New Jersey Appeals Court Reaffirms Factors Establishing Corporate Successor Liability Under New Jersey Law

  In an unpublished decision issued on December 11, 2014, the Appellate Division of the Superior Court of New Jersey was confronted with deciding whether a corporation was the successor in interest to the plaintiff's former commercial tenant such that the corporation should be held liable for tenant's breach of the lease.  40 Eisenhower Drive, LLC v. Karoon Capital Markets, Inc., et al., Docket No.: A-2620-12T4 (App. Div. Dec. 11, 2014).  Ruling in the affirmative, the appeals court provides a salient summary of New Jersey law on successor liability in the context of corporate law. 

Generally,"when a company sells its assets to another [entity], the acquiring company is not liable . . . simply because it has succeeded to the ownership of the assets of the seller." Lefever v. K.P. Hovnanian Enters., 160 N.J. 307, 310 (1999). There are, however, four exceptions to this principle: 

(1) the successor expressly or impliedly assumes the predecessor's liabilities; (2) there is an actual or de facto consolidation or merger of the seller and the purchaser; (3) the purchasing company is a mere continuation of the seller; or (4) the transaction is entered into fraudulently to escape liability." Ibid.(citation omitted).

Where the claim is made that "a particular transaction amounts to a de facto consolidation" of the selling and buying companies, or the mere continuation of the selling company by the purchaser, the court considers four factors: 

 "(i) continuity of management, personnel,physical location, assets, and general business operations; (ii) a cessation of ordinary business and dissolution of the predecessor as soon as practically and legally possible; (iii) assumption by the successor of the liabilities ordinarily necessary for the uninterrupted continuation of the business of the predecessor; and (iv) continuity of ownership/shareholders." [Woodrick v. Jack J. Burke Real Estate,Inc., 306 N.J. Super. 61, 73 (App. Div. 1997) (quoting Glynwed, Inc. v. Plastimatic,Inc., 869 F.Supp. 265, 275-76 (D.N.J. 1994)).] All of these factors need not be present for finding that a de facto merger or continuation has occurred. Ibid. " Rather,'[t]he crucial inquiry is whether there was an intent on the part of the contracting parties to effectuate a merger or consolidation rather than a sale of assets.'" Ibid.(quoting Glynwed, Inc., supra, 869 F.Supp. at 276)(internal quotation marks omitted)

The law firm of LoFaro & Reiser, LLP represents both plaintiffs and defendants in successor liability actions and fraudulent asset transfers in federal and state courts throughout New Jersey. 

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