Aircraft Corp.), 184 B.R. 910, 917-18 (Bankr. W.D. 3 See also Cooper Indus. v. Aviall Services., 543 U.S. 157 (2004); Hibbs v. Winn, 542 U.S. 88 (2004); Engine Mfrs Ass’n v. S. Coast Air Quality Management Dist., 541 U.S. 246 (2004). R 32 19 F.2d 1451 (11th Cir. 1985); Charter Tp. of Oshtemo v. American Cyanamid Co., 876 F.Supp. 934 (W.D. Mich. 1994); Kelley v. Thomas Solvent Co., 725 F.Supp. 1446 (W.D. Mich. 1988) Fourth and finally, the sale was intended as a fraud (or a misrepresentation) on creditors of the seller. Id. a. The sale of all of CAPCO’s assets to SOUSA will constitute a de facto merger and the doctrine of successor liability should be applied. There are four factors to determine the occurrence of a de facto merger: “(1) continuity of the selling corporation, evidenced by the same management, personnel, assets and physical location; (2) continuity of stockholders, accomplished by paying for the acquired corporation with shares of stock; (3) a dissolution of the selling corporation, and (4) the assumption of liabilities by the purchaser.” Honorable Stephen Raslavich, Scott P. Shectman, Leonard P. Goldberger, and Amy E. Vulpio, Charting a Course Through an Unsettled Environment: a Look at the Law of Successor Liability for Environmental Claims, Journal of Bankruptcy Law and Practice, Vol. 14, No. 3 (2005) (citing State of N.Y. v. N. Storonske Cooperage Co., Inc., 174 B.R. 366 (N.D. N.Y. 1994) (quoting Arnold Graphics Industries, Inc. v. Independent Agent Center, Inc., 775 F.2d 38 (2d Cir. 1985))). Not every element must be established for a court to find that a de facto merger exists. Id. In recent years, courts have broadened the “de facto merger” exception in a number of areas where policy considerations require that ownership continuity not be a factor in determining if a “de facto merger” has taken place. Cargo Partner AG v. Albatrans, Inc, 207 F. Supp.2d 86, 105 (S.D.N.Y. 2001). These areas include products liability (see, e.g., Polius v. Clark Equipment Company, 802 F.2d 75, 78 (3rd Cir. 1986)), hazardous waste cleanup (see, e.g., B.F. Goodrich v. Betkoski, 99 F.3d 505 (2d Cir. 1996)), labor law (see, e.g., Golden State R 32 20 Bottling Co., Inc., 414 U.S. at 168), and employment discrimination (see Musikiwamba v. Essi, Inc., 760 F.2d at 740). The proposed sale of the combined assets of ACME, CAPCO, and TAPCO can be considered a de facto merger because with the exception of directors and officers, SOUSA intends to retain the majority of the three companies’ labor forces, and plans to continue operations undisturbed. This Court should adopt the reasoning set forth in Musikiwamba, where the Seventh Circuit held that “the successor doctrine may be applied in § 1981 claims for employment discrimination.” Musikiwamba, 760 F.2d at 744. The plaintiff’s suit in Musikiwamba is analogous to Ms. Tien’s currently pending litigation because § 1981 allows in an employee to sue for intentional discrimination in a similar fashion to Title VII. Id. The main differences between the two statutes are procedural and have no bearing on the analysis of the applicability of the doctrine of successor liability. Id. b. SOUSA’s intended use of CAPCO’s assets will result in a “mere continuation” that would render the doctrine of successor liability applicable. Some courts have expanded the traditional “mere continuation” exception and used the broader “continuity of enterprise” or “substantial continuity” doctrine that was originally developed under product liability law. See U.S. v. Carolina Transformer Co., 978 F.2d 832 (4th Cir. 1992); Ninth Ave. Remedial Group, 195 B.R. at 716; Atlantic Richfield Co. v. Blosenski, 847 F.Supp. 1261 (E.D. Pa. 1994); Allied Corp. v. Acme Solvents Reclaiming, Inc., 812 F.Supp. 124 (N.D. Ill. 1993); Kleen Laundry and Dry Cleaning Services, Inc. v. Total Waste Management Corp., 817 F.Supp. 225 (D.N.H. 1993). Under the substantial continuity test, the court considers...a series of factors to determine whether one corporation is the successor of another: R 32 21 (1) retention of the same employees; (2) retention of the same supervisory personnel; (3) retention of the same production facilities in the same location; (4) production of the same product; (5) retention of the same name; (6) continuity of assets; (7) continuity of general business operations; and (8) whether the successor holds itself out as a continuation of the previous enterprise. Ninth Ave. Remedial Group, 195 B.R. 716 at 724. From the testimony of Michael Sousa, CEO of SOUSA, it can be determined that SOUSA intends to retain the majority of the three companies’ labor forces, and plans to continue operations undisturbed. (R. at 8). VI. PUBLIC POLICY REQUIRES THE DOCTRINE OF SUCCESSOR LIABILITY TO APPLY, AND MS. TIEN’S EMPLOYMENT DISCRIMINATION CLAIM NOT BE EXTINGUISHED. The doctrine of successor liability in the context of pending employment litigation was designed to ensure that an employee or former employee is made “whole” by obtaining remedial relief (i.e., backpay, reinstatement, or seniority) that the employee, such as Ms. Tien, is unable to obtain because the predecessor has gone out of business. Musikiwamba, 760 F.2d at 749. Ms. Tien has undergone substantial hardship and expense in attempt to recover from CAPCO for the discrimination she was forced to endure. Any future attempts of Ms. Tien