Opinion
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
APPEAL from an order of the Superior Court of Imperial CountySuper. Ct. No. L00160, Christopher W. Yeager, Judge. Reversed with instructions.
IRION, J.
Allied Investments (Allied) appeals from the trial court's order denying its request to add Lee Pacific, LLC (Lee Pacific) as a judgment debtor, which would make Lee Pacific liable for the judgment that Allied obtained against Lee Brands, LLC (Lee Brands) for breach of a lease agreement.
As we will explain, we conclude that the trial court erred in ruling that Lee Pacific did not enter into a de facto merger with Lee Brands and therefore was not liable for Lee Brands' debts. Accordingly, we reverse and direct the trial court to amend the judgment to include Lee Pacific as a judgment debtor.
I
FACTUAL AND PROCEDURAL BACKGROUND
A. Procedural Background
In February 2000, Allied filed a complaint against Lee Brands, alleging that Lee Brands breached a lease agreement for real property and was also liable for negligent maintenance of the property and conversion of items on the premises. Lee Brands was in the business of selling produce, primarily asparagus, which it obtained from various growers and sold on a commission basis, and the real property at issue apparently consisted of refrigerated warehouse space. On September 27, 2004, after a trial, Allied obtained a judgment against Lee Brands in the amount of $405,666.70, plus actual costs and attorney fees.
The trial court later set the amount of attorney fees awarded in the judgment at $127,330.
Two years later, on September 27, 2006, Allied filed an application for an order to show cause to amend the judgment to add an additional judgment debtor. The application was based on the principle that "where the successor corporation is a mere continuation and hence liable for the acts of its predecessor, . . . a motion pursuant to the procedural mechanism of [Code of Civil Procedure] section 187 enables the court to consider disregarding the corporate entity on any of several theories in order to add an additional judgment debtor." (McClellan v. Northridge Park Townhome Owners Assn. (2001) 89 Cal.App.4th 746, 754 (McClellan), citation omitted.) Specifically, Allied sought to add Lee Pacific as a judgment debtor. Allied alleged Lee Pacific was liable for the debts of Lee Brands because a merger had occurred involving Lee Pacific and Lee Brands, or in the alternative, Lee Pacific was a continuation of Lee Brands.
Code of Civil Procedure section 187 states: "When jurisdiction is, by the Constitution or this Code, or by any other statute, conferred on a Court or judicial officer, all the means necessary to carry it into effect are also given; and in the exercise of this jurisdiction, if the course of proceeding be not specifically pointed out by this Code or the statute, any suitable process or mode of proceeding may be adopted which may appear most conformable to the spirit of this Code." Section 187 "grants to every court the power to use all means to carry its jurisdiction into effect, even if those means are not set out in the code. [Citation.] Under section 187, the court has the authority to amend a judgment to add additional judgment debtors." (NEC Electronics Inc. v. Hurt (1989) 208 Cal.App.3d 772, 778, fn. omitted.)
B. The Relationship Between Lee Brands and Lee Pacific
The evidence forming the basis for Allied's application is essentially undisputed. Instead the parties disagree on the legal significance of those undisputed facts. We review those facts here.
1. The Consolidation Agreement
In November 2003, while this lawsuit was pending, Lee Brands entered into an agreement with two other parties, New Lee, LCC (New Lee) and Pacific Asparagus, LCC (Pacific Asparagus), referred to as the "Consolidation Agreement."
a. Contribution of Assets by Lee Brands to Lee Pacific
Under the Consolidation Agreement, Lee Brands and Pacific Asparagus contributed substantially all of their assets to a newly formed company — Lee Pacific. With very narrow exceptions, both Pacific Asparagus and Lee Brands contributed all of their "goodwill, books, records, customer lists, licenses, . . . and permits," as well as "contracts, leases, and agreements pertaining to [its] business," all of which were described in attached schedules. According to a revised schedule attached to the Consolidation Agreement, the assets that Lee Brands was transferring to Lee Pacific were worth $4,112,290. Lee Brands also agreed to cease using its corporate, business and trade names and its service marks, which it assigned to Lee Pacific. In short, although the business entity remained, Lee Brands essentially ceased to function as a company engaged in the produce business, and contributed all of its contracts and substantially all of its assets to the new entity, Lee Pacific.
