Opinion ID: 2303387
Heading Depth: 2
Heading Rank: 4

Heading: de facto merger/continuity of ownership

Text: The first question this Court must address is whether the Superior Court correctly held that continuity of ownership is an essential element required to support the imposition of corporate successor liability under a theory of de facto merger. As this question is purely one of law, our standard of review is de novo, and our scope of review is plenary. Kistler v. State Ethics Commission, 22 A.3d 223, 227 (Pa.2011). Appellant argues that, until this case, the Superior Court has never held that a single factorcontinuity of ownership or otherwisewas a requirement for establishing de facto merger; rather, previous Superior Court case law had provided that courts should simply consider each of the four relevant factors to determine whether a de facto merger had occurred. See Schneider I, 810 A.2d at 135 (citing Commonwealth v. Lavelle, 382 Pa.Super. 356, 555 A.2d 218, 227 (1989) ( en banc )) (Although each of [the four de facto merger] factors is considered, all need not exist before a de facto merger will be deemed to have occurred.). Appellant asserts that it was erroneous for the Superior Court to conclude in the present case that the above language is tempered by, and must fall to, the Schneider I court's purported emphasis that continuity of ownership is the critical factor to be considered in a de facto merger analysis. Appellant points out that the Schneider I court merely reversed the trial court's grant of summary judgment in favor of the successor corporation because the record established that there was an outstanding issue of material fact on the continuity of ownership factor. Appellant thus contends that the Schneider I court's rather routine holding does not transmute the continuity of ownership factor into an indispensable key element of the de facto merger exception. Appellant also argues that the Superior Court's holding in this case is internally contradictory, in that the Superior Court emphasized that courts should not `elevate form over substance' in determining whether a successor should be liable. Fizzano Bros., supra at 1020 (citing Dawejko v. Jorgensen Steel Co., 290 Pa.Super. 15, 434 A.2d 106, 108 (1981)). Appellant contends that the Superior Court's current position that continuity of ownership between XLN and XLNT is the key, indispensable factor in the relevant analysis in this case effectively does elevate form over substance. Appellant further notes that the Superior Court in this case, also in contradictory fashion, recognized that the de facto merger exception was designed to prevent a situation whereby the specific purpose of acquiring assets is to place those assets out of reach of the predecessor's creditors. In other words, the purchasing corporation maintains the same or similar management and ownership, but wears a `new hat.' Id. at 1019-20 (quoting 15 William Meade Fletcher, Fletcher Cyclopedia of the Law of Private Corporations § 7124.10 (perm. ed., rev.vol.2004)). Appellant observes that, as evidenced by this case, it is clear that by requiring evidence of a formal continuity of ownership, businesses can avoid being subject to the de facto merger exception simply by crafting transactions that omit common shareholders. Appellant argues that, again as evidenced by the present case, the Superior Court's opinion thereby opens up the very abuse the de facto merger exception was designed to prevent. Appellee, XLNT, argues that the Superior Court's conclusion that continuity of ownership and/or control is key for determining corporate successor liability, where there has been an asset rather than stock purchase, is consistent with the holdings of several federal district and circuit court opinions, including the United States Court of Appeals for the Third Circuit. XLNT's Brief at 11-12 (citing, e.g., Berg Chilling Systems, Inc. v. Hull Corp., 435 F.3d 455 (3d Cir.2006) (applying Pennsylvania law); Tracey v. Winchester Repeating Arms Co., 745 F.Supp. 1099 (E.D.Pa. 1990) (applying Pennsylvania law); Glynwed, Inc. v. Plastimatic, Inc., 869 F.Supp. 265 (D.N.J.1994) (applying New Jersey law); Cargo Partner AG v. Albatrans, Inc., 352 F.3d 41 (2d Cir.2003) (applying New York law); and Hernandez v. Johnson Press Corp., 70 Ill.App.3d 664, 26 Ill. Dec. 777, 388 N.E.2d 778 (Ill.App. 1 Dist. 1979) (applying Illinois law)). [9] XLNT acknowledges that the Superior Court had previously held that not all of the de facto merger factors need be present in order to establish a de facto merger, including the continuity of ownership factor. XLNT contends, however, that the ultimate derivation of this principle came from dicta from New Jersey Superior Court decisions of the 1960s. [10] XLNT further argues that those cases in Pennsylvania and elsewhere that have held that not all de facto merger factors need be proven are distinguishable from the instant case by their facts and by their specific causes of action. XLNT's Brief at 18-24 (citing Schneider I, supra ; Lavelle, supra ; and Fiber-Lite Corp. v. Molded Acoustical Products of Easton, Inc., 186 B.R. 603 (E.D.Pa.1994)). XLNT is correct in noting that there is a split among jurisdictions, indeed, even among court decisions within the same jurisdiction, concerning whether the continuity of ownership factor is always required in de facto merger cases. Further, as XLNT also acknowledges and Appellant observes, our Superior Court, prior to its decision in the instant case, has never made continuity of ownership the key factor for determining the existence of a de facto merger. See Schneider I, supra at 135; Lavelle, supra at 227. Thus, we begin by exploring the discrepancies and peculiarities among existing case law to lay the groundwork for our ultimate holding. Preliminarily, we note that this Court has previously discussed the nature and applicability of the de facto merger exception in Farris v. Glen Alden Corp., 393 Pa. 427, 143 A.2d 25 (1958), albeit in the context of the rights of dissenting shareholders. There, we noted that, by the time of our decision, i.e., 1958, it was no longer easy for courts to differentiate between a merger and simple sale of assets because of the increased sophistication of corporate agreements designed to avoid adverse consequences or to obtain beneficial treatment under state and federal statutory and regulatory laws. We stated: Thus, it is no longer helpful to consider an individual transaction in the abstract[;] and[,] solely by reference to the various elements therein[,] determine whether it is a merger or a sale, Instead, to determine properly the nature of a corporate transaction, we must refer not only to all the provisions of the agreement, but also to the consequences of the transaction and to the purposes of the provisions of the corporation law said to be applicable. Id. at 28. Concerning the particular facts of the reorganization agreement at issue in Farris, we observed that the consequence of this agreement would be that the plaintiff shareholder would find himself an unwilling investor in a vastly different business and would suffer a serious diminution of the value of his corporate holdings, even though the transaction had not been conducted as a statutory merger. We held: So, as in the present case, when as part of a transaction between two corporations, one corporation dissolves, its liabilities are assumed by the survivor, its executives and directors take over the management and control of the survivor, and, as consideration for the transfer, its stockholders acquire a majority of the shares of stock of the survivor, then the transaction is no longer simply a purchase of assets or acquisition of property..., but a merger governed by ... the corporation law[] ... although consummated by contract rather than in accordance with the statutory procedure [for merger]. Id. at 31. Although in Farris we upheld the trial court's imposition of liability under the de facto merger exception, we did not establish a test for de facto merger, nor did we discuss whether any one particular factor was essential to establish a de facto merger. Details regarding the nature of the de facto merger exception were later fleshed out by the Superior Court in several cases. In 1989, an en banc panel of that court held: For a de facto merger to occur, there must be continuity of the successor and predecessor corporation as evidenced by (1) continuity of ownership; (2) a cessation of ordinary business and dissolution of the predecessor as soon as practically and legally possible; (3) assumption by the successor of the liabilities ordinarily necessary for the uninterrupted continuation of the business of the predecessor, and (4) a continuity of management, personnel, physical location, aspects, and general business operation. Not all of these factors are needed to demonstrate a merger; rather, these factors are only indicators that tend to show a de facto merger. Lavelle, 555 A.2d at 227-28 (quoting Lumbard v. Maglia, Inc., 621 F.Supp. 1529, 1535 (S.D.N.Y.1985)). Reviewing relevant case law from other jurisdictions, it generally appears that the difference between those courts that require a continuity of ownership for a de facto merger analysis and those that do not depends on how these courts view the essential nature and purpose of corporate successor liability, particularly in relationship to the underlying cause of action. As XLNT points out in its brief, those decisions that have relaxed or waived any requirement of commonality of ownership under the de facto merger exception mostly (but not always) do not involve causes of action arising, as here, under contract or corporate law; rather, they are rooted in criminal or tort law, or law involving some other overarching matter of public policy. Lavelle, for example, concerned the issue of whether a successor corporation could be held criminally liable under the corrupt organizations statute [11] for violations committed by the predecessor corporation, from which it had purchased all or most of its assets. [12] The en