from the Circuit Court for Montgomery County. Anne K.
BY: Michael G. Campbell (Miller, Miller & Canby Chartered on
the brief) all of Rockville, MD. FOR APPELLANT
BY: Charles H. Fleiseher (Brian Carlin, Oppenheimer,
Fleischer & Quiggle, PC on the brief) all of Bethesda, MD.
BEFORE Krauser, C.J., Berger, Leahy, JJ. Opinion by Leahy, J.
Md.App. 36] Leahy, J.
appeal springs from the collapse of Best & Brady Components,
LLC (" Best & Brady" )--a lumber manufacturing
company that opened for business in March of 2010. Phillip
Martin (" Martin" or " Appellant" ) was a
minority owner and assumed management of Best & Brady's
daily operations under a two-year employment contract.
Immediately after its formation Best & Brady encountered
numerous problems and began losing money. Best & Brady was
never profitable, and, by May 2011, ran out of cash. Shortly
thereafter, TWP Enterprises, Inc., (" TWP" or
" Appellee" ) bought the ephemeral company's
October 7, 2013, Martin filed a complaint in the Circuit
Court for Montgomery County, Maryland, against Best & Brady
and TWP seeking unpaid wages and compensation under his
employment contract. After obtaining a default [227 Md.App.
37] judgment against
Best & Brady, Martin pursued TWP for satisfaction of
the judgment. The circuit court held a bench trial on August
5 and 6, 2014, on the sole issue of TWP's successor
liability. Martin claimed that TWP was a mere continuation of
Best & Brady and, therefore, liable under the " mere
continuation" exception to the general rule that
successor corporations do not assume the liabilities of
selling corporations. The circuit court disagreed, finding
that TWP is not a mere continuation of Best & Brady and,
therefore, was not liable for the default judgment against
Best & Brady.
Maryland law establishes that the function of the " mere
continuation" exception is to prevent corporations from
purchasing assets solely for the purpose of placing those
assets out of the reach of the predecessor's creditors.
We hold that a court may consider the purpose of the asset
sale and the adequacy of consideration as additional factors
in its analysis of whether the " mere continuation"
exception should apply. We affirm the circuit court's
determination in this case that TWP is not a mere
continuation of Best & Brady.
is the third-generation owner of a family lumber distribution
business, Best Building Components, LLC (" BBC" ).
Headquartered in Maugansville, Maryland, BBC distributes
lumber and sells home heating oil wholesale. Before 2010, BBC
also manufactured roof trusses and other [227 Md.App. 38]
engineered wood products (" EWP" ). TWP, a
Maryland stock corporation formed in 1999, is a retailer of
lumber and hardware in the greater Washington, D.C.
Metropolitan area and was a customer of BBC.
testified during the trial held on August 5 and 6, 2014,
that, in 2009, he entered into discussions with the President
and CEO of TWP, Michael Cassidy (" Cassidy" ), and
the Treasurer, James Twigg (" Twigg" ), about
forming a business partnership for the dual purpose of
providing support for Martin, whose EWP business was not
showing a profit following the 2008 collapse of the housing
industry, and developing a reliable source of EWP and roof
trusses for TWP. In early November 2009, the parties signed
an " Outline Letter," or letter of intent, which
was amended to reflect that TWP and Martin had agreed to
involve Jeff Brady, principal owner of Brady Fabrications,
Inc., another roof truss manufacturer, in the discussions and
December 7, 2009, the parties exchanged an " Acquisition
Term Sheet" for TWP and BBC. The Acquisition Term Sheet
evidenced TWP's intent to assemble assets purchased from
BBC, assets of TWP, and " potentially others" and
combine them to form a new limited liability company that
would eventually become Best & Brady. TWP would contribute
money to the venture through Truss Investors, LLC ("
Truss" )--a newly formed, wholly-owned subsidiary of
a number of Martin's customers were lumber companies that
competed with TWP, TWP " disguised" its involvement
in the business venture by creating Truss. Through its [227
Md.App. 39] subsidiary, Truss, TWP would purchase certain
assets from Martin and BCC, among others, and operate Best &
Brady out of Woodbine, Maryland, which was the location of
Brady Fabrication, Inc. Truss would own the majority interest
in Best & Brady, and Martin was to be an employee.
