## Facts

- Cargo Partner AG, a freight forwarder, provided services to Chase, Leavitt (Customhouse Brokers) Inc., which accrued about $240,000 in unpaid trade debt between 1999 and 2001.
- On February 7, 2001, Albatrans, Inc. entered an agreement with Chase-Leavitt and its sole shareholder to purchase all of Chase-Leavitt’s assets.
- Chase-Leavitt had a federal customs brokerage license; after the asset sale, Chase-Leavitt agreed to provide customs brokerage services exclusively to Albatrans until Albatrans (or a subsidiary) obtained its own license.
- Cargo Partner alleged Albatrans continued Chase-Leavitt’s operations and used its goodwill and customer relationships, making Albatrans liable as a successor under a de facto merger theory.
- Cargo Partner did not allege that Chase-Leavitt’s shareholder received Albatrans stock or otherwise became an owner of Albatrans.
- The district court dismissed the claim against Albatrans under Rule 12(b)(6); Cargo Partner pursued an interlocutory appeal limited to the de facto merger theory.

## Issues

1. Whether, under New York law, a purchaser of all assets may be held liable for the seller’s debts under the de facto merger doctrine when there is no continuity of ownership between seller and purchaser.

## Decision

- The Second Circuit affirmed dismissal of the claims against Albatrans.
- The court held that continuity of ownership is an indispensable element of a de facto merger under New York law.
- Because the complaint alleged no transfer of ownership interest from Chase-Leavitt’s shareholder to Albatrans, the de facto merger exception could not apply, even if other merger-like factors were present.

## Legal Principles

- Under New York law, an asset purchaser is generally not liable for the seller’s debts, subject to limited exceptions, including de facto merger.
- A de facto merger treats an asset purchase as a merger in substance, based on indicia such as continuity of ownership, continuity of business operations, cessation of the seller’s business, and assumption of obligations needed for uninterrupted operations.
- Continuity of ownership—seller shareholders becoming shareholders of the purchaser—is required for de facto merger liability; other factors cannot substitute for it.
- On a Rule 12(b)(6) motion, a de facto merger claim fails as a matter of law if the pleadings establish no continuity of ownership.

## Conclusion

The court concluded that New York’s de facto merger doctrine cannot impose successor liability on an asset purchaser unless the seller’s owners obtain an ownership interest in the purchaser; without continuity of ownership, Albatrans was not liable for Chase-Leavitt’s trade debt.


Cargo Partner AG v. Albatrans, Inc., 352 F.3d 41 (2d Cir. 2003)