asset acquisitions - Jackson Walker LLP

3018518v1BOSTON BAR JOURNALNovember/December 1998The de facto Merger Doctrine Comes to MassachusettsWherein The Exception to the Rule Becomes the Ruleby H. Lawrence TafeAppendix A - Page 1Appendix AIn early 1997, the Supreme Judicial Court for the first time found a corporation liable forthe obligations of another corporation on the grounds that there had been a de facto merger of thetwo corporations. While Massachusetts is by no means alone or even out of step in adopting thede facto merger doctrine, the action of the SJC casts serious doubt upon traditional assumptionswith respect to potential liability of purchasers in business acquisition transactions.The case is Cargill, Incorporated v. Beaver Coal & Oil Co., 424 Mass. 356 (1997). Thefacts are straightforward: Beaver Coal & Oil Co., Inc. (Beaver) was a corporation engaged in theretail distribution of home heating oil. It sold substantially all of its assets to anothercorporation, Citizens Fuel Corporation (Citizens), which carried on the retail petroleumdistribution business thereafter. Before the sale of its assets, Beaver had bought petroleum froma wholesale distributor doing business as Northeast Petroleum (Northeast) and had a significantbalance outstanding to Northeast at the time of the asset sale. Cargill, Incorporated (Cargill), theplaintiff, was the successor in interest of Northeast. Northeast was unable to recover paymentfrom Beaver after the sale transaction and subsequently sued both Beaver and Citizens. Citizenshad not assumed this obligation of Beaver to Northeast. Nonetheless, Cargill claimed thatCitizens should be liable on the grounds that the acquisition transaction was a de facto mergerwith the result that Citizens should be liable for this obligation of Beaver by operation of law—as would be the case if there had been a statutory merger of Beaver into Citizens with Citizenssurviving such a merger. The trial judge agreed with Cargill’s position, and the SJC affirmed.While the SJC, as well as federal courts within the First Circuit, have from time to timeacknowledged the de facto merger doctrine, prior to the Cargill case the doctrine had never beenapplied by the SJC and was applied only once by the Federal District Court in Massachusetts tofind successor liability under Massachusetts law. See, e.g., Cyr v. Offen Co., 501 F.2d 1145 (1stCir. 1974) (applying instead the “mere continuation” exception under New Hampshire law tocorporate successor of sole proprietorship); Araserv, Inc. v. Bay State Harness Horse Racing andBreeding Association, Inc., 437 F. Supp. 1083 (D. Mass. 1977) (finding a lack of evidentiarysupport to apply the de facto merger doctrine); Dayton v. Peck, Stow and Wilcox Co. (Pexto),739 F.2d 690 (1st Cir. 1984) (finding that an asset acquisition constituted neither a “merger” nora “mere continuation” of the predecessor company); and McCarthy v. Litton Industries, Inc., 410Mass. 15, (1991) (listing the de facto merger doctrine as one exception to the general rule).The one case where the de facto merger doctrine was applied was In re Acushnet River &New Bedford Harbor Proceedings Re Alleged PCB Pollution, 712 F. Supp. 1010 (D. Mass.