Suing a Successor Company
When a party has a cause of action, it may be frustrating to discover that the company against which the party has a claim no longer exists. In certain circumstances, it is difficult to recover against a defunct company, but if the entity continues to operate in a modified form as a result of a merger, acquisition, or in other circumstances, a cause of action can still be maintained against the operating company. Nevertheless, there are some things that parties should keep in mind when suing a successor company.
Merger or Acquisition
If a company has merged with another business, or has been acquired by another business, suing a successor company is possible in many situations. A merger is when two companies combine to form a company that incorporates elements of both businesses and continues to operate differently than the company operated before. An acquisition is when one company subsumes another business, and the acquiring company continues to operate as they did before the acquisition, but the acquired business more or less loses its identity to the acquiring company.
In either event, successor liability typically attaches to the entity that results from a merger or acquisition so suing the successor company remains a possibility. Normally, when drafting litigation papers, it is important to include in the caption (the information at the top of the first page of the document) how the new company is being sued as a successor in interest to the old company for which the party has a claim. In the body of the document itself, it is also important to explain how the new and old company for which the claim exists are related so that this information can be evaluated by a court when determining successor liability. A skilled litigation attorney should be able to draft litigation documents to have the best chance possible at imposing successor liability.
Doing Business As
Another thing to keep in mind when suing a successor company is whether companies doing business as (“d/b/a”) a different trade name can be pursued for claims. In general, there are few limitations to suing a company for a claim even though they may be doing business under a different trade name than they were at the time a claim accrued. In these circumstances, the corporate entity against which the claim can be made is unchanged even if they have selected a new name to use while conducting business. Normally, parties simply need to include the “d/b/a” in the caption of litigation papers and in the body of such documents so everyone is clear that notwithstanding the new name, the proper corporate entity has been included in the lawsuit.
Asset Purchase
It should be noted that suing a successor company is not only possible if there is merger or acquisition. Rather, there are some situations in which a successor company that purchased a substantial amount of the assets of another company might be responsible for the liabilities of the other company so that it “stands in the shoes” of another company when it comes to claims. First, if the company agrees to assume liabilities of another company as part of the transaction to acquire assets, then claims may be made against the successor company. In addition, if courts believe that the asset purchase agreement legally amounts to a merger or consolidation of the two companies, then successor liability may attach to the purchasing company. Moreover, if the purchasing company is deemed to be a mere successor of the seller, then the purchasing company may be responsible for liabilities of the seller. Also, if a court deems that the asset purchase was structured to escape liability, they may still hold the purchasing company liable as a successor of the selling company. There are many nuances to these situations, so it is important to do your research and consult with an experienced attorney who can determine if a claim can be made against a company that purchases assets.
Bankruptcy
Bankruptcy is a situation when suing a successor company is more difficult than in other circumstances. Generally, when companies exit bankruptcy they receive a bankruptcy discharge that makes it difficult, if not impossible, to recover for debts that were properly listed in the bankruptcy paperwork. As a result, if parties do not succeed in the bankruptcy process, they may have difficulty recovering against that company. Moreover, if a company or its assets are sold during bankruptcy, it might be difficult to pursue successor companies. Bankruptcy courts are authorized to eliminate liabilities of successor companies during a bankruptcy sale for claims that may be laid against the bankrupt company. This is because bankruptcy courts wish to provide an incentive to buy company assets so the bankruptcy estate has the most money possible for creditors. As a result, it is important when dealing with a bankrupt company and any successor companies to do your research and determine if any part of the bankruptcy process might pose an impediment to pursing claims.
The Rothman Law Firm has experience pursuing claims against successor companies and helping clients avoid such claims. If you are looking for an experienced New York and New Jersey litigation lawyer to handle your claim against a successor company or other legal issue, please feel free to contact The Rothman Law Firm to request a free legal consultation.