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RXAR Company, LLC v. Rheumatology Associates, P.A.

United States District Court, M.D. Tennessee, Nashville Division

April 27, 2017

RXAR COMPANY, LLC, Plaintiff
v.
RHEUMATOLOGY ASSOCIATES, P.A., Defendant.

          MEMORANDUM OPINION AND ORDER

          Hon. Marvin E. Aspen District Judge

         Presently before us is Plaintiff RXAR Company, LLC's (“RXAR”) motion for summary judgment. (Dkt. No. 72.) For the reasons stated below, we deny RXAR's motion.

         BACKGROUND

         In May 2010, Metro Medical Supply, Inc. (“Metro”), a Tennessee corporation with its principal place of business in Nashville, Tennessee, “began selling and supplying pharmaceutical products and medical supplies . . . to AROC.” (Dkt. No. 78 ¶¶ 1, 9.) AROC was an arthritis clinic incorporated by Dr. Suzanne Zorn in Raleigh, North Carolina in February 2000. (Id. ¶¶ 5-6, 21.) Dr. Zorn was “president of AROC's board of directors, an officer of the company, its sole stockholder, and was its only practicing physician.” (Id. ¶ 7.) Mark Weiner, Dr. Zorn's husband, “was the practice manager and corporate secretary of AROC.” (Id. ¶ 8.)

         AROC signed a credit agreement to pay for the medical supplies from Metro and to pay certain costs of collection incurred by Metro Medical to collect past due amounts owed. (Id. ¶ 10.) After AROC defaulted on its obligation to pay Metro Medical for the Medical Goods supplied under the Credit Agreement, Metro filed suit in the Chancery Court of Davidson County, Tennessee. (Id. ¶¶ 11-12.) On October 25, 2012, the Chancery Court granted summary judgment in favor of Metro, awarding it $302, 123.84, with post-judgment interest accruing at 5.25%.” (Id. ¶ 14.) On December 27, 2012 Metro sought to enforce its Tennessee judgment against AROC in North Carolina by filing a “notice of foreign judgment in Wake County, North Carolina Superior Court, and the judgment was domesticated on or around February 7, 2013.” (Id. ¶ 15.)

         AROC “ceased operating on January 11, 2013.” (Id. ¶ 18.) At the time, AROC had four employees besides Dr. Zorn and Mr. Weiner. (Id. ¶ 22.) Sometime in December 2012, Dr. Zorn incorporated Defendant Rheumatology Associates, P.A. (“Rheumatology”) in Raleigh, North Carolina. (Id. ¶¶ 16-17.) Dr. Zorn is the only practicing physician at Rheumatology, where she “treat[s] patients with rheumatic and arthritic related medical conditions, ” and is the sole stockholder, the president of its board of directors, and is an officer of the company. (Id. ¶¶ 25, 28.) “On January 14, 2013, Rheumatology Associates employed 3 out of the 4 AROC employees other than Dr. Zorn and Mr. Weiner.” (Id. ¶ 23.) At its inception, Rheumatology also had the same telephone number, fax number, and address as AROC. (Id. ¶ 24.) Furthermore, “Dr. Zorn has continued to treat patients at Rheumatology Associates that she treated at AROC.” (Id. ¶ 30.) AROC declared bankruptcy on July 23, 2013, and is “incapable of paying its debts, including the judgment debt owed to Metro Medical.” (Id. ¶¶ 31, 33.)

         On March 20, 2014, Metro filed a two-count complaint against Rheumatology, alleging state-law successor liability and fraudulent transfer claims. Metro, meanwhile, changed its name to Ashley Medical Supply, Inc. on April 17, 2015, and “assigned certain of its assets, including the claims in this litigation, to RXAR” on December 31, 2015. (Id. ¶¶ 2-3.) Like Metro Medical, RXAR is a Tennessee corporation with its principal place of business in Nashville, Tennessee. (Id. ¶ 4.) On April 27, 2016, RXAR was substituted for Metro as the party plaintiff in this action. (Dkt. No. 44.)

         LEGAL STANDARD

         Summary judgment is appropriate where “the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). The movant bears the initial burden of “informing the district court of the basis for its motion, and identifying those portions of the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, which it believes demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2553 (1986) (internal quotations omitted). A genuine issue for trial exists when “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510 (1986). Once the moving party meets that burden, the nonmoving party must “go beyond the pleadings” and identify those portions of the record showing that there is a genuine dispute of material fact. Celotex, 477 U.S. at 324, 106 S.Ct. at 2553. “[T]he party opposing the summary judgment motion must ‘do more than simply show that there is some metaphysical doubt as to the material facts.'” Amini v. Oberlin College, 440 F.3d 350, 357 (6th Cir. 2006) (quoting Pierce v. Commonwealth Life Ins. Co., 40 F.3d 796, 800 (6th Cir. 1994)). At the summary judgment stage, “inferences to be drawn from the underlying facts must be viewed in the light most favorable” to the nonmoving party. Clayton v. Meijer, Inc., 281 F.3d 605, 609 (6th Cir. 2002).

