OPINION AND ORDER
Plaintiff Xue Ming Wang., brings this action for violations of the Fair Labor Standards Act (“FLSA”), the -New York Labor Law (“NYLL”), and New York General Business Law § 349 (“§ 349”) in connection with his employment as a delivery worker at-a Japanese restaurant located at 209 East 26th Street in Manhattan between December 10, 2013 and. December 15, 2015. In June 2015, former owner -1 Chimi Sushi Inc. sold the assets of the restaurant to Defendant Abumi Sushi Inc. Defendant Qing Zhong Li is the owner of Abumi Sushi Inc. None’ of the remaining defendants have appeared in this action.
Both Plaintiff and the appearing Defendants have filed motions for partial summary judgment on the issue of suc-cessorship liability — -that is, whether the appearing Defendants can be held liable for claims pre-dating the June 2015 asset sale, when they were not Plaintiffs -“employer” within the meaning of the FLSA or NYLL, as successors to the previous owner’s liabilities. For the reasons described below, the Court concludes that they cannot. In this case, the question turns largely on whether the appearing Defendants had “notice” of their predecessors’ alleged wage and hour violations prior to the sale. In concluding that they did not, the Court rejects Plaintiffs expansive view of constructive notice, which would impute notice of a predecessor’s violations of law on innocent purchasers whenever those violations could have been discovered through the exercise of due diligence. Such a rule would effectively create a duty of due diligence, which in the Court’s view should be imposed by Congress, or at least, the Second Circuit, in the first instance. Accordingly, Defendants’ motion is GRANTED, and Plaintiffs motion is DENIED.
I. BACKGROUND
■ Plaintiff Xue Ming Wang was employed as a delivery worker at a Japanese restau
The sale of the Restaurant was accomplished pursuant to a written agreement entitled “Contract for Sale of Business” (the “Agreement”). Decl. of Vincent Wong (‘Wong Deck”), Ex. A. The Agreement describes the subject matter of the sale as follows:
The Transferor agrees to sell to the Transferee and the Transferee agrees to buy the following described business: Japanese Restaurant located at: 207 E. 26th Street, New York, NY 10010 including the stock in trade, fixtures, equipment, accounts receivable, contract rights, lease, good will, licenses, rights under any contract for telephone service or other rental, maintenance or use of equipment, machinery and fixtures at said premises, more particularly described in Schedule A hereto attached, free and clear of any debts, mortgages, security interests or other liens or encumbrances except as herein stated.
Id. ¶ 1. Pursuant to Schedule A, the “[pjroperty to be [transferred” was: “All furniture, fixtures, equipment, chattels and personal properties at the Japanese Restaurant located at: 207 E. 26th Street, New York, NY 10010.” Id. at p. 3. The Agreement does not contain an assumption of any liabilities, other than “full performance of the existing lease,” which was assigned to Abumi in connection with the sale. Id. ¶ 10. In a rider to the Agreement, 1 Chimi Sushi provided a representation and warranty that “the business sold herein is being operated in accordance with all laws, ordinances and rules affecting said business.” Id. at p. 4.
The cross-motions currently before the Court only concern liability for FLSA, NYLL, and § 349
II. PROCEDURAL HISTORY
Plaintiff filed this action on December 17, 2015 against ABC Corp. d/b/a Abumi Sushi, Abumi Sushi Inc. d/b/a Abumi Sushi, Qing Zhong Li, Cheng Chao Zhao, and John Doe and Jane Doe # 1-10, asserting claims for unpaid minimum wages, unpaid overtime, unpaid spread-of-hours premium, failure to provide paystubs and time-of-hiring wage notices, failure to provide reimbursement for expenses relating to tools of the trade, and willful filing of fraudulent information returns., ECF No. 1. Although the action was filed as a putative collective and class action, it has proceeded solely on an individual basis.
The Appearing Defendants answered the complaint on January 19, 2015. ECF No. 9. On May 24, 2016, Plaintiff filed an amended complaint, removing ABC Corp. d/b/a Abumi Sushi from the list of defendants and adding 1 Chimi and Zhang. ECF No. 15. The Appearing Defendants filed an answer to the amended complaint on June 23, 2016, as well as crossclaims against all other defendants for contribution and indemnification.
After several extensions from the Court, discovery in this matter closed on November 1, 2016.
