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Craig Billings Miller is an associate practicing in the areas of
business formations, early-stage financing and business transactions.
Neider & Boucher, S.C.
University Research Park
401 Charmany Drive, Suite 310
Madison, Wisconsin 53719
608.661.4500 Phone
608.661.4510 Fax
Craig Billings Miller
For clients of the practicing mergers and
acquisitions attorney, one of the central
concerns in any deal, whether a small
sale or a multimillion dollar merger,
is what is my liability exposure post-
Structuring a deal as a purchase
of assets, rather than stock, is one of
the best tools a buyer has in limiting
post-closing liability. However, a recent
decision in the United States Court
of Appeals for the Seventh Circuit
should have attorneys' and buyers'
attention focused on issues requiring
examination and consideration during
the due diligence process with respect
to successor liability exposure for any
asset deal.
In Teed v. Thomas & Betts Power
Solutions, LLC, 711 F.3d 763 (7th Cir.
2013), the Seventh Circuit found the
purchaser in an asset purchase from a
receivership auction in Wisconsin was
liable for violations of the Fair Labor
Standards Act ("FSLA") occurring
during the period when asset seller
owned and operated the business
acquired. The court imposed successor
liability even though a condition of the
transfer of the assets from the receiver
to the purchaser was that the transfer
be "free and clear of all liabilities"
and the more specific condition that
the purchaser would not assume any
liabilities that the seller might incur
under the FSLA. Despite the language
in the purchase agreement, which the
Teed court conceded under Wisconsin
state law would have cut off successor
liability, because the claims involved
violations of federal labor relations
or employment law, a broader federal
common law standard for determining
successor liability claims was applied.
Under federal law as articulated by
the Seventh Circuit, the following five
factors are examined in determining
whether successor liability will be
imposed for acts occurring during the
ownership of the predecessor:
(1) Whether the successor had notice
of the pending lawsuit.
(2) Whether the predecessor would
have been able to provide the
relief sought in the lawsuit before
the sale.
(3) Whether the predecessor could
have provided relief after the sale.
(4) Whether the successor can
provide the relief sought in the
(5) Whether there is continuity
between the operations and work
force of the predecessor and the
Although the result of the Teed case
may seem harsh at first blush, when
examining the facts of the case against
the federal common law standard, it
becomes clearer why the court found
successor liability against the purchaser.
First, the purchaser had notice of the
pending lawsuit at the time of purchase.
Second, the predecessor would not have
been able to provide the relief sought in
the lawsuit before the sale because it was
insolvent and had defaulted on a bank
loan (causing the sale of its assets by
the receiver in the first place). The court
Buyer Beware:
Recent Developments in Successor Liability
North America