banc panel of the Superior Court stated that the issue was whether a de facto successor corporation can be held criminally liable for acts of its predecessor in interest.... Lavelle, supra at 225. Reviewing the evidence under the four de facto merger factors, the court concluded that all but continuity of ownership were formally met. However, on closer inspection, the court determined that although the sole shareholder of the predecessor corporation did not own shares in the successor corporation, his family members owned the successor corporation and, as an officer of the successor corporation, he drew a salary that dwarfed that of the successor corporation's other officer, his son. Under these circumstances, the court concluded (1) that it was irrelevant that there was no formal continuity of ownership between the corporations, as an undisclosed [continuing] ownership interest was plainly evident; and (2) the fraudulent transaction exception to corporate successor liability equally applied to support the imposition of criminal liability on the successor corporation. Id. at 230. Lavelle cited several decisions from other jurisdictions in support of the proposition that the absence of common legal ownership is not an impediment to finding the asset-purchasing corporation as the de facto successor corporation to the asset-selling corporation. See Turner v. Bituminous Casualty Co., 397 Mich. 406, 244 N.W.2d 873 (1976); Knapp v. North American Rockwell Corp., 506 F.2d 361 (3d Cir.1974); and Lumbard, supra . Turner and Knapp concerned products liability causes of action; Lumbard concerned, among other things, a fraudulent transfer of assets cause of action. Many relevant cases from other jurisdictions that have taken a relaxed approach to the requirement of continuity of ownership or an exchange of shares under the de facto merger exception are products liability cases. As such, they emphasize the dominant public policy interests of products liability law in justifying the relaxation or waiver of the commonality of ownership prong of the de facto merger exception. As the New Jersey Supreme Court stated: In recent years ... the traditional corporate approach [which, as discussed infra, would not relax the requirement of common ownership under the de facto merger exception] has been sharply criticized as being inconsistent with the rapidly developing principles of strict liability in tort and unresponsive to the legitimate interests of the products liability plaintiff. Courts have come to recognize that the traditional rule of nonliability was developed not in response to the interests of parties to products liability actions, but rather to protect the rights of commercial creditors and dissenting shareholders following corporate acquisitions, as well as to determine successor corporation liability for tax assessments and contractual obligations of the predecessor.    In an effort to make the traditional corporate approach more responsive to the problems associated with the developing law of strict products liability[,] several courts have broadened the [traditional] exceptions of  de facto merger and mere continuation in order to expand corporate successor liability in certain situations. Ramirez v. Amsted Industries, Inc., 86 N.J. 332, 341-43, 431 A.2d 811, 815-17 (1981). [13] Thus, in Cyr v. B. Offen & Co., Inc., 501 F.2d 1145 (1st Cir.1974) (applying New Hampshire law), the First Circuit Court of Appeals determined that there was sufficient justification for a jury to find the successor corporation to be the mere continuation of its predecessor for purposes of imposing tort liability for injuries caused by defective products where the successor corporation continued to produce the same product, through the same employees, in the same physical plant, under the same supervision as its predecessor, and under essentially the same name as its predecessor, thus, publicly holding itself out to be the same enterprise. However, the underlying transaction was an asset sale where no shares of stock were exchanged and where the asset purchase agreement provided that the purchasing corporation would not assume the liabilities of the selling corporation. The Cyr court justified its holding on the public policy considerations underlying strict products liability, including issues of risk-spreading. See id. at 1154; accord Turner, supra at 423, 244 N.W.2d at 880 ([T]here is no basis for treating a purchase of corporate assets different[ly] from a de facto merger. Both the injured party and the transferee corporation have common goals in each situation. It would make better sense if the law had a common result and allowed products liability recovery in each case.). In Knapp, supra , the Third Circuit Court of Appeals opined that this Court would, when presented with the appropriate case, permit products liability actions to proceed against successor corporations under the de facto merger exception, despite lack of indicia of an actual merger, [14] pursuant to the policy consideration of spreading the