terms of Martin's employment with Best & Brady were set
out in an offer letter a few weeks before the company was
formally created. The offer letter from Cassidy, TWP's
President and CEO, was dated February 1, 2010, and was
countersigned by Martin in March 2010. The letter guaranteed
Martin's employment of a " part time nature"
for two years following " closing" on the purchase
of BCC's and Brady Fabrication's
assets. Martin was to receive a monthly salary
of $10,000.00 over the two-year period. Martin's
principal objective was to integrate the roof truss
manufacturing and EWP businesses of BBC and Brady
Fabrications into Best & Brady. Thus, his responsibilities
included maintaining customer relationships, securing ongoing
business, developing and growing ongoing sales relationships,
maintaining ongoing distributor relationships, developing a
marketing plan, supervising staff, and implementing an annual
strategic business planning process. The offer letter also
allowed Martin to act as a " purchasing agent" and
to supply wood from his wholesale lumber business for the
roof truss plant.
offer letter also addressed the requisites of a termination:
In the event that Best & Brady Components terminates you
prior to 24 months following the closing without cause, Best
& Brady will continue to pay the terminated individual a
monthly amount of $10,000 less taxes and other withholding
required by law, until such a time as the second year would
have been completed. If you are terminated for [227 Md.App.
40] cause, which will be narrowly defined . . . neither Best
and Brady nor TW Perry will have any obligation to pay the
offer letter further stated:
For the purposes of clarity, nothing in this letter, nor in
any other written or unwritten policies or practices of the
Company create, nor are they intended to create an express or
implied contract, covenant, promise, or representation of
continued employment, nor of any particular assignment or
position, for any employee. Employment with the Company is
" at-will," which means that employment may be
terminated at any time at the option of either the employee
or the Company for any reason not prohibited by law. No
officer, manager, supervisor, employee, or representative of
the Company other than the President and the CEO, has the
authority to change the at-will nature of the employment
relationship and then, only in writing.
March 2010, Martin, as sole shareholder of BBC, entered into
an " Asset Purchase Agreement" for the purpose of
selling BBC's assets to Best & Brady. Best & Brady agreed
to purchase various assets of BBC, including trucks and
equipment, inventory, intellectual property, and customer
lists and records, for a sum of
$139,570.00, payable in cash and a 7.5% membership interest
in Best & Brady. BBC would continue to operate, and Martin
agreed to change BBC's name to one " not. . .
confusingly similar" to " Best Building Components,
evidenced by the written integration plan provided on TWP
letterhead, Best & Brady was an integration of Brady
Fabrications, Inc., and BBC. Martin testified that, following
the integration Best & Brady's " back office"
operations--including accounting, hiring, IT, credit checks,
and payroll--were conducted in large part by employees of
TWP, who were [227 Md.App. 41] paid by TWP. Martin
managed Best & Brady's sales force and occasionally
referred to himself as " President" of Best &
Brady's Operating Agreement, effective March 9, 2010,
established two classes of members for Best & Brady. "
Class A" members consisted of Martin, Brady, and Dave
Walstad (a third potential investor who later decided not to
participate in the venture). Martin owned 7.5%, Brady owned
10%, and Walstad was to own 2.5% of Best & Brady. Truss was
the sole " Class B" member, owning an eighty
percent interest in Best & Brady. All class members agreed to
contribute cash and assets to Best & Brady in exchange for
their membership interests.
the Operating Agreement Truss was authorized to set the
number of managers of Best & Brady, and had the "
exclusive right" to designate or replace at-will
managers. Advance written consent of Truss was required for
any significant management decisions for Best & Brady, which
Truss had " sole and absolute discretion" to make.
Best & Brady's managers were Martin, Brady, Cassidy,
Twigg, and Gary Bowman (" Bowman" ). Cassidy,
Twigg, and Bowman were senior employees or officers of TWP.