The assets excepted from Lee Brands' transfer of assets to Lee Pacific were the following: "FCP Note (or any substitute thereof)," "Packaging Supplies (Sun Fresh, S.A. De C.V.)," and "Unamortized Pre-production prepaid expense" and "[a]ny other assets that are not expressly listed" in the schedule of Lee Brands' contributed assets.
b. Lee Brands' Member, New Lee, Obtains a 50 Percent Membership Interest in Lee Pacific in Exchange for Lee Brands' Contribution of Assets to Lee Pacific
The Consolidation Agreement states that "as consideration" for Lee Brands' and Pacific Asparagus's contribution of "assets and contracts," Lee Pacific would issue 50 percent membership interests to (1) Pacific Asparagus and (2) not Lee Brands, but rather New Lee. Specifically, Lee Pacific's issuance of a membership interest to New Lee was to be made under an "Exchange Agreement" between New Lee and Lee Brands, which was referenced in the Consolidation Agreement. The Exchange Agreement explained that New Lee held a membership interest in Lee Brands and had provided loans to Lee Brands, including a loan "in an amount not to exceed $3,000,000." At the time of the Consolidation Agreement, the outstanding balance on the loan was $2,202,064.14. In the Exchange Agreement, the parties agreed that Lee Brands' outstanding debt to New Lee would be cancelled in exchange for Lee Brands arranging for New Lee to receive a 50 percent membership interest in Lee Pacific.
The issuance of the membership interest to New Lee meant that there was a significant overlap in ownership between Lee Pacific and Lee Brands. Lee Brands was owned by its members New Lee, Roman Santillan, Alex Elias, Alex Tamayo and Mike Rubidoux. Lee Pacific was 50 percent owned by New Lee.
c. Lee Pacific Agrees to Assume Many of Lee Brands' Liabilities
In the Consolidation Agreement, Lee Pacific agreed "to accept, assume and perform" those "liabilities and obligations" of Lee Brands that were not listed on a schedule of excluded liabilities and that either (1) arose under the contracts listed on a specific schedule or (2) were listed on a revised schedule of assumed liabilities, which described $3,375,561 of Lee Brands' liabilities. The most significant liabilities assumed by Lee Pacific were a balance of $966,053 owed by Lee Brands to Bank of the West under a line of credit, trade accounts payable in the amount of $1,254,694, and the amount of $333,640 owing to the growers with whom Lee Brands contracted.
The only excluded liability listed on the schedule was "[a]ccrued vacation & sick hours for terminated employees."
According to the deposition of Randall Pura, a manager and indirect owner of Lee Pacific (through New Lee), Bank of the West agreed to forebear on foreclosing on the line of credit, which was in default, on the condition that Lee Pacific assume Lee Brands' obligation.
Allied's claim against Lee Brands for breach of the parties' lease agreement was not included in the schedule of liabilities that Lee Pacific was assuming; nor was any lease contract between Lee Brands and Allied listed on the schedule of contracts attached to the Consolidation Agreement. The Consolidation Agreement did, however, identify Allied's lawsuit, and it stated that Lee Brands would indemnify Lee Pacific from claims arising from that pending litigation.
d. Lee Pacific Operates in the Produce Business, Using the Lee Brands Tradename and Obtaining Produce from Growers Under Lee Brands' Contracts, Hiring Lee Brands Employees, and Appointing One of Lee Brands' Managers.
After the Consolidation Agreement, Lee Pacific assumed the business of selling produce, which had previously been conducted by Lee Brands and Pacific Asparagus. The growers who provided produce to Lee Brands continued to provide produce to Lee Pacific after the Consolidation Agreement during the term of their contracts. Lee Pacific continued to sell asparagus under the brand name Lee Brands, among others.
