Opinion ID: 4473339
Heading Depth: 2
Heading Rank: 2

Heading: The de facto merger and mere

Text: continuation exceptions defined ¶20 The de facto merger and mere continuation exceptions were defined and then developed in three main cases: Tift, Cody and Fish. This court first explicitly recognized the exceptions in Tift, 108 Wis. 2d 72, a products liability action alleging injuries caused by a chopper box tractor attachment. The chopper box was first manufactured by a sole proprietorship, which turned into a partnership and eventually metamorphosed into a corporation, Forage King Industries. Id. at 74. Forage King Industries consisted of two shareholders who had formed the partnership, one of whom was the original sole proprietor. Id. Throughout its different business forms, the company retained the same employees, manufactured the same products, and sold to the same dealers. Id. at 74-75. ¶21 In 1975, just before the plaintiff was injured, all of the Forage King Industries stock was purchased by another 10 No. 2017AP822 corporation that continued to operate as Forage King Industries and manufacture the same products. Id. at 75. The plaintiff commenced an action against Forage King Industries and its insurer, alleging that the company was a successor to the manufacturer of the chopper box and was therefore responsible for the plaintiff's injuries. Id. ¶22 We applied the rules of corporate law and reasoned that the de facto merger and mere continuation exceptions demonstrate that, when it is the same business organization that one is dealing with, whether it be by consolidation, merger, or continuation, liability may be enforced because [t]hese are tests of identity. Id. at 79. We thus concluded that, despite organizational transformation, the present Forage King Industries was substantially identical to the organization that manufactured the allegedly defective chopper box and [was] therefore liable.11 Id. at 80. ¶23 The mere continuation exception to successor liability was further developed in Cody v. Sheboygan Mach. Co., 108 Wis. 2d 105, 321 N.W.2d 142 (1982). The plaintiff sued Sheboygan Machine Company for injuries caused by a defective sander. Id. at 109. The defective sander had been manufactured by the original Sheboygan Machine Company, but that company sold its assets and its name to a different company, who again resold the company The court in Tift did not distinguish between the 11 application of the de facto merger and mere continuation exceptions. See Tift v. Forage King Indus., Inc., 108 Wis. 2d 72, 79-80, 322 N.W.2d 14 (1982). 11 No. 2017AP822 assets and name. Id. at 107-08. The plaintiff brought suit against Sheboygan Machine Company, a corporation that shared the same name as the manufacturer of the sander but functioned exclusively as a repair shop. Id. at 108-09. Sheboygan Machine Company shared none of the officers, directors, or stockholders as the predecessor companies. Id. at 108. ¶24 Citing to the facts of Tift and the principles enunciated in that case, the Cody court concluded that the mere continuation exception did not apply because the facts did not demonstrate any continuity or identity of business organizations between the two entities in question. Id. at 106. The Cody court concluded that the second corporation was an entirely different corporation and that the subsequent businesses were markedly different in character and purpose from the original manufacturer and were not continuations of the original business. Id. at 111. ¶25 This court refined the de facto merger and mere continuation exceptions several years later in Fish, 126 Wis. 2d 293. The Fish plaintiffs alleged injuries resulting from the use of a power press manufactured by Bontrager Construction Company. Id. at 295-96. The plaintiffs filed suit against Amsted Industries, Inc., the company that acquired Bontrager's assets and continued to make the power press, and South Bend II, the company who subsequently bought the power press line from Amsted. Id. at 295-97. They alleged that, as successor corporations, Amsted and South Bend II were liable for the acts of Bontrager in manufacturing the allegedly defective power press. Id. at 297. All parties agreed that the traditional exceptions to the rule 12 No. 2017AP822 against successor liability did not apply to the case, but the plaintiffs argued that Tift expanded both the de facto merger and mere continuation exceptions. Id. at 298. The plaintiffs argued that identity meant identity of assets, operations and identity of the product, rather than identity of ownership. Id. at 30001 (emphasis added). ¶26 The Fish court plainly rejected the argument that Tift expanded the de facto and mere continuation exceptions: the [p]laintiffs are in error in alleging that the Tift decision has expanded the exceptions to the rule of nonliability. Id. at 301. The court specified that [i]dentity refers to identity of ownership, not identity of product line. Id. The court affirmed dismissal of the successor liability claim as related to both exceptions because there [was] not sufficient identity between Bontrager and either Amsted or South Bend II to justify holding them liable for the acts of their predecessor. Id. at 295. ¶27 The Fish court also delineated the key elements required to meet the de facto and mere continuation exceptions. In determining whether a de facto merger has occurred, the key element is that the transfer of ownership was for stock in the successor corporation rather than cash. Id. at 301. The key element to resolve whether the successor is a mere continuation of the seller corporation 'is a common identity of the officers, directors and stockholders in the selling and purchasing corporations.' Id. at 302 (quoting Leannais, 565 F.2d at 440).