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Norris v. R & T Mfg., LLC

Court of Appeals of Oregon

October 1, 2014

KENNETH R. NORRIS, Plaintiff-Respondent,
v.
R & T MANUFACTURING, LLC, an Oregon limited liability company, Defendant-Appellant

Argued and submitted November 7, 2013

Page 151

Multnomah County Circuit Court. 101116202. David F. Rees, Judge.

Affirmed.

Helen C. Tompkins argued the cause and filed the briefs for appellant.

Conrad E. Yunker argued the cause for respondent. With him on the brief was Gary Abbott Parks and Northwest WageLaw, LLC.

Before Sercombe, Presiding Judge, and Hadlock, Judge, and De Muniz, Senior Judge.

OPINION

Page 152

[265 Or.App. 673] HADLOCK, J.

Defendant R & T Manufacturing, LLC (R & T), a limited liability company organized under ORS chapter 63, appeals from a general judgment for plaintiff in this action for damages under the Uniform Fraudulent Transfers Act (UFTA), ORS 95.200 to 95.310. The trial court found that R & T's principals and only members, Robert and Thomas Laney, dissolved Action Accessories, LLC (Action) and transferred its business and assets to R & T for the purpose of avoiding a judgment that Action owed to plaintiff. As a remedy, the court imposed a judgment against R & T in the amount of plaintiff's outstanding claim against Action. On appeal, R & T contends for several reasons that the trial court erred. We affirm.

I. BACKGROUND

A. Plaintiff's suit against Action, the dissolution of that company, and the formation of R & T.

We summarize the facts as set forth in the trial court's findings, as supplemented bye the largely undisputed facts in the record, including the trial testimony. Action, doing business as " Action Accessories," manufactured truck accessories for pickup trucks, including hitch caps, trailer hitch parts, steps, mud flaps, and bike and ski racks. Thomas Laney testified that Action was responsive to the market and could change its product line depending " on what might be hot at the time in that industry or what the Chinese might not have been building." Plaintiff worked for Action until his employment terminated in July 2007.

In February 2009, plaintiff filed a claim against Action, and Thomas and Robert Laney personally, for unpaid wages, penalties, and attorney fees. ORS 652.610(3); ORS 652.150. On December 16, 2009, plaintiff prevailed on his claims in court-annexed arbitration. A week later (and as will be further discussed), the Laneys dissolved Action and formed R & T. The Laneys and Action appealed the arbitration award to the circuit court. The circuit court dismissed [265 Or.App. 674] the

Page 153

Laneys as defendants,[1] but Action (which by that time had been dissolved) did not put on a defense because it was not represented by counsel. In May 2010, plaintiff obtained a default judgment for damages against Action in the amount of $3,937, and, in July 2010, the court entered a supplemental judgment for attorney fees and costs in the amount of $59,725. Plaintiff appealed the judgment for damages, which we affirmed without opinion. Norris v. Laney, 247 Or.App. 353, 271 P.3d 154 (2011).

Three days after the supplemental judgment was entered, plaintiff sought to garnish the amount of his judgment from Action's bank account, but Key Bank reported that there were " no funds." In the meantime, as noted, the Laneys had dissolved Action in December 2009 and formed R & T, which had begun doing business immediately upon its formation, in the same location, under the same management, with the same equipment and personnel, but under, as Thomas Laney testified, a different business plan. Indeed, R & T made its first sale five days after the arbitrator's award in December 2009.

At trial, Thomas Laney described the Laneys' position on why they had formed a new business entity. Thomas asserted that Action " could not make a profit. The company was losing money, and [he and Robert] wanted to go in a different direction. And this whole change has only to do with that." Laney explained that R & T has a different and more competitive business model than Action. In contrast to Action, which had manufactured its own line of finished consumer products, R & T is a " machine shop," or a " job shop." It does not have its own product line; rather, it fabricates component parts or custom-finished products for its customers.

Thomas explained that the name change to R & T Manufacturing was a part of the Laneys' marketing strategy. Thomas testified that, unlike the name " Action Accessories," the company name " R & T Manufacturing" [265 Or.App. 675] signifies to prospective customers like Boeing that R & T is in the business of custom manufacturing or fabricating rather than merely carrying its own line of products. Thomas also testified that Action had poor credit and that part of the reason for dissolving Action and creating R & T was to permit R & T to build new credit so that it could acquire new machinery.

B. The asset transfer

Action had operated in part based on a $50,000 line of credit that it had obtained from Key Bank, which held a perfected security interest on all of Action's assets, including its inventory, equipment, goodwill, and accounts receivable. After Action dissolved in December 2009, it transferred control of its assets to R & T, but continued to own all of the manufacturing equipment for more than one year, subject to Key Bank's security interest.[2] In February 2011, R & T purchased all of Action's tangible assets, with the exception of its receivables, at an estimated value of $38,805 and assumed Action's debt of $49,799 to Key Bank.

R & T also acquired additional manufacturing equipment, at no cost, from the Laneys' father, who worked for the company. Robert and Thomas began doing more fabricating work because they could provide skilled labor for R & T's new products. But otherwise, much about R & T's business remained the same as Action's: R & T's capital structure and business practices are the same as Action's. R & T carries on business with many of the same suppliers, the same employees and much of the same equipment,

Page 154

from the same leased space, using the same telephone and fax numbers, the same credit card machine, and under the same assumed business ...


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