Dive into the complexities of New York’s successor liability doctrines in our latest M&A blog post. This in-depth analysis examines the recent case of Avamer 57 Fee LLC v. Hunter Boot USA LLC, where the court navigated the nuances of de facto merger and mere continuation doctrines. Learn how the 2023 asset sale of a distressed company led to a legal battle over unpaid rent and what it means for future M&A transactions. Stay informed on how these doctrines are applied in New York and the implications for buyers and sellers in asset sales. Perfect for entrepreneurs, business owners, CFOs, lawyers, and anyone involved in mergers and acquisitions.
M&A Stories
July 25, 2024
In the world of M&A, buying the assets of a business often allows buyers to cherry-pick which liabilities they want to assume. However, sometimes buyers find themselves entangled in legal disputes over unassumed liabilities, particularly when the business continues post-transaction.
A notable example is the 2023 sale of a distressed company known for its iconic Wellington Boot. In this case, a major American corporation (Buyer A) acquired the company’s intellectual property, including the Hunter Boot brands, while another American firm (Buyer B) purchased the existing inventory. No equity changed hands in this deal.
Buyer A then licensed Buyer B, its long-time partner, to develop the brand in the United States. Post-closing, the seller’s landlord sued the seller, Buyer A, and Buyer B in a Manhattan state trial court for unpaid rent. Neither buyer had assumed the seller’s lease obligations.
The landlord argued that the buyers were liable under New York’s successor liability doctrines of de facto merger and mere continuation. The buyers sought to dismiss the claims, asserting the landlord had not provided sufficient facts to support these doctrines. The trial court sided with the buyers and dismissed the claims.
The court determined that the transactions did not constitute a de facto merger under New York law since no equity was involved, meaning neither the seller nor its owners retained any equity in the buyers post-closing.
Additionally, the court found no mere continuation of the seller’s business. It highlighted that New York’s mere continuation doctrine typically applies when a company purchases substantially all the assets of another business and continues the seller’s operations with some or all of the seller’s officers and directors.
While many states recognize these doctrines, their application can vary. For instance, some states might apply the de facto merger doctrine even if the seller or its owners do not hold a post-closing equity interest in the buyer. It’s crucial to consult applicable state laws when considering successor liability issues.
Case Reference: Avamer 57 Fee LLC v. Hunter Boot USA LLC, Index No. 653898/2023, Motion Seq. Nos. 002, 003, Supreme Court, New York County, (June 25, 2024).
Thank you for reading this blog. If you have any questions, insights, or if you’d like to engage in a more detailed discussion on this matter, I invite you to reach out directly.
Feel free to send me an email. I value thoughtful discussions and am always open to connectingwith business owners management, as well as professionals who share an interest in the complexities of M&A law.
By John McCauley: I write about recent legal problems of buyers and sellers of small businesses.
Email: jmccauley@mk-law.com
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Check out my books: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles and Selling Assets of a Small Business: Problems Taken From Recent Legal Battles
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