California Lawyer: California Commercial Law: Avoiding Surprises of Successor Liability

California Commercial Law: Avoiding Surprises of Successor Liability

When one business purchases all or most of the assets of another business in California, the buyer is generally not liable for claims against the seller.

However, there are a few exceptions. Under the doctrine of successor liability, a buyer may be liable for claims based on a seller’s actions even though the basis for the claims arose prior to the sale. The doctrine is an equitable one, generally decided by a court instead of a jury, although questions may arise if a claim is joined with other actions, such as fraudulent transfer, that may entitle the complaining party to a jury trial.

Joseph Demko’s article, "Avoiding Surprises of Successor Liability," featured in the California Lawyer magazine’s Expert Advice column describes exceptions that include express or implied assumption, consolidation or merger, and when the purchasing corporation is a mere continuation of the seller.