There were, however, certain differences in the way that Lee Pacific conducted its operations compared to how the business had been operated by Lee Brands. For example, although Lee Brands had directly marketed its produce to buyers, Lee Pacific followed the previous practice of Pacific Asparagus and contracted with another entity, Growers Express, to perform the marketing function in exchange for a service fee.
Many employees of Lee Brands went to work for Lee Pacific. The Consolidation Agreement contained a list of 11 employees of Lee Brands who were going to work for Lee Pacific. The entire sales staff of Lee Brands, with the exception of one employee who was terminated, went to work for Growers Express after the Consolidation Agreement. The managers of Lee Brands at the date of the consolidation were Randy Pura and Alex Tamayo. Tamayo, but not Pura, became a manager of Lee Pacific on the date of consolidation.
C. Lee Brands' Bankruptcy
It is undisputed that Lee Brands ceased to engage in the produce business after the Consolidation Agreement. In February 2005, 15 months after the Consolidation Agreement was signed, Lee Brands filed a chapter 7 bankruptcy petition. Allied's judgment was among Lee Brands' liabilities listed in the bankruptcy court. The bankruptcy court issued a final decree in May 2005, and in January 2006 the trustee filed a report concluding that there were no assets to administer for the benefit of creditors.
Lee Brands' other listed liabilities consisted of (1) secured claims in the amount of $47,402 for office equipment; (2) customs tax of $549,637.95 owing to the United States Customs Service; and (3) approximately $29,000 in miscellaneous unsecured nonpriority claims.
D. The Trial Court's Ruling
In this action, the trial court was presented with all of the evidence that we have set forth above. After issuing an order to show cause, and allowing Lee Pacific to respond to Allied's request to add Lee Pacific as a judgment debtor, the trial court rejected Allied's request.
The trial court first noted that Allied was seeking to establish successor liability either on the basis that Lee Brands had effectively merged with Lee Pacific or on the basis that Lee Pacific was a mere continuation of Lee Brands. It observed that under the governing case law, "the common denominator, which must be present in order to avoid the general rule of successor nonliability, is the payment of inadequate consideration." (See, e.g., Franklin v. USX Corp. (2001) 87 Cal.App.4th 615, 627 (Franklin).) The trial court determined that Allied could not establish that Lee Pacific paid inadequate consideration for Lee Brands' assets. It stated that the "evidence indicates that Lee Brands received a total consideration, although not cash as such, in excess of 5 million dollars." Further, addressing Allied's assertion that Lee Brands had merged with Lee Pacific, the trial court stated, "There was no merger of corporate identities as such." Also, apparently addressing the theory that Lee Pacific was a mere continuation of Lee Brands, the trial court stated, "The evidence submitted on this record does not establish an identity of ownership, management or employees by a preponderance of evidence." The trial court concluded that "[a]lthough there are, arguably, multiple indicia of a possible merger or possible continuation in this matter under several cases, these indicia do not amount to a showing of preponderance of the evidence such to grant the relief requested."
Addressing an argument made by Lee Pacific, the trial court also referred to Allied's failure to seek relief against Lee Pacific in Lee Brands' bankruptcy case: "In addition [Allied] took no action in the Lee Brands bankruptcy to contest it at the time. Lee Pacific presents persuasive authority that Lee Brands was not entirely without some remedy during the pendency of the bankruptcy and subsequent to it." In its appellate briefing, Lee Pacific claims that the trial court mentioned this issue in "balancing the equities among the parties, in conjunction with making the equitable ruling requested by Allied," and concedes that Allied is not barred from pursuing its claim against Lee Pacific because it did not pursue it in the bankruptcy court. We note that Lee Pacific's appellate briefing identifies only one purported remedy available to Allied in the bankruptcy court, namely "[t]he [bankruptcy] Trustee could have filed an adversary action against the members of Lee Brands, as well as Lee Pacific during the bankruptcy," (italics added) and that such an action could have been delegated or assigned to a creditor, such as Allied, at the option of the bankruptcy trustee. Thus, despite the trial court's statement that "Lee Pacific presents persuasive authority that Lee Brands was not entirely without some remedy during the pendency of the bankruptcy," on appeal Lee Pacific does not identify an action that could have been taken by Allied, but rather only an action that purportedly could have been taken by the bankruptcy trustee.
