Successor Liability (or Non-Liability) on a Commercial Lease

160 West Broadway Associates, LP v. 1 Memorial Drive, LLC, ___ N.J. Super. ___ (App. Div. 2021). Judge Messano issued this opinion for the Appellate Division today. Though there were other issues and claims against other parties at the trial level, the appeal related only to a claim of successor liability against one defendant, 1 Memorial Drive, LLC (“Memorial”).

Defendant Amma Corp. operated a supermarket, called “:Super Supermarket,” a name that was trademarked, under a lease in a Paterson strip mall owned by plaintiff. Defendants Antonio and Mireya Perez were equal shareholders of Amma, and their son, Jeffrey, worked at the store. Amma’s lease ran until 2015.

Beginning in 2013, the Perez defendants began to operate another supermarket, also called “Super Supermarket,” on property owned by an entity they controlled. That property was about half a mile from plaintiff’s strip mall. That business was operated through defendant Memorial, LLC, which was owned by the three members of the Perez family.

Memorial financed construction of its supermarket and its inventory through a loan. There was no evidence that Amma transferred any monies to Memorial. There was testimony that Amma’s fixtures and equipment were “essentially worthless” and were scrapped by a third party, while “Amma’s inventory was given to its regular customers, and the balance in Amma’s lottery account was given to another Perez-owned store, not to Memorial. Amma’s liquor license was not transferred to Memorial” either.

On April 29, 2014, Amma served notice that it was terminating its lease with plaintiff effective the next day. Plaintiff sued Memorial, Amma, and the two Perez defendants for damages in the amount of the lease for the remaining term. Most of plaintiff’s claims were dismissed on summary judgment. But plaintiff’s claim that Memorial was liable as a successor went to a bench trial, and plaintiff prevailed. Today, however, the Appellate Division reversed that judgment.

Judge Messano first identified the standard of review of a ruling in a bench trial. “[W]e do not disturb the factual findings and legal conclusions of the trial judge unless we are convinced that they are so manifestly unsupported by or inconsistent with the competent, relevant and reasonably credible evidence as to offend the interests of justice.” But the Law Division’s legal conclusions did not earn any deference.

Quoting Ramirez v. Amstead Indus., Inc., 86 N.J. 332 (1981), Judge Messano stated the general rule that “where one company sells or otherwise transfers all its assets to another company the latter is not liable for the debts and liabilities of the transferor, including those arising out of the latter’s tortious conduct.” There are four exceptions to that general rule, as Judge Messano went on to explain, citing Woodrick v. jack J. Burke Real Estate, Inc., 306 N.J. Super. 61 (App. Div. 1997). The Law Division “seemingly determined” that three of those exceptions applied.

But Judge Messano emphasized that, here, Amma did not transfer any assets to Memorial, except for the trademark “Super Supermarket.” Memorial offered expert testimony, uncontradicted by plaintiff, that the trademark had only minimal value.

The panel “found no published New Jersey decision that supports plaintiff’s contention that a court may find successor liability in the absence of a sale or transfer of substantial assets by the transferee.” Thus, the Law Division should never have gotten to the exceptions to the general rule, since (as plaintiff’s own cited cases proved, according to Judge Messano) the sale to the successor of all or a substantial part of the transferor’s assets is an “essential precondition for successor liability.” Judge Messano cited cases elsewhere that agree. Accordingly, the judgment for plaintiff, including an award of attorneys’ fees, was reversed.