Court Recognizes Claim for Successor Liability

On December 14, 2020, Justice Sherwood of the New York County Commercial Division issued a decision in Meyer v. Blue Sky Alternative Invs. LLC, 2020 NY Slip Op. 34213(U), recognizing a claim for successor liability, explaining:

The proposed complaint successfully states a claim of successor liability against proposed defendant RBP. In his claim for successor liability, plaintiff specifically alleges that RBP is a "mere continuation" of Blue Sky and should be held liable to plaintiff in the same way as Blue Sky. Factors the court considers to conclude that a corporation is a mere continuation of its predecessor include: (i) all of substantially all assets are transferred to the successor corporation, (ii) only one corporation exists after the transfer, (iii) assumption of an identical or nearly identical name, (iv) retention of the same corporation officers or directors, and (v) continuation of the same business. Here, the proposed complaint alleges that (i) Blue Sky ceased to exist and had its assets stripped and transferred to RBP, (ii) Blue Sky has retained all of Blue Sky's principals, named Fabian Roche, Digby Beaumont, and Harry Picone, who have become principals and corporate officers at RBP (which is, itself, an acronym of Roche, Beaumont, and Picone), (iii) RBP is located in the same building and office suite as Blue Sky, and (iv) RBP invests in the same sectors targeted by Blue Sky and anticipates investing in the same companies that Blue Sky was once invested in.

Although defendant argues that successor liability is merely a theory of liability and not a cognizable cause of action, New York Courts have acknowledged the legitimacy of a successor liability claim in several cases. Further, while defendant argues that a transaction between the successor and predecessor corporations is a necessary predicate to a finding of successor liability, neither of the cases cited espouse such a standard and the facts of each case arc distinguishable.

As this decision explains, successor liability is the legal doctrine under which the buyer of a company's assets is responsible for claims against the seller. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding a situation where a company against which there is a claim has sold its assets.