Background
Scott M. Deming, Sr. was employed by Bestway Container Services, LLC, which held a garbage-services contract with Chautauqua County that included an indemnification obligation. While working at the Chautauqua County Landfill, Deming was struck and killed by a bulldozer operated by a County employee. His estate brought a wrongful-death action against the County.
After the accident, Casella Waste Management of N.Y., Inc. entered into an asset purchase agreement (APA) with Bestway. The County commenced a third-party action against both Bestway and Casella seeking contribution and indemnification — arguing Casella, as successor, stepped into Bestway’s contractual obligations. Casella moved under CPLR 3211(a)(7) to dismiss, submitting the APA to show it expressly assumed none of Bestway’s pre-closing liabilities. Supreme Court denied the motion.
The Court’s Holding
The Fourth Department unanimously affirmed, but on corrected grounds. It agreed with Casella that Supreme Court should not have applied a summary-judgment standard without proper CPLR 3211(c) notice, and reviewed the motion purely as a CPLR 3211(a)(7) motion to dismiss.
Under that standard, the amended third-party complaint was sufficient. The general rule is that a corporation acquiring assets does not inherit its predecessor’s tort liability. Schumacher v Richards Shear Co. (59 NY2d 239 [1983]), however, recognizes four exceptions: (1) express or implied assumption; (2) consolidation or merger; (3) mere continuation; or (4) fraudulent transaction. The APA’s exclusion of pre-closing liabilities did not “demonstrate conclusively” that the merger and mere-continuation exceptions were inapplicable — the standard at this stage requires the movant to show that a material fact “is not a fact at all.” Discovery could still reveal circumstances bringing Casella within the exceptions.
Key Takeaways
- An APA’s blanket exclusion of pre-closing liabilities does not, standing alone, defeat successor-liability claims under the Schumacher “mere continuation” or “merger” exceptions — those turn on the overall character of the transaction.
- The Schumacher doctrine applies to contractual obligations as well as tort liabilities, meaning a successor can inherit indemnification duties.
- Courts may not convert a CPLR 3211 motion to dismiss into a summary-judgment motion without proper notice to both parties.
Why It Matters
For in-house counsel and M&A practitioners, Deming is a reminder that carefully drafted “no assumed liabilities” language will not necessarily shelter a buyer if the deal otherwise looks like a de facto merger or continuation. Due diligence should specifically assess whether the target’s contracts contain indemnification obligations tied to ongoing operations.
For litigators defending corporate successors, motions to dismiss successor-liability claims are difficult to win at the pleading stage when the degree of operational overlap and management continuity remain undeveloped. Targeted early discovery may be a better strategy.