         ANALYSIS

         RXAR argues that Rheumatology is a “mere continuation” of AROC and therefore liable to RXAR for the October 25, 2012 Chancery Court judgment against AROC. (Pl.'s Mem. ISO Mot. for Summ. J. (Dkt. No. 73) at 7.) Specifically, RXAR argues that Rheumatology is a “mere continuation” of AROC because AROC transferred its assets to Rheumatology without payment, Rheumatology is continuing AROC's business, Rheumatology and RXAR share an officer who was “instrumental in the transfer” of AROC's assets, and AROC is incapable of paying its debts. (Id. at 8-10.) Rheumatology contends that there is a genuine issue as to whether certain items- such as AROC's employees, clients, and telephone numbers-are properly considered assets capable of being transferred, and as to whether AROC ever transferred any assets to Rheumatology. (Def.'s Resp. Br. (Dkt. No. 76) at 2-5.)

         Under Tennessee law, a successor company generally cannot be held liable for the debts of its predecessor.[1] Hopewell Baptist Church v. Se. Window Mfg. Co., LLC, No. E2000-02699, 2001 WL 708850, at *4 (Tenn. Ct. App. June 25, 2001). However, if a successor is “merely a continuation” of its predecessor company, then it may be held liable for the predecessor's debts. Id. A successor company is a “mere continuation” of its predecessor if: (1) the predecessor “transfers its assets” to the successor; (2) the successor company “pays less than adequate consideration for the assets”; (3) the successor company continues the predecessor's business; (4) both companies “share at least one common officer who was instrumental in the transfer”; and (5) the predecessor company “is left incapable of paying its creditors.” IBC Mfg. Co. v. Velsicol Chem. Corp., No. 97-5340, 1999 WL 486615, at *3 (6th Cir. July 1, 1999) (applying Tennessee law); Mapco Exp., Inc. v. Interstate Entertainment, Inc., No. 3:08 C 1235, 2011 WL 12556959, at *17 (M.D. Tenn. Aug. 11, 2011) (same).

         Rheumatology was incorporated in December 2012. (Dkt. No. 78 ¶¶ 16-17.) AROC closed on Friday, January 11, 2013, and Rheumatology opened on Monday, January 14, 2017 in the same leased space. (Id. ¶¶ 18-19, 24.) Rheumatology has the same telephone and fax number as AROC did prior to closing. (Id. ¶ 24.) Rheumatology also has the same president and sole practicing physician as AROC, the same practice manager, and is otherwise staffed entirely by former AROC employees. (Id. ¶¶ 7-8, 22-23, 25, 29.) All of these facts tend to show that Rheumatology is a mere continuation of AROC. There remain, however, genuine disputes of material facts concerning whether AROC transferred its assets to Rheumatology, precluding summary judgment.

         RXAR argues the first and second elements of the “mere continuation” test are met because AROC transferred its “employees, fixtures, equipment, location, telephone number, fax number, . . . a significant number of patients, the good will of the company, and . . . going-concern value” to Rheumatology without compensation. (Pl.'s Mem. at 8.) As to Dr. Zorn's patients, RXAR states that client lists are a form of intangible asset that are routinely considered transferrable. (Pl.'s Reply (Dkt. No. 80) at 3.) In response, Rheumatology contends that AROC's employees, telephone number, fax number, and customers are not properly considered “assets.” (Def.'s Resp. at 2-4.) Client lists, it argues, “may have some value to a creditor when applied to a non-medical business (such as a seller of tangible goods) or a business where clients are contractually obligated to that business to continue as a client thereof, ” but do not have such value in a medical practice setting. (Id. at 2.) Indeed, Dr. Zorn stated explicitly that, in the medical profession, “[p]eople don't pay for [patient lists].” (Zorn Dep. (Dkt. No. 14-1 at Pg. ID#: 95.) Because “patients are not automatically transferred, but rather have the option to continue seeing the same physician at any practice they may be an employee or owner in, or the patient may elect to collect their records and seek treatment elsewhere, ” patients are not ...


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