This is a case of three companies. Two of these companies, Axene and Dynamic Vision, have their principal places of business, and were incorporated, in California. The third company, Healthstar, was organized in and has its principal place of business in Tennessee. In 2017, the Chief Executive Officer and sole director of Dynamic Vision sent Healthstar an email "announcing a merger with Axene Health Partners!"
Later, Healthstar sued Axene alleging that it was liable as a successor in interest to Dynamic Vision. Axene then moved to dismiss the suit contending that "no merger occurred and neither party represented that a merger occurred". Senior U.S. District Judge Curtis L. Collier, however, found that no de facto merger had occurred:
"Under California law, a de facto merger can occur when there is a sale of substantially all of one corporation's assets to another corporation. See Marks v. Minn. Mining & Mfg. Co.,187 Cal. App. 3d 1429, 1436 (Cal. Ct. App. 1986). To determine whether a de facto merger has occurred in such a case, courts consider five factors:
(1) was the consideration paid for the assets solely stock of the purchaser or its parent; (2) did the purchaser continue the same enterprise after the sale; (3) did the shareholders of the seller become shareholders of the purchaser; (4) did the seller liquidate; and (5) did the buyer assume the liabilities necessary to carry on the business of the seller?
Id. These factors are substantially similar, if not identical, to the 'hallmarks' stated above. See In re Wright Enters.,77 F. App'x at 369.
Under these factors, a de facto merger did not occur between Axene and Dynamic Vision under California law. Axene did not pay for any assets by giving stock to Dynamic Vision. Dynamic Vision did not liquidate following this 'merger.' Axene did not assume the liabilities necessary to carry on Dynamic Vision's business. Thus, the Court concludes no de facto merger occurred under California law."
Judge Collier found reached the same conclusion, applying Tennessee law. Healthstar, LLC v. Dynamic Vision, Inc., 2020 U.S. Dist. LEXIS 220374.