to collect on a judgment she may obtain should not be thwarted simply because CAPCO is no longer in business at the time the judgment is rendered. Title VII was enacted to carry out the strong federal policy of eradicating discrimination in the workplace and making victims of employment discrimination whole for their losses. Applying the doctrine of successor liability to the sale of CAPCO’s assets to SOUSA will further this important federal policy. R 32 A APPENDIX TABLE OF CONTENTS 11 U.S.C. § 105(a) (2000)...............................................................................................................B 11 U.S.C. § 302 (2000) ...................................................................................................................C 11 U.S.C. § 363(f) (2000) ...............................................................................................................D 11 U.S.C. § 1123(a)(5)(C) (2000)................................................................................................... E Fed. R. Bankr. P. 1001................................................................................................................... F Fed. R. Bankr. P. 1015....................................................................................................................G R 32 B 11 U.S.C. § 105(a) Power of court (a) The court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. No provision of this title providing for the raising of an issue by a party in interest shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process. R 32 C 11 U.S.C. § 302 Joint cases (a) A joint case under a chapter of this title is commenced by the filing with the bankruptcy court of a single petition under such chapter by an individual that may be a debtor under such chapter and such individual's spouse. The commencement of a joint case under a chapter of this title constitutes an order for relief under such chapter. (b) After the commencement of a joint case, the court shall determine the extent, if any, to which the debtors' estates shall be consolidated. R 32 F Fed. R. Bankr. P. 1001 Scope of rules and forms; short title The Bankruptcy Rules and Forms govern procedure in cases under title 11 of the United States Code. The rules shall be cited as the Federal Rules of Bankruptcy Procedure and the forms as the Official Bankruptcy Forms. These rules shall be construed to secure the just, speedy, and inexpensive determination of every case and proceeding. R 32 G Fed. R. Bankr. P. 1015(b) and Advisory Committee Note Consolidation or joint administration of cases pending in same court (b) Cases involving two or more related debtors If a joint petition or two or more petitions are pending in the same court by or against (1) a husband and wife, or (2) a partnership and one or more of its general partners, or (3) two or more general partners, or (4) a debtor and an affiliate, the court may order a joint administration of the estates. Prior to entering an order the court shall give consideration to protecting creditors of different estates against potential conflicts of interest. An order directing joint administration of individual cases of a husband and wife shall, if one spouse has elected the exemptions under § 522(b)(1) of the Code and the other has elected the exemptions under § 522(b)(2), fix a reasonable time within which either may amend the election so that both shall have elected the same exemptions. The order shall notify the debtors that unless they elect the same exemptions within the time fixed by the court, they will be deemed to have elected the exemptions provided by § 522(b)(1). Note: Subdivision (b) recognizes the propriety of joint administration of estates in certain kinds of cases. The election or appointment of one trustee for two or more jointly administered estates is authorized by Rule 2009. The authority of the court to order joint administration under subdivision (b) extends equally to the situation when the petitions are filed under different sections, e.g., when one petition is voluntary and the other involuntary, and when all of the petitions are filed under the same section of the Code. Consolidation of cases implies a unitary administration of the estate and will ordinarily be indicated under the circumstances to which subdivision (a) applies. This rule does not deal with R 32 H the consolidation of cases involving two or more separate debtors. Consolidation of the estates of separate debtors may sometimes be appropriate, as when the affairs of an individual and a corporation owned or controlled by that individual are so intermingled that the court cannot separate their assets and liabilities. Consolidation, as distinguished from joint administration, is neither authorized nor prohibited by this rule since the propriety of consolidation depends on substantive considerations and affects the substantive rights of the creditors of the different estates. Joint administration as distinguished from consolidation may include combining the estates by using a single docket for the matters occurring in the administration, including the listing of filed claims, the combining of notices to creditors of the different estates, and the joint handling of other purely administrative matters that may aid in expediting the cases and rendering the process less costly.