asset acquisitions - Jackson Walker LLP

Over time, some courts have used less than all of the elements to support a finding of de factomerger, 13 finding that these factors merely indicate the existence of a de facto merger. 14 The courtsin Knapp v. North American Rockwell 15 and Shannon 16 held the successor liable even where theseller continued in existence for a period of time after the sale, during which time the seller couldhave paid off adverse judgments. Both courts found the seller’s continued existence to be a mereformality, insufficient to prevent the transfer from being considered a sale, based on the brevity ofthe seller’s continued life after the transfer, the requirement in the purchase agreement that the sellerbe dissolved as soon as possible, the prohibition in the same document against the seller conductingnormal business operations, and the limited nature and quantity of assets retained by the seller afterthe transaction. 17As significant as Knapp and Shannon were, both of those cases involved transactions whereassets were exchanged for shares of the buyer’s stock, thus maintaining the element of continuity ofownership. In Diaz v. South Bend Lathe, Inc., 18 the court concluded that plaintiff’s failure toestablish continuity of ownership was not fatal to its claim of de facto merger because “theconsuming public should not be frustrated merely because the stock ownership of a corporation hasnot changed while all else - employees, products, supervision, and plants are transferred....” 19Another issue which has been raised has been the extent of the ownership in the buyer thatseller’s shareholders must own after the transaction to support a finding of de facto merger. InLumbard v. Maglia, 20 a case involving a transfer of assets, contracts and employees to a newcompany nominally owned by the seller’s brother, the court held that continuity, not uniformity, ofownership is the key factor. 213. Mere ContinuationThe mere continuation doctrine differs from the de facto merger exception more in form thanin substance, and the factors considered by the courts are very similar. “The primary elements of[mere] continuation include the common identity of officers, directors or stockholders between theseller and buyer, and the existence of only one corporation at the completion of the transfer.” 22 The1213141516171819202122Travis v. Harris Corp., 565 F.2d 443, 447 (7 th Cir. 1977).See, for example, Suarez v. Sherman Gin Co., 697 S.W. 2d 17 (Tex. App. 1985), and Lumbard v. Maglia,621 F.Supp. 1529 (S.D.N.Y. 1985).Lumbard, id., at 1535 (citing Menacho v. Adamson United Co., 420 F. Supp. 128, 133 (D.N.J. 1976)).506 F.2d 361 (3d Cir. 1974), cert. denied 421 U.S. 963 (1975).Supra, note 20.Knapp, supra note 25, at 367. In addition to moving the rule away from its traditional components, Knappis important as well for its use of products liability policies as a basis for its analysis and conclusion. SeeSection III.1, infra. Shannon, supra note 24, at 800.707 F.Supp. 97 (E.D.N.Y. 1989).Id., at 101.Supra, note 23.Id., at 1535.Jacobs v. Lakewood Aircraft Service, Inc., 512 F.Supp 176, 181 (E.D.Pa. 1981) (citations omitted).Appendix C – Page 42525936v1