In a 3-2 decision, First Department expounds on successor liability via mere continuation

August 14, 2025  | By Patrick T. McCloskey

Successor liability can be an M&A snag in an asset acquisition.

Under this doctrine, a buyer can be held responsible for a pre-closing liability of the target even if the buyer does not assume the obligation under the subject asset purchase agreement (APA).

This scenario was front and center in Avamer 57 Fee LLC v. Hunter Boot USA LLC et al., a recent New York Appellate Division case decided on August 7, 2025.¹ In a 3-2 decision over a sharp and well-reasoned dissent, the First Department reversed the dismissal of a landlord’s breach claim against two buyers (Authentic and Fisher) who purchased the assets of the target company tenant (Hunter Boot USA) under two separate APAs.

Neither Authentic nor Fisher assumed Hunter Boot USA’s commercial lease obligations in the transactions,² but the Fisher APA did include a covenant that required Hunter Boot USA take certain actions if Fisher made a deal with the landlord to use the premises. The landlord first learned of the APA sales in June 2023 when a Fisher employee informed the landlord’s agent that Hunter Boot USA would be winding down and asked whether Fisher could lease the space. Two months after the closing (in August 2023), Hunter Boot USA notified the landlord it would stop paying rent and would “imminently dissolve and wind up its affairs.”

The landlord sued Hunter Boot USA, Authentic and Fisher for breach of the lease agreement and sued Authentic and Fisher for tortious interference.³

The majority recited the four exceptions to New York’s general rule that a successor is not liable for the liabilities of its predecessor: (1) an express or implied assumption of the predecessor’s liabilities; (2) de facto merger; (3) a fraudulent transaction undertaken to escape liability; or (4) “mere continuation” of the predecessor.

Since the buyers did not assume the lease obligations under the two APAs, the first ground for successor liability was inapplicable. As for the second, the court recited the plaintiff’s acknowledgement that since there was no continuity of ownership, the de facto merger exception did not apply. On the third factor, although the landlord alleged grounds for successor liability based on fraud, the court affirmed the trial court’s finding to the contrary (among other things, the court noted the plaintiff failed to plead inadequate consideration, the plaintiff did not allege the transaction rendered Hunter Boot USA judgment proof, and the transaction was not concealed).

With the first three exceptions inapplicable, the majority’s decision rested on the fourth, mere continuation. Citing Miot v. Miot, ⁴ Tap Holdings, LLC v. Orix Financial Corp, ⁵ and Burgos v. Pulse Combustion, ⁶ the majority applied a five-factor test to decide the issue. Specifically, it analyzed whether: (i) all or substantially all of the predecessor’s assets were transferred to the successors; (ii) the predecessor was effectively extinguished following the transaction; (iii) the successors assumed an identical or nearly identical name; (iv) the successors had retained one or more of the same corporate officers, directors, and/or employees; and (v) the successors continued the same business. The majority opined that “no single factor is dispositive,” but after applying each of the five to the landlord’s allegations, it concluded the motion to dismiss the successor liability claim on the theory of mere continuation should have been denied.

The majority found the first factor supported mere continuation because the landlord alleged Authentic and Fisher purchased substantially all the assets of Hunter Boot USA under the two APAs. Although this seemingly sufficed for the first factor, the majority also alluded to the fact that Fisher took steps to enforce an APA provision that gave it the right to use the leased premises. The majority apparently addressed this additional fact to dispel the dissent’s contention that the buyers did not purchase the target’s “business location”.⁷

Effective extinguishment of the predecessor

On the second factor, Hunter Boot USA notified the landlord it “would imminently dissolve and wind up its affairs” which the majority concluded was sufficient to satisfy the “effectively extinguished” factor at the motion to dismiss stage. The dissent disagreed on this point (see below), contending this was a “barebone allegation.” Both the majority and the dissent cited Tap Holdings in analyzing this factor, but they reached different conclusions.

Assumption of an identical or nearly identical name

On the third factor, the majority pointed to Authentic’s acquisition of Hunter Boot USA’s “brand, goodwill, intellectual property, and the ability to use the Hunter Boot name”, supporting mere continuation.

One or more of the same corporate officers, directors and/or employees

For the fourth factor, the majority referenced Authentic’s public announcement that the acquisition would not necessarily involve leadership changes. It quoted Burgos for the notion that “at least one officer from the predecessor corporation [be] retained by” the successor corporation to support mere continuation.⁸

Continuation of the same business

On the fifth factor, the majority focused on the landlord’s allegations that (i) both Authentic and Fisher continued Hunter Boot USA’s operations after the closing, including at the leased premises; (ii) a Fisher employee told the landlord that Fisher planned on using the premises for a three-month period; and (iii) computer systems were upgraded for the continued operations. The majority also referenced that Authentic’s APA gave Hunter Boot USA a license to use the Hunter Boot name to sell some of its stock at separate location, so long as no “going out of business” slogan was used.⁹

The dissent

The dissent focused on the second factor, insisting that “the predecessor corporation must be extinguished” to properly plead mere continuation. For the dissent, the mere fact that Hunter Boot USA continued after the closing “as a distinct, albeit [allegedly] meager entity” was dispositive in negating mere continuation.

