Explore the legal intricacies of M&A asset acquisitions with our latest blog post on the federal court ruling in ADT LLC v. NorthStar Alarm Services, LLC. Uncover buyer responsibilities, liability nuances, and the impact of seller federal injunctions in this essential read for entrepreneurs, business owners, and CFOs.
M&A Stories
July 10, 2018
In a significant legal development, the federal court of appeals recently addressed the intricacies of liability for a buyer in the case of ADT LLC v. NorthStar Alarm Services, LLC (No. 16-15351). This case sheds light on the buyer’s obligations when acquiring assets, particularly in situations involving federal injunctions.
In 2012, ADT, the leading security company in the United States and Canada, filed a complaint against the seller, alleging violations of federal trademark laws. The crux of the matter was the seller’s purported deception of ADT customers into signing contracts. The parties settled, and an injunction was imposed on the seller, restricting false statements about ADT and regulating training practices.
Fast forward to 2015, when the seller entered into an asset purchase agreement with the buyer. The agreement included the acquisition of 8,000 customer accounts, goodwill, deferred revenues, and related assets. Notably, the agreement did not explicitly mention the prior injunction in favor of ADT.
Post-closing, ADT accused the buyer of violating the injunction and sought a federal court order for contempt. The crucial question emerged: Was the buyer bound by the injunction? The federal court of appeals ruled that the buyer was not subject to the injunction because it lacked prior notice.
It’s essential to recognize that under federal law, the buyer must have actual notice of a federal injunction before closing to be held accountable. This differs from many state laws, particularly those applying the de facto merger doctrine, where a buyer may assume liabilities even without notice.
In the ADT case, the seller’s owner received a 14% interest in the buyer, a detail pivotal in shaping the court’s decision. While most states might impose liability in scenarios resembling a de facto merger, ownership interest becomes a determining factor. But not in this case because of the buyer did not know about the injunction prior to the closing.
This case, ADT LLC v. NorthStar Alarm Services, LLC, illustrates the nuanced landscape of buyer responsibility for a seller’s obligations. For entrepreneurs, business owners, CFOs, and other stakeholders, understanding the implications of asset acquisitions, especially in the context of legal precedents, is crucial for informed decision-making.
Case Reference:
This case is referred to as ADT LLC v. NorthStar Alarm Services, LLC, No. 16-15351, United States Court of Appeals, Eleventh Circuit (April 14, 2017).
By John McCauley: I help people start, grow, buy and sell their businesses.
Email: jmccauley@mk-law.com
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Check out my book: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles
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