The issue before this court is whether the amended judgment entered against defendant A World of Pups, Inc., ("defendant" or "World of Pups") should stand or be vacated based upon defendant's claim that it is a corporation separate and distinct from defendant A World of Pets and Supplies, LTD d/b/a World of Pets ("defendant World of Pets") and hence is not liable for any liabilities attributable to its predecessor World of Pets.

By decision dated October 3, 2008, the Hon. Kim Dollard, rendered a judgment for plaintiff Vince Lutriorio ("plaintiff" or Lutriorio"), after trial, in the amount of $1979.78 against defendant A World of Pets ("original judgment"). The award was based upon plaintiff's claim that a World of Pets had sold him a sick dog infected with giardia ( parasites) and that such infection could spread to plaintiff's children. This sum apparently represented the purchase price of the dog ($1800) plus the costs that plaintiff incurred to cure the dog. ^[FN1] [*2]

Plaintiff sought to collect the judgment through the marshal. However, when the marshal went to A World of Pets to collect on the judgment, he was informed that A World of Pets no longer existed and was now A World of Pups, and there was nothing he could do. Plaintiff also testified that prior to contacting the marshal, his attorney tried to work out a payment schedule with the owner of A World of Pets, Gary Nodelman ("Nodelman") who is now the owner of A World of Pups, and that although he agreed to pay the judgment in two checks, he never did. Plaintiff thus brought an Order to Show Cause before this Court to amend the judgment to be against A World of Pups. On March 3, 2009, this court issued an Amended Judgment against A World of Pups ("Amended Judgment").

By Order to Show Cause signed on April 27, 2009, defendant sought an order vacating the judgment entered against defendant World of Pups, and staying any execution on the judgment, on the grounds that A World of Pups was not a party to the original action and was an entity "different, distinct and separate" from the original defendant World of Pets. On June 4, 2009 this court rendered a judgment in favor of defendant vacating the amended judgment and staying any property execution upon the proviso that both defendants World of Pets and World of Pups, through their corporate officers, appear for a hearing on corporate structure.

During the hearings on corporate structure, plaintiff testified that when he drove by the location of World of Pups in April 2009 he saw the sign World of Pets still hanging. Whereas the World of Pets occupied two adjacent buildings at 538 -540 86th Street, A World of Pups only occupies 540 86th Street. Nodelman, the owner of both entities, confirmed that A World of Pets had occupied both buildings but only utilized the address of 538 86th Street. He testified that now, 538 86th was vacant. Nodelman confirmed that the banner was still up because it was too expensive to take it down.

Plaintiff further testified that he never received notification that A World of Pets had filed for bankruptcy or that it had been dissolved. He also testified that he first discovered that the side of the building that A World of Pets had occupied was closed and that a new sign entitled A World of Pups had been put up on or about October 3, 2008, the date that judgment was entered against World of Pets. Plaintiff contends that A World of Pets cannot avoid its creditors merely by changing its name.

Defendant World of Pups contended in its papers that A World of Pups occupies a different address than World of Pets. However, as admitted by the owner of both entities, A World of Pups occupies one half of the space previously occupied by World of Pets. Defendant also contends that at the time of the sale of the dog to plaintiff, A World of Pups was not a corporation duly filed with the Department of State, and that it did not become active until October 23, 2008. Defendant presents the two distinct certificates of incorporation. Finally, in its papers, defendant sets forth that the two entities have different tax identification numbers. Therefore, "there are two separate and distinct entities and a judgment should not have been entered against a non-party (World of Pups). Defendant did not present a certificate of dissolution. [*3]

Nodelman testified that the World of Pets was dissolved December 31, 2008 but the court notes parenthetically, that defendant failed to produce the Certificate of Dissolution. He admits receiving the original judgment in October 2008 before the World of Pets was dissolved. While he is the only officer of World of Pups, the World of Pets had two officers—his ex-wife and himself. Both entities have the same phone number. He is not aware for how long A World of Pets operated after A World of Pups was incorporated. He denies that A World of Pets filed for bankruptcy and avers that A World of Pets had no liabilities, but for plaintiff's judgment, when it dissolved.

While both entities offered similar goods and services, they are different. While A World of pets sold hamsters, gerbils, and fishes in addition to dogs and cats, a World of Pups only sells kittens and supplies for dogs and cats. Nodelman has been a fixture in the community for over 23 years and has been a dog trainer for 33 years. He still offers dog training and provides many free services. A World of Pups has benefitted from the "good will" of A World of Pets and people come in all the time. He did no pay the judgment because he could not afford it due to his divorce.