III. SUMMARY JUDGMENT STANDARD
Summary judgment is appropriate when “the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a); see also Celotex Corp. v. Catrett,
The party moving for summary judgment must first demonstrate the absence of any genuine dispute of material fact. Holcomb v. Iona Coll.,
If the moving party meets its burden, the nonmoving party “must come forward with ‘specific facts showing that there is.a genuine issue for trial’ ” in order to avoid summary judgment. Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,
A genuine dispute ¡exists where “the evidence is such that a reasonable jury could return a verdict for the nonmoving party,” while a fact is material if it “might affect the outcome of the suit under the governing law.” Anderson v. Liberty Lobby, Inc.,
In resolving cross-motions for summary judgment, “each party’s motion must, be examined on its own merits, and in each case all reasonable inferences must be drawn against the party whose motion is under consideration.” Morales v. Quintel Entm’t, Inc.,
IV. DISCUSSION
.As already noted, the parties’ cross-motions present only one ultimate question: whether the Appearing Defendants may be held liable for alleged violations that occurred before they acquired the Restaurant through an asset transfer on June 2, 2015,-Plaintiff-, seeks summary judgment holding that they may, while the Appear
A. The Traditional Test
“Under both New York law and traditional common law, a corporation that purchases the assets of another corporation is generally not liable for the seller’s liabilities.” New York v. Nat’l Serv., Indus., Inc.,
“A de facto merger occurs when a transaction, although not in form a merger, is. in substance ‘a consolidation or merger of seller and purchaser.’ ”, Cargo Partner,
Because “continuity of ownership is the essence of a merger,” however, the exception ‘‘‘cannot apply in its absence.” Priestley v. Headminder, Inc.,
B. The “Substantial Continuity” Test
Plaintiffs quest to hold the Appearing Defendants liable as successors to his pre-June 2015 claims fails under the federal common-law “substantial continuity” test, as well. “The FLSA, like virtually all employment law statutes, does not discuss whether the liabilities it creates may be passed on to innocent successor employers. However, beginning with cases under the National Labor Relations Act (‘NLRA’), federal courts have developed a federal common law successorship doctrine that now extends to almost every employment law statute.” Steinbach v. Hubbard,
Although the Second Circuit has not yet addressed whether the “substantial continuity” test applies in the FLSA context, three other Circuits have held that it does. Thompson,
Some courts in the Eastern District of New York have applied the traditional common-law/New York test to FLSA claims. The Court agrees with Judge Scho-field, however, that those decisions “(1) mistakenly rely on [New York v.] National Service [Industries, Inc.,
Still other courts in the Eastern District have chosen to apply the “substantial continuity” test. E.g., De Ping Song v. 17 Old Country, Inc.,
The “substantial continuity” test is broader than the traditional common-law/New York test. In particular, “[ujnlike the traditional common law test, [the “substantial continuity” test] does not require continuity of ownership between the two business.” Battino,
(1) whether the successor company had notice of the charge or pending lawsuit prior to acquiring the business or assets of the predecessor; (2) the ability of the predecessor to provide relief; (3) whether there has been a substantial continuity of business operations; (4) whether the new employer uses the same plant; (5) whether he uses the same or substantially the same work force; (6) whether he uses the same or substantially the same supervisory personnel; (7) whether the same jobs exist under substantially the same; working' conditions; (8) whether he' uses the same machinery, equipment, and methods of production; and (9) whether he produces the same product.
Musikiwamba v. ESSI, Inc.,
■Under the NLRA, successor liability can attach when 1) the subsequent employer was a -bona fide successor and 2) the subsequent employer had notice of potential. liability. Whether an employer qualifies as a bona fide successor will hinge principally on the degree of business continuity between the successor and predecessor. The Ninth Circuit has fleshed out this test when dealing with other employee individual rights statutes by adding a third consideration: the ex-tent to which the predecessor is able to provide adequate relief directly. ■■
The first two factors identified in Mac-Millan are critical to the imposition of successor liability. The successor doctrine is derived from equitable principles, and it would be' grossly unfair, except in the most exceptional circumstances, to impose successor liability on an innocent purchaser when the predecessor is fully capable of providing relief or when the successor did not have the opportunity to protect itself by an indemnification, clause in the acquisition agreement or a lower purchase price.