risk. The Knapp court based its analysis on pronouncements made by this Court in Farris, supra , wherein we emphasized that a court must look beyond the formalities of the underlying corporate transaction in order to consider its consequences. Knapp, 506 F.2d at 368 (citing Farris, 143 A.2d at 28). [15] Finally, courts from other jurisdictions have noted that the relaxed approach to the de facto merger exception has been applied where causes of action raise public policy concerns other than those concerning products liability. Courts in various jurisdictions, including Indiana, have relaxed successor liability requirements in certain limited contexts, for example, to address injuries caused by defective products manufactured by a predecessor corporation or to vindicate policies incorporated in federal statutes in areas such as labor law, environmental law[,] and employment discrimination law. Glentel, Inc. v. Wireless Ventures, LLC, 362 F.Supp.2d 992, 1001 n. 20 (N.D.Ind.2005) (citing cases). However, when the underlying cause of action is not one that implicates certain public policy concerns, but rather is rooted in contract or corporate law, as in this case, [16] the courts of other jurisdictions have notably adhered to the traditional [17] or more conservative stance [18] that for the de facto merger exception to be recognized, continuity of ownership between the predecessor and successor corporations must be shown. See, e.g., Cargo Partner AG, 352 F.3d at 46-47 ([W]e are confident that the doctrine of de facto merger in New York does not make a corporation that purchases assets liable for the seller's contract debts absent continuity of ownership.... [C]ontinuity of ownership is the essence of a merger.); Washington Mut. Bank, F.A. v. SIB Mortg. Corp., 21 A.D.3d 953, 954, 801 N.Y.S.2d 821, 822 (N.Y.App. Div.2005) ([I]n non-tort actions, continuity of ownership is the essence of a merger.); Bud Antle, Inc. v. Eastern Foods, Inc., 758 F.2d 1451, 1458 (11th Cir.1985) (applying Georgia law: [A] consolidation or merger always involves a transfer of the assets and business of one corporation to another in exchange for its securities.... At the very least, there must be some sort of continuation of the stockholders' ownership interests.); Travis, 565 F.2d at 447 (applying Ohio and Indiana law: A major factor in support of a finding of de facto merger is a transfer of stock as consideration.... Absent a transfer of stock, the nature and consequences of a transaction are not those of a merger.); Leannais v. Cincinnati, Inc., 565 F.2d 437, 439 (7th Cir.1977) (applying Wisconsin law: [A] ` de facto merger' may be found if the consideration given by the purchaser corporation be shares of its own stock.); Forrest v. Beloit Corp., 278 F.Supp.2d 471, 476 (E.D.Pa.2003) ([T]he transfer of stock is a key element in finding a de facto merger because it represents continuity of ownership.); Tracey, 745 F.Supp. at 1110 (in rejecting the product-line exception, holding that stock ownership is the essential element of the de facto merger exception); Ramirez, 86 N.J. at 342, 431 A.2d at 816 (Traditionally, the triggering of the ` de facto merger' exception has been held to depend on whether the assets were transferred to the acquiring corporation for shares of stock or for cash[;] that is, whether the stockholders of the selling corporation become the stockholders of the purchasing corporation.); Good v. Lackawanna Leather Co., 96 N.J.Super. 439, 452, 233 A.2d 201, 208 (Ch.1967) (A consolidation or merger always involves a transfer of the assets and business of one corporation to another in exchange for its securities, describing continuity of ownership as a key element of the de facto merger exception.). The philosophical underpinnings of those courts that require the continuity of ownership element in recognizing a de facto merger are firmly rooted in general principles of commercial and corporate law. As stated by the Eleventh Circuit Court of Appeals: Several courts have held that [a] consolidation or merger always involves a transfer of the assets and business of one corporation to another in exchange for its securities. At the very least, there must be some sort of continuation of the stockholders' ownership interests. The reason for this requirement is that corporate liability adheres not to the nature of the business enterprise but to the corporate entity itself. The corporate entity and its shareholders ultimately are responsible for the disposition of the corporation's assets and the payment of its debts. Even if the corporation sells to another corporation its entire business operation and all its assets, in exchange for some consideration other than stock, the two corporate entities remain distinct and intact. The corporate entities have not merged, and each is liable for its own debts, absent fraud or one of the other exceptions [to successor liability] listed above. Bud Antle, supra at 1458 (citations and footnote omitted). Other courts have noted that any expansion of the traditional or more