Cargo Partner Ag v. Albatrans Inc.

Decision Date13 March 2002
Docket NumberNo. 01CIV.2609(DAB)(DFE).,01CIV.2609(DAB)(DFE).
Citation207 F.Supp.2d 86
PartiesCARGO PARTNER AG, Plaintiff, v. ALBATRANS INC., et al., Defendants.
CourtU.S. District Court — Southern District of New York

Stephen M. Harnik, New York City, for plaintiff Cargo Partners AG.

Howard A. Winter, Hoguet Newman & Regal, LLP, New York City, for defendant Albarans Inc.

Robert Erlanger, New York City, for defendant Chase, leavitt (Custom House Brokers), Inc.


BATTS, District Judge.

On November 21, 2001, Magistrate Judge Douglas F. Eaton issued a Report and Recommendation recommending that this Court grant the Albatrans, Inc. ("Albatrans" or "Defendant") Motion to Dismiss Counts I-VI of the Plaintiff's Complaint. See 28 U.S.C. § 636(b)(1)(C). With respect to these Counts Magistrate Judge Eaton noted that the Plaintiff could, without applying for leave of court, amend its Complaint as a matter of course. See Report at page 91, n. 3 (explaining that a motion to dismiss is not a responsive pleading pursuant to Rule 15 of the Federal Rules of Civil Procedure). Magistrate Judge Eaton also recommended that this Court grant Summary Judgment in favor of Albatrans on Count VII of the Complaint. The Court is in receipt of Plaintiff's Objections to Magistrate Judge Eaton's Report and Recommendation as well as the Defendant's Response thereto. Plaintiff submitted a Reply in violation of this Court's Individual Rules that will not be considered by this Court.

28 U.S.C. § 636(b)(1)(C) requires the Court to make a "de novo determination of those portions of the report or specified proposed findings or recommendations to which objection is made." After conducting a de novo review, the Court may accept, reject, or modify, in whole or in part, the findings or recommendations made by the Magistrate. 28 U.S.C. § 636(b)(1)(C).

Plaintiff commenced this civil action to recover money allegedly owed to it by Defendants Albatrans and Chase, Leavitt (Custom House Brokers), Inc. ("Chase, Leavitt") for services that Plaintiff allegedly provided to Chase, Leavitt. The facts in this matter are sufficiently set forth in Magistrate Judge Eaton's Report and Recommendation and will not be repeated here.

At the outset the Court notes that Plaintiff does not object to the recommendation that this Court grant the Albatrans Motion for Summary Judgment on Count VII. See Pl.'s Objections at 2, n. 2 (withdrawing Count VII). Plaintiff does object, however, to the recommended dismissal of Counts I-VI. Plaintiff argues (1) that Magistrate Judge Eaton incorrectly interpreted the requirements for pleading the existence of a de facto merger, (2) that Judge Eaton failed to address the possibility that the asset purchase at issue in this case was designed to evade federal law, (3) that Judge Eaton ignored the procedural posture of the cases cited in that section of the Report that recommends the dismissal of Counts I-V, and (4) that Count VI should not be dismissed since disputed issues of material fact exist with respect to whether the Albatrans and Chase Leavitt transaction was in fact fraudulent.

The Court has conducted a de novo review of the portions of the Report and Recommendation to which Plaintiff has objected and finds no error. Nevertheless, the Court finds it necessary to address the Plaintiff's first objection in some detail. Plaintiff argues that Judge Eaton erroneously concluded that in order to plead the existence of a de facto merger there must be a continuity of the selling corporation (evidenced by the same management, personnel, assets and physical location), a continuity of stock holders, a dissolution of the selling corporation, and the assumption of liabilities by the purchaser.1 See Pl.'s Objections at 5-6; Report at pages 96-97 (citing Arnold Graphics Industries, Inc. v. Independent Agent Center, Inc., 775 F.2d 38, 42 (2d Cir.1985) as adopting the definition of de facto merger set forth in Ladjevardian v. Laidlaw-Coggeshall, Inc., 431 F.Supp. 834, 839 (S.D.N.Y.1977)). Further, the Plaintiff argues that even if the Second Circuit's decision in Arnold did imply that all four factors are required in order to plead a de facto merger, any such holding would not be binding upon courts of this Circuit if New York State courts have ruled to the contrary, as Plaintiff argues that they have. See Pl.'s Objections at 6. The Plaintiff relies principally on two decisions from the New York Appellate Divisions, Ladenburg Thalmann & Co., Inc. v. Tim's Amusements, Inc., 275 A.D.2d 243, 712 N.Y.S.2d 526 (N.Y.App. Div.2000) and Fitzgerald v. Fahnestock & Co., Inc., 286 A.D.2d 573, 730 N.Y.S.2d 70 (N.Y.App.Div.2001). According to Plaintiff, the existence of these two decisions alone demonstrates that Judge Eaton erred in his conclusion that all of the above-mentioned requirements of a de facto merger must be pled in contract actions.2 See Pl.'s Objections at 8. Plaintiff overstates the importance of these Appellate Division cases.

