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Kratz v. Richard J. Boudreau & Associates, LLC

United States District Court, D. New Hampshire

March 22, 2019

Patricia Kratz, Plaintiff
Richard J. Boudreau & Associates, LLC, and Schlee and Stillman, LLC, Defendants

          H. Jonathan Meyer, Esq., Lawrence B. Gormley, Esq., Daniel P. Schwarz, Esq., Samuel V. Maxwell, Esq.


          Steven J. McAuliffe, United States District Judge.

         This case requires an examination and application of the federal common law doctrine of successor liability. On June 18, 2015, Patricia Kratz, filed this suit against her former employer, Richard J. Boudreau & Associates, LLC. (“RJBA”), seeking damages under Title VII and NH RSA 354-A for sexual harassment and retaliation. In October, 2015, Kratz amended her complaint to assert identical claims against Schlee and Stillman, LLC (“Schlee & Stillman”) (now known as Stillman Law, LLC (“Stillman Law”)). Stillman Law had purchased RJBA's assets in April of 2015, before Kratz filed suit, but after she filed an administrative claim with the New Hampshire Human Rights Commission (and the Equal Employment Opportunity Commission). The amended complaint raises a preliminary, and potentially dispositive, issue: Whether the federal common law doctrine of successor liability renders Stillman Law liable for Kratz's antecedent employment claim. Stillman Law asserts that it does not, and that Kratz's claim against it must be dismissed. An evidentiary hearing was held on January 8, 2019, and the matter taken under advisement.


         RJBA was established in 2001 as a law firm concentrating in the field of debt collection. Richard Boudreau owned 99 percent of RJBA; the remaining one percent was owned by Keith Mitchell, who began working for RJBA as head of litigation in 2006, and later worked as its Managing Attorney until RJBA's closure. At its peak, RJBA had ten offices in several different states, including New Hampshire, Massachusetts, Rhode Island, Connecticut, Virginia, North Carolina, South Carolina, Georgia, and Texas. See Document No. 32-2 at 64:1-4; Document No. 32-4 at 8:4-14.

         In 2013, RJBA's practice began to decline. Concerned that RJBA might not survive, Boudreau attempted to consolidate the firm's operations in Woburn, Massachusetts, and decreased its workforce significantly. Nevertheless, the firm continued to struggle financially.

         Michael Stillman and David Schlee also practiced in the debt collection field. They served as co-managing members of Schlee & Stillman, LLC. At the request of Discover Bank, one of Schlee & Stillman's clients (and also a client of RJBA), Stillman contacted Boudreau to arrange the transfer of responsibility for Discover's collection accounts then with RJBA. Stillman and Boudreau were not strangers; both testified that they were friendly even before Stillman contacted Boudreau on Discover's behalf. On January 1, 2015, Schlee & Stillman acquired Discover's active files from RJBA. At the same time, Robert O'Brien, a litigation attorney who had been working with RJBA for several years, left and began working as an attorney for Schlee & Stillman.

         Given the failing circumstances in which RJBA found itself, negotiations also ensued between Schlee, Stillman and Boudreau regarding Schlee & Stillman's purchasing RJBA's assets. In conjunction with those negotiations, Stillman commissioned an appraisal of RJBA. That appraisal valued RJBA's projected net orderly liquidation value at a mere $26, 000, if the physical assets were sold onsite over a four-week period.

         RJBA was deep in debt, many of its assets were subject to lender-held security interests, and it was on the brink of failure. Schlee & Stillman contacted several of RJBA's creditors and negotiated facilitating agreements, to allow a purchase of RJBA's assets free of encumbrances. As Stillman testified, he was primarily concerned about any RJBA debts that might adversely affect the firm's clients. Specifically, Schlee & Stillman resolved potential issues with: (1) Cummings Properties, the owner of office space RJBA leased in Woburn, Massachusetts;[1] and (2) Pentucket Bank, RJBA's principal creditor, which had extended RJBA a $1.3 million line of credit in return for a security interest in RJBA's assets, including its capital, receivables, and equipment. Stillman testified that he also reviewed certain RJBA creditor records with Boudreau. Finally, Stillman spoke with Mitchell concerning pending litigation matters against RJBA, particularly a case involving Citizens Bank, as well as potential claims for referral fees that might be owed on cases being handled by RJBA.

         On April 1, 2015, RJBA and Schlee & Stillman executed an asset purchase agreement. Under the agreement's terms, Schlee & Stillman paid $15, 000 directly to RJBA's major creditor, Pentucket Bank, in return for all of RJBA's assets. Stillman testified that the $15, 000 purchase price was arrived at in light of the appraisal report valuation, less an amount to adjust for monthly rent paid by RJBA on the Woburn property (the appraisal had estimated that an onsite sale period of approximately one month would be required).