Allied appeals from the trial court's order.
II
DISCUSSION
A. Standard of Review
We review the findings underlying the trial court's order denying the motion to amend the judgment to name an additional judgment debtor under the substantial evidence standard. (See McClellan, supra, 89 Cal.App.4th at p. 752.) To the extent that our analysis requires us to evaluate the legal standard applied by the trial court, we apply a de novo standard of review. (See Enrique M. v. Angelina V. (2004) 121 Cal.App.4th 1371, 1378 [appellant's "contention as to the appropriate legal standard" for the trial court to apply "raises a question of law, which we review de novo"].)
B. Lee Pacific Assumed Lee Brands' Liabilities Because Lee Brands Merged into Lee Pacific
We begin our analysis with a focus on the rules governing the instances in which a company is deemed to have assumed the liabilities of another company by virtue of purchasing that company's assets. We apply those rules here, mindful that although case law often deals with one corporation purchasing the assets of another corporation, courts generally apply the same rules of successor liability to all types of business entities. (See, e.g., Graham v. James (2d Cir. 1998) 144 F.3d 229, 240, quoting 63 Am.Jur.2d (1984) Products Liability, § 117, p. 159 [" 'The traditional rule of corporate successor liability and the exceptions to the rule are generally applied regardless of whether the predecessor or successor organization was a corporation or some other form of business organization' "].)
"As typically formulated," the rule is that "a corporation purchasing the principal assets of another corporation . . . does not assume the seller's liabilities unless (1) there is an express or implied agreement of assumption, (2) the transaction amounts to a consolidation or merger of the two corporations, (3) the purchasing corporation is a mere continuation of the seller, or (4) the transfer of assets to the purchaser is for the fraudulent purpose of escaping liability for the seller's debts." (Ray v. Alad Corp. (1977) 19 Cal.3d 22, 28 (Ray).) Here, Allied relies on two of these grounds: (1) that the Consolidation Agreement amounted to a merger of Lee Brands into Lee Pacific; and (2) that Lee Pacific is a mere continuation of Lee Brands. As we will explain, we conclude that the Consolidation Agreement amounted to a de facto merger of Lee Brands into Lee Pacific, and for that reason Lee Pacific is responsible for Lee Brands' liabilities. We thus need not, and do not, decide whether Lee Pacific is a mere continuation of Lee Brands.
We now turn to the specific guidelines for determining when a de facto merger has occurred for the purposes of creating successor liability. The starting point of our analysis is our Supreme Court's explanation that an acquisition of assets is "in the nature of a merger or consolidation" for the purposes of the successor liability rule "where one corporation takes all of another's assets without providing any consideration that could be made available to meet claims of the other's creditors [citation] or where the consideration consists wholly of shares of the purchaser's stock which are promptly distributed to the seller's shareholders in conjunction with the seller's liquidation." (Ray, supra, 19 Cal.3d at pp. 29, 28.)
Here both situations exist. First, Lee Pacific provided no consideration to Lee Brands in exchange for Lee Brands' transfer of assets that might have been used to pay Lee Brands' creditors. Lee Brands received no cash or other valuable property from Lee Pacific that could have been attached by or executed upon by creditors. Second, the equivalent of stock (a 50 percent membership interest in Lee Pacific) was given by Lee Pacific in exchange for Lee Brands' assets. In this case, Lee Brands' owner, New Lee, obtained the 50 percent ownership in Lee Pacific by virtue of the Exchange Agreement between Lee Brands and New Lee. The agreement that New Lee (instead of Lee Brands) would obtain the membership interest in Lee Pacific in repayment of a debt owed to New Lee by Lee Brands could be characterized as part of Lee Brands' process of liquidation (i.e., the process of winding down and paying off its debts), as described in Ray, supra, 19 Cal.3d at page 28.
