Business Disputes

Assessing Successor Liability or Continuation of Business Theory

Closely-held owners may erroneously assume that a corporation or other closely-held limited liability entity may be left to die, without formality, and that these same owners may simply pick right up and start anew, using the same people, offices, etc.  While Florida law clearly takes a strict view when it comes to piercing of the veil claims, consistent with Delaware case law, claims may still be brought, claiming that a “new” entity is nothing more than the alter ego or successor to the entity that was left behind.  As a general rule, Florida law does not impose the liabilities of a predecessor entity on a successor entity unless (1) the successor expressly or impliedly assumes obligations of the predecessor, (2) the transaction amounts to a de facto merger, (3) the successor is a mere continuation of the predecessor, or (4) the transaction is a fraudulent effort to avoid the liabilities of the predecessor. 

Under continuation of business theory, courts are looking to see if a successor entity is merely a continuation or reincarnation of the predecessor, usually under a different name, and the key is to see if there is common identity of officers, directors, managers, and owners in the two entities being compared.  When management and personnel remain essentially the same, then even if there is a change in location, liability can still be found.  Centimark Corp. v. A to Z Coatings & Sons, Inc. and A to Z Coatings, Inc., 2007 U.S. Dist. LEXIS 93805 (M.D.Fla. 2007); see also, Patin v. Thoroughbred Power Boats, Inc., 294 F.3d 640 (5th Cir. 2002)(applying Florida law and finding that a mere continuation of business will be found where one corporation is absorbed by another, as evidenced by an identity of assets, location, management, personnel, and stockholders”).

If you have concerns or questions about any of these alternative legal theories and wish to consult with the Tufts Law Firm, please contact us.