         The asset purchase agreement was drafted by Stillman, who testified that he is “not a sophisticated transactional attorney, ” and that he likely found a form on the “LegalZoom” website, modifying it to the best of his abilities. The asset purchase agreement between RJBA and Schlee & Stillman included a provision in the form releasing Schlee & Stillman from “all liabilities and obligations of [R]BA] with respect to current or former employees.” Document No. 32-3 at 2. Despite that provision in the form, Stillman testified that he “absolutely [did] not” have in mind any particular outstanding RJBA employment claims that Schlee & Stillman sought to avoid.

         On the same day, April 1, 2015, Schlee & Stillman opened its Woburn branch, hiring the majority of RJBA's employees to continue in essentially the same collections work. Those employees included Boudreau, who became Schlee & Stillman's regional attorney manager, and Mitchell. Having negotiated a separate lease with Cummings Property that covered a smaller portion of RJBA's former (now abandoned) space, Schlee & Stillman began practicing in Woburn.

         The financial consideration received by RJBA from the asset purchase took the form of a small reduction in the large debt owed to Pentucket Bank. The bank necessarily released its lien on the assets purchased, in exchange for payment being made directly to it. RJBA then dissolved, lacking sufficient funds to even go through a formal liquidation process.[2] RJBA was and remains judgment proof.

         Patricia Kratz & RJBA

         Kratz's allegations against RJBA are fully described in the court's order on Schlee & Stillman's motion for summary judgment. But briefly, Kratz began working for RJBA as a debt collector on April 21, 2014, about one year before its dissolution. Shortly after starting work, Kratz says, she was subjected to frequent sexual harassment by her training manager. On May 15, 2014, Kratz complained to Greg Ormond, RJBA's Director of Operations, and met with Ormand and a Human Resources representative concerning her complaint. She alleges that no remedial action was taken.

         Following Kratz's complaint, she says she was ridiculed by other RJBA employees for complaining about sexual harassment, given poor quality collection leads to call, and, eventually, on June 2, 2014, she was fired, purportedly for not meeting her assigned collections quota. Kratz contends that her discharge was in fact retaliatory - that she was actually fired because she complained about sexual harassment.

         Following her discharge, Kratz filed a formal Charge with the New Hampshire Commission for Human Rights and the federal Equal Employment Opportunity Commission (“EEOC”), dated June 12, 2014. Notice of the Charge was sent to RJBA on June 19, 2014. RJBA filed an answer to the Charge on August 18, 2014, which was signed and sworn to by Mitchell.

         On November 12, 2014, the parties engaged in an unsuccessful mediation proceeding. Robert O'Brien appeared at the mediation on behalf of RJBA, and Mitchell also spoke with the mediator by phone. The parties exchanged settlement proposals, but no agreement was reached. Following the mediation, the Charge remained under investigation at the Human Rights Commission until after the asset purchase was completed. On April 13, 2015, Kratz obtained a Right to Sue letter, and, on June 18, 2015, filed this suit.

         Kratz's Claim and Schlee & Stillman

         Schlee & Stillman asserts that it had no knowledge of Kratz's harassment and retaliation claims when the asset purchase agreement was executed. Stillman testified that while he did review some creditor records with Boudreau prior to execution of the agreement, neither he nor Schlee & Stillman reviewed any RJBA records concerning regulatory matters relating to RJBA, consumer complaints relating to RJBA's collection activity, or any records regarding pending or potential lawsuits to which RJBA was a party.[3]

         Boudreau testified that he has never met Kratz, and does not recall when he became aware of the Kratz matter (which Mitchell had been handling on RJBA's behalf). Boudreau did not remember ever discussing the matter with Mitchell, and testified that he has no recollection of any direct knowledge of Kratz's claim. Boudreau also testified that he did not tell Schlee & Stillman of the Kratz claim because, he says, he did not know about it.

         For his part, Mitchell testified that he did not raise the Kratz matter with Schlee & Stillman before April 1, 2015, either. See Document No. 32-4, at 40:12-16. Mitchell stated that he did not discuss the Kratz matter with anyone at Schlee & Stillman until well after suit had been filed and process was served on Schlee & Stillman. See id., at 43:4-6; 46:3-11. On April 22, 2015, Mitchell (after he had left RJBA and while working at Schlee & Stillman) sent a letter to Kratz, copying the EEOC, in which he notified her that all further communication regarding the matter should be sent directly to ...

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