Tu Ha v. CMP Tactical Lazer Tag, AKA Tactical Laser Tag, L.L.C. and Escape Chambers, L.L.C. , 922 N.W.2d 105 ( 2018 )

IN THE COURT OF APPEALS OF IOWA
No. 17-0687
Filed July 18, 2018
TU HA,
Plaintiff-Appellant,
vs.
CMP TACTICAL LAZER TAG,
Defendant-Appellee,
AKA TACTICAL LASER TAG, L.L.C. and ESCAPE CHAMBERS, L.L.C.,
Intervenors-Appellees.
________________________________________________________________
Appeal from the Iowa District Court for Polk County, David M. Porter, Judge.
A plaintiff appeals an order prohibiting her from levying assets of
intervenors. AFFIRMED.
Sarah M. Baumgartner and Nathaniel R. Boulton of Hedberg & Boulton,
P.C., Des Moines, for appellant.
Spencer S. Cady of Nyemaster Goode, P.C., Des Moines, for appellees
AKA Tactical Laser Tag, L.L.C. and Escape Chambers, L.L.C.
Heard by Vaitheswaran, P.J., and Potterfield and Tabor, JJ.
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POTTERFIELD, Judge.
Tu Ha appeals an order prohibiting her from levying assets from a property
on Sixth Street in Des Moines, operating as AKA Tactical Laser Tag, L.L.C. (AKA)
and Escape Chambers, L.L.C. (Escape Chambers), to satisfy her workers’
compensation judgment against CMP Tactical Lazer Tag (CMP). On appeal, Ha
argues she should be allowed to levy assets from the property because AKA, CMP,
and Escape Chambers are all the same business and because the claimed sales
transaction between the three businesses was fraudulent.
I. Background Facts and Proceedings.
This dispute stems from an injury Ha suffered in January 2014. Ha was
working as a referee for laser tag at the Sixth Street location when she was hit in
the eye with a laser gun. She suffered a concussion and was admitted to the
hospital. Ha later suffered from post-concussive headaches, anxiety, depression,
and interrupted sleep-wake cycles.
The parties dispute whether Ha is entitled to enforce her judgment against
CMP also against AKA and EC. According to Ha, she was hired in November 2013
by AKA and continued working at the same facility on Sixth Street after her injury
until April 2014. In early 2014 the facility rebranded itself as CMP, making
announcements on its Facebook page regarding the name change and ordering
new branded t-shirts. AKA now claims Ha was never an employee. Ha ceased
working at the laser tag business in April.
Ha contacted CMP regarding her medical bills and attempted to obtain tax
documents from them. She did not get a reply from CMP. Ha hired an attorney
and filed a workers’ compensation petition against CMP in September 2014, giving
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the Sixth Street address. In November, Ha filed and served a petition against AKA
providing a Wisconsin address.1 The record includes a letter from Workforce
development to AKA in Wisconsin. AKA claims it responded with a letter to the
workers’ compensation commission from Kerry Poznanski, with a copy to Ha’s
attorney requesting the letter be treated as an answer and stating she did not
“believe” Ha was an employee of AKA. The AKA petition was assigned the same
case number as the previously filed CMP petition. The agency case proceeded
with a caption including only CMP. AKA claims it did not receive further notices or
communication regarding Ha’s claim. CMP did not participate in the workers’
compensation hearing; CMP failed to file an appearance, motion, answer, or other
pleading. Default was entered against CMP only; the arbitration decision in August
2015 limited its findings because of the default, stating: “As an entry of default has
been entered against defendant, the issues of existence of an employer-employee
relationship and whether claimant sustained an injury on January 19, 2014 that
arose out of and in the course of employment will not be discussed.” Ha was
awarded workers’ compensation benefits, interest, medical expenses, costs, and
penalty benefits against CMP in an arbitration decision in August 2015.
Ha still received no communication from CMP. She filed a motion for entry
of judgment against CMP in November 2015 at the district court; she did not
request judgment against any other entity. The court entered a judgment against
CMP for Ha’s damages in January 2016. Ha unsuccessfully attempted to garnish
CMP’s bank accounts. In September, Ha attempted to levy assets located at the
1
Ha did not include the workers’ compensation commission file in the appendix.
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property on Sixth Street in Des Moines. The property owner claimed the levy was
unenforceable because the order was against CMP and the building is leased by
AKA and Escape Chambers.
Ha filed a motion to clarify the enforceability of the levy, arguing successor
liability against AKA and Escape Chambers. AKA and Escape Chambers filed a
motion to intervene and a resistance to Ha’s motion, arguing they are distinct
entities from CMP and the judgment was entered against CMP alone. After
hearing argument and receiving affidavits the district court allowed Ha to submit
documentary evidence to support her claim all three entities are related. Ha
submitted copies of three checks made out to her from “AKA Tactical Laser Tag”
dated February and March 2014. The court accepted the Intervenors’ claim the
checks were not payroll checks because they did not reveal withholding
information. On April 10, 2017, the district court entered an order prohibiting Ha
from levying assets at the property on Sixth Street. The court found Ha did not
demonstrate a connection between CMP, AKA, and Escape Chambers at the time
of her injury. The court found the judgment entered against CMP does not extend
to the property on Sixth Street, AKA, or Escape Chambers. Ha appeals.
II. Standard of Review.
In a law action tried to the court, we review the district court’s decision for
correction of errors at law. Wolf v. Wolf, 690 N.W.2d 887, 892 (Iowa 2005). We
also review an order in response to a motion for clarification for correction of errors
at law. Waters v. State, 784 N.W.2d 24, 28 (Iowa 2010). The district court’s
findings are binding when supported by substantial evidence. Wolf, 690 N.W.2d
at 892. “Evidence is substantial if reasonable minds would accept it as adequate
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to reach a conclusion.” Schlegel v. Ottumwa Courier, 585 N.W.2d 217, 221 (Iowa
1998). “In determining whether substantial evidence exists, we view the evidence
in the light most favorable to the district court’s judgment.” Chrysler Fin. Co. v.
