## Facts

- Robert Smith obtained a federal judgment for more than $200,000 against RKelley-Law, P.C., based on fraud committed by an associate attorney; the federal court entered no judgment against Robert E. Kelley personally.
- Kelley was the P.C.’s sole shareholder and officer.
- The day after final judgment entered against the P.C., Kelley voted to wind up the corporation and began operating the same law practice as a sole proprietorship.
- The sole proprietorship continued the practice using the same clients and operational features, including office and email addresses, equipment and supplies, accounts, and health insurance.
- The P.C. later entered bankruptcy and ended with no assets, preventing Smith from collecting on the federal judgment from the P.C.
- Smith filed a Massachusetts Superior Court action seeking to collect the federal judgment from Kelley’s sole proprietorship on a successor-liability theory.
- The Superior Court granted summary judgment for Kelley; the Supreme Judicial Court took the appeal on its own initiative.

## Issues

1. Whether prior federal and bankruptcy proceedings barred Smith from pursuing a state-court claim to collect the corporate judgment from Kelley’s later-created sole proprietorship.
2. Whether, on these facts, Kelley’s sole proprietorship could be liable as a successor in interest to the P.C. under the “mere continuation” branch of successor liability.
3. If successor liability applied, what portion of the sole proprietorship’s revenues or assets could be reached to satisfy the judgment.

## Decision

- The Supreme Judicial Court vacated the summary judgment for Kelley and remanded.
- The court held Smith’s successor-liability action was not precluded by the federal judgment or the bankruptcy proceedings because it arose from post-judgment conduct and presented a different claim.
- The court held that, in narrow circumstances, a sole proprietorship may be held liable as a successor in interest to a professional corporation where overwhelming evidence shows the proprietorship is a mere continuation and the conversion was intended to avoid paying existing liabilities.
- The court remanded for a determination of which revenues generated by the sole proprietorship should be treated as attributable to the improperly converted corporate practice and thus available to satisfy the judgment, as distinct from other personal assets.

## Legal Principles

- Claim and issue preclusion do not bar a later action when the asserted successor-liability theory depends on post-judgment events not litigated or decided in the earlier action.
- Massachusetts successor-liability doctrine permits liability where the successor is a “mere continuation” of the predecessor, assessed by continuity of ownership and of the operating business.
- A change in business form immediately after entry of a judgment, coupled with continuation of the same enterprise and evidence of an intent to avoid payment, can support applying “mere continuation” successor liability.
- When successor liability is used to prevent evasion of a predecessor’s judgment, the remedy may be tailored to reach only the successor’s revenues that would have been available to the predecessor absent the improper conversion, rather than imposing unlimited recovery against unrelated assets.

## Conclusion

The court allowed Smith to pursue collection of a corporate fraud judgment from the attorney’s successor sole proprietorship where the practice continued unchanged and the conversion was aimed at avoiding the judgment, but required a remand to identify the specific proprietorship revenues attributable to the continued corporate business that may be used to satisfy the judgment.


Smith v. Kelley, 484 Mass. 111 (2020)