Cases cited by our Supreme Court in Ray provide a more detailed approach to determining whether successor liability will be imposed after a de facto merger. One of two cases cited by Ray to illustrate the applicable rules is Shannon v. Samuel Langston Company (W.D. Mich. 1974) 379 F.Supp. 797 (Shannon). (Ray, supra, 19 Cal.3d at p. 28.) Shannon sets forth the following test to determine whether successor liability has been created by virtue of a de facto merger:
"1) There is a continuation of the enterprise of the seller corporation, so that there is a continuity of management, personnel, physical location, assets, and general business operations.
"(2) There is a continuity of shareholders which results from the purchasing corporation paying for the acquired assets with shares of its own stock, this stock ultimately coming to be held by the shareholders of the seller corporation so that they become a constituent part of the purchasing corporation.
"(3) The seller corporation ceases its ordinary business operations, liquidates, and dissolves as soon as legally and practically possible.
"(4) The purchasing corporation assumes those liabilities and obligations of the seller ordinarily necessary for the uninterrupted continuation of normal business operations of the seller corporation." (Shannon, supra, 379 F.Supp. at p. 801.)
Based on Shannon's formulation and on the general approach set forth in Ray, the Court of Appeal in Marks v. Minnesota Mining & Manufacturing Co. (1986) 187 Cal.App.3d 1429, 1436 (Marks), formulated the following inquiry for determining "whether a transaction cast in the form of an asset sale actually achieves the same practical result as a merger" for the purposes of successor liability. A court should inquire "(1) was the consideration paid for the assets solely stock of the purchaser or its parent; (2) did the purchaser continue the same enterprise after the sale; (3) did the shareholders of the seller become shareholders of the purchaser; (4) did the seller liquidate; and (5) did the buyer assume the liabilities necessary to carry on the business of the seller?" (Ibid.) All of the factors set forth in Shannon and Ray are present here.
First, aside from the agreement to assume some of Lee Brands' liabilities, the only consideration paid by Lee Pacific for Lee Brands' assets was a membership interest in Lee Pacific, which immediately became the property of New Lee. In the context of a limited liability company, the issuance of a membership interest as consideration is equivalent to the provision of a purchaser's stock as the consideration for the asset sale. (See Marks, supra, 187 Cal.App.3d at p. 1436.)
As we will discuss below, when determining whether successor liability applies, an agreement to assume the seller's liabilities is not treated as part of the consideration given in exchange for a company's assets.
Second, Lee Pacific "continue[d] the same enterprise" as Lee Brands after it bought the assets. (See Marks, supra, 187 Cal.App.3d at p. 1436.) Lee Pacific took up Lee Brands' business of selling asparagus and other vegetables, assuming Lee Brands' contracts with growers, hiring many of Lee Brands' employees, and using the Lee Brands tradename.
Of course, Lee Pacific's operations were not identical to those of Lee Brands because Lee Pacific was formed by consolidating two different companies — Lee Brands and Pacific Asparagus — which combined the employees, tradenames, growers contracts, marketing arrangements, and other assets and practices of both companies. For the purposes of our de facto merger analysis, it is sufficient that the enterprise engaged in by Lee Brands was continued, to a substantial (but not identical) degree within the context of the merger of the two companies. This is the case because we are analyzing whether there was a de facto merger, which presupposes that one company is combining its operations with another.
Third, a member of Lee Brands (i.e., New Lee) became a 50 percent member of Lee Pacific. This is the equivalent, in the context of a limited liability company, of stating that "shareholders of the seller became shareholders of the purchaser." (Marks, supra, 187 Cal.App.3d at p. 1436.)
Fourth, Lee Brands "cease[d] its ordinary business operations, liquidate[d], and dissolve[d] as soon as legally and practically possible." (Shannon, supra, 379 F.Supp. at p. 801.) Specifically, Lee Brands ceased to engage in the business of selling produce, sold off substantially all of its assets, provided for the payment of many of its debts, and then dissolved by filing a chapter 7 bankruptcy petition.
