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G.P. Publications Inc. v. Quebecor Printing3/4/1997
sure.
In light of the jury's finding that G.P. was a mere continuation of Signal, the trial court entered a judgment in which it held that "Quebecor's remedy as a creditor of the now defunct Signal . . . is to hold G.P. Publications, Inc. . . . liable for Signal's debts." Both parties appeal the trial court's judgment. G.P.'S APPEAL
The deciding issues raised by G.P.'s appeal are: (I) Whether a commercially reasonable sale under UCC § 9-504 necessarily precludes successor liability, and (II) if not, whether the trial court erred by submitting to the jury the successor liability theory that G.P. was a "mere continuation" of Signal. We hold that while § 9-504 is not an absolute bar to successor liability, the issue of "mere continuation" should not have been submitted in this case. Accordingly, we reverse that part of the judgment holding G.P. liable for Signal's debts on the basis of the "mere continuation" theory of successor liability.
We note at the outset that generally, the purchaser of all or substantially all the assets of a corporation is not liable for the old corporation's debts. Budd Tire Corp. v. Pierce Tire Co., 90 N.C. App. 684, 687, 370 S.E.2d 267, 269 (1988) (citations omitted). However, there exist four well-settled exceptions to this general rule against successor liability: (1) where there is an express or implied agreement by the purchasing corporation to assume the debt or liability; (2) where the transfer amounts to a de facto merger of the two corporations; (3) where the transfer of assets was done for the purpose of defrauding the corporation's creditors; or (4) where the purchasing corporation is a "mere continuation" of the selling corporation in that the purchasing corporation has some of the same shareholders, directors, and officers. Id. (citations omitted).
Relying on this last exception, Quebecor premised one of its two successor liability claims on the theory that G.P. was a "mere continuation" of Signal. Prior to considering that contention, however, we must address the threshold issue of whether a UCC Article 9 foreclosure sale acts as an absolute bar against finding successor liability. We hold that it does not.
Plaintiffs argue that UCC § 9-504 necessarily preempts a mere continuation claim because the very purpose of conducting such a sale is to extinguish all inferior interests and convey title free of all claims or encumbrances.
While no North Carolina case directly addresses this particular issue, we find federal case law instructive. In Glynwed, Inc. v. Plastimatic, Inc., 869 F. Supp. 265 (D.N.J. 1994), the United States District Court for New Jersey considered "whether a bank's sale of collateral under a secured agreement pursuant to section 9-504 permits the purchaser not only to take the assets free of any security interest in the collateral but also precludes any claim of successor liability being asserted against the purchasing corporation." Id. at 273. After a comprehensive review of other case law on this issue, the court observed, "not only has [defendant] failed to cite any authority for its claim that the purchase of assets at a 9-504 sale ipso facto precludes a finding of successor liability; the relevant authorities actually suggest the opposite." Id. at 275. The court went on to note that "in successor liability cases the courts should not elevate form over substance." Id. Thus, it concluded that "nothing in the UCC supports [defendant's] argument that the 9-504 sale provides a safe harbor against successor liability claims." Id. at 274.
We agree with the Glynwed court that nothing in UCC § 9-504 absolutely precludes successor liability on the theory that a new corporation i
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