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Can you hold new owner to old owner’s contract obligations / successor liability
April 21, 2020
Can you hold new owner to old owner’s contract obligations / successor liability  
            You don’t have to be a fortune teller to predict massive subscriber defaults under alarm contracts once the economy re-opens.  Already subscribers are requesting deferment and outright forgiveness in their payments.  Even in a decent economy we see subscribers attempting to evade liability by engaging in fraudulent or questionable transfer of ownership and management of businesses.  We see it all the time.  One day the sign says Best Pizza and Joe’s in charge, the next day it’s still Best Pizza but Tom’s in charge.  Sometimes it’s Best Pizza and Joe’s in charge and the next day it’s Even Better Pizza and Joe’s still in charge.  But the “new guy” doesn’t want to pay the alarm bill.  Too often the new guy doesn’t want to allow you to remove the equipment, if yours, or turn off monitoring.  This is particularly a problem with commercial fire alarms, which the occupant needs to remain open and in business.  We see the name change frequently, or change in management company who doesn’t want to continue with the alarm contract.  
            The alarm industry may think it invented RMR and automatic renewal, but look no further than the linen service companies that service restaurants.  Tablecloths and napkin service consists of the linen company producing tablecloths and napkins with the restaurant’s logo, or to restaurant specifications [or course sometimes it’s just generic product].  The linens are delivered and picked up for washing and returning.  Usually the arrangement is that the linen company owns the linen, not the restaurant.   Maybe before the first subscriber defaulted on an alarm contract the linen industry was suing their customers for breaching a long term contract and return of the linen, often relying on liquidated damages.  The industry also ran into the same subterfuge alarm companies see today with a new owner popping up unexpectedly, maybe requested continued linen service or seeking termination.  Often the new operation [entity] will continue the service for a period of time before trying to terminate, refusing to recognize the contract that may be in original or renewal term. Sounds familiar, I’m sure.
            The Supreme Court of Idaho just decided a case involving the linen industry, successor liability, implied assumption of transferor liability, auto renewal, and collection attorney fees.  All germane to alarm companies.  The name of the case is memorable, Alsco v Fatty’s Bar and Clay Roman.  You can read the case in its entirety at under Idaho.  
          The decision is long, but here are a few excerpts:
“... successor liability is generally considered an equitable doctrine…. Cases involving claims of successor liability thus require a trial judge to weigh the competing equities of the case and make a reasoned and informed decision…….. The substantial evidence found by the district court is that in August 2013, Fatty’s Bar, LLC executed an asset purchase agreement directly with Tons of Fun, LLC. Under the agreement, Fatty’s Bar, LLC agreed to pay $10,000 for the equipment owned by Tons of Fun, LLC that was connected to its operation of Fatty’s. The purchase included all the assets of the business, as itemized in the inventory list attached to the asset purchase agreement. Thus, despite Fatty’s Bar, LLC’s efforts to claim this agreement did not involve “all or substantially all” of the assets of Tons of Fun, LLC, it was reasonable for the district court to conclude that an agreement specifying “all televisions and brackets, all beer pong tables, all exterior and interior signage, all lighting, all sound equipment, all decorations, all electronic equipment, all liquor/alcohol, all fixtures (stationary or built in), all glass wear, and anything with the Fatty’s logo on it” constituted substantially all of Tons of Fun, LLC’s assets. …….. The question is whether Fatty’s Bar, LLC, purchased all or substantially all of Tons of Fun, LLC’s assets. …….. Based on the evidence, the district court did not abuse its discretion when it held that Fatty’s Bar, LLC purchased or was the transferee of all or substantially all of Tons of Fun’s assets. …… Having concluded that substantial evidence supports the district court’s conclusion that Fatty’s Bar, LLC was a successor in interest to Tons of Fun, LLC, we must now assess the district court’s legal conclusion in holding that Fatty’s Bar, LLC is obligated under the written Agreement between Tons of Fun, LLC and Alsco.
The general rule, which is well settled in other jurisdictions, is that where one company sells or otherwise transfers all its assets to another company, the latter is not liable for the debts and liabilities of the transferor……..  We recognize this general principle and adopt it in a general sense in Idaho. However, the trap for the unwary in these cases is that successor liability also depends on the particular facts and legal duties at stake in each case; as a result, a buyer of assets “may be a successor for some purposes and not for others.” …….. There are four recognized exceptions which may require a successor entity to be liable as a successor: (1) the purchaser expressly or impliedly agrees to assume the liability; (2) the purchase is a de facto merger or consolidation; (3) the purchaser is a mere continuation of the seller; or (4) the asset transfer is for the fraudulent purpose of escaping liability.
……..  the mere fact that the new corporation has voluntarily paid some of the debts of the old corporation is no ground for inferring that it assumed the latter’s debts ....a “fortuitous debt payment is not enough.”  Yet Fatty’s Bar, LLC’s continuous acceptance of and payment for Alsco’s services for years after Tons of Fun, LLC ceased to exist can hardly be considered a “fortuitous debt payment.” ………. Here, as the district court again found in its factual findings, Fatty’s Bar, LLC continued to use and pay for all of Alsco’s services under the Agreement for four years before it decided to terminate Alsco’s services due to finding a cheaper option….. LLC took over the operation, not the least of which were the ongoing operation of the bar in the identical leased space Fatty’s used, using the same liquor license and equipment that Fatty’s used, and using the identical name for the bar……. Fatty’s Bar, LLC claims that the district court erred because if it did assume any debt from Tons of Fun, LLC, it was only the initial 60-month contract, and that the auto-renewal clause was not a debt that could be passed on to Fatty’s Bar, LLC. The district court rejected this argument, holding that Fatty’s Bar, LLC impliedly assumed the entire Agreement, not just the term remaining until March 2016. We agree. To hold otherwise would undermine the basis of successor liability law. For successor liability, “liabilities” assumed include not only outstanding debts, but obligations arising under contracts assumed, including a contingent future liability on a contract”. [selected quotes] 
            There are others issues that will interest you in the decision and I encourage you to read it.  These issues will come in handy when you are considering pursuing contract enforcement.  If you refer your case to K&K we will do the analysis before commencing the action.

Reaching K&K during the lockdown
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health care professionals:  Jennifer Kirschenbaum,Esq 516 747 6700 x 302;
alarm licensing:  Alison Gallup,Esq 516 747 6700 x 317; or Eileen Wagda, Licensing Administrator, 516 747 6700 x 312
Employment issues:  Kieran Bastible 516 747 6700 x 315; or Jennifer Kirschenbaum,Esq
Concierge Alarm Clients have full access through our Concierge Program Coordinator, Stacy Spector, Esq  516 747 6700 x 304 or 
Collections:  [courts are shut down at this time, so don't expect much progress.  We will however continue to prepare papers on our end so that we will be ready when the courts normalize]  Kathleen Lampert  516 747 6700 x 319
Pending litigation:  Caroline Wallet,Esq  516 747 6700 x 305 and Maureen Biel,Esq 516 747 6700 x 303  MBeil@Kirschenbaumesq,com
Bankruptcy and debt collection issues:  Steve Sheinwald,Esq  516 747 6700 x 309 or Scott Dillon,Esq  516 747 6700 x 318

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Ken Kirschenbaum,Esq
Kirschenbaum & Kirschenbaum PC
Attorneys at Law
200 Garden City Plaza
Garden City, NY 11530
516 747 6700 x 301