Opinion ID: 1669015
Heading Depth: 1
Heading Rank: 3

Heading: corporate successor liability

Text: In Jones v. Johnson Machine & Press Co., 211 Neb. 724, 320 N.W.2d 481 (1982), this court ruled a corporation which purchases the assets of another corporation does not succeed to the liabilities of the selling corporation unless (1) ... the purchasing corporation expressly or impliedly agreed to assume the selling corporation's liability; (2) ... the transaction amounts to a consolidation or merger of the purchaser and seller corporations; (3) ... the purchaser corporation is merely a continuation of the seller corporation; or (4) ... the transaction is entered into fraudulently to escape liability for such obligations. Id. at 728, 320 N.W.2d at 483. See, also, Timmerman v. American Trencher, Inc., 220 Neb. 175, 368 N.W.2d 502 (1985). Although Priority did not purchase the assets of Key for cash, we find the Jones rule applies in this instance as well. The record reveals that at the time it ceased operations, Key's liabilities were in excess of $110,000. Of this amount, almost $70,000 was owed to either Priority or Management in advances made for operation expenses or in unpaid management fees. The remainder was the amount owed to Earl for the original sales contract, the stock redemption note, and attorney fee advances. In effect, this transaction amounted to a cancellation of Priority's advances to Key in return for Key's business. As such, it is a transfer of business for a valuable consideration, which properly falls within the Jones rule. In this particular case, several factors lead us to conclude Priority should be held liable for Key's breach of contract with Earl. First, Priority and Key described the transaction as a merger. On April 17, 1984, Key sent letters to its customers claiming it was merging with Priority. We want to take this opportunity to thank you for your past business. It isn't often that we take time to say thank you to the people who keep us in business. In order to keep you abreast of our corporate changes, we'd like to inform you of a name change. We are merging with PRIORITY Data Systems, Inc., effective May 1, 1984. From now on you will receive correspondence under that name. We are in the same building with the same box number, same employees and same excellent servicejust a different name. (Emphasis supplied.) Haas, president of Priority, sent a memorandum addressed to All PRIORITY and AKD [Key] Employees, dated April 18, 1984. In order to keep you abreast of our corporate changes, we would like to inform you of a name change. American Key Data and PRIORITY Data Systems, Inc. are merging effective May 1, 1984. The operation of the new merged business will be no different. You will still have two time cards. One for PRIORITY and one for Key Services. The 592-2020 line will be answered Key Services. (Emphasis supplied.) These letters and memoranda were clearly intended to give customers and employees the impression no substantial change had taken place. Further, as is clearly stated in both the letter and the memorandum, Priority provided the same service, at the same address, to the same customers, using the same employees, and in some respects, such as answering the phone and dealing with employee timecards, using the same name. Following the transaction, Priority continued the business which Key had previously been engaged in, and Key virtually went out of existence. Also, the structure of the transaction supports a finding that its purpose was to avoid Key's obligation to Earl. Following the transaction, Key was left with virtually no assets with which to pay its remaining creditors, which consisted of its related corporations and Earl. Lastly, Key and Priority were owned by Management, with Haas and Pettinger controlling both corporations. This fact lends further support to the conclusion that Priority was a mere continuation of Key. Based on the foregoing, we find Priority merely continued Key's business under a new name. As such, Priority is liable for Key's obligation to Earl. Armour-Dial, Inc. v. Alkar Engineering Corp., 469 F.Supp. 1198 (E.D.Wis.1979).