Musikiwamba,
This Court agrees with the cases described above that notice and the ability of the predecessor to provide relief to the plaintiff are critical factors.
As the Seventh. Circuit has explained, “the basic issue in every succes-sorship case is how to. strike a proper balance between on the one hand preventing wrongdoers from escaping liability and on the other hand facilitating the transfer of corporate assets to their most valuable uses.” E.E.O.C. v. Vucitech,
To hold a purchaser of assets liable as a successor without notice of the potential liability or where the predecessor is capable of providing relief to the wronged party simply because the purchaser used the purchased assets and retained substantially the same work force to conduct a sub: stantially similar business would directly hamper, rather than facilitate, the transfer of corporate assets to their most valuable uses. Perhaps even more troubling, however, is that such a test would incentivize purchasers to fire all of the seller’s employees in order to lessen the degree of continuity between the pre-sale and post-sale businesses.
That result would disserve the interest in the stability of employer-employee relationships that gave birth to the “substantial continuity” test in the first' place, and-could hardly be what Congress intended. Cf., e.g., Musikiwamba,
If, on the other hand, the purcha'ser does -have notice of the liability at the time of sale and the predecessor is unable to provide adequate relief to the plaintiff, the balance between the competing interests at play shifts. A purchaser with notice of thé predécessor’s pending or potential liabilities may utilize that knowledge to negotiate a lower purchase 'price and/or an indemnification agreement. And, in circumstances where the predecessor is truly unable to provide adequate relief to the plaintiff, it may be that the remedial purpose of the FLSA and other employment-rights statutes counsels in favor of placing the burden of the plaintiffs remedy'on an innocent purchaser with notice, rather than denying the plaintiff a remedy altogether.
For those reasons, the Court will proceed here from the understanding that the first two MacMillan factors (notice and the ability of the predecessor to provide relief) are indispensable to the imposition of successorship liability under the “substantial continuity” test. As described below, the Court concludes that Plaintiff has failed to establish, or create a triable issue of fact on, the notice factor and has, at best, failed to show • an .absence of a genuine issue of material fact as to the ability' of 1 Chimi and Zhang to provide relief directly.
The Court notes at the outset that “the party advocating for successor liability bears the burden of proof.” Bautista,
First, it is clear that the Appearing Defendants did not have notice at the time of the June 2, 2015 sale that this lawsuit was pending. That would have been impossible, since the suit was not commenced until more than six months later. At least some courts have held that the purchaser need not have actual notice of-a pending lawsuit for purposes of the “substantial continuity’ test if the purchaser had knowledge of a violation of law that could give rise to a suit. In Battino, for example, it was undisputed that the defendant-successor knew prior to and at the time of the sale that the predecessor had not paid its employees for the two months immediately preceding the sale.
There is no evidence in the record showing that the Appearing Defendants had such knowledge in this case. Plaintiff merely argues that the Appearing Defendants “had actual notice of the potential FLSA claim” because Li “visited and personally worked at the Restaurant almost every day for about a month prior to the purchase.” Pl.’s Mem. at 9. The parties dispute both the nature and duration of Li’s pre-sale visits. See Defs.’ 56.1 ¶¶ 30-32. But even assuming that Plaintiffs version of the facts is true and that Li worked in the Restaurant almost every day for approximately one month before the sale was effectuated, Plaintiff provides no evidence — indeed nothing beyond his own speculation — to support the assertion.that this provided Li or Abumi with actual notice of wage and hour violations under the predecessors. And while Plaintiff contends in his opening brief that “Defendant Li directly witnessed [FLSA] violations,” he cites to nothing at all in support. See Pl.’s Mem. at 9.
A party may not rely on “con-clusory allegations or unsubstantiated speculation” on summary judgment. See Fujitsu, 247 F.3d- at 428. Moreover, arguments in a brief are not evidence, and it is evidence rather than allegations that is
Plaintiff urges the Court to apply a standard that would charge the Appearing Defendants with notice of the alleged wage and hour violations if they could have been discovered through due diligence. Pl.’s Mem. at 9-10. Plaintiff construes Bautista to permit the imputation of “constructive notice” to a purchaser whenever the purchaser “could have discovered the violations with reasonable diligence.” Pl.’s Mem. of Law in Opp’n to Mot. for Summ. J. (ECF No. 51) (“Pl.’s Opp’n”) at 8. As described below,' however, the Court believes Plaintiff misreads Bautista. More significantly, the rule that Plaintiff promotes would turn the notice requirement of the substantial continuity test on its head. To the extent that Plaintiff asks the Court to impose a duty on purchasers to engage in due diligence without respect to the size of the transaction and even in the absence of any red flags in order to avoid being burdened with a predecessor’s FLSA liabilities, the Court declines. In fact, the, cases that Plaintiff cites do not even support the kind of duty he asks the Court to impose.