Fifth, it appears that Lee Pacific "assume[d] the liabilities necessary to carry on the business of the seller." (Marks, supra, 187 Cal.App.3d at p. 1436.) Lee Pacific agreed, among other things, (1) to satisfy Lee Brands' liabilities to the growers that it contracted with to receive produce, (2) to satisfy Lee Brands' trade accounts payable, (3) to pay certain expenses associated with employment benefits, and (4) to assume Lee Brands' debt to Bank of the West, which would prevent Bank of the West from foreclosing on Lee Brands.
Lee Pacific argues that the application of the rules set forth above should not result in the imposition of successor liability. It claims that it gave more than merely a 50 percent membership interest in consideration for the purchase of Lee Brands' assets because it also agreed to pay off Lee Brands' debts, which totaled over $3.3 million according to a revised schedule attached to the Consolidation Agreement. Lee Pacific argues that because it paid for Lee Brands' assets with the equivalent of over $3.3 million in additional consideration, which went to pay off many of Lee Brands' secured and unsecured creditors, the Consolidation Agreement should not be viewed as a de facto merger that gives rise to successor liability. Lee Brands argues that because it assumed many of Lee Brands' liabilities, it paid "cash" of over $3.3 million.
We reject this argument. As we have seen, contrary to Lee Pacific's argument, an agreement by the buyer to pay off certain debts of the seller is a fact that weighs in favor of a de facto merger and successor liability, especially when, as here, they are debts that must be paid if the buyer is to continue in the business of the seller. Marks and Shannon both establish this principle. (Marks, supra, 187 Cal.App.3d at p. 1436; Shannon, supra, 379 F.Supp. at p. 801.) Also on point is Malone v. Red Top Cab Co. of Los Angeles (1936) 16 Cal.App.2d 268 (Malone), which is the second case cited with approval by our Supreme Court in Ray as illustrating the rules of successor liability. (Ray, supra, 19 Cal.3d at p. 28.)
In Malone, Yellow Cab Company acquired all of Red Top Cab Company's "operating property . . . including its licenses and franchises, and particularly its trade name, color rights and good will" and agreed to assume many of Red Top's liabilities, including certain specified debts and all of the payables shown on its books, and it agreed to cancel a specific promissory note. (Malone, supra, 16 Cal.App.2d at p. 273.) Noting "the lack of any cash, stock, bonds or other property passing to Red Top Cab Company" and the fact that Yellow Cab Company had acquired Red Top Cab Company's property "in entirety," the court affirmed a verdict that held Yellow Cab Company responsible for a personal injury judgment against Red Top Cab Company. (Ibid.) Malone explained, " 'It would be manifestly unfair, unjust, and contrary to equity that it should thus acquire all of the assets of the other corporation, and its franchise, both to be, and to do, leaving no one to be sued by its creditors and no property to satisfy its debts and other liabilities, and not itself become responsible for such debts and other liabilities.' " (Ibid.) Malone thus establishes, as do Marks and Shannon, that successor liability is properly imposed even when the acquiring company pays consideration in the form of agreeing to assume certain the debts of the seller.
Lee Pacific also argues that successor liability should not apply in this case because Allied was a "business entit[y] knowledgeable of the risks involved in the business environment" rather than a personal injury plaintiff as in some of the cases that set forth the successor liability rule, such as Malone and Ray. We reject this argument. Lee Pacific has cited no authority suggesting that the general rules of successor liability apply any differently when the judgment creditor is a sophisticated business entity. In stating the general rules of successor liability, our Supreme Court in Ray cited several cases that applied the doctrine in the context of commercial disputes. (See Ray, supra, 19 Cal.3d at pp. 28, 29, citing Pierce v. Riverside Mtg. Securities Co. (1938) 25 Cal.App.2d 248; Stanford Hotel Co. v. M. Schwind Co. (1919) 180 Cal. 348, 354; Higgins v. Cal. Petroleum etc. Co. (1898) 122 Cal. 373; Economy Refining & Service Co. v. Royal Nat. Bank of New York (1971) 20 Cal.App.3d 434; Blank v. Olcovich Shoe Corp. (1937) 20 Cal.App.2d 456.)
