asset acquisitions - Jackson Walker LLP

5. Contract CasesIn certain instances, a party seeks to enforce an existing contract against the successor ofits counterparty. These cases often arise in the context of bankruptcies or secured party assetsales made under UCC Section 9-504, and to the extent that there is a relationship between thealleged predecessor and its alleged successor prior to the bankruptcy filing or the forced assetsale, the courts are more likely to find the successor liable. 87The two leading cases where courts have imposed successor liability without requiringcontinuity of corporate ownership are Glynwed, Inc. vs. Plastimatic, Inc. 88 and Fiber-Lite Corp.vs. Molded Acoustical Prod. of Easton, Inc., 89 although these decisions had been criticized forunjustifiably relaxing the traditional test of successor liability, and for importing the “continuityof enterprise” doctrine from the product liability context into commercial law, when, by doingso, no public policy would be served, and there would be the risk of having a chilling affect onpotential purchasers who would have to be concerned that, by acquiring a foreclosed business,they would also acquire liabilities they never intended to assume. 90V. Practical Considerations: Reducing the Chances Successor Liability Will Be ImposedAs the prior Sections have demonstrated, a purchaser of corporate assets will not be able tofully assure itself that it is safe from the obligations of the seller. While there may be certain actionswhich the purchaser (or its attorney) can take to reduce the likelihood that a court will impose thepredecessor’s liability on the purchaser, it is probably just as important that the buyer’s counselmake sure that its client accepts this reality even before the buyer starts negotiating the terms of thetransaction. By doing this, the buyer will have the opportunity to consider whether it needs to adjustthe purchase price it is willing to pay to reflect this risk, or whether it wants to assume certainliabilities in the contract that it may have imposed upon it anyway as a matter of law (again,presumably making the deal more attractive to the seller and thus justifying a reduced purchaseprice).Having said that, and depending on the particular circumstances, any of the followingsuggestions may be appropriate for counsel to discuss with representatives of the buyer. It shouldnot be assumed, however, from the inclusion of any of the potential suggestions set forth below thatany such suggestion will be practicable in every (or even most) situations.1. Thorough Due DiligenceEven though the purchaser may take the position that it is not assuming any of the seller’sliabilities, as the prior cases have indicated, the purchaser frequently gets an unwelcome surprise87888990See, for example, Gallenberg Equipment, Inc. v. Agromac International, Inc., 10 F.Supp. 1050 (E.D. Wisc.1998).869 F.Supp 265 (D.N.J. 1997).186 B.R. 603 (E.D. Pa. 1994).Gallenberg, supra note 125, at 1055-56; citing G. P. Publication, Inc. v. Quebecor Printing - St. Paul, Inc.,125 N. C. App. 424, 481 S.E. 2d 674, 680-82 (N.C. Ct. App. 1997).Appendix C – Page 142525936v1