On April 18, 2024, the Court of Appeals issued a decision in Lelchook v. Société Générale de Banque au Liban SAL, 2024 NY Slip Op. 02081, holding that a buyer in an asset purchase acquisition was subject to personal jurisdiction based on the seller’s conduct, explaining:
SGBL argues that plaintiffs must establish that SGBL independently had contacts sufficient to satisfy CPLR 302, wholly apart from LCB’s contacts with New York. That would be so if plaintiffs sought to exercise personal jurisdiction based on SGBL’s own conduct, but plaintiffs’ theory of successor jurisdiction relies instead on the imputation of a predecessor entity’s contacts. If we credit that theory, LCB’s jurisdictional contacts would become SGBL’s jurisdictional contacts for purposes of the long-arm statute, and requiring a showing that SGBL itself had sufficient contacts would render this proposition irrelevant. For this reason, courts that have accepted successor jurisdiction have taken the view that only the contacts of the predecessor, not the successor, must satisfy the long-arm statute.
That brings us to the question of whether the jurisdictional status of a predecessor entity may be imputed to a successor who acquires all assets and liabilities. CPLR 302 does not resolve the question, contrary to what SGBL contends. SGBL argues that CPLR 302 expressly provides that an agent’s acts may give rise to personal jurisdiction, and that successor jurisdiction is available only where the successor and predecessor are one and the same because they are alter egos, or via a merger or corporate reorganization. Applying the principle of expressio unius est exclusio alterius, SGBL contends that CPLR 302 precludes successor jurisdiction in all other circumstances. We are not persuaded. However helpful canons of statutory construction might generally be, the text of the long-arm statute cannot bear the weight SGBL places on it. Nor has SGBL shown that the legislature even contemplated theories of successor jurisdiction, let alone meant to preclude it in a sale of all assets and liabilities.
Turning to precedent, this Court has not decided when, if ever, a successor corporation may inherit a predecessor’s jurisdictional status. The Appellate Divisions have addressed successor jurisdiction only sparingly.
This Court, however, has considered the separate but related question of successor liability on several occasions. Although liability and jurisdiction are distinct legal concepts, the principles animating one may inform the other. We have identified four exceptions to the general rule that a purchaser of assets is not liable for the seller’s torts: when (1) a corporation expressly or impliedly assumed the predecessor’s tort liability, (2) there was a consolidation or merger of seller and purchaser, (3) the purchasing corporation was a mere continuation of the selling corporation, or (4) the transaction is entered into fraudulently to escape such obligations.
We have not extensively probed the rationale for these four exceptions. The earliest cases, Hartford and Schumacher, recite them with minimal analysis. In Grant-Howard Assoc. v General Housewares Corp. (63 NY2d 291 [1984]), we explained that successor liability is motivated in part by principles of product liability, and as such is intended to ensure that a responsible source (the manufacturer) is available to compensate an injured party and can in turn transfer the costs to the general public as a component of the selling price. We described the second and third exceptions (merger and mere continuation) as based on the concept that a successor that effectively takes over a company in its entirety should carry the predecessor’s liabilities as a concomitant to the benefits it derives from the good will purchased. But because the question in Grant-Howard was whether the successor had to indemnify the predecessor despite assuming no contractual liability for the specific harm alleged, these policy considerations were ultimately not dispositive. Finally, although we noted that a sale of assets may allow an injured plaintiff to proceed against a successor corporation, we did so without explanation.
In Semenetz v Sherling & Walden, Inc. (7 NY3d 194 [2006]), we rejected the product line exception to successor liability adopted by several other jurisdictions, where a successor acquires most of a manufacturing business’s assets and continues to produce its line of products, but does not assume broad liabilities. We considered three rationales for the proposed exception: the purported destruction of the plaintiff’s remedies against the original manufacturer caused by the successor’s acquisition of the business, which we concluded simply restated the problem; the successor’s ability to spread the risk of injury, which we determined improperly assumed that the successor manufacturer in fact had capacity to spread (and absorb) the risk of injuries; and the fairness of imposing liability where the successor benefits from the predecessor’s goodwill by continuing to operate the business, which we found ignored that the sale price already incorporated goodwill. We further noted that the proposed exception could substantially harm small businesses, explained why it would improperly shift responsibility away from the entity that created the risk to one that only remotely benefited and could not have eliminated the risk, and noted that most courts had likewise declined to adopt the exception.
These considerations are helpful touchstones in considering successor jurisdiction. Relevant factors include the impact of our rule on parties to a potential acquisition, whether imputing jurisdiction fairly reflects the reasonable assumptions and expectations of the parties to such transactions, whether doing so induces responsible parties to internalize responsibility for risks they create, and the impact of imputing jurisdiction on those injured by a predecessor’s acts.
Those factors tip in favor of allowing successor jurisdiction where a successor purchases all assets and liabilities. An express assumption of all assets and liabilities is not akin to the limited acquisition in Semenetz, which involved only the purchase and continuation of a product line. Sophisticated corporate entities such as SGBL will undoubtedly engage in robust due diligence before agreeing to acquire all assets and liabilities of another entity. In doing so, they should understand where jurisdiction over such liabilities may lie and the potential cost if ultimately found liable, and will presumably negotiate a purchase price that is discounted by that prospect.
. . .
A contrary rule would give rise to unfortunate incentives. Allowing a successor to acquire all assets and liabilities, but escape jurisdiction in a forum where its predecessor would have been answerable for those liabilities, would allow those assets to be shielded from direct claims for those liabilities in that forum. As the Second Circuit put it, a predecessor could decouple its assets from its enforceable liabilities, for value. Injured parties would be left to directly sue the successor in a forum that may well be less favorable, with respect to both the likely outcome and available mechanisms to enforce a judgment. As a consequence, the value of plaintiffs’ claims would likely be reduced, perhaps by a significant amount, leaving the injured parties to absorb those costs themselves. That, in turn, would compromise the objective of having a responsible source available to absorb the risk of liability and compensate injured parties.
Additionally, while a predecessor’s assets should be available to satisfy a judgment against it prior to a sale of all assets and liabilities, that may no longer be true afterwards, depending on the terms of the deal. That risk appears to be borne out here: although plaintiffs allege that LCB had substantial assets in 2010, LCB stated in 2017 that it was defunct, insolvent, and unable to pay any judgment rendered against it. SGBL’s response to this concern—that plaintiffs can sue SGBL or pursue its assets in other jurisdictions—encourages catch me if you can gamesmanship, to the detriment of New York plaintiffs.
We see no good reason to require plaintiffs to take an indirect and uncertain path to recompense where a predecessor entity allegedly caused harm, subjecting it to jurisdiction in New York, and then agreed to an acquisition of all of its assets and liabilities by a successor, who in turn reaps the benefits of the predecessor’s business in New York while evading jurisdiction here. Thus, we clarify that where an entity acquires all of another entity’s liabilities and assets, but does not merge with that entity, it inherits the acquired entity’s status for purposes of specific personal jurisdiction.
(Internal quotations and citations omitted).