Lee Pacific further contends that successor liability should not be imposed because of statements made by the court in Franklin, supra, 87 Cal.App.4th 615, 625, which focus on the value of predictability in corporate transactions in determining whether successor liability should be imposed. Noting the importance of preserving predictability, Franklin concluded that it would not impose successor liability when one company had paid adequate cash consideration for another company's assets. (Ibid.) Lee Pacific claims that Franklin stands for the rule that successor liability should not be imposed when there is an arm's-length transaction for "adequate consideration."
Franklin does not support such an approach. It says nothing about arm's-length transactions, and it does not focus on the concept of adequate consideration. Instead, Franklin merely states that when there has been adequate cash consideration paid for another company's assets, the policy of predictability counsels against imposing successor liability. (Franklin, supra,87 Cal.App.4th at p. 625) Here, as we have discussed, Lee Pacific did not pay cash consideration for Lee Brands' assets. Instead, it paid for the assets by providing a membership interest to New Lee and by assuming certain of Lee Brands' liabilities. Thus, under Franklin's approach, successor liability properly applies.
Lee Pacific briefly makes other arguments, which we reject because they lack merit. First, Lee Pacific argues that successor liability should not be imposed because there is no evidence of an attempt to " 'hinder, delay [or] defraud' " Lee Brands' creditors. A finding of an attempt to hinder, delay or defraud creditors is not necessary when successor liability is imposed on the theory that there has been a de facto merger. Indeed, Ray clearly identifies that a separate exception to the rule of nonliability for successor companies exists when "the transfer of assets to the purchaser is for the fraudulent purpose of escaping liability for the seller's debts." (Ray, supra,19 Cal.3d at p. 28.) To establish successor liability based on a de facto merger, a party need only establish the factors set forth in Marks, supra, 187 Cal.App.3d 1429, 1436, and Shannon, supra, 379 F.Supp. 797, 801.
Second, Lee Pacific argues that liability cannot be imposed on an "alter ego" of a judgment debtor unless the alter ego company has exercised control of the underlying litigation. We reject this argument because Allied is not seeking to add Lee Pacific as a judgment debtor on the ground that Lee Pacific is an alter ego of Lee Brands. Instead, Allied is seeking to impose liability on the distinct ground that there was a de facto merger between Lee Pacific and Lee Brands.
Third, Lee Pacific argues, without citation to authority, that successor liability should not apply because Allied was purportedly not a creditor of Lee Brands at the time of the Consolidation Agreement. We reject this argument because Lee Pacific cites no authority to support it. (Wright v. City of Los Angeles (2001) 93 Cal.App.4th 683, 689 ["Generally, asserted grounds for appeal that are unsupported by any citation to authority and that merely complain of error without presenting a coherent legal argument are deemed abandoned and unworthy of discussion"].)
Having concluded that the evidence establishes that there was a de facto merger between Lee Brands and Lee Pacific as that term is defined in the case law discussing successor liability, and rejecting all of Lee Pacific's arguments to the contrary, we conclude that substantial evidence does not support the trial court's conclusion that there was not a de facto merger. Most significantly, the evidence does not support the trial court's finding that Lee Pacific paid "a total consideration, although not cash as such, in excess of 5 million dollars." As we have seen, the only consideration paid by Lee Pacific was a 50 percent membership interest in itself and an agreement to assume many of Lee Brands' debts. As we have explained, when the consideration paid for a company's assets consists only of an interest in the acquiring company and a promise to pay the acquired company's debts, these are not items of consideration that can be used to reject a finding of successor liability.
Because the evidence establishes a de facto merger of Lee Brands into Lee Pacific, creating successor liability, we will instruct the trial court to amend the judgment to add Lee Pacific as a judgment debtor.
DISPOSITION
We reverse the trial court's order, and remand this action with instructions for the trial court to amend the judgment to include Lee Pacific as a judgment debtor.
WE CONCUR: HALLER, Acting P. J., AARON, J.