conservative approaches to the issue of continuity of ownership under either the de facto merger or mere continuation exceptions would have a chilling effect on commercial transactions and would undermine the general policy of encouraging the productive use of economic assets through free alienability. Glentel, supra at 1003, 1004; see also Gallenberq Equip., Inc. v. Agromac Int'l, Inc., 10 F.Supp.2d 1050, 1055-56 (E.D.Wis.1998). Thus, these courts have criticized unjustifiably relaxing the traditional test of successor liability and importing the continuity of enterprise doctrine from the product liability context into commercial law. Glentel, supra at 1003 (quotation marks omitted); see also Gallenberq, supra at 1055. However, some courts, even where the underlying cause of action is in contract or commercial law, have taken a different approach and would not require the existence of any particular de facto merger prong, including continuity of ownership, although each prong would be considered in the analysis. See, e.g. Luxliner P.L. Export, Co. v. RDI/Luxliner, Inc., 13 F.3d 69, 73 (3d Cir.1993) (applying New Jersey law) (The crucial inquiry is whether there was an intent on the part of the contracting parties to effectuate a merger or consolidation rather than a sale of assets.); Glynwed, Inc. v. Plastimatic, Inc., 869 F.Supp. 265, 275-77 (D.N.J.1994) (same, but finding that the continuity of ownership prong was met where a minority of the predecessor corporation's shareholders owned stock in the successor corporation, stating: Continuity of ownership, not uniformity, is the test.); Fiber-Lite, supra at 609-11 (holding that although the successor corporation purchased the assets of the predecessor corporation from a third party through the foreclosure statute, the successor corporation would nevertheless be responsible for the predecessor corporation's debt where the shareholder of the predecessor corporation was the president and the father of the shareholders of the successor corporation, and the transaction appeared to be orchestrated by a creditor bank of the predecessor corporation with the intent to rid the predecessor of other debt). The question this Court accepted for review could suggest the need to devise a broad holding to answer the question: Does the de facto merger doctrine always require proof of continuity of ownership? Fizzano Bros., 994 A.2d 1081. Based on the above case law, or at least the majority of it, a broad holding could state that when the underlying cause of action is contractual or commercial in nature, the de facto merger exception does require a strict continuity of ownership, but where the underlying cause of action is rooted in a cause of action that invokes important public policy goals, the continuity of ownership prong may be relaxed. However, the better course requires that we tailor our holding to the narrow facts of the case sub judice, and use the above analysis for background and guidance. For one, this case does not concern an underlying cause of action that implicates issues of overarching public policy. Indeed, this Court has never adopted an expansion of corporate successor liability to accommodate such cases. Therefore, it would be improper to articulate a holding that would govern aspects of, or exceptions to, the law of corporate successor liability that this Court has not had occasion to recognize. [19] Further, although the majority of the case law that we have reviewed from other jurisdictions would support a rigid holding that where, as here, the underlying cause of action is in contract or breach of warranty, continuity of ownership would be a necessary factor for establishing a de facto merger, we resist a mechanical, un-nuanced ruling for several reasons. First, many of the cases cited supra hold that continuity of ownership, as evidenced by an exchange of shares, is an indispensable requirement for the recognition of a de facto merger because such form of continuity of ownership is a circumstance present in de jure mergers effected through statutory law. However, our statutory law does not contemplate such a limited view. The Business Corporation Law of 1988 (the Corporation Law) sets forth the elements of a statutory merger. [20] See 15 Pa.C.S. §§ 1921-1932. These provisions relevantly authorize the merger of any two corporations into one of the domestic business corporations participating in the merger, which shall be the surviving corporation. 15 Pa.C.S. § 1921(a). Consolidation of two or more corporations into a new corporation formed under the Corporation Law may also be effected. Id. The Corporation Law contemplates that a plan of merger or consolidation shall include the manner of conversion of shares of the predecessor corporation(s) for shares or obligations of the surviving corporation. 