Thomas J. Hall and Judith A. Archer
Ordinarily under New York law, when one business acquires the assets of another, the liabilities of the selling business do not travel to the acquirer with the assets sold. New York courts, however, have recognized several exceptions to this general rule that can result in successor liability. This column addresses one such exception, the “mere continuation” doctrine, where the acquirer is found to be a mere continuation of the seller’s business and therefore effectively has assumed its liabilities. While this exception has been frequently litigated across the country, its precise application in New York has not always been uniform and continues to evolve.
General Standard
An entity that acquires the assets of another generally is not liable for the claims against the seller. Schumacher v. Richards Shear, 59 N.Y.2d 239, 244 (N.Y. 1983). While acknowledging that general rule, the Court of Appeals in Schumacher set forth four recognized exceptions: “(1) [the successor] expressly or impliedly assumed the predecessor’s tort liability, (2) there was a consolidation or merger of seller and purchaser [also known as de facto merger], (3) the purchasing corporation was a mere continuation of the selling corporation, or (4) the transaction is entered into fraudulently to escape such obligations.” Id. at 245.
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