A purchaser of a business may be liable for the predecessor's obligations and violations. One acquires the bad as well as the good. A standard method to avoid successor liability involves purchasing a limited number of assets rather than the entire business. Additionally, the purchaser may attempt to contractually shift liability. This comment notes recent situations in which cautious purchasers nevertheless faced successor liability under federal statutes.
An April 4, 2013, U.S. Court of Appeals for the Fourth Circuit decision, PCS Nitrogen Inc. v. Ashley II of Charleston LLC, involved multiparty polluted land cleanup cost liability. The court noted that an agreement between one seller and purchaser did not unambiguously address pollution liability. Additionally another purchaser had failed to "exercise appropriate care with respect to hazardous substances found at the facility...", as required by federal statute, in conducting excavations. Land purchasers may easily become liable under federal law for pollution caused by previous owners.
A March 26, 2013, U.S. Court of Appeals for the Seventh Circuit decision, Teed v. Thomas & Betts Power Solutions, LLC, considered successor liability for federal wage claims that occurred prior to the purchase of a company at a receivership auction. The transfer was to be "free and clear of all liabilities." However, the court stated: "We suggest that successor liability is appropriate in suits to enforce federal labor and employment laws - even when the successor disclaimed liability when it acquired the assets in question ..." A similar result occurred on April 5, 2013, in a Third Circuit decision, Grane Health Care v. NLRB, where the court imposed a duty to bargain with a union because of "substantial continuity between the predecessor and successor enterprises." Federal labor law standards are distinct from state successor liability rules.
The United States Court of International Trade on April, 10, 2013, addressed successor liability for unpaid federal import duties and penalties (U.S. v. Adaptive Microsystems, LLC). A state court had approved the asset and partial stock sale that contained provisions exonerating the successor from all liabilities. However, the Department of Commerce was not a party to this transaction and its claim could not be dismissed by summary judgment.
One final example involves legislative sanctions attached to the federal Foreign Corrupt Practices Act and False Claims Act. Successors may be liable for a predecessor's misconduct because public policy discourages bribery of foreign officials and fraudulently obtaining funds from the federal government. Several lawsuits and settlements have produced questions concerning the effectiveness of traditional methods of limiting successor liability under these circumstances.
Business purchasers must consider federal statutes in addition to merely following state precedents that provide a guide to preventing successor liability. Some federal obligations may continue regardless of the careful structuring of the business purchase. These concerns should be part of the buyer's due diligence process. Federally imposed liabilities may be easily overlooked and quite costly.