Opinion ID: 174747
Heading Depth: 2
Heading Rank: 1

Heading: Successor Liability of Bard/Davol

Text: Campbell first argues that a genuine issue of material fact remains as to whether Bard/Davol succeeded to the liabilities of Surgical Sense, as a result of the asset purchase. The general rule in most states, including Arkansas, is that a corporation which purchases the assets of another corporation does not succeed to the liabilities of the selling corporation. Swayze v. A.O. Smith Corp., 694 F.Supp. 619, 622 (E.D.Ark.1988). However, this general rule is subject to several exceptions: (1) where the transferee assumes the debts and obligations of the transferor by express or implied agreement; (2) where there is a consolidation or merger of the two corporations; (3) where the transaction is fraudulent or lacking in good faith; and (4) where the purchasing corporation is a mere continuation of the selling corporation. Id. While Campbell recognizes that the first two exceptions are not applicable in this case, she asserts that a genuine issue of material fact exists as to whether the asset purchase in this case lacked good faith, and as to whether Bard/Davol was a mere continuation of Surgical Sense. As pointed out by Bard/Davol in its Appellees' Brief, and confirmed upon thorough review by this court, Campbell's lack of good faith argument is presented for the first time to this court on appeal. It is old and well-settled law that issues not raised in the trial court cannot be considered by this court as a basis for reversal. Morrow v. Greyhound Lines, Inc., 541 F.2d 713, 724 (8th Cir.1976); see also Pub. Water Supply Dist. No. 3 of Laclede County, Mo. v. City of Lebanon, 605 F.3d 511, 524 (8th Cir.2010). Campbell vaguely alleges in her Reply Brief that the lack of good faith argument was implied in her arguments to the district court regarding whether Bard/Davol was a mere continuation of Surgical Sense. This court has not seen any evidence that the argument was made at the district court level, and Campbell has not cited to anything in the record suggesting otherwise. More importantly, the issue was not fully developed in the trial court, and considering the issue on the appellate level would implicate the rationale behind the rule preventing this court from considering new arguments: The rationale for the rule is twofold. First, the record on appeal generally would not contain the findings necessary to an evaluation of the validity of an appellant's arguments. Second, there is an inherent injustice in allowing an appellant to raise an issue for the first time on appeal. A litigant should not be surprised on appeal by a final decision there of issues upon which they had no opportunity to introduce evidence. A contrary rule could encourage a party to `sandbag' at the district court level, only then to play his `ace in the hole' before the appellate court. Pub. Water Supply Dist., 605 F.3d at 524 (quoting von Kerssenbrock-Praschma v. Saunders, 121 F.3d 373, 376 (8th Cir. 1997)). Thus, because Campbell did not argue to the district court that the Asset Purchase Agreement in this case lacked good faith, the court cannot consider the issue on appeal. Campbell also argues that the mere continuation exception to the general rule of successor liability applies in this case. Courts considering this exception emphasize a common identity of officers, directors, and stock between the selling and purchasing corporations. Swayze, 694 F.Supp. at 622-23. There is no evidence of any such overlap in this case. Although Doug Inman and Keith Biggers, the sole directors and officers of Surgical Sense, were temporarily employed by Bard/Davol, the undisputed evidence is that they were consultants, and did not serve in a managerial capacity. The other former Surgical Sense employees who were hired by Bard/Davol after the asset purchase also served in non-managerial positions. Finally, there was no stock transfer involved in Bard/Davol's purchase of Surgical Sense assets. In addition to the lack of evidence of overlap, the only evidence that Campbell cites in support of her argument that Bard/Davol was a mere continuation of Surgical Sense is insufficient to support a finding in her favor. While Campbell points to the lack of business conducted and the lack of assets held by W.C.O. Medical Products after the Asset Purchase Agreement was executed, common identity of assets is not one of the factors that is considered in determining whether a purchasing corporation is a mere continuation of a selling corporation under Arkansas law, according to Swayze. Campbell has not cited any case law suggesting otherwise. Next, Campbell argues that Inman and Biggers were each paid a million dollars by Bard/Davol under their consulting and non-compete agreements, which makes them tantamount to Bard/Davol employees. However, it is not the general overlap of employees that is relevant in determining whether the mere continuation exception applies; rather, it is the common identity of officers and directors between the selling and purchasing corporations with which the court is concerned. Campbell has offered no evidence that Inman and Biggers, the sole directors and officers of Surgical Sense, in any way served as directors or officers of Bard/Davol. Thus, the court finds that the mere continuation exception does not apply. In addition to arguing that one of the recognized exceptions to the general rule of successor liability applies, Campbell also argues that two non-traditional exceptions, the continuity of enterprise and product line exceptions, [3] apply in this case. Campbell acknowledges that these non-traditional exceptions have not been adopted in Arkansas, or in most other jurisdictions for that matter, but she argues that they could be applicable in this case. [4] This court is bound by decisions of the highest state court when interpreting state law. If the highest state court has not decided an issue we must attempt to predict how the highest court would resolve the issue, with decisions of intermediate state courts being persuasive authority. Progressive N. Ins. Co. v. McDonough, 608 F.3d 388, 390 (8th Cir.2010) (internal citations omitted). Arkansas courts have not examined either of the non-traditional exceptions that Campbell argues should apply in this case, so this court must predict whether the Arkansas Supreme Court would recognize these exceptions. As noted by the United States District Court for the Eastern District of Arkansas, [t]he general rule [of successor liability] and its exceptions have long been a part of Arkansas law. Swayze, 694 F.Supp. at 622 (citing Good v. Ferguson & Wheeler Land, Lumber & Handle Co., 107 Ark. 118, 153 S.W. 1107 (1913)). In the almost one hundred years since Arkansas recognized the general rule and exceptions, there have not been any state cases that called the law into question or that otherwise showed dissatisfaction with the status quo. Thus, it seems likely that, if given the opportunity, the Arkansas Supreme Court would side with the large majority of jurisdictions that have rejected the non-traditional continuity of enterprise and product line exceptions. See generally, Tucker v. Paxson Mach. Co., 645 F.2d 620, 626 n. 15 (8th Cir.1981); Swayze, 694 F.Supp. at 623-24; Reed v. Armstrong Cork Co., 577 F.Supp. 246, 248 (E.D.Ark. 1983). Accordingly, this court finds that Campbell cannot rely on the nontraditional exceptions to establish that Bard/Davol succeeded to the liabilities of Surgical Sense, and the district court did not err in granting summary judgment in favor of Bard/Davol with respect to the issue of successor liability.