Last month, Professor Stephen Bainbridge posed the question of whether California recognizes the de facto merger doctrine outside of the successor liability context. Here was my response. Less than two weeks later, the Nevada Supreme Court addressed the same question under Nevada law in Peddie v. Spot Devices, Inc., 2018 Nev. Unpub. LEXIS 901.
In an earlier decision, Village Builders 96, L.P. v. U.S. Laboratories, Inc., 121 Nev. 261 (2005), the Nevada Supreme Court identified the following four factors in determining whether to apply the de facto merger doctrine:
- Continuity of enterprise
- Continuity of shareholders
- Seller's cessation of ordinary business operations; and
- Assumption of seller's obligations.
In Peddie, the plaintiff in a dissenters' rights action challenged two debt-to-equity transactions, one in 2011 and one in 2013. The Supreme Court upheld the trial court's finding that the de facto merger doctrine did not apply to the earlier transaction because the plaintiff had failed to make a prima facie case as to three of the Village Builders factors. The plaintiff succeeded in obtaining a reversal of the trial court as to the second transaction which involved the forgiveness of debt and the transfer of the corporation's remaining assets.
Interesting. I still think de facto merger makes no sense in the merger/asset sale context.
