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Consolidated Risk Services, Inc. v. Automobile Dealers WC Self Insurance Trust

September 16, 2010

CONSOLIDATED RISK SERVICES, INC., PLAINTIFF,
v.
AUTOMOBILE DEALERS WC SELF INSURANCE TRUST; MICHAEL A. SMITH, IN HIS CAPACITY AS CHAIRMAN OF THE ADSIP BOARD OF TRUSTEES; WAYNE JOHNSON, IN HIS CAPACITY AS VICE CHAIRMAN OF THE ADSIP BOARD OF TRUSTEES; WILLIAM LIA, JR., IN HIS CAPACITY AS SECRETARY OF THE ADSIP BOARD OF TRUSTEES; PAUL HEALEY, IN HIS CAPACITY AS TREASURER OF THE ADSIP BOARD OF TRUSTEES; DWIGHT HEALEY, IN HIS CAPACITY AS MEMBER OF THE ADSIP BOARD OF TRUSTEES; DENNIS PETRISAK, IN HIS CAPACITY AS MEMBER OF THE ADSIP BOARD OF TRUSTEES; CHARLES BASIL, IN HIS CAPACITY AS MEMBER OF THE ADSIP BOARD OF TRUSTEES; JOHN WORTS, IN HIS CAPACITY AS MEMBER OF THE ADSIP BOARD OF TRUSTEES; AND RICHARD D'ANDREA, IN HIS CAPACITY AS MEMBER OF THE ADSIP BOARD OF TRUSTEES; DEFENDANTS.



The opinion of the court was delivered by: Scullin, Senior Judge

MEMORANDUM-DECISION AND ORDER

I. BACKGROUND

Defendant*fn1 seeks to amend its Answer/Counterclaim Complaint to add AVI Risk Services, LLC as a counterclaim defendant because it claims that Plaintiff Consolidated Risk Services, Inc. ("CRS"), AV Consultants, Inc., and AV West Coast, Inc., merged into AVI Risk Services, LLC, and that this new corporation inherited Plaintiff's contractual and tort liabilities. See Defendant's Memorandum of Law at 20. The only reason that Plaintiff provides for opposing this motion is its contention that, "[f]ollowing the dissolution of CRS, AV International, Inc., not AVI Risk Services, LLC, retained the assets and liabilities pertaining to this lawsuit." See Affidavit of Dennis Ryan sworn to December 18, 2008 ("Ryan Aff."), at ¶ 21; see also Dkt. No. 64.

Moreover, although Plaintiff has filed a Rule 7.1 Disclosure Statement, in which it contends that it has dissolved and that AVI Risk Services, LLC assumed its assets and liabilities, see Dkt. No. 64, that document further states that "any recovery or liability involved with the subject litigation has been assumed by AV International, Inc. a Pennsylvania Corporation." See id.

The Articles/Certificate of Merger supports Defendant's position. See Declaration of R. Scott Atwater dated October 14, 2008 ("Atwater Decl."), at Exhibit "P." It provides that AV Consultants, Inc., AV West Coast, Inc., and AVI Risk Services, LLC are merging and that AVI Risk Services, LLC is the surviving entity. See id. It also provides that Dennis Ryan is the President and/or Secretary of each of the entities involved in the merger. See id.

In the Court's July 9, 2010 Memorandum-Decision and Order, the Court granted in part and denied in part Defendant's motion for summary judgment and ordered the parties to file letter briefs, and any other supporting documentation, explaining their positions with respect to Defendant's motion to amend its Answer/Counterclaim Complaint.

Currently before the Court is Defendant's motion to amend its Answer/Counterclaim Complaint to add AVI Risk Services, LLC as a counterclaim defendant.

II. DISCUSSION

Defendant asserts that AVI Risk Services, LLC is the successor in interest to CRS by virtue of the fact that (1) it expressly or impliedly assumed CRS's tort and/or contractual liabilities; (2) the two companies merged (a de facto merger); and (3) AVI Risk Services is a mere continuation of CRS. See Dkt. No. 85 at 1. Plaintiff asserts that, upon dissolution, certain of CRS's assets and liabilities were assumed by AVI Risk Services, LLC, but that potential liabilities surrounding the subject litigation were assumed by AV International, Inc. See Dkt. No. 87. Plaintiff asserts that AV International, Inc. was CRS's parent company and, following CRS's dissolution, CRS merged with AV International, Inc. through a de facto merger. See id.

(citation omitted).

New York courts have carved out four exceptions to the general rule that a corporation that acquires the assets of another is not liable for the selling corporation's tort and contract obligations. See Schumacher v. Richards Shear Co., Inc., 59 N.Y.2d 239, 244 (1983). Successor liability will be imposed on the surviving entity if "(1) it expressly or impliedly assumed the predecessor's tort liability, (2) there was a consolidation or merger of seller and purchaser, (3) the purchasing corporation was a mere continuation of the selling corporation, or (4) the transaction is entered into fraudulently to escape such obligations." Id. at 245. "The second and third items are based on the concept that a successor that effectively takes over a company in its entirety should carry the predecessor's liabilities as a concomitant to the benefits it derives from the good will purchased." Grant-Howard Assocs. v. Gen. Housewares Corp., 63 N.Y.2d 291, 296 (1984).

Defendant argues that the merger at issue in this case satisfies the requirements for the second exception listed above because it satisfies the "de facto merger" requirements. In the absence of an actual merger of two or more entities, a court may deem a transaction structured as a purchase-of-assets to fall within the merger exception, as a de facto merger, if the following factors are present:

(1) continuity of ownership; (2) cessation of ordinary business operations and the dissolution of the selling corporation as soon as possible after the transaction; (3) the buyer's assumption of the liabilities ordinarily necessary for the uninterrupted continuation of the seller's business; and (4) continuity of ...


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