In the 

United States Court of Appeals 

For the Seventh Circuit ____________________

No. 14‐3540

ERIEM SURGICAL, INC.,

Plaintiff‐Appellant,

v.

UNITED STATES OF AMERICA and JOHN KOSKINEN, Commis‐

sioner of Internal Revenue,

Defendants‐Appellees.

____________________

Appeal from the United States District Court for the

Northern District of Illinois, Eastern Division.

No. 12 C 8268 — James B. Zagel, Judge.

____________________

ARGUED NOVEMBER 1, 2016 — DECIDED DECEMBER 16, 2016

____________________

Before EASTERBROOK, ROVNER, and SYKES, Circuit Judges.

EASTERBROOK, Circuit Judge. Micrins Surgical, Inc., went

out of business on March 13, 2009, without paying all of its

taxes. Eriem Surgical, Inc., was incorporated the same day,

purchased Micrins’ inventory, took over its office space,

hired its employees, used its website and phone number,

and pursued the same line of business: the sale of surgical
2 No. 14‐3540

instruments. Bernhard Teitz, the president and 40% owner of

Micrins, continued to play a leading role in Eriem, though its

sole stockholder is Carol Teitz, Bernhard’s wife. Eriem uses

“Micrins” as a trademark. (Bernhard asserts that he owns

this mark and licensed it to Eriem.) The Internal Revenue

Service treated Eriem as a continuation of Micrins and col‐

lected almost $400,000 of Micrins’ taxes from Eriem’s bank

accounts and receivables. Eriem responded with this wrong‐

ful levy suit under 26 U.S.C. §7426(a)(1). After a bench trial,

the district judge concluded that Eriem is indeed a continua‐

tion of Micrins and that the levy therefore is valid.

The Supreme Court has never decided whether state or

federal law governs corporate successorship when the dis‐

pute concerns debts to the national government. One might

infer from United States v. Kimbell Foods, Inc., 440 U.S. 715

(1979), that federal law controls but generally absorbs state

law, unless it is hostile to national interests. But, a generation

after Kimbell Foods, the Supreme Court noted a conflict

among the circuits on the subject and postponed its resolu‐

tion, in an opinion that did not cite Kimbell Foods. See United

States v. Bestfoods, 524 U.S. 51, 63 n.9 (1998). The next year the

Court held in Drye v. United States, 528 U.S. 49 (1999), that in

tax cases state law determines the taxpayer’s rights in prop‐

erty that the IRS seeks to reach, while federal law determines

which of those rights the IRS can collect on. Neither Eriem

nor the IRS contends that the Internal Revenue Code says

anything about corporate successorship, so it seems best to

apply state law. (Eriem has not contended that it would fare

better under federal law—if there is any on this subject.)

The district court concluded that Bernhard has been run‐

ning Eriem, which is conducting the same business as
No. 14‐3540 3

Micrins notwithstanding Carol’s ostensible ownership and

the change of focus from instruments used in health care to

instruments used by cosmetic surgeons. Eriem insists that

Carol is the real as well as the ostensible owner, that the

switch to instruments for cosmetic surgery marks a substan‐

tial change of business, and that it is irrelevant that Eriem

bought all of Micrins’ assets, hired its workers, occupies the

same premises, and uses the Micrins trademark, website,

phone number, and email address. But under Illinois law,

which uses a multi‐factor balancing standard to determine

successorship, see Steel Co. v. Morgan Marshall Industries, Inc.,

278 Ill. App. 3d 241 (1st Dist. 1996), these contentions are

matters for the trier of fact. The district court’s conclusion

that Eriem is still conducting the Micrins business is not

clearly erroneous. That successorship is the “ultimate issue”

does not make it less a finding of fact. See, e.g., Pullman‐

Standard v. Swint, 456 U.S. 273 (1982); Icicle Seafoods, Inc. v.

Worthington, 475 U.S. 709 (1986).

According to Eriem, the district judge made a legal error

by failing to give dispositive significance to the change of

ownership. Bernhard owned only 40% of Micrins’ stock; he

claims to own none of Eriem’s, but even if all of his wife’s

shares are imputed to him the difference between 40% own‐

ership of Micrins and 100% of Eriem means that they just

cannot be the same business. Eriem contends that under

Vernon v. Schuster, 179 Ill. 2d 338 (1997), any change in own‐

ership prevents treating one firm as another’s successor. But

that’s not what Vernon said and is not how it has been un‐

derstood.

There was a substantial change of ownership in Steel Co.,

in addition to the fact that a former stockholder was replaced
4 No. 14‐3540

by his spouse as stockholder of the new firm, and the court

held that this did not prevent treating the new firm as the

old one’s successor when all other considerations pointed

that way. We read Vernon (as did Steel Co.) as holding that a

complete change of ownership prevents a finding of succes‐

sorship, not that complete identity of ownership is essential

to successorship. The district court’s conclusion that Carol

Teitz serves as a proxy for her husband means that there has

not been a complete change of ownership; this, too, was a

conclusion of Steel Co.

We could imagine an argument that, because Bernhard

owned only 40% of Micrins’ stock, Eriem should be liable for

only 40% of its taxes. But Eriem has taken an all‐or‐none

stance; it is unwilling to concede owing the Treasury a pen‐

ny. Given a choice between all and none, the district court

did not commit either a legal or a factual error in electing

“all.”

AFFIRMED