"The role of a federal court sitting in diversity is to construe and apply state law as . . . the state's highest court would." Bull & Bear Group, Inc. v. Fuller, 786 F.Supp. 388, 390 (S.D.N.Y.1992) (quoting City of Johnstown v. Bankers Standard Insurance Co., 877 F.2d 1146, 1153 (2d Cir.1989) (internal quotations omitted)). In determining the law of the State of New York "`[w]here, the law . . . is uncertain or ambiguous, [federal courts must] carefully predict how the highest court of the state would resolve the uncertainty or ambiguity.'" Elliott Associates, L.P. v. Banco de la Nacion, 194 F.3d 363, 370 (2d Cir.1999) (quoting Bank of New York v. Amoco Oil Co., 35 F.3d 643, 650 (2d Cir.1994)). Although the best indicators of how it would decide are often the decisions of lower state courts, a federal court is free to consider all of the resources to which the highest court of the state could look, including decisions in other jurisdictions on the same or analogous issues. Id. (citations and quotations omitted); see also Cowen & Co. v. Tecnoconsult Holdings Ltd., No. 96 Civ. 3748, 1996 WL 391884, at *4 n. 3 (S.D.N.Y. July 11, 1996) ("Although [a district court] may look to lower court decisions for guidance on questions of state law, [it] is bound only by decisions by the New York Court of Appeals and the Court of Appeals for the Second Circuit."); see generally Harris v. Joint Plumbing Industry Board, 474 F.Supp. 1284, 1287 n. 4 (S.D.N.Y.1979) (stating that "when the highest court of the state has not spoken, the decision of an intermediate state court is an important `datum' to be considered in construing state law." (citing Commissioner v. Estate of Bosch, 387 U.S. 456, 477, 87 S.Ct. 1776, 18 L.Ed.2d 886 (1967))); Banks v. Yokemick, 144 F.Supp.2d 272, 285 (S.D.N.Y.2001) (noting that "[t]hough no settled doctrine has been articulated in the Second Circuit to guide the district court treatment of state court dictum, other circuits have declared firmly that federal courts interpreting state law must give appropriate consideration to any clear expressions of intent concerning the application of state statutes by the state's highest court[], even if such statements may be deemed dicta" (citing Union Pacific R.R. Co. v. Reilly Indus., Inc., 215 F.3d 830, 840 (8th Cir.2000))).

While it is true that the New York Appellate cases cited by Plaintiff in his Objections merit consideration and are indeed an important "datum" to be considered, these cases are not binding on this Court. After conducting a de novo review of the Plaintiff's first objection this Court agrees with Judge Eaton's careful, thoughtful, and thorough analysis in which he concludes that the "the New York Court of Appeals . . . would apply the traditional `de facto merger' exception in cases involving the claims of trade creditors, and would not adopt a definition of `de facto merger' which omitted the requirement of ownership continuity." See Report at page 112.

Accordingly, it is hereby


(1) The Report and Recommendation of Magistrate Judge Eaton be and the same hereby is approved, ratified and adopted in its entirety.

(2) Plaintiff shall file its Amended Complaint, if any, no later than 45 days from the date of this Order. Failure to do so shall constitute a waiver of that right. In the event that Plaintiff chooses to file an Amended Complaint, Defendants named therein shall either move or answer within 30 days from the date that the Amended Complaint is filed with the Court.

(3) Since this Court has Granted the Albatrans Motion for Summary Judgment with respect to Count VII of the Complaint, and since the Plaintiff seeks to withdraw that Count, Plaintiff is precluded from alleging the same cause of action contained in Court VII of the Plaintiff's original Complaint.

(4) Any Amended Complaint must also set forth adequately what events took place in the State of New York such that the Southern District of New York is the appropriate venue for this civil action. Further, the Amended Complaint should also allege facts sufficient to establish that this Court has personal jurisdiction over each named Defendant.



EATON, United States Magistrate Judge.


                  I. BACKGROUND FACTS ............................................................ 92
                 II. LEGAL ANALYSIS .............................................................. 92
                     A. Legal Standards .......................................................... 92
                     B. Application of New York Law .............................................. 93
                     C. Successor Liability ...................................................... 93
                        1. The Four Exceptions to the General Rule of Non-Liability .............. 93
                        2. The Basis of the "Mere Continuation" and "De Facto Merger"
                           Exceptions ............................................................ 94
                        3. Mere

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