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Wilkins v. Rymes Heating Oils, Inc.

United States District Court, D. New Hampshire

January 31, 2019

Nichole T. Wilkins and Estate of Beverly L. Mulcahey
v.
Rymes Heating Oils, Inc. and Rymes Energy Holdings, LLC

          MEMORANDUM ORDER

          JOSEPH N. LAPLANTE UNITED STATES DISTRICT JUDGE.

         This appeal from the Bankruptcy Court turns on the nature of appellants' claims. While appellants frame their case as one for successor liability based on Title VII claims against the purchaser in a bankruptcy sale, they seek payment of settlement amounts agreed to with the debtor after the sale. Finding no error in the Bankruptcy Court's determination that its order approving the sale forecloses successor liability for these settlement amounts, this court affirms the Bankruptcy Court's decision.

         I. Applicable legal standard

         This court has jurisdiction over appeals from “final judgements, orders, and decrees” of the Bankruptcy Court under 28 U.S.C. § 158(a)(1). See also LR 77.4. When hearing an appeal from the Bankruptcy Court, this court applies the same standards of review governing appeals of civil cases to the appellate courts. See Groman v. Watman (In re Watman), 301 F.3d 3, 7 (1st Cir. 2002). As such, this court reviews the Bankruptcy Court's “findings of fact for clear error and conclusions of law de novo.” Old Republic Nat'l Title Ins. Co. v. Levasseur (In re Levasseur), 737 F.3d 814, 817 (1st Cir. 2013). This court reviews the Bankruptcy Court's “order granting a motion to dismiss for failure to state a claim de novo.” In re Montreal, Maine & Atlantic Railway, Ltd., 888 F.3d 1, 7 (1st Cir. 2018).

         II. Background

         Appellants Nichole T. Wilkins and Beverly L. Mulcahey were previously employed by Fred Fuller Oil & Propane Co., Inc. (“FFOP”).[1] They sued FFOP and its president, Fred J. Fuller, for discrimination, a hostile work environment, assault, and retaliation under both Title VII of the Civil Rights Act of 1964 and RSA 354-A.[2] On the eve of trial, FFOP filed for bankruptcy protection, which stayed the appellants' suit.[3] Appellants' counsel filed an appearance in the bankruptcy.[4]

         Shortly afterward, FFOP moved for an order authorizing the private sale of all or substantially all of its assets to appellee Rymes Heating Oils, Inc.[5] In response, appellants' counsel contacted counsel for FFOP and Rymes, threatening to move to attach real estate holdings that would be transferred in the sale.[6] Appellants' counsel did not follow through on this threat and did not file any objection to the proposed sale. She appeared at the hearing where the Bankruptcy Court considered objections to the motion.[7] The Bankruptcy Court approved the sale in an order (“Sale Order”) providing that, with certain irrelevant exceptions:

[T]he sale of the purchased Assets pursuant to the Asset Purchase Agreement is and shall be free and clear of all . . . “Liens” [] and all debts, liabilities, objections, commitments, responsibilities, claims (as that term is defined in the Bankruptcy Code) including, but not limited to, all product liability claims, claims arising under contracts, licenses, or other agreements . . . counterclaims, defenses and offsets of any kind or nature, arising prior to closing or relating in any way to any acts of [FFOP] prior to Closing, however arising (the foregoing collectively refer to as “Claims”), with Liens or Claims to attach to proceeds of sale, pursuant to section 363(f) of the Bankruptcy Code. All persons holding Liens or Claims of any kind against [FFOP] or the Purchased Assets . . . are hereby forever barred, estopped, restrained and permanently enjoined from asserting such Liens or Claims against the Buyer, its successors or assigns . . . . The Buyer is not a successor to [FFOP] or its estate by reason of any theory of law or equity and the Buyer shall not assume or in any way be responsible for any liability, obligation, commitment or responsibility of [FFOP] and/or estate, or any debts, liabilities, responsibilities or commitments in any way relating to the Purchased Assets or the [FFOP]'s use of the Purchased Assets prior to the Closing, except as otherwise expressly provided in the Asset Purchase Agreement.[8]

         And further:

Neither the purchase of the Purchased Assets by [Rymes] nor the subsequent operation by [Rymes] of any business previously operated by [FFOP] shall cause [Rymes] to be deemed a successor in any respect to [FFOP]'s business within the meaning of any law, rule or regulation, including but not limited to any revenue, pension, ERISA, tax, labor or environmental law, rule or regulation or under any products liability law with respect to [FFOP]'s liability.[9]

         More than a year later, appellants reached a settlement agreement with FFOP. This settlement, which was approved by the Bankruptcy Court, allowed appellants certain unsecured claims against the bankruptcy estate, totaling $3, 761, 263.[10] But these claims would be paid only in conjunction with other unsecured claims, and the joint motion in support of the settlement noted that for the subordinated claims making up more than $2.5 million of the total, “it is unlikely that any dividend will be paid on those claims in [FFOP]'s judgment.”[11]

         Appellants hoped that adversary proceedings against Fred J. Fuller, his family, and other associates would recover assets sufficient to substantially pay off the settlement.[12] But these efforts proved fruitless and appellants determined that “FFOP has an inability to pay the amount of settlement.”[13]

         Appellants then brought this suit against Rymes in Merrimack County Superior Court alleging that Rymes is liable for the settlement agreement under a theory of successor liability. Appellees removed it to this court and moved to refer the case to the Bankruptcy Court. This court granted that motion, finding that “[l]iability for the [appellants]' Title VII claims against FFOP and the amount of damages owed them has been resolved through the [appellants]' and FFOP's settlement of those claims. . . . [T]he only claim at issue here is whether the Rymes companies may be held to account for the settlement as FFOP's alleged successor.” Wilkins v. Rymes Heating Oils, Inc., 17-cv-744-JL, 2018 WL 1187412 at *3 (D.N.H. Mar. 7, 2018). Whether Rymes may be held liable as successors to FFOP depends on the Sale Order, and “the First Circuit Court of Appeals has unequivocally determined that when ‘[t]he underlying dispute . . . involves a subsequent purchaser's interpretation of a sale order “free and clear of liens” under 11 U.S.C. § 363(b), '” a bankruptcy court has jurisdiction to resolve the matter. Id. at 3 (quoting Middlesex Power Equip. & Marine, Inc. v. Town of Tyngsborough, Mass. (In re Middlesex Power Equip. & Marine, Inc.), 292 F.3d 61, 68 (1st Cir. 2002).

         The Bankruptcy Court, after a hearing, granted appellee's motion to dismiss the complaint. It found that “the Sale Order . . . unambiguously bars the prosecution of these claims against” Rymes, and so did not reach the merits of the successor liability question.[14]

         III. Analysis

         Appellants raise three issues. They argue: (1) that the Bankruptcy Court erred in dismissing their claim solely on the basis of the Sale Order; (2) that the Bankruptcy Court erred by not weighing the competing interests of the federal schemes for bankruptcy and remediation of federal employment law violations; and (3) that assuming that successor liability is not barred by the sale order, the issue must be remanded to an Article III court rather than the Bankruptcy Court. Because the court affirms the Bankruptcy Court on the first two issues, it does not reach the third.

         A. Dismissal on the basis of the sale order

         Appellants do not contest that the Sales Order purports to block assertions of successor liability against Rymes. Instead, their argument mixes two issues - whether a bankruptcy court has the power to issue a sales order that blocks successor liability claims of the type they bring, and whether a bankruptcy court ...


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