Cambridge Townhomes, LLC v. Pacific Star, Inc.

In 1997, Cambridge Townhomes, LLC (Cambridge) (plaintiff), a developer, and Polygon Northwest Company (Polygon) (plaintiff), a general contractor, began work on a condominium development. In 1998, Polygon subcontracted with Gerald Utley, a sole proprietor doing business as P.J. Interprize, to perform some work for the project. The subcontract contained an indemnification agreement. In 1999, Utley incorporated his business as P.J. Interprize, Inc. (P.J. Inc.) (defendant). In 2003, Polygon learned of construction defects in the condominium development and reached a settlement with the condominium association. In February 2004, Utley filed for bankruptcy. In March 2004, Polygon sued P.J. Inc. and other subcontractors (defendants) for breach of contract and indemnification. However, Polygon did not name Utley or the sole proprietorship in the lawsuit. In May 2004, Polygon moved for the bankruptcy court to allow Polygon to pursue claims against Utley in his capacity as a sole proprietor to the extent insurance assets were available. The bankruptcy court granted Polygon’s motion. In June 2004, the bankruptcy court issued a Chapter 7 discharge order for Utley. Thereafter, the trial court ruled that the bankruptcy discharge prevented Polygon from pursuing claims under a theory of successor liability against P.J. Inc. for Utley’s work as a sole proprietor and denied Polygon’s request to amend its complaint. The appellate court reversed the trial court’s rulings. P.J. Inc. appealed and argued that, as a matter of law, a corporation could not be a mere continuation of a predecessor sole proprietorship.