Ordinarily, an appellate court’s per curiam opinion—an unsigned ruling issued “by the court” rather than in the name of the authoring judge—does not merit close examination. In Wisconsin, per curiam opinions are unpublished and may not be cited in future cases, even for persuasive value.
Thus, it would be easy to overlook the court of appeals’ recent per curiam opinion in Veritas Steel, LLC v. Lunda Construction Company. At first blush, the decision appears to be a straightforward affirmance of the circuit court’s order dismissing two claims: successor liability and fraudulent transfer. However, the analysis is illuminating, and it seems to telegraph—pretty clearly—that the Wisconsin Supreme Court should reconsider long-standing precedent that narrows the exceptions to the general law of non-liability for corporate successors.
PDM was a steel fabricating entity. It had a credit agreement with multiple lenders, who in turn had first-priority liens on PDM’s assets. When PDM defaulted, the lenders granted forbearance in exchange for PDM’s agreement to sell itself with the help of an investment bank. None of the bids to acquire PDM were sufficient to cover PDM’s outstanding debt to secured creditors (much less to unsecured creditors like Lunda, which had obtained a $16 million judgment against PDM).
Atlas, the common parent company of the lenders, was the highest bidder. Through a series of transactions, Atlas and the lenders acquired PDM’s assets and shed any obligations to pay additional debts. They did this in several steps. First, a “transition support agreement” between PDM and the lenders expressed “a mutual desire” to transition PDM’s business to the lenders. In the wake of that agreement, Atlas and its affiliates purchased all of PDM’s outstanding debt directly from the lenders at a steep discount. Then Atlas created a new entity, Veritas Steel, which was assigned a first-priority lien on PDM’s assets. Finally, PDM conveyed its assets to Veritas in exchange for the discharge of the secured debts. “Under Veritas’s ownership,” PDM continued operating as it had before these transactions, employing the same workforce and pursuing the same type of work. See slip op. ¶13.
Meanwhile, Lunda took steps to execute its judgment against PDM. Eventually, Veritas responded by seeking a judicial declaration that Lunda had no claim against Veritas for payment of the judgment against PDM. Lunda counterclaimed against Veritas and brought a third-party complaint against Atlas and others. Lunda alleged that the defendants schemed to control PDM and continue to operate it, “albeit under a different name.” Id. ¶ 15. Applying Wisconsin precedent, the circuit court dismissed Lunda’s successor liability and fraudulent transfer claims.
Court of Appeals decision:
In its discussion of the successor liability claim, the court of appeals began with the general rule that when an acquiring corporation purchases assets of a target corporation it does not also succeed to the liabilities of the target corporation. There are well-recognized exceptions to this general rule, two of which Lunda invoked: (1) the “de facto merger exception,” which applies when the transaction amounts to a consolidation or merger of the two corporations, and (2) the “mere continuation exception,” which applies when the acquiring corporation is essentially a continuation of the target corporation.
The court of appeals recognized that earlier precedent supported Lunda’s argument. In Tift v. Forage King Industries, the Wisconsin Supreme Court expanded these exceptions and allowed piercing the corporate veil so that a court could “look to the substance and effect of business transformations or reorganizations to determine whether the original organization continues to have life or identity” in a subsequent organization. Id. ¶24 (quoting Tift, 108 Wis. 2d 72, 78–79, 322 N.W.2d 14 (1982)).
However, the court of appeals concluded that later Supreme Court precedent cut the other way. This newer precedent, Fish v. Amsted Industries, Inc., rejected “relaxation of the traditional test of successor liability and instead requires attention to concrete evidence of identity of ownership.” Id. ¶27 (citing Fish, 126 Wis. 2d 293, 300–02, 376 N.W.2d 820 (1985)). As the court of appeals noted, this focus on the “identity of ownership” appears to require a transfer of stock to trigger the de facto merger exception, and the common identity of officers, directors, and stockholders for the mere continuation exception. As neither key element was present here, neither exception applied and Lunda’s successor liability claim failed.
The court of appeals cited federal case law that similarly understood Fish to foreclose claim, even where the results may be “‘unsettling’ because an asset transfer has occurred under what appear to have been ‘quite cozy’ circumstances.” Id. ¶28 (quoting Gallenberg Equip., Inc. v. Agromac Int’l, Inc., No. 98-3288, slip op. at 5 (7th Cir. Aug. 4, 1999)). The court of appeals also observed that Lunda’s argument would have “traction” in other jurisdictions, but not in Wisconsin “at this time.” Id. (emphasis added). And the court of appeals cautioned that it may be “impossible to square our reading of Fish with statutory merger language under ch. 180” of the Wisconsin Statutes. Id. ¶32, n.11. Finally, the court of appeals noted that Fish was a closely decided case, from which three justices dissented, “urging more flexible approaches to the exceptions.” Id. ¶33. But the court of appeals ultimately acknowledged its hands were tied, as only the Supreme Court can overrule its prior decisions.
It may very well be that the court of appeals deemed this an open-and-shut case, meriting no more than an unsigned ruling. It may also be true that the court of appeals felt aggrieved by an unsecured judgment creditor getting the short end of the stick and went out of its way to explain why it could not offer relief. However, given the tone, the length, and the word choice of this opinion, the court of appeals may indeed have been urging litigants to ponder, and perhaps even providing rhetorical ammunition to use in, pursuing a change in the controlling precedent by seeking further review at the Wisconsin Supreme Court.