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Tate Access Floors, Inc. v. Interchangeable Systems, Inc.

95-2100 (U.S. Dist. Ct. D. N.J., 1997) (Unpublished)

FRANCHISES—A franchisor sold part of its assets. Its franchisee claimed that the purchaser was a successor in interest to the franchisor, and was therefore bound by the New Jersey Franchise Practices Act. The Court disagreed.

A distributor had a franchise agreement with a company that sold part of its assets after terminating the agreement. The distributor sued the acquiring company, claiming that the termination of its franchise agreement violated the New Jersey Franchise Practices Act and that the new company was liable as the successor-in-interest to the franchisor because it expressly and impliedly assumed the selling company’s liability to the distributor. The acquiring company claimed it was not a successor-in-interest and that the distributor had settled its claims with the former company.

The District Court ruled in favor of the company and dismissed the distributor’s claims, finding it to be well established that when one company sells assets to another company, the latter is not liable for the debts and liabilities of the former. Two exceptions to this rule are when the purchaser expressly or impliedly assumes those debts and liabilities, and when the purchasing corporation is merely a continuation of the selling corporation. As to the first exception, the Court found no language in the asset purchase agreement to suggest an assumption of obligations under the franchise agreement. The conduct of the new company and the distributor after the asset purchase also demonstrated there was no intent to assume the franchisor’s obligations under any franchise agreements. As to the distributor’s claim that the purchasing corporation was merely a continuation of the old company, the Court stated that the fact finder must consider whether stock was part of the purchase price, whether there was continuity of business, control or management between the two corporations, and whether the purchasing corporation assumed the debts of the selling corporation. The Court found none of these factors present. The selling corporation was still a viable entity separate from the purchasing company, as demonstrated by the fact that the distributor entered into a settlement agreement with it after the asset sale.


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