business formations, early-stage financing and business transactions. University Research Park 401 Charmany Drive, Suite 310 Madison, Wisconsin 53719 608.661.4500 Phone 608.661.4510 Fax cmiller@neiderboucher.com www.neiderboucher.com acquisitions attorney, one of the central concerns in any deal, whether a small sale or a multimillion dollar merger, is what is my liability exposure post- closing? Structuring a deal as a purchase of assets, rather than stock, is one of the best tools a buyer has in limiting post-closing liability. However, a recent decision in the United States Court of Appeals for the Seventh Circuit should have attorneys' and buyers' attention focused on issues requiring examination and consideration during the due diligence process with respect to successor liability exposure for any asset deal. In Teed v. Thomas & Betts Power Solutions, LLC, 711 F.3d 763 (7th Cir. 2013), the Seventh Circuit found the purchaser in an asset purchase from a receivership auction in Wisconsin was liable for violations of the Fair Labor Standards Act ("FSLA") occurring during the period when asset seller owned and operated the business liability even though a condition of the transfer of the assets from the receiver to the purchaser was that the transfer be "free and clear of all liabilities" and the more specific condition that the purchaser would not assume any liabilities that the seller might incur under the FSLA. Despite the language in the purchase agreement, which the Teed court conceded under Wisconsin state law would have cut off successor liability, because the claims involved violations of federal labor relations or employment law, a broader federal common law standard for determining successor liability claims was applied. Under federal law as articulated by the Seventh Circuit, the following five factors are examined in determining whether successor liability will be imposed for acts occurring during the ownership of the predecessor: the sale. suit. force of the predecessor and the successor. may seem harsh at first blush, when examining the facts of the case against the federal common law standard, it becomes clearer why the court found successor liability against the purchaser. First, the purchaser had notice of the pending lawsuit at the time of purchase. Second, the predecessor would not have been able to provide the relief sought in the lawsuit before the sale because it was insolvent and had defaulted on a bank loan (causing the sale of its assets by the receiver in the first place). The court Recent Developments in Successor Liability |