Opinion ID: 1689947
Heading Depth: 2
Heading Rank: 2

Heading: whether there is a genuine issue of fact as to whether shopsmith expressly and/or impliedly agreed to assume the liabilities of its predecessor.

Text: ¶ 15. Traditionally, only four exceptions to the general rule against successor liability have been recognized under Mississippi law: (1) When the successor expressly or impliedly agrees to assume the liabilities of the predecessor; (2) When the transaction may be considered a de facto merger; (3) When the successor may be considered a mere continuation of the predecessor; or (4) When the transaction was fraudulent. Russell v. SunAmerica Securities, Inc., 962 F.2d 1169, 1175-76 (5th Cir.1992); Mozingo, 752 F.2d at 174. Shopsmith asserts that it does not fit within any of these exceptions. ¶ 16. Huff alleges that certain clauses and language contained within the original option purchase agreement indicate that the parties contemplated that Shopsmith may be liable to a third party. As such, Huff asserts that there is a genuine question whether Shopsmith expressly and/or impliedly agreed to assume the liabilities of Magna. It is worthy to note that Folkerth was the original party to this agreement and that Shopsmith later purchased it from him. Huff is essentially arguing that the hold harmless clause, as an agreement for Magna to indemnify Shopsmith for any liabilities incurred upon its behalf, is evidence of an assumption of liability by Shopsmith. Shopsmith rebuts this contention by pointing out that there is no consent by it in the option agreement to assuming Magna's liabilities and that the purpose of the hold harmless clause is to indemnify it against losses, not the other way around. Huff's allegation is not well founded and is rejected. ¶ 17. In addition to assumption of liability, a successor corporation may be imputed with the predecessor's liabilities if evidence suggests there was a de facto merger of the two corporations. Mozingo, 752 F.2d at 174. A de facto merger exists when there is a continuity of management, personnel, assets and operations; a continuity of shareholders; the predecessor dissolves shortly thereafter; and the successor assumes the predecessor's obligations. Hadar v. Concordia Yacht Builders, Inc., 886 F.Supp. 1082, 1090 (S.D.N.Y.1995); T.H.S. Northstar Assocs. v. W.R. Grace & Co.-Conn., 840 F.Supp. 676, 678 (D.Minn. 1993). The present situation does not fit this scheme. Shopsmith and Magna never merged. Instead, they remained two separate, viable corporate entities for years following the purchase of assets. ¶ 18. Although Huff asserts that Shopsmith falls within the third exception, we have seen that the situation does not fulfill the requirements of the traditional rule or product line theory. Thus, the allegation that the Shopsmith/Magna agreement constitutes a mere continuation of the original enterprise is without merit and does not subject Shopsmith to the liabilities of Magna. ¶ 19. Finally, there is no evidence, and Huff does not allege, that the transaction was fraudulent. All of the circumstances indicate that this was a legitimate business transaction where both sides were represented by counsel. There exists absolutely nothing to suggest that Magna was somehow trying to avoid liability nor any other illegal motive. Thus, this case does not fall within any of the previously recognized exceptions.