15 Pa.C.S. § 1922(a)(3) (emphasis added). Additionally, if any of the shares of any of the corporations that are parties to the merger or consolidation are not to be converted solely into shares or other securities or obligations of the surviving or new corporation, [the plan shall also include a description of] the shares or other securities or obligations of any other person or cash, property or rights that the holders of such shares are to receive in exchange for, or upon conversion of, such shares. Id. (emphases added). [21] Because the Corporation Law does not always require an exchange of shares, for a statutory merger (shareholders of the predecessor corporation may surrender their shares of stock for obligations of the successor corporation or, in partial manner, cash, property, or rights in lieu of shares in the successor corporation), it would be incongruous to adopt a blanket rule that a de facto merger would always require a rigid showing that the shareholders of the predecessor corporation have exchanged their ownership interests for shares of the successor corporation. We find the analysis of the Eleventh Circuit Court of Appeals in Bud Antle, supra at 1458, quoted above, instructive on this point. That court rejected the notion that a merger always involves a transfer of the assets from one corporation to another in exchange for its securities. However, we agree with this court that a de facto merger must show some sort of continuation of the stockholders' ownership. Id. This is because corporate liability adheres not to the nature of the business enterprise but to the corporate entity itself. The corporate entity and its shareholders ultimately are responsible for the disposition of the corporation's assets and the payment of its debts. Id. However, because a de facto merger analysis tasks a court with determining whether, for all intents and purposes, a merger or consolidation of corporations has occurred, even though the statutory procedure had not been used, the continuity of ownership prong of the de facto merger analysis certainly may not be more restrictive than the relevant elements of a statutory merger as contemplated by our legislature. Secondly, a de facto merger analysis, as viewed by this Court in Farris, supra , and by the Superior Court in several decisions prior to the instant case, requires that a court look beyond the superficial formalities of a transaction in order to examine the transactional realities and their consequences. See id. at 28 ([T]o determine properly the nature of a corporate transaction, we must refer ... to the consequences of the transaction and to the purposes of the provisions of the corporation law said to be applicable.); see also Gallenberq, supra at 1054 (Courts will give close scrutiny to corporate realities, not mechanical application of a multi-factor test.); Kaiser Foundation Health Plan of Mid-Atlantic States v. Clary & Moore, P.C., 123 F.3d 201, 206 (4th Cir.1997) (We cannot allow a corporation which, by all indications is under the same control as its predecessor, to avoid its legitimate debts by manipulating superficial indicia of ownership.). As then-Judge of the Third Circuit Court of Appeals, Samuel A. Alito, Jr., observed: The de facto merger exception is not strictly contractual because it is an equitable principle, ultimately designed to look beyond the contract. Berg Chilling Systems, 435 F.3d at 465 (emphasis added). As various cases have revealed, transactional realities sometimes require a scrutiny that extends the focus beyond the confines of the immediate consequences of the proximal asset purchase agreement. See Schneider II, 873 A.2d at 1294 ([N]either the UCC itself nor the policy underlying it demands the imposition of an absolute bar to an unsecured creditor's assertion of a successor liability claim against an entity that has purchased the debtor's assets in a [commercially reasonable] foreclosure sale. Rather, we conclude that such claims may proceed[,] and if the unsecured creditor can establish that one of the exceptions to the general rule against successor liability applies, it may collect the predecessor's debt from the successor.); Glynwed, supra at 274 (same); Glentel, supra at 999-1000 (same); Fiber-Lite, supra at 609-10 (substantially the same). The lessons from these cases militate against a mechanical application of the continuity of ownership prong of the de facto merger exception, even where some cases may also fall under another theory of corporate successor liability, such as fraudulent or inadequately-funded transfers. See Lavelle, supra at 230 (determining liability under both the de facto merger exception and the fraudulent transaction exception to the general rule of corporate non-liability of a transferee corporation). Accordingly, we hold that in cases rooted in breach of contract and express warranty, the de facto merger exception requires some sort of proof of continuity of ownership or stockholder interest. Bud Antle, supra at 1458. However, such proof is not restricted to mere evidence of an exchange of assets from one corporation for shares in a successor corporation. Evidence of other forms of stockholder interest in the successor corporation may suffice; indeed 15 Pa.C.S. § 1922(a)(3) contemplates