SUPREME COURT OF THE STATE OF NEW YORK

Appellate Division, Fourth Judicial Department

1039 

CA 12-00617 

PRESENT: CENTRA, J.P., FAHEY, PERADOTTO, AND CARNI, JJ. 

 

 

HAMILTON EQUITY GROUP, LLC, AS ASSIGNEE OF 

HSBC BANK USA, NATIONAL ASSOCIATION, 

PLAINTIFF-RESPONDENT, 

V MEMORANDUM AND ORDER

JUAN E. IRENE, PLLC, ET AL., DEFENDANTS, 

AND JUAN E. IRENE, INDIVIDUALLY AND DOING 

BUSINESS AS THE LAW OFFICE OF JUAN E. 

IRENE, ESQ., DEFENDANT-APPELLANT. 

(APPEAL NO. 2.) 

 

HARRIS BEACH PLLC, BUFFALO (RICHARD T. SULLIVAN OF COUNSEL), FOR

DEFENDANT-APPELLANT. 

RUPP, BAASE, PFALZGRAF, CUNNINGHAM & COPPOLA LLC, BUFFALO (CHARLES

D.J. CASE OF COUNSEL), FOR PLAINTIFF-RESPONDENT. 

 

Appeal from a judgment of the Supreme Court, Erie County (John A.

Michalek, J.), entered May 31, 2011. The judgment, insofar as

appealed from, awarded plaintiff money damages against defendant Juan

E. Irene, individually and doing business as The Law Office of Juan E.

Irene, Esq. 

It is hereby ORDERED that the judgment insofar as appealed from

is unanimously vacated and the order entered May 31, 2011 insofar as

appealed from is reversed on the law without costs. 

Memorandum: Plaintiff commenced this action seeking to collect

the outstanding balance owed on a line of credit by defendant Juan E.

Irene, PLLC (hereafter, PSLLC), a domestic professional service

limited liability company. Plaintiff moved for summary judgment

against defendants, jointly and severally, in the principal amount of

$124,984.37 together with interest, costs and attorneys’ fees. 

Plaintiff also moved for an order of replevin and a writ of seizure

with respect to certain secured collateral. Juan E. Irene,

individually and doing business as The Law Office of Juan E. Irene,

Esq. (defendant), appeals from a judgment that brings up for review

the underlying order granting plaintiff’s motion in its entirety. As

limited by his brief, defendant contends that Supreme Court erred in

granting that part of plaintiff’s motion for summary judgment against

him. We agree with defendant.

On November 25, 2002, the PSLLC entered into a business line of
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CA 12-00617 

credit agreement with a bank. Pursuant to a general security

agreement, the PSLLC granted the bank a security interest in the

PSLLC’s assets, accounts and other intangible property. Defendant

executed the line of credit and security agreements in his capacity as

the sole member of the PSLLC. Defendant, however, neither cosigned

nor guaranteed the line of credit in his individual capacity. On May

27, 2009, the bank assigned the PSLLC’s line of credit to plaintiff. 

On June 3, 2009, the PSLLC was dissolved by the filing of articles of

dissolution with the New York State Department of State.

It is undisputed that, following the dissolution of the PSLLC,

defendant engaged in the practice of law in his individual capacity at

the same location where the PSLLC had been located and under an

assumed name, i.e., “DBA,” “The Law Office of Juan Irene, Esq.” 

Personal injury cases previously handled by the PSLLC were transferred

to defendant’s law practice, and defendant does not dispute that

plaintiff has a security interest in a portion of the attorney’s fees

that may be generated by those personal injury cases. After the

dissolution of the PSLLC, plaintiff thereafter commenced this action. 

As relevant to these appeals, plaintiff moved for summary judgment

seeking a money judgment for the amount outstanding on the line of

credit together with interest, costs and attorneys’ fees. The court,

concluding that defendant was liable to plaintiff as a “successor by

merger” to the PSLLC, granted the motion and judgment was entered

thereon. 

