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THIS BREACH OF CONTRACT ACTION WAS BASED UPON A LEASE ENTERED BY A LIMITED LIABILITY COMPANY THE ASSETS OF WHICH WERE PURCHASED BY THE TWO DEFENDANT LIMITED LIABILTY COMPANIES; THE MAJORITY CONCLUDED THE COMPLAINT STATED A CAUSE OF ACTION UNDER THE THEORY THAT THE DEFENDANTS CONSTITUTED A “MERE CONTINUATION” OF THE ORIGINAL LESSEE’S BUSINESS; THERE WAS A TWO-JUSTICE DISSENT (FIRST DEPT).

The First Department, reversing Supreme Court, over a two-justice dissent, determined the breach of contract (commercial lease) cause of action against defendant limited liability companies which had purchased the assets of the original lessee (another limited liability company) should not have been dismissed. The majority concluded the complaint stated a cause of action under the theory that defendants constituted a “mere continuation” of the original lessee. The dissent argued the “mere continuation” theory does not apply where, as here, there are two purchasers of the original lessee’s assets:

… [W]e find that plaintiff has sufficiently stated a cause of action for breach of contract against [defendants] based on the “mere continuation” exception to the rule against successor liability. “Although no one factor is dispositive,” courts determining whether a successor corporation is a “mere continuation” of its predecessor have considered whether: (1) all or substantially all assets are transferred to the successor corporation; (2) the predecessor corporation has been effectively extinguished following the transaction; (3) the successor has assumed an identical or nearly identical name; (4) the successor has retained one or more of the same corporate officers, directors, and/or employees; and (5) the successor has continued the same business … . * * *

Neither the motion court nor defendants cite to any authority prohibiting application of mere continuation successor liability where more than one company has acquired the assets of the predecessor. We disagree with the dissent to the extent that it asserts that Schumacher (59 NY2d 239) stands for the proposition that the existence of more than one successor corporation necessarily bars application of the mere continuation doctrine. In Schumacher, there was only one successor … . Accordingly, it does not address the situation in the facts pleaded by plaintiff in this case. Avamer 57 Fee LLC v Hunter Boot USA LLC, 2025 NY Slip Op 04607, First Dept 8-7-25

Practice Point: The purchasers of a business which constitute a “mere continuation” of the seller’s business can be liable under a contract originally entered by the seller.

 

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