Pub. 6 2016 Issue 3

8 AUTOMOBILE DEALER NEWS ILLINOIS www.illinoisdealers.com COUNSELOR’S CORNER BY JULIE A.CARDOSI, LAW OFFICE OF JULIE A. CARDOSI, P.C. Dealership Successor Liability in Buy-Sell Transactions T he handling of successor liability is an important consid- eration in any buy-sell agreement for the purchase of a dealership assets. Invariably, in the buy-sell, the buyer’s at- torney will include contract language requiring the seller to convey dealership assets free and clear of the seller’s obligations, except those expressly assumed under that contract. To attempt to avoid succeeding to the seller’s obligations, some buyers will opt to purchase the dealership’s assets under a buy- sell agreement, as opposed to buying the dealership corporation’s stock in a stock purchase agreement. However, unless properly addressed in the parties’ agreements, this protection can be weak- ened after the closing under various theories of successor liability or by operation of applicable law. The result is the buyer can be liable for the seller’s obligations, such as those to seller’s vendors, employees, and other third parties. Buyers should ensure that the terms of the parties’ agreements adequately address successor li- ability so that the seller entity and its owners remain responsible for seller’s liabilities, including giving contractual indemnities to the buyer entity and its owners for these obligations. A general definition of successor liability contemplates that the buyer assumes the liabilities of the seller. These liabilities can include the seller’s vendor or executory contracts (e.g., DMS provider), tax liabilities, including sales, income or employment taxes, liabilities to third party creditors, environmental obliga- tions, or liabilities for employment obligations. These are just a few examples of the kinds of successor liability a buyer may face. It is important for the parties and their attorneys to understand what gives rise to successor liability. The buyer will seek to avoid it and the seller may attempt to pass it along to the buyer. In some areas, successor liability can arise by operation of statutory or case law. In fact, some courts have found buyers li- able under federal law for the seller’s obligations to its employees. Although, generally, state law may preclude successor liability, under federal law, the same may not be true when liability de- rives from a federal employment or labor statute. For example, courts have held the buyer responsible as a successor to the seller for claims by the seller’s employees for failure to pay overtime