The dissent also criticized the majority’s conclusion that the New York Court of Appeals’ decision in Schumacher v. Richards Shear Co. ¹⁰ only applied to situations where there was one successor entity. Instead, the dissent asserted the narrow focus was on the existence or extinguishment of the predecessor, a pivotal point on which the majority and the dissent disagreed.

As explained above, the majority’s view was that Hunter Boot USA was “effectively extinguished” because it notified the landlord that it would “imminently dissolve and wind up its affairs” and that “it did not have sufficient funds to make any further payments, including rent payments.” The dissent’s view was that Hunter Boot USA was not “effectively extinguished” because, among other things, its corporate existence remained intact and two months’ rent were paid to the landlord after the closing.

Takeaway

While there is a procedural nuance on this difference of opinion (the majority concluded the allegations were sufficient to defeat a motion to dismiss while the dissent did not), there is a fundamental inconsistency that will leave careful corporate lawyers (like yours truly) scratching their heads.

Both the majority and the dissent recite New York law on mere continuation as a five-factor analysis. However, the majority ruled “no single factor is dispositive” and dropped a footnote suggesting, for that reason, the outcome would be the same even if the dissent were correct.¹¹ On the other hand, the dissent reasoned that the continued existence of the predecessor for purposes of the second factor (i.e., a finding that Hunter Boot USA was not “effectively extinguished”) was dispositive.

Taking the majority’s opinion as binding precedent, 4 out of 5 factors would appear to be enough to support mere continuation, even without effective extinguishment. However, in Ring v. Elizabeth Found. for the Arts, ¹² the First Department affirmed the dismissal of a successor liability claim on grounds of mere continuation solely because the predecessor was still registered as an active corporation. That would appear to contravene the “no one factor is dispositive” principle and support the dissent’s view that the second factor is dispositive if the predecessor was not “effectively extinguished.” The dissent cited Ring on this point, but the majority distinguished it as a summary judgment case with a higher evidentiary burden, illustrating the procedural nuance.

Buyers and sellers

Successor liability is not just an issue for buyers. Most APAs have sellers agreeing to indemnify the buyer for retained liabilities, and this category is typically excluded from basket and cap limitations. Sellers should not assume this is purely a “buyer’s issue.”

Any buyer or seller evaluating the mere continuation doctrine for successor liability purposes while negotiating an APA governed by New York law should carefully consider all five factors. Even though the majority in this case ruled that “no one factor is dispositive”, given the dissenting opinion and the First Department’s decision in Ring, there would appear to be a risk that the second factor could be deemed dispositive and negate mere continuation if the target company is not “effectively extinguished.”

This decision (and blog post) speak only to mere continuation. As referenced above, there are three other grounds for imposing successor liability on an APA buyer under New York law. In addition to diving into the complex analysis on mere continuation, the other grounds for successor liability should be examined.

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This post is for general informational purposes only and does not constitute legal advice. No one should rely on the information in this blog post without seeking appropriate legal, accounting, tax or other appropriate advice from an attorney, accountant or other professional properly licensed in the applicable jurisdiction(s).

1 2025 NY Slip Op 04607.

2 According to the opinion, the buyers did not assume any liabilities of Hunter Boot USA and the purchases were made pursuant to a “British administration process equivalent to bankruptcy” involving Hunter Boot USA’s parent.

3 The court affirmed the dismissal of the tortious interference claims against Authentic and Fisher.

4 2009 NY Slip Op 51605[U], * 6 (Sup Ct, NY County 2009), aff’d, 78 AD3d 464 (1st Dep’t 2010).

5 109 AD3d 167, 176 (1st Dep’t 2013).

6 227 AD2d 295, 295-96 (1st Dep’t 1996).

7 To be precise, the dissent’s view that the buyers did not acquire Hunter Boot USA’s business location was expressed in opposition of the second factor (effective extinguishment of the predecessor), not the first factor (transfer of all or substantially all of the predecessor’s assets).

8 Burgos, at 296.

9 Interestingly, although the majority recited this fact as support for the fifth factor (that the successors continued the same business), it arguably strengthens the dissent’s position on the second factor (i.e., that Hunter Boot USA continued to exist and was not “effectively extinguished”).

10 59 NY2d 239 (1983).

11 This position finds support in Miot, at 6 (“none of the cases cited by either party, however, stands for an absolute test where each factor must be present to find that one entity is a mere continuation of the other”). Citing Burgos, 227 AD2d at 295. Even though there was no transfer of assets, the court in Miot ruled that the other factors weighed heavily in favor of mere continuation giving rise to successor liability.

12 136 AD3d 525 (1st Dep’t February 16, 2016).