Navigate the hidden legal risks of M&A in New York. This post dives into the “mere continuation” doctrine, a legal trap that can expose all-cash asset buyers to a seller’s unassumed liabilities. Learn how to identify and manage the risks of successor liability through proactive due diligence and smart deal structuring.
M&A Stories
August 14, 2025
In the world of mergers and acquisitions, an all-cash asset deal is widely considered the ultimate defense against a seller’s unassumed liabilities. This strategy, sound in many jurisdictions, offers buyers the illusion of a clean slate. Yet in New York, a court may impose successor liability on a buyer under the “mere continuation” exception, turning a seemingly safe deal into a costly legal trap.
A recent case involving the sale of a distressed boot retailer illustrates this precise risk. A buyer, in a straightforward asset purchase, acquired the company’s tradenames, inventory, and other assets. While the buyer did not assume the seller’s commercial lease, the landlord sued, claiming the buyer was responsible for the unassumed lease obligations under New York’s successor liability law. The landlord argued the new business was simply a “mere continuation” of the old.
The trial court initially dismissed the landlord’s claim, but the decision was reversed on appeal. The appellate court found the landlord had a valid case based on a series of facts that together suggest a legal continuity: the buyer acquired substantially all of the seller’s assets, the seller’s entity was effectively dissolved, the new company continued the business under the same tradenames, and crucially, it retained a key officer or director from the original firm. This combination of factors, the court reasoned, was compelling enough for the case to proceed to trial.
The lesson for M&A professionals is that an all-cash asset deal does not automatically insulate a buyer from the seller’s past. A New York court will look beyond the deal’s structure and examine the operational reality. When a buyer retains the seller’s brand identity, its core employees, and a member of its senior leadership, it creates a powerful legal argument for continuity.
With this knowledge, the buyer in this case could have proactively managed the risk. . Pre-closing due diligence on the seller’s liabilities, especially with third-party creditors like the landlord, would have revealed the extent of the risk. With that information, the deal could have been structured to ensure the landlord’s liability was settled at closing, either through a purchase price adjustment or by placing funds in a dedicated escrow account. For potential unknown liabilities, the buyer could have insisted on a contractual provision, such as an escrow or holdback, to secure a portion of the purchase price.
This case serves as a powerful reminder that in a jurisdiction with a more flexible view of successor liability, a buyer’s best defense is not just in the deal’s structure, but in a comprehensive risk management strategy that anticipates and proactively addresses the legal vulnerabilities of business continuity.
See: Avamer 57 Fee LLC v. Hunter Boot USA LLC., Index No. 653898/23, Appeal No. 3878, Case No. 2024-04219, Appellate Division of the Supreme Court of New York, First Department (August 7, 2025). https://scholar.google.com/scholar_case?case=5680387630044514305&q=%22asset+purchase+agreement%22&hl=en&scisbd=2&as_sdt=2006&as_ylo=2022
Thank you for reading this blog. If you have any questions, insights, or if you’d like to engage in a more detailed discussion on this matter, I invite you to reach out directly.
Feel free to send me an email. I value thoughtful discussions and am always open to connecting with business owners, management, as well as professionals who share an interest in the complexities of M&A law in lower middle market private target deals.
By John McCauley: I write about recent problems of buyers and sellers in lower middle market private target deals.
Email: jmccauley@mk-law.com
Profile: http://www.martindale.com/John-B-McCauley/176725-lawyer.htm
Telephone: 714 273-6291
Check out my books: Buying Established Business Assets: A Guide for Owners, https://www.amazon.com/dp/B09TJQ5CL5
and Advisors and Selling Established Business Assets: A Guide for Owners and Advisors, https://www.amazon.com/dp/B0BPTLZNRM
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