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04/07/95 W. MICHAEL ASHER AND JANET ASHER v. KCS

April 7, 1995

W. MICHAEL ASHER AND JANET ASHER
v.
KCS INTERNATIONAL, INC.



Appeal from Baldwin Circuit Court. (CV-92-0398). James H. Reid, TRIAL JUDGE.

As Corrected April 14, 1995. As Corrected April 28, 1995.

Hornsby, Houston, Ingram, and Butts, JJ., concur. Almon, J., concurs in the result.

The opinion of the court was delivered by: Hornsby

HORNSBY, CHIEF JUSTICE.

In June 1992, Michael and Janet Asher sued Cruistar, Inc.; Volvo Penta of America; and Perdido Bay Marine Company, alleging breach of warranty regarding a Cruisers boat they had purchased. In August 1993, the Ashers amended their complaint to add KCS International, Inc. ("KCS"), under a successor corporation theory. The trial court entered a summary judgment for KCS, and pursuant to Rule 54(b), Ala. R. Civ. P., made that summary judgment final. The Ashers appeal. We affirm.

Pursuant to the standard of review for a summary judgment, this Court will view the evidence in the light most favorable to the Ashers and will therefore assume the following occurred: The Ashers purchased a Cruisers 2980 Esprit boat that had been manufactured by Cruistar, Inc., in September 1989. On March 12, 1993, operating then as Stock Acquisition, Inc., KCS purchased certain Cruistar assets, including the "Cruisers" trademark and trade name, from Bank One, Green Bay. Bank One, Green Bay had obtained these assets from Cruistar through foreclosure proceedings. KCS also purchased real estate directly from Cruistar after Bank One, Green Bay had released certain liens on the real estate. Cruistar used the proceeds to decrease its debt with Bank One, Green Bay. The purchase agreements for the Cruistar assets contained a clause stating "The purchaser shall assume no obligations or liabilities of the seller, Cruistar, or of the subject business." After KCS's purchase, the Ashers amended their complaint to add KCS as a defendant.

At the time of KCS's purchase, Cruistar had 16 employees. After the purchase, KCS had 146 employees, 11 of whom had been past employees of Cruistar. KCS operates from the same manufacturing plant and uses some of the same advertising material Cruistar had used. KCS manufactures most of the same products Cruistar had manufactured, but does not manufacture the kind of boat purchased by the Ashers. KCS did not assume the obligations imposed on Cruistar by its dealership contracts or Cruistar warranties, but the sale included Cruistar's existing purchase orders for Cruisers boats. Of the 11 Cruistar employees who remained with KCS, several key employees were rehired into positions with KCS similar to those they had had with Cruistar. The Cruistar stockholders and board of directors did not remain the same after the KCS purchase. After the foreclosure and sale, Cruistar's Cruisers division no longer existed, but the Cruistar corporation did not dissolve.

The underlying allegations regarding the claimed breach of warranty and the claimed defects in the boat are not at issue in this appeal. The issue is simply whether KCS can be held liable as a corporate successor to Cruistar.

The Ashers argue that KCS was a "mere continuation of the enterprise" previously operated by Cruistar. They argue first that KCS bought every asset necessary to continue the manufacturing operations of Cruistar and that KCS also bought Cruistar's existing purchase orders. KCS has continued manufacturing Cruisers products, according to the Ashers, and is using the same manufacturing equipment and the same business operations of the Cruisers division of Cruistar. The Ashers also contend that several key employees of Cruistar are now employed at KCS The Ashers further allege that KCS used the Cruisers trade name in order to solicit business, and they argue that KCS should not be allowed now to deny its use of the name, to escape liability.

As a general rule, a purchasing corporation is not liable for the debts and liabilities of the selling corporation. Matrix-Churchill v. Springsteen, 461 So. 2d 782 (Ala. 1984). The exceptions to this rule were first established in Andrews v. John E. Smith's Sons Co., 369 So. 2d 781 (Ala. 1979), as follows:

"[Where] (1) there is an express agreement to assume the obligations of the transferor, (2) the transaction amounts to a de facto merger or consolidation of the two companies, (3) the transaction is a fraudulent attempt to escape liability, or (4) the transferee corporation is a mere continuation of the transferor."

Id. at 785. The Ashers base their argument for the imposition of successor liability on alternative (4). They contend that KCS, as the purchasing corporation, is "a mere continuation" of Cruistar, the selling corporation.

This court has adopted a four-factor test for determining whether a purchasing corporation is a mere continuation of the selling corporation. If there is substantial evidence of each of the four factors, then KCS may be held liable as a successor corporation. Brown v. Economy Baler Co., 599 So. 2d 1 (Ala. 1992). The factors are as follows:

"'(1) There was basic continuity of the enterprise of the seller corporation, including, apparently, a retention of key personnel, assets, general business ...


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