Defendant contends that the court erred in granting that part of

plaintiff’s motion for summary judgment against him because plaintiff

failed to establish that the de facto merger doctrine applies. We

agree. Initially, we note that, although the parties did not

originally brief the issue whether the de facto merger doctrine

imposes successor liability on an individual or sole proprietorship

allegedly merging with a domestic professional service limited

liability company, at oral argument this Court directed the parties to

make supplemental submissions on that issue, and they have done so. 

Thus, the issue of the applicability of the de facto merger doctrine

to plaintiff’s successor liability claim against defendant is properly

before us (see 22 NYCRR 1000.11 [g]).

The “corporate law doctrine” of de facto merger was originally

developed to protect, inter alia, shareholder rights, but it has been

applied in products liability and breach of contract actions

(Sweatland v Park Corp., 181 AD2d 243, 246; see Schumacher v Richards

Shear Co., 59 NY2d 239, 244-245; Washington Mut. Bank, F.A. v SIB

Mtge. Corp., 21 AD3d 953, 954; Ladenburg Thalmann & Co. v Tim’s

Amusements, 275 AD2d 243, 247-248). The doctrine “creates an

exception to the general principle that an acquiring corporation does

not become responsible thereby for the [preexisting] liabilities of

the acquired corporation” (Simpson v Ithaca Gun Co., LLC, 50 AD3d

1475, 1476, lv denied 11 NY3d 709 [internal quotation marks omitted]).

We reject plaintiff’s contention that the de facto merger

doctrine renders defendant liable to plaintiff as a successor by
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CA 12-00617 

merger to the PSLLC. Inasmuch as the PSLLC was a New York

professional service limited liability company created pursuant to

Limited Liability Company Law article 12, any merger or consolidation

between defendant and the PSLLC would be governed by that article. 

Pursuant to Limited Liability Company Law §§ 1213 and 1216, a

professional service limited liability company may, under certain

circumstances, be merged or consolidated with another limited

liability company, a foreign professional service limited liability

company or some “other business entity.” Limited Liability Company

Law § 102 (v) defines “[o]ther business entity” as “any person other

than a natural person or domestic limited liability company” (emphasis

added), and the statute therefore specifically excludes a professional

service limited liability company from being merged or consolidated

with a “natural person” (§ 102 [v]; see §§ 1213, 1216). Here,

defendant is clearly a “natural person,” despite the fact that he

practices law under an assumed name and the fact that his law practice

is characterized as a “sole proprietorship” (see generally Steele v

Hempstead Pub Taxi, 305 AD2d 401, 401; Kaczorowski v Black & Adams,

293 AD2d 358, 358-359). Thus, even if defendant and the PSLLC desired

to be merged, rather than having such merger imposed upon them by a

judicially created doctrine, such a merger could not be accomplished

under the Limited Liability Company Law. 

Notably, although invited to do so by this Court, plaintiff has

not identified any New York authority that permits a New York

corporation or professional service limited liability company to merge

with an individual doing business as a “sole proprietorship,” i.e., a

natural person, or that imposes a merger under the de facto merger

doctrine. Instead, in support of its position, plaintiff cites Tift v

Forage King Industries, Inc. (108 Wis 2d 72, 73-74, 322 NW2d 14, 14-

15), wherein the court applied successor liability in a products

liability action that involved the acquisition of the assets of a sole

proprietor by a corporation. The court in Tift decided that action

based upon the public policy and common law of the state of Wisconsin

(id. at 82-83). We are unpersuaded by Tift. Significantly, the New

York Business Corporation Law limits mergers to corporations and

“other business entities” (§ 901 [c] [1]). The term “[o]ther business

entity,” as defined under the Business Corporation Law, excludes “a

natural person” (§ 901 [b] [7]). Thus, under New York law, neither a

professional limited liability company nor a corporation is permitted

by statute to merge with a “natural person,” individual or “sole

proprietorship.”

We therefore vacate the judgment insofar as appealed from and

reverse the underlying order insofar as appealed from. 

Entered: December 28, 2012 Frances E. Cafarell

Clerk of the Court