In Dominguez v Ruland Manufacturing Co, Inc, 2009 WL 3083865 (Mass. Super. Ct. 2009), a worker who was injured while cleaning a centrifuge machine sued the machine’s manufacturer and seller, as well as the corporation that bought all of the manufacturer’s assets prior to plaintiff’s injury, in the Massachusetts Superior Court. The asset purchaser moved for summary judgment on the ground that it was not liable for the manufacturer’s products.
The court stated that an asset purchaser does not assume the seller’s liabilities unless: (1) the purchaser expressly or impliedly assumes the liabilities; (2) the transaction is a de facto merger or consolidation; (3) the purchaser is a mere continuation of the seller; or (4) the transaction is a fraudulent effort to avoid the seller’s liabilities. Because the parties focused on the de facto merger exception, the court articulated factors relevant to determining whether a de facto merger has occurred: (1) there is continuity of the seller’s management, personnel, physical location, assets and general business operations; (2) there is a continuity of the seller’s shareholders within the purchaser’s ownership; (3) the seller ceases ordinary business operations, liquidates and dissolves; and (4) the purchaser assumes the obligations of the seller ordinarily necessary for the uninterrupted continuation of the seller’s business operations.
The purchaser argued that it had not engaged in a de facto merger because the only two employees of the manufacturer that continued to work for the purchaser were not corporate directors or stockholders, and because the manufacturer had sold its assets only because its owner had wanted to get out of the business.
Regarding the first argument, the court held that the fact that the continuing employees were not directors or stockholders did not preclude a finding that there was a continuity of management, personnel and business operations, especially considering that the two continuing employees were the manufacturer’s sales manager and product designer. With respect to the second argument, the court noted that— regardless of the intent behind the sale—the manufacturer had in fact liquidated and dissolved shortly after the sale, so that the court could not preclude a finding that a de facto merger had occurred. The court also noted that the manufacturer had described the purchase as “joining forces” with the purchasers, and the purchaser continued to honor the manufacturer’s warranties as well as use its name and logo. As there were thus disputed issues of fact relevant to successor liability, the court denied the purchaser’s motion for summary judgment.