Explore a legal dispute in M&A involving a Nigerian business and a Louisiana shipbuilding company. Learn about the “mere continuation” exception in Louisiana law and its implications for successor liability. Dive into the complexities of this case and its impact on M&A transactions.
M&A Stories
January 11, 2019
Background:
This is an M&A legal dispute between a seller’s customer and the buyer. The customer is a Nigerian business based in Lagos. The seller was a Louisiana shipbuilding company. In 2013, the customer sued the seller for a $500K deposit related to an undelivered vessel.
In 2014, while the lawsuit was pending, the buyer acquired the seller’s assets and some liabilities.
The Lawsuit:
Two years later, the customer won a treble damages $1.5 million judgment against the seller. The customer couldn’t collect the judgment from the seller and sued the buyer. The customer argued that the buyer was responsible for the judgment because it was a mere continuation of the seller, under Louisiana’s successor liability doctrine.
Legal Principles:
Under Louisiana law, when a buyer acquires all assets from a seller, it’s typically not liable for the seller’s debts. There are four exceptions, including the “mere continuation” exception.
The Mere Continuation Exception:
The customer argued that the buyer was a mere continuation of the seller. The court considered eight factors: Retention of employees, retention of supervisory personnel, keeping the same production facility, producing the same product, keeping the same name, continuity of assets, continuity of general business operations, and how the successor presents itself.
Court’s Decision:
The court found that some factors favored the customer’s mere continuation claim. It noted that the seller owner’s son as well as most seller’s employees joined the buyer after the closing. The seller’s owner joined the buyer’s board and provided consulting services to the buyer. Nevertheless, the court couldn’t conclusively determine that the buyer was a mere continuation of the seller. A trial on the merits was deemed necessary for a full evaluation.
Comments:
At the time of closing, the buyer may not have been concerned about the customer lawsuit because the customer was asking for a return of its $500K deposit. But after the closing the customer asked for and got a treble damage judgment for $1.5 million.
Also, this case illustrates how successor liability laws differ from state to state. Many states generally don’t apply the mere continuation rule to all cash transactions. But Louisiana’s mere continuation rule apparently does not require buyer equity in the deal.
Case Reference:
Hadassa Investment Security Nigeria, LTD. v. Swiftships Shipbuilders, LLC, Civil Action No. 16-1502, United States District Court, W.D. Louisiana, Lafayette Division, (December 28, 2018).
By John McCauley: I help people start, grow, buy and sell their businesses.
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