Ordinarily, a corporation which acquires the assets of another corporation is not liable for the torts of its predecessor. Schumacher v. Richards Shear Co., 59 NY2d 239, 244 (1983); Thermond Heights v. U.S. Electrical Tool Co., 128 AD2d 369, 370 ( 2d Dept. 1988). However, there are four exceptions to this rule which will make a buyer liable for the liabilities of the seller: (1) the buyer expressly or impliedly assumed the predecessor's tort liability, (2) there was a consolidation or merger between seller and buyer, (3) "the purchasing corporation was a mere continuation of the selling corporation," or (4) the transaction to sell was entered into fraudulently to escape such obligations or liabilities. Mtr of AT & S Transportation LLC v. Odyssey Logistics, 22 AD3d 750, 752 ( 2d Dept. 2005), citing Schumacher, supra, 50 NY2d at 244-45. This doctrine is also applicable in breach of contract actions. David Kretzmer, Appellant, v Firesafe Products Corporation et al, 24 AD3d 158, 159 (1st Dept. 2005).

The second exception has commonly been referred to as the de-facto merger exception. See, Klump v. Bandit Industries,, 113 F. Supp. 2d 567, 572 ( W.D.NY 2000); See, Sweatland v. Park Corporation , 181 AD2d 243 (4th Dept. 1992). "A de facto merger occurs where one corporation is absorbed by another, but without compliance with the statutory requirements for a merger." Arnold Graphics Industries, Inc. v. Independent Agent Center, Inc., 775 F. 3d 38, 42 (2d Cir. 1985). "The doctrine of de facto merger in tort liability is to provide "tort claimants [with] protection(s) against attempts by ongoing businesses to avoid liability through transfer of their operations to another legal entity. Id. at 246. See, Kevin Buja v. KCI Konecranes Int'l PLC, 12 Misc 3d 859, 863 (Sup Ct., Monroe Co. 2006).

The hallmarks of a de facto merger are the "continuity of ownership; cessation of ordinary business and dissolution of the [predecessor] as soon as possible; assumption by the successor of the liabilities ordinarily necessary for the uninterrupted continuation of the business of the [*4]acquired corporation; and, a continuity of management, personnel, physical location, assets, and general business operation." Sweatland, supra at 245-46. These factors are analyzed in a flexible manner, need not all be present in order for the court to find a "de facto merger" and call the court to consider, in essence, whether it was the intent of the successor to absorb and continue the operation of the predecessor. Societe Anonyme Dauphitex v. Schoenfelder Corp. 2007 U.S. Dist. LEXIS 81496 (S.D.NY 2007). See, Nettis v Levitt, 241 F3d 186 (2d Cir. 2001); Fitzgerald v. Fahnestock & Co, 286 AD2d 573 (1st Dept. 2001).

In the instant matter, the credible testimony reveals that there is a continuity of ownership between A World of Pets and A World of Pups, as Nodelman is the owner of both. There also appears to be a continuity of management, physical location, assets (sale of dogs and cats) and the general business operation, including the good will that inures from A World of Pets to A World of Pups. Defendant failed to produce a certificate of dissolution, and the web site of the Department of State, Division of Corporations, reveals that as of the date of this decision, A World of Pets is still an active corporation. However, the factor requiring a cessation of ordinary business and dissolution of predecessor may be satisfied, notwithstanding the selling corporation's continued formal existence, if that entity is shorn of its assets and has become, in essence, a shell.'" Kevin Buja, supra, 12 Misc 3d at 863; Mtr. Of NYC Asbestos Litigation, 15 AD3d 254, 257 (1st Dept. 2005).

In light of the above, the court finds that there was a de facto merger of A World of Pets into A World of Pups, and that the latter is responsible for the liabilities of the former. As such, this Court reinstates the Amended Judgment dated March 3, 2009, and vacates any stay on the execution of the judgment.

This constitute the decision and judgment of the court.

Dated: February 2, 2010

KATHERINE A. LEVINE

Judge, Civil Court

ASN byin Court

A P P E A R A N C E S:

ATTORNEY FOR DEFENDANT:

BELLAVIA, GENTILE & ASSOCIATES, ESQS.

STEVEN LABONTE, ESQ.

200 OLD COUNTRY ROAD, SUITE 400

MINEOLA, NEW YORK

ATTORNEY FOR PLAINTIFF

DANIEL BELLIZIO, ESQ

2330 W 10TH STREET

BROOKLYN, NY 11223