The buyer was aware that the seller had granted a license to use seller’s common carrier certificate to a competitor before the closing. But closed anyway because buyer’s lawyer thought it was not enforceable.
M&A Stories
February 18, 2022
Introduction:
Operating a regulated business with a government permit can be a valuable asset. In this blog, we discuss a case where a buyer acquired a waste transportation business in Louisiana, including a common carrier certificate, but faced a dispute with a competitor after the deal closed.
The Deal:
In 2015, the buyer purchased the assets of a Louisiana waste transportation business, which included a common carrier certificate issued by the state. The purchase agreement explicitly stated that the assets were being acquired “free and clear of any and all encumbrances of any kind.”
The Challenge:
The buyer knew that before the deal, the seller had granted a nonexclusive license to a competitor, allowing them to use the seller’s common carrier certificate. However, the seller had agreed not to transfer the certificate without also transferring the obligations to the licensee under the licensing agreement.
Despite this knowledge, the buyer went ahead with the deal based on their lawyer’s opinion that the licensee had no rights under Louisiana law to operate using the seller’s common carrier certificate.
The Lawsuit:
After the deal was closed, the competitor (licensee) filed a complaint with the Louisiana Public Service Commission. They alleged that the seller’s common carrier certificate was encumbered in their favor due to the licensing agreement, which the Commission had not recognized. The licensee asked the Commission to reverse the approval of the transfer of the certificate from the seller to the buyer. After various legal proceedings, including the buyer’s motion for partial summary judgment being denied, the licensee’s claims were eventually dismissed.
This case is referred to as Dynamic Envtl. Services v. Marioneaux, 2020 CA 1172, Court of Appeal of Louisiana, First Circuit, (Judgment Rendered: April 16, 2021)
Comment:
It is unclear from the information provided whether the buyer could have resolved this issue with the competitor before the deal closed. Early negotiations and clarity on the rights and obligations of all parties involved might have potentially prevented the dispute from escalating post-closing.
By John McCauley: I write about recent legal problems of buyers and sellers of small businesses.
Email: jmccauley@mk-law.com
Profile: http://www.martindale.com/John-B-McCauley/176725-lawyer.htm
Telephone: 714 273-6291
Check out my book: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles
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