When is a Merger Not a Merger

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October 2011 Legal ALERT! When is a Merger Not a Merger? (When You Don’t Pay Attention to Details) A recent New York case highlights the importance of complying with statutory requirements when implementing mergers. Preston v. APCH, Inc. was