Court Opinion

ID: 2791020
Source: CourtListenerOpinion
Date Created: 2015-04-02 15:05:19.084369+00
Date Added: 2024-06-11T11:11:19.600183
License: Public Domain

State of New York
                   Supreme Court, Appellate Division
                      Third Judicial Department
Decided and Entered: April 2, 2015                     519497
________________________________

FIRSTAIR GROUP, INC.,
                    Respondent,
      v

ROBERT D. KREB JR. et al.,
                    Defendants,
      and                                   MEMORANDUM AND ORDER

COVENANT ALLIANCE GROUP, INC.,
   Formerly Known as AUTOMOTIVE
   RESOURCE NETWORK HOLDINGS,
   INC.,
                    Appellant.
________________________________

Calendar Date:   February 17, 2015

Before:   McCarthy, J.P., Egan Jr., Devine and Clark, JJ.

                             __________

      Bond Schoeneck & King, PLLC, Syracuse (Daniel J. Pautz of
counsel), for appellant.

                             __________

Clark, J.

      Appeal from an order of the Supreme Court (O'Shea, J.),
entered October 3, 2013 in Chemung County, which denied a motion
by defendant Covenant Alliance Group, Inc. to dismiss the
complaint against it.

      In September 2011, defendant Robert D. Kreb Jr., doing
business as defendant Covenant Flight Group, a sole
proprietorship, entered into a contract with plaintiff to
purchase an aircraft. The agreement, which was personally
guaranteed by Kreb, provided that Covenant Flight Group would
                              -2-                519497

make monthly installment payments through August 2013, at which
point plaintiff would deliver clear title to Covenant Flight
Group. In 2013, Covenant Flight Group entered into an asset
purchase agreement with defendant Covenant Alliance Group, Inc.,
then known as Automotive Resource Network Holdings, Inc.
(hereinafter defendant), whereby defendant agreed to purchase
Covenant Flight Group's equity in the aircraft and appoint Kreb a
member of its board of directors in exchange for 600,000 shares
of defendant's stock. Defendant subsequently learned that
Covenant Flight Group was delinquent on its payment obligations
and terminated the asset purchase agreement.

      Thereafter, plaintiff commenced this action against
defendants for breach of contract, alleging that defendant, as
assignee of Covenant Flight Group, is liable for the default.
Defendant then moved to dismiss the complaint against it pursuant
to CPLR 3211. Supreme Court denied the motion, finding that,
although the asset purchase agreement clearly stated that
defendant did not acquire any of the liabilities of Covenant
Flight Group, plaintiff's assertions of a de facto merger, which
could render defendant liable to plaintiff, required denial of
defendant's motion. Defendant now appeals and we reverse.

      While a corporation that purchases the assets of another is
generally not liable for the debts of the acquired corporation
(see generally State Farm Fire & Cas. Co. v Main Bros. Oil Co.,
101 AD3d 1575, 1578 [2012]), there are several exceptions to this
rule, which include, as is relevant here, an instance where
"there was a consolidation or merger of seller and purchaser"
(Schumacher v Richards Shear Co., 59 NY2d 239, 245 [1983]). This
exception has been found to apply even in the absence of a formal
merger agreement (see Matter of AT&S Transp., LLC v Odyssey
Logistics & Tech. Corp., 22 AD3d 750, 752 [2005]). Here,
although the record demonstrates the presence of some facts often
relevant to the determination of de facto merger (see State Farm
Fire & Cas. Co. v Main Bros. Oil Co., 101 AD3d at 1578; Matter of
AT&S Transp., LLC v Odyssey Logistics & Tech. Corp., 22 AD3d at
752), the dispositive factor is that New York law bars merger of
a corporation with a "natural person" or sole proprietorship
(Business Corporation Law § 901 [b] [7]; see Business Corporation
Law § 901 [c]; Hamilton Equity Group, LLC v Juan E. Irene, PLLC,
                              -3-                  519497

101 AD3d 1703, 1705-1706 [2012]). To the extent that Covenant
Flight Group is a sole proprietorship, it cannot merge with
defendant as a matter of law and, therefore, defendant's motion
pursuant to CPLR 3211 (a) (7) should have been granted.

     McCarthy, J.P., Egan Jr. and Devine, JJ., concur.

      ORDERED that the order is reversed, on the law, with costs,
motion granted and complaint dismissed against defendant Covenant
Alliance Group, Inc.

                             ENTER:

                             Robert D. Mayberger
                             Clerk of the Court