262 F. Supp. 3d 81
S.D.N.Y.2017Background
- Plaintiff Xue Ming Wang worked as a delivery worker at a Japanese restaurant from Dec. 2013 to Dec. 15, 2015; the restaurant’s assets were sold on June 2, 2015 from 1 Chimi Sushi Inc. (seller) to Abumi Sushi Inc. (buyer) owned by Qing Zhong Li.
- The asset purchase agreement transferred restaurant assets "free and clear" of debts, contained no assumption of seller liabilities, and included a seller warranty that the business complied with laws.
- Plaintiff alleges wage-and-hour and related claims (FLSA, NYLL, NY Gen. Bus. Law § 349) covering both pre- and post-sale conduct; this motion dispute concerns only liability for pre-sale violations against the appearing defendants (the buyers).
- It is undisputed that Plaintiff worked >40 hours/week pre-sale and was paid a fixed cash salary by the seller; it is also undisputed the appearing defendants had no knowledge of the seller’s pay practices.
- The parties cross-moved for partial summary judgment on successor liability (whether the buyers can be held liable for pre-sale conduct).
- The court framed the choice between the traditional/common-law successor test (New York law) and the federal "substantial continuity" test but resolved the case on the absence of successor notice and related factors.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether buyer is successor liable under traditional (NY) test | Buyer effectively continued the business so should inherit liabilities | No continuity of ownership; transaction was asset sale with no assumption of debts | Held: Traditional "de facto merger/mere continuation" test fails (ownership changed hands) — no successor liability under NY common-law |
| Whether federal "substantial continuity" test applies to FLSA claims | Substantial continuity applies and buyers are successors for pre-sale FLSA claims | Even if test applies, buyers lacked notice and predecessor can provide relief, so no successor liability | Held: Court applies substantial continuity framework but finds buyers not successor liable because notice is lacking and predecessor’s ability to provide relief is not shown to be inadequate |
| Scope of "notice" required under substantial continuity | Constructive notice via due diligence should impute knowledge of pre-sale violations to buyer | Notice must be actual or at least arising from concrete red flags; cannot impose a blanket due-diligence duty | Held: Court rejects expansive constructive-notice-by-due-diligence rule; requires actual or objectively provable notice/red flags — no such evidence here |
| Predecessor's ability to provide relief (ability-to-pay / availability) | Seller dissolved and sold assets, so cannot provide relief | Dissolution and sale do not establish inability; seller received proceeds and NY law preserves remedies against dissolved corporations | Held: Plaintiff failed to show seller was unable to provide relief; factor does not support successor liability |
Key Cases Cited
- Celotex Corp. v. Catrett, 477 U.S. 317 (U.S. 1986) (summary judgment standard)
- New York v. Nat’l Serv. Indus., Inc., 460 F.3d 201 (2d Cir. 2006) (New York successor-liability principles)
- Cargo Partner AG v. Albatrans, Inc., 352 F.3d 41 (2d Cir. 2003) (de facto merger/mere continuation tests)
- Musikiwamba v. ESSI, Inc., 760 F.2d 740 (7th Cir. 1985) (‘‘substantial continuity’’ factor list and emphasis on notice/ability-to-relieve)
- Thompson v. Real Estate Mortg. Network, 748 F.3d 142 (3d Cir. 2014) (adopting notice and predecessor-ability as critical successor factors)
- Steinbach v. Hubbard, 51 F.3d 843 (9th Cir. 1995) (adopting substantial continuity for FLSA successor liability)
- Battino v. Cornelia Fifth Ave., 861 F. Supp. 2d 392 (S.D.N.Y. 2012) (successor notice via actual knowledge of unpaid wages)