Business Law: Business Litigation: No Successor Liability to Buyer of a Business; Asset Purchase Agreement; Breach; Continuation of Selling Corporation
In the case of GEM Bldg. Contractors and Developers vs. Patriot Concrete Pumping & Trucking, PICS Case No. 13-3095, (Court of Common Pleas, Lawrence County,) the Honorable J. Craig Cox ruled that the Plaintiff failed to provide sufficient evidence to impose successor liability upon defendant purchasing entity, as there was no purchase agreement to assume debts or liabilities from the seller and no evidence that the purchasing corporation was merely a continuation of the selling corporation.
Plaintiff GEM Building Contractors and Developers Inc. entered into a contract with Patriot Concrete Pumping & Trucking Co. Ltd. (Patriot Trucking), the predecessor to Patriot Concrete & Laser Screeding Ltd. (Patriot Laser).
Patriot Trucking agreed to supply concrete pumping and laser screeding services to plaintiff in connection with a project in Lawrence County, PA. Patriot Trucking provided the services on Nov. 2, 2005. According to plaintiff, Patriot Trucking failed to operate the screeding equipment, and as a result, the concrete did not meet project specifications.
Plaintiff incurred additional costs to repair and/or replace certain defective slabs of concrete. Thereafter, plaintiff sued Patriot Trucking and Patriot Laser, asserting that Patriot Laser was liable for Patriot Trucking’s breach of contract as a successor in interest to Patriot Trucking.
Patriot Laser moved for partial summary judgment, asserting that it could not be held liable under the theory of successor liability.
The court noted that in Pennsylvania, when one company sells all of its asserts to another company, the purchaser is not liable for debts or liability of the seller merely because the buyer acquired the seller’s property.
Here, plaintiff failed to demonstrate that liability could be imposed upon Patriot Laser based on successor liability, as Patriot Laser did not agree to assume its predecessor’s debts or liabilities and set forth such terms in the asset purchase agreement.
However, the general rule of non-liability can be overcome if, inter alia, the purchasing corporation was merely a continuation of the selling corporation, the court explained.
As such, the court considered whether the transaction amounted to a consolidation or merger and if the purchasing corporation was merely a continuation of the selling corporation such that successor liability could be imposed.
As the Supreme Court stated in Fizzano Bros. Concrete Prods. V. XLN, 42 A.3d 951 (Pa. 2012), there must be continuity of ownership to find that a merger has occurred or that the purchasing corporation was a continuation of the selling corporation. There was no such evidence in this case.
An individual named Jim Davis purchased Patriot Trucking for almost $2 million dollars and then created Patriot Laser. Seller Gary Parsons, the sole owner of Patriot Trucking, did not retain any ownership interest in the entity. In fact, he signed a non-compete agreement stating that he was completely removed from the new company. Moreover, management personnel were altered after the asset purchase agreement.
As such, the court found that there was no continuity of ownership between Patriot Trucking and Patriot Laser. Therefore, plaintiff failed to provide sufficient evidence to impose successor liability on Patriot Laser. Accordingly, the court granted Patriot Laser’s motion for partial summary judgment.
Reference: Pennsylvania Law Weekly: Digest of Recent Opinions (November 26, 2013)
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