that continuing shareholder interest pursuant to a statutory merger may take the form of obligations in lieu of shares in the new or surviving corporation. Further, de facto merger, including its continuity of ownership prong, will always be subject to the fact-specific nature of the particular underlying corporate realities and will not always be evident from the formalities of the proximal corporate transaction. These realities may include an issue concerning which entity is actually the true predecessor corporation. See Lavelle, supra at 230 (citation omitted) (The issue of sufficient degree of identity is one that must be resolved on a case-by-case basis.). Finally, the elements of the de facto merger are not a mechanically-applied checklist, but a map to guide a reviewing court to a determination that, under the facts established, for all intents and purposes, a merger has or has not occurred between two or more corporations, although not accomplished under the statutory procedure. See Farris, supra at 28, 31. Turning to the facts of the instant case, we observe that the underlying cause of action arose from a contract entered into between Appellant and SDG. The four Shareholders of SDG sold their shares to XLN, a corporation owned by investment companies. In exchange, the Shareholders received, in addition to some cash, promissory notes evidencing a considerable debt obligation of XLN, which obligation was secured by the primary asset of value for that corporation, namely, the Software. Indeed, this particular asset was the business. When XLN sold its assets to XLNT, which was also formed to invest in the Software, XLN was relieved of its debt obligation under the promissory notes and XLNT assumed, through renegotiated promissory notes with the Shareholders, this considerable corporate debt obligation. Once again, the obligation was secured by the critical asset for this new corporation, namely the Software. The two principal Shareholders of SDG held positions of importance with both XLN and XLNT. Both XLN and XLNT were evidently formed simply to invest in the development and licensing of the Software, which remained the property of the Shareholders throughout the relevant timeframe. The record demonstrates a continuity of the business formed by the Shareholders and originating in SDG. Fritsch, a principal Shareholder of SDG, testified at trial that he and the other principal Shareholder, Hamlin, became involved in negotiations with Montgomery prior to the asset sale between XLN and XLNT to salvage our company. The company, the company that we had started. N.T., 10/23/06, at 58; see also id. at 59. Similarly, Hamlin testified with respect to his negotiations with Montgomery over the transfer of the right to license the Software to XLNT: We had this asset, we the [S]hareholders had this asset, the source code. We had a note. They [XLN] weren't paying.... I was trying to serve my business needs, and the concern of the company. N.T., 10/24/06, at 17-18. Based on all of the evidence adduced at trial, the trial court discerned a corporate continuum from SDG, which had the contract with Appellant, to XLNT. See Trial Court Opinion, Findings of Fact Nos. 35-43. That is, the Shareholders surrendered their shares in SDG in return for secured promissory notes of considerable value, which were ultimately transferred to XLNT. The company, as referred to by Fritsch and Hamlin in their testimony, moved from SDG to XLN to XLNT. In contrast to the trial court, the Superior Court narrowly focused on whether XLN and XLNT had common shareholders. We appreciate the Superior Court's attempt to adhere to the stated elements of the de facto merger exception; however, by its taking a narrow and mechanical view of the continuity of ownership prong, the court erred. This error lay in (1) restricting the proof of continuity of ownership to evidence of an exchange of assets or stock shares from one corporation for shares in the successor corporation; and (2) narrowly focusing on the formalities of one piece of the transactional reality (the sale of assets from XLN to XLNT), thus, ignoring the instructions and lessons from this Court in Farris, supra , and the guidance from courts of other jurisdictions, as cited above. We do not opine, under this issue, or the second one, as to whether the facts found by the trial court support the conclusion that a de facto merger had occurred that would permit an obligation of SDG, once assumed by XLN, to be determined the responsibility of XLNT, nor are we suggesting a result. However, based on the above, and with a focus upon substance over form where corporate transactions are concerned, as recognized by this Court in Farris, supra , we reject the narrow application of the continuity of ownership prong adopted by the Superior Court in this case. Continuity of ownership or stockholder interest in some form must be shown, [22] but the manner by which it may be shown is more extensive and attuned to the transactional realities than the Superior Court's holding supports.