In Bautista, the court held that, although the evidence showed that the defendant lacked actual notice of the plaintiffs claims, the defendant did have constructive notice.
Here, Plaintiff points to no concrete red flags that should have led the Appearing Defendants to investigate further. In an apparent attempt to parrot the reasoning of Bautista, Plaintiff argues that the $35,000 price that the Appearing Defendants paid for the assets was “conspicuously low” because it was only half of the yearly rent for the premises. Pl.’s Mem. at 11. But Plaintiff provides no evidence that such a ratio between the yearly rent and the purchase price of the assets in question here is suspicious or otherwise unexpected.
Bautista, in turn, cites in some detail to Goodpaster v. ECP Ant. Steel, LLC, No. 09-cv-59 (JVB),
It is one thing to charge an innocent purchaser with constructive notice of a lawsuit that has already been filed against the seller, or to expect a purchaser with actual knowledge of red flags to conduct a further inquiry, or to expect a purchaser with actual knowledge of wage underpayment to infer the potential for legal liability. But Plaintiffs proposed rule is quite another thing. It would effectively require any purchaser of assets to engage in comprehensive due diligence to discover any potential factual basis for a future claim against the predecessor, regardless of the size of the transaction, the sophistication of the parties, the absence of red flags, or the presence of affirmative representations confirming the absence of violations of law. The Court declines to undermine the notice requirement of the substantial continuity test, and to impose such a duty in the absence of a contrary command from the Second Circuit, As the Court has explained, Plaintiffs argument rests on a misreading of the facts in Bautista. To the extent, however, that Bautista can be read to support the proposition that a'purchaser of assets has constructive notice of all violations of law by a business the assets of which are sold in an asset sale whenever those violations could have been ascertained through the exercise of reasonable due diligence, the Court respectfully disagrees.
Such an expansive reconstruction of the concept of constructive notice would fatally wound the notice requirement of the substantial continuity test, rendering that critical requirement largely illusory. At the very least, imposing a duty of due diligence would risk subjecting nearly, every innocent purchaser to trial on the issue of the reasonableness of its diligence efforts. And, as already noted,.to treat the notice requirement as toothless, subjecting nearly all innocent purchasers of assets to an extra-statutory .form of joint and several liability for.someone’else’s unlawful conduct, could beget a number of undesirable consequences. Thus, in this Court’s view, and particularly in-the context of a federal statutory scheme like the FLSA, such a duty should be imposed not by the courts, but by Congress. Cf. United States v. Brosnan, 363 U.S. 237, 251-52,
For the reasons above, the Court concludes that there is no evidence in the record suggesting that the. Appearing Defendants had actual notice of their predecessors’ alleged FLSA violations or the potential of Plaintiffs lawsuit. There is similarly no evidence in the record suggesting that the Appearing Defendants had the kind.of constructive notice that the facts (rather than the rhetoric) of Battino, Bautista and Goodpaster bear out..
Although the Appearing Defendants’ lack of notice of potential liability is by itself “an example of [ ] a reason ... to withhold [successorship] liability,” Tped,
New York law clearly provides that, with certain exceptions not relevant here, “[t]he dissolution of a corporation shall not affect any remedy available to or against such corporation, its directors, officers or shareholders. for any right or claim existing or. any liability incurred before such dissolution,” N.Y. Bus. Corp. Law § 1006(4)(b). .Thus, the mere fact of dissolution is not dispositive here.
Plaintiff apparently fails to recognize that, while 1 Chimi did dispose of all of its assets in the June 2015 sale, it also received assets (money) in return. See Wong Decl., Ex. A. And Plaintiff makes no specific' showing regarding any remaining assets that could be used to satisfy a judgment. Similarly, Plaintiff provides no evidence whatsoever regarding the stéps he took to. locate 1 Chimi and Zhang.
