Jurisdiction: Supreme Court of New York, New York County

This action arises out of plaintiff Hydraulic IP Holdings LLC’s attempt to enforce a judgment entered against non-party Grace Apparel LLC. Plaintiff’s complaint alleges that the operation of Grace ceased, and assets were transferred to continue operation through successor entities, defendants GBrands Holding LLC and CC Apparel LLC, to avoid Grace Apparel’s creditors.

Plaintiff moved for summary judgment against defendants GBrands and CC on the first cause of action, successor liability. Defendants opposed and cross-moved for summary judgment.

It is a well-established principle that the “function of summary judgment is issue finding, not issue determination.” Assaf v Ropog Cab Corp., 153 AD2d 520, 544 N.Y.S.2d 834 [1st Dept 1989].As such, the proponent of a motion for summary judgment must tender sufficient evidence to show the absence of any material issue of fact and the right to entitlement to judgment as a matter of law. Alvarez v Prospect Hospital, 68 NY2d 320, 501 N.E.2d 572, 508 N.Y.S.2d 923 [1986]; Winegrad v New York University Medical Center, 64 NY 2d 851, 476 N.E.2d 642, 487 N.Y.S.2d 316 [1985]. Courts have also recognized that summary judgment is a drastic remedy that deprives a litigant of his or her day in court. Therefore, the party opposing a motion for summary judgment is entitled to all favorable inferences that can be drawn from the evidence submitted.

“The de facto merger doctrine creates an exception to the general principle that an acquiring corporation does not become responsible thereby for the pre-existing liabilities of the acquired corporation” (Fitzgerald v Fahnestock & Co., 286 AD2d 573, 574, 730 N.Y.S.2d 70 [1st Dept 2001]). It is well established that courts consider the following factors to determine whether the doctrine of de facto merger applies: (1) continuity of ownership; (2) cessation of ordinary business and dissolution of the acquired corporation; (3) assumption by the successor of the liabilities for the continuation of the business of the acquired corporation; and (4) continuity of personnel, physical location, general business operation. Id. Not all factors must be present to establish a de facto merger. Id. at 574. The First Department has held that continuity of ownership is essential to a de facto merger finding, although insufficient on its own (Van Nocker v A.W. Chesterton, Co. (In re NY City Asbestos Litig.), 15 AD3d 254, 258, 789 N.Y.S.2d 484 [1st Dept 2005]).

Regarding the first prong of the analysis, the continuity of ownership “exists where the shareholders of the predecessor corporation become direct or indirect shareholders of the successor corporation as the result of the successor’s purchase of the predecessor’s assets” (Van Nocker v A.W. Chesterton, Co. (In re NY City Asbestos Litig.), 15 AD3d 254, 256, 789 N.Y.S.2d 484 [1st Dept 2005]). Here, the court found there was a question of fact as to the continuity of ownership by owners of the judgment debtor and the defendant GBrands, but only one owner, Tan, as the owner of CC. Further, as to the contention that to the extent a transaction is required, between the predecessor entity and the successor entities, plaintiff contends that the transfer of the bar code license is sufficient.

That no other assets, other than the bar code license have been transferred, is a question of fact as to whether that is sufficient to establish a transaction to trigger the de facto merger analysis. Further, the use of the same logo by Grace and GBrands also creates an issue of fact. The court finds that neither party has established entitlement to judgment as a matter of law on this issue. Consequently, all summary judgment motions were denied by the court.

Read the full decision here.