Bergstrom, 703 N.W.2d 415, 418 (Iowa 2005).
III. Discussion.
“The district court has power to change a judgment it has rendered by
correcting perceived legal or factual errors, or to construe or interpret the judgment
so that the record accurately expresses what was previously done.” Waters, 784
N.W.2d at 28. Here, the district court declined to change its ruling to correct Ha’s
perceived factual error. The district court found AKA, CMP, and Escape Chambers
are not all the same entity and refused to allow Ha to levy assets at the property
on Sixth Street. Because the district court’s conclusion is supported by substantial
evidence, we affirm the order of the district court.
On appeal, Ha argues she should be granted the authority to levy assets
from the property because AKA, CMP, and Escape Chambers are all the same
business. Ha argues when a business is sold, a corporate successor is typically
not liable for the transferring corporation’s debts and liabilities, but liability does
attach when the buyer is a “mere continuation” of the seller or when the transaction
amounts to fraud. Pancratz v. Monsanto Co., 547 N.W.2d 198, 200–01 (Iowa
1996). Ha argues CMP and Escape Chambers are both a mere continuation of
AKA and the claimed sales transaction amounts to fraud. Ha states that all three
businesses operated out of the same facility, with the same phone number, same
business model, and same owners and managers. She argues some of the same
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employees she worked with are still employees today. Ha argues the name
changes were done to avoid paying her.
To succeed on her claims of successor liability under the fraud exception,
Ha must prove the claimed sales transaction between AKA, CMP, and Escape
Chambers was fraudulent. Lumley v. Advanced Data-Comm, Inc., No. 09-0224,
2009 WL 2514084, at *4 (Iowa Ct. App. Aug. 19, 2009). “The elements of fraud
are: (1) representation, (2) falsity, (3) materiality, (4) scienter, (5) intent to deceive,
(6) reliance, (7) resulting injury and damage.” Id. Ha has not provided evidence
to show that a transaction took place between AKA, CMP, or Escape Chambers.
Without a showing that a transaction took place, Ha cannot prove the transaction
was fraudulent.
To succeed on her claims of successor liability under the mere continuation
exception, Ha must prove that AKA was sold to CMP and later to Escape
Chambers. Iowa courts apply the mere continuation exception in situations where
there is continuity of management and ownership between the buying and selling
corporations. Pancratz, 547 N.W.2d at 201. We have not applied the exception
where the buying and selling corporations have different owners. Id.
AKA presented evidence that it is a limited liability company with its principal
office located in Waukesha, Wisconsin. Kerry Poznanski is the sole member and
registered agent. In December 2013, AKA opened a laser tag facility at the
property on Sixth Street.
Ha states that AKA became CMP in March 2014—after her injury. She
submitted a screenshot of a Facebook post made by AKA on March 3, 2014,
stating “AKA Combat Entertainment Des Moines IS NOW CMP Tactical Lazer Tag
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Des Moines.” She also submitted a screenshot of Aaron Larimer writing “New
Shirts for CMP! AKA Combat Entertainment is now CMP Tactical Laser Tag Des
Moines! New name . . . new shirts!!!” Additionally, Ha submitted a screenshot
from a website titled “AKA Combat Entertainment & CMP Tactical Lazer Tag
Merge.” The article stated that “these two tactical laser tag super powers have
merged into one company: CMP Tactical Lazer Tag.” It explained the color
scheme would change, there would be new props and gameplay, and a quicker
timeline on getting new products.
Poznanski’s affidavit states that AKA and Escape Chambers have no
common ownership or interest with CMP. She states that AKA entered into a
business relationship with CMP from March 2014 to January 2015, where AKA
utilized CMP’s brand to operate its gaming platform, arena, and style of play.
During that time AKA continued to do its own banking, financing, leases, taxes,
insurance, and payroll as AKA.
CMP is owned and operated by Cale Miles, L.L.C., a Wisconsin corporation.
Cale Miles, L.L.C. is owned by Miles Iverson. Escape Chambers was formed in
February 2016 and operates on the lower level of the property on Sixth Street.
Kerry Poznanski is the sole member of Escape Chambers. AKA continues to
operate a laser tag business in the upper levels.
Ha has not submitted any evidence to indicate that CMP has common
owners or interests with AKA or Escape Chambers. Without any evidence of
continuity of ownership, Ha cannot prove that the mere continuation exception to
successor liability applied. See id. at 202. She has not submitted evidence
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disputing Poznanski’s assertion that AKA merely used the name, branding, and
style of play of CMP, but continued to operate independently as AKA.
Ha has not submitted any evidence to prove that there was a fraudulent
transaction between AKA, CMP, and Escape Chambers, or that CMP and Escape
Chambers are a mere continuation of AKA. Ha has not proven any exception to
the rule of successor liability applies, and we decline to hold AKA and Escape
Chambers responsible for the judgment rendered against CMP.
There is substantial evidence supporting the district court’s conclusion that
Ha failed to show a connection between CMP, AKA, and Escape Chambers. Thus,
we affirm the district court’s denial of Ha’s request to expand the judgment against
CMP to include AKA, Escape Chambers, or assets located at the property on Sixth
Street. Ha argues she was an employee of AKA, but did she not pursue her
workers’ compensation claim against AKA. Because we find the workers’
compensation claim and judgment are solely against CMP, and Ha has failed to
show successor liability, we affirm the district court without prejudice to Ha’s
alternative post-judgment remedies pursuant to Iowa Code section 630.1.
AFFIRMED.