Fitzgerald v. Fahnestock & Co., Inc.

Decision Date06 September 2001
Citation730 N.Y.S.2d 70,286 A.D.2d 573
CourtNew York Supreme Court — Appellate Division
PartiesPAUL H. FITZGERALD, Appellant,<BR>v.<BR>FAHNESTOCK & CO., INC., Respondent.

Concur — Sullivan, P. J., Nardelli, Ellerin, Buckley and Marlow, JJ.

This case involves the issue of whether an acquiring corporation may become responsible for the pre-existing liabilities of an acquired corporation through application of the de facto merger doctrine.

Plaintiff obtained an arbitration award and judgment for severance pay against his former corporate employer. He was initially unable to enforce the judgment as that corporation had sold all its assets in return for a percentage of the future revenues of another corporation, Vantage Securities. By the time plaintiff had set aside that transfer as fraudulent under Debtor and Creditor Law § 278 (1) (a), served Vantage with a garnishment and obtained a further judgment, he discovered that all of Vantage's assets had been transferred to defendant Fahnestock & Co., Inc., rendering Vantage unable to satisfy his judgment.

This action was thereafter commenced alleging that defendant had merged with Vantage, rendering it responsible for Vantage's liabilities, including his judgment. On defendant's motion, the IAS court held that the de facto merger doctrine was inapplicable: (1) since Vantage had never been legally dissolved; (2) the matter herein involved contract breach rather than tort; (3) the documentary evidence of defendant's purchase of all shares of Vantage revealed no mention of the transfer of any of Vantage's assets to defendant; and (4) defendant was obligated under its stock purchase contract to cause Vantage to continue operations for some period of time after the stock sale.

The de facto merger doctrine creates an exception to the general principle that an acquiring corporation does not become responsible thereby for the pre-existing liabilities of the acquired corporation. This doctrine is applied when the acquiring corporation has not purchased another corporation merely for the purpose of holding it as a subsidiary, but rather has effectively merged with the acquired corporation. The hallmarks of a de facto merger include: continuity of ownership; cessation of ordinary business and dissolution of the acquired corporation as soon as possible; assumption by the successor of the liabilities ordinarily necessary for the uninterrupted continuation of the business of the acquired corporation; and, continuity of management, personnel, physical location, assets and general business operation (Sweatland v Park Corp., 181 AD2d 243, 245-246).

Not all of these elements are necessary to find a de facto merger. Courts will look...

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