Learn about buyer’s successor liability for historical contamination in New Jersey when acquiring manufacturing businesses.
M&A Stories
August 1, 2023
Introduction:
When a buyer acquires a manufacturing business, they may unknowingly inherit certain liabilities from the seller. This blog discusses a real case where a buyer of a scissor factory in Newark, New Jersey, faced successor liability for the seller’s historical petroleum contamination on the site.
Background:
In 1976, the buyer purchased the assets, including the property, of a scissor factory in Newark for $10.5 million in cash, with no buyer shares involved. The buyer operated the factory for nine years before selling it in 1988.
Lawsuit:
In 2021, the current owner of the site sued the buyer in a federal New Jersey district court to recover damages for the historical petroleum contamination caused by the seller.
Successor Liability Doctrine:
The buyer had not explicitly assumed the liability for contamination during the 1976 acquisition. However, the current owner argued that the buyer was still responsible for the cleanup costs under New Jersey’s successor liability doctrine.
The doctrine applies if the buyer’s acquisition is considered a de facto merger or mere continuation, where the buyer continues the seller’s business. In this case, it was evident that the buyer continued the scissor factory’s operations with the same employees and property for nine years.
De facto merger and mere continuation also require the seller to dissolve after the transaction. Though it was not clear whether the seller dissolved, it had ceased operations, and its corporate charter was suspended after the closing.
Crucially, New Jersey’s successor liability doctrine differs from most states as it does not exclude all-cash deals from being considered de facto mergers or mere continuations.
Outcome:
The court ruled in favor of the current site owner, affirming that all-cash business asset acquisitions in New Jersey carry the risk of successor liability, unlike in most other states.
Case Reference:
See Public Service Electric and Gas Company v. Cooper Industries, LLC, Civ. No. 21-13644 (KM) (JBC), United States District Court, D. New Jersey (June 26, 2023).
Conclusion:
Buyers acquiring manufacturing businesses in New Jersey should be aware of the potential successor liability for historical contamination, even if they did not explicitly assume such liabilities during the purchase. Understanding the state’s unique successor liability doctrine is essential to avoid unexpected legal consequences in the future.
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
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Check out my books: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles and Selling Assets of a Small Business: Problems Taken From Recent Legal Battles
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