If plaintiffs could satisfy this factor by simply showing that the predecessor has dissolved and stating (without any basis in evidence) that they could not locate the predecessor, then the “substantial continuity” test again would create the risk of imposing an inadvertent form of joint and several liability on innocent purchasers, whereby the plaintiff simply has the option whether to sue the actual violator of; the law or the successor, whichever is easier. In this . Court’s view, both the 'equitable
So, for the reasons described above, the Court concludes that Plaintiff has not established that 1 Chimi and Zhang are unable to provide relief to him. If this factor were dispositive of the parties’ motions here, the Court would need to determine whether Plaintiff has failed to sustain his burden to establish a required element of the test for successorship liability (in which case the Appearing Defendants’ motion should be granted), or whether instead there is a genuine dispute of material fact as to the predecessors’ ability to provide relief (which would preclude the granting of either party’s motion). Because the Court has concluded that Plaintiff has failed to show either that he is entitled to judgment as a matter of law or that a genuine dispute of material fact exists on the issue of whether the Appearing Defendants had notice of Plaintiffs claim (or the potential for Plaintiff’s claim), the Court need not resolve that question.
y. CONCLUSION
For the reasons described above, the Court concludes that Plaintiff has failed to present evidence entitling him to judgment as a matter of law on the issue of succes-sorship liability. Accordingly, Plaintiffs motion for partial summary judgment on that issue is DENIED. With respect to the Appearing Defendants’ motion for partial summary judgment, Plaintiff has failed to create a triable issue of fact on the issue of successorship liability, and that motion is therefore GRANTED. As a result, all federal and state claims arising from pre-June 2, 2015 conduct are hereby DISMISSED as to the Appearing Defendants, and the case will proceed against them only on claims arising from conduct on or after June 2,2015.
The Clerk of Court is directed to terminate the motions pending at Dkt. Nos, 34 and 39.
SO ORDERED.
Notes
. The following facts are drawn from the parties’ Local Civil Rulé 56.1 Statements and
.References to "Defs.’ 56.1” are to the Rule 56.1 counterstatement submitted in connection with Plaintiff's motion. References to "PL's 56.1” are to the Rule 56.1 counterstatement submitted in connection with Defendants’ motion. In both cases, the Rule 56.1 counterstatements contain both the assertions of the moving party and the responses of the non-moving party.
. Abumi Sushi Inc. was formed on approximately May 6, 2015, while 1 Chimi Sushi Inc. was formed in December 2010 and was dissolved on August 10, 2015. Defs.' 56.1 ¶¶ 4-5.
. Plaintiff’s sole claim under N.Y. Gen. Bus. Law § 349 is for willful filing of fraudulent information returns. All remaining claims are brought under the FLSA or the NYLL.
. None of the remaining defendants have appeared in this matter.
. The Court subsequently extended discovery once more, until November 21, 2016, for the limited purpose of allowing the Appearing Defendants to respond to certain outstanding discovery requests. ECF No. 33.
. The Court notes that the analysis may indeed be different in the context of the NLRA, where the "substantial continuity” test was first employed. The question whether a new employer is obligated to bargain with an existing union, see Fall River Dyeing & Finishing, Corp. v. N.L.R.B., 482 U.S, 27,
. By way of example, the Court might expect to see such an argument supported by a valuation of the purchased assets, or even expert testimony regarding the typical asset-to-rent ratio. Plaintiff provides nothing of the sort.
. Congress knows how to embody a due diligence standard into a statutory scheme. See, e.g., 15 U.S.C. § 77k(b)(3) (due diligence defense for underwriters as to non-expertised portions of a securities registration statement).
. The Court observes that Abumi did receive a representation and warranty from 1 Chimi that “the business sold herein is being operated in accordance with all laws, ordinances and rules affecting said- business,” and that .the Affidavit of Title recited both that “the Transferor is not indebted to anyone and has
. In Musikiwamba, the Seventh Circuit adopted a Janus-like interpretation of this factor, The court held that the factor admits of two distinct considerations: First, the court explained that it would be ‘“'grossly unfair, except in the most exceptional circumstances, to impose successor liability on an innocent purchaser when the predecessor is full capable of providing relief.”