Brady encountered a number of problems following its start up
in March 2010. Best & Brady had difficulty completing
orders on time and had to subcontract orders out to other
distributors. On September 30, 2010, management met at TWP
offices to discuss " firm revenue projections,"
[227 Md.App. 42] " plans to increase revenues,"
immediate cost-cutting options, and " operational
improvements." Best & Brady brought in Henry Whitlow, a
business consultant, to provide suggestions for improving
this time, Best & Brady's managers, including Martin,
discussed a reduction in all salaries. On October 13, 2010,
Martin sent Cassidy a chart showing, among other salary cuts,
a 20% pay cut for his base salary. In October 2010,
Martin's pay was cut $4,670.00 per month, and, although
Martin attempted to negotiate a note for the deficit, no note
was ever created. It is unclear from the record how long the
pay cut lasted. However, in January 2011, Cassidy e-mailed
Twigg and Martin stating that he talked to Martin that day
about cutting Martin's pay again and allowing him to
recoup the balance conditioned on Best & Brady's ability
to pay off its expenses. In response, Martin agreed to "
sunset" a portion of his salary, but he disagreed that
recouping the balance could be made conditional on Best &
" 'performance' issues." Martin cited his
employment agreement and argued that the " wording puts
the ultimate payment of the 10,000 x 24 out of the reach of
'performance' issues as long as Best & Brady exists
to pay it, these payments (even if deferred) are the
obligation of Best & Brady."
March 2011, Truss and several TWP senior employees lent Best
& Brady $425,000.00. Despite this loan, Best & Brady ran out
of cash by the end of May, and no party was willing to
provide the company an additional infusion of capital. In May
2011, TWP began absorbing additional accounting and
administrative costs, as well as a percentage of the labor
costs. Around that time, the managers of Best &
Brady--including Martin, Brady, Cassidy, and Twigg--met to
consider numerous options, including bankruptcy and orderly
liquidation of the business. Martin was strongly opposed to
filing for bankruptcy because Best & Brady owed Martin
approximately $300,000.00 as a trade creditor through his
Md.App. 43] On May 25, 2011, in order to cut costs further,
Cassidy requested the names of Best & Brady employees that
could be let go. On May 31, after the above mentioned
manager's meeting that Martin attended, a list was
provided to Cassidy with Martin's name that stated he was
" [n]o [l]onger employed with Best & Brady- Phil
[Martin] is already aware of this." There is
disagreement in the record as to whether Martin voluntarily
resigned during the meeting or whether Martin, as he claims,
was fired. Martin continued selling materials for Best &
Brady as a commissioned salesman and acting as its vendor.
Martin testified that he no longer attended management
& Brady Assets Purchase
months later Best & Brady management made the decision to
sell the assets of the failing company to TWP. On August 31,
2011, Martin and Brady both signed a " Certificate and
Consent of Members and Release." The document provided
that Martin would resign as an officer and co-manager of Best
& Brady, transfer all of his membership interest to Truss,
Notwithstanding anything to the contrary contained in the
Organizational Documents, the Members hereby authorize the
Company to (i) transfer all of its assets to [TWP] in
exchange for TWP's assumption of all outstanding debt of
the Company as set forth on Exhibit " A" attached
hereto; and (ii) execute and deliver such assignments, bills
of sale, documents and other agreements . . . to effectuate
" Bill of Sale," effective August 31, 2011, signed
by Cassidy, Martin, Brady, Twigg, and Bowman, encapsulated
the parties' agreement to assign certain " Purchased
Assets" from Best & Brady to TWP. Among those purchased
assets were equipment and tangible assets, rebates due from
all vendors, all contracts, claims and rights relating to or
arising out of the business, and all customer lists, customer
records and information relating to the business. The "
Liabilities Assumed" as set forth in " Schedule
A" included accounts payable, line of [227 Md.App. 44]
credit, taxes payable, accrued liabilities and note payable
equipment. Ultimately, TWP assumed $1,162,160.00 in
liabilities, including approximately $300,000.00 owed to
Martin as a trade creditor.
memorandum opinion, the court summarized what occurred next:
TWP continued in the business of truss design and
manufacture, operating from Woodbine, Maryland. For a time,
it did business as " Best and Brady" or " B&
B." Mr. ...