363 F. App'x 100

Ronnie DOUGLAS, Plaintiff-Appellant, v. STAMCO, a division of Monarch Machine Tool Co., Defendant, *101Monarch Machine Tool, and Monarch Machine Tool, Inc., Defendants-Cross-Claimants, Herr-Voss Stamco, Defendant-Cross-Defendant, Genesis Worldwide II, Inc., Defendant-Cross-Defendant-Appellee.

No. 09-1390-cv.

United States Court of Appeals, Second Circuit.

Feb. 1, 2010.

Anthony R. Martoccia, McMahon, Kub-lick & Smith, P.C., Syracuse, NY, for Appellant.

David G. Klaber, Mark D. Feczko, Jared S. Hawk, K & L Gates LLP, Pittsburgh, PA; Kenneth M. Alweis, Lisa M. Robinson, Goldberg Segalla LLP, Syracuse, NY, for Appellee.

Present: WILFRED FEINBERG, WALKER, ROBERTA. KATZMANN, Circuit Judges.

SUMMARY ORDER

On October 10, 2008, the district court granted defendant’s motion to dismiss for failure to plead successor liability and because public policy favored the extinguishing of plaintiffs claim after an asset sale pursuant to 11 U.S.C. § 363. Though plaintiff did not seek to amend the complaint at any time to include a claim of successor liability, the district court sua sponte denied leave to amend finding that any attempt would be futile. We assume the parties’ familiarity with the facts, procedural history, and specification of issues on appeal.

We review de novo the district court’s grant of a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). Staehr v. Hartford Fin. Servs. Group, Inc., 547 F.3d 406, 424 (2d Cir.2008). We review the district court’s denial of leave to amend for abuse of discretion. Holmes v. Grubman, 568 F.3d 329, 334 (2d Cir.2009).

“Under both New York law and traditional common law, a corporation that purchases the assets of another corporation is generally not liable for the seller’s liabilities.” N.Y. v. Nat’l Serv. Indus., Inc., 460 F.3d 201, 209 (2d Cir.2006). Therefore, successor liability attaches only where: *102“(1) [the successor] expressly or impliedly assumed the predecessor’s tort liability, (2) there was a consolidation or merger of seller and purchaser, (8) the purchasing corporation was a mere continuation of the selling corporation, or (4) the transaction is entered into fraudulently to escape such obligations.” Id. Plaintiff cannot demonstrate that any of these exceptions applies in this case and so cannot sustain a claim for successor liability against Genesis Worldwide II, Inc. (“Genesis II”).

The parties appear to agree that neither the first nor the fourth exception applies. The two remaining exceptions — namely the de facto merger and mere continuation exceptions — though routinely listed separately, are often regarded as so similar as to be considered a single exception. See Cargo Partner AG v. Albatrans, Inc., 352 F.3d 41, 45 n. 3 (2d Cir.2003). The inquiry is whether “a transaction, although not in form a merger, is in substance a consolidation or merger of seller and purchaser.” Nat’l Serv. Indus., 460 F.3d at 209. Thus, to determine whether there has been a de facto merger, the Court considers whether there was: “(1) continuity of ownership; (2) cessation of ordinary business and dissolution of the acquired corporation as soon as possible; (3) assumption by the purchaser of the liabilities ordinarily necessary for the uninterrupted continuation of the business of the acquired corporation; and (4) continuity of management, personnel, physical location, assets, and general business operation.” Id. Though the Court examines all of the foregoing factors, “ ‘continuity of ownership is the essence of a merger,’ ” id. at 211 (quoting Albatrans, 352 F.3d at 47), and therefore the exception cannot apply in its absence. Id. (extending the reasoning in Albatrans to tort claims). Indeed, in authorizing the asset sale in this case, the bankruptcy court explicitly stated that “[t]here is no common identity among the Purchaser and the Debtors’ incorporators, officers, directors or material stockholders.”1 Moreover, to the extent that the mere continuation exception is considered distinct from the de facto merger exception, it also appears that the predecessor entity, Genesis Worldwide, Inc. (“Genesis I”), survived the asset sale as a bankrupt entity, which renders the mere continuation exception unavailable to breathe life into plaintiffs successor liability claim. See Wensing v. Paris Indus. — N.Y., 158 A.D.2d 164, 167, 558 N.Y.S.2d 692 (NYApp.Div.1990) (“The record reveals that Paris Industries Corporation survived the asset transfer as a distinct corporation, albeit in bankruptcy. Under such circumstances, Leander cannot be cast as its mere continuation.”).

The underlying public policy concerns implicated by this case also weigh in appel-lee’s favor. Allowing the plaintiff to proceed with his tort claim directly against Genesis II would be inconsistent with the Bankruptcy Code’s priority scheme because plaintiff s claim is otherwise a low-priority, unsecured claim. See 11 U.S.C. § 507(a); see also In re Trans World Airlines, Inc., 322 F.3d 283, 292 (3d Cir.2003) (“To allow the [plaintiff] to assert successor liability claims against [the purchaser] while limiting other creditors’ recourse to the proceeds of the asset sale would be inconsistent with the Bankruptcy Code’s priority scheme.”). Moreover, to the extent that the “free and clear” nature of the sale (as provided for in the Asset Purchase Agreement (“APA”) and § 363(f)) was a crucial inducement in the sale’s successful transaction,2 it is evident that the potential *103chilling effect of allowing a tort claim subsequent to the sale would run counter to a core aim of the Bankruptcy Code, which is to maximize the value of the assets and thereby maximize potential recovery to the creditors. See Toibb v. Radloff, 501 U.S. 157, 163, 111 S.Ct. 2197, 115 L.Ed.2d 145 (1991) (recognizing that the Bankruptcy Code’s general policy is “maximizing the value of the bankruptcy estate”); see also Licensing by Paolo, Inc. v. Sinatra (In re Gucci), 126 F.3d 380, 387 (2d Cir.1997) (stating that a sale pursuant to § 363 of the Bankruptcy Code “maximizes the purchase price of assets because without this assurance of finality, purchasers could demand a large discount for investing in a property that is laden with the risk of endless litigation as to who has rights to estate property”). In light of the foregoing, we conclude that the district court did not err in granting the defendants’ Rule 12(b)(6) motion.

Moreover, because plaintiff is unable to substantiate a claim for successor liability under New York law, we also do not find that the district court abused its discretion in denying leave to amend the complaint for futility,3 see Holmes, 568 F.3d at 334 (“Generally, [a] district court has discretion to deny leave [to amend] for good reason, including futility.”) (internal quotation marks omitted) (alterations in original), particularly where the plaintiff initially failed to plead the cause of action and subsequently failed to seek leave to amend at any point in the underlying proceedings despite several obvious opportunities to do so.

For the foregoing reasons, the judgment of the district court is hereby AFFIRMED.

Douglas v. Stamco
363 F. App'x 100

Case Details

Name
Douglas v. Stamco
Decision Date
Feb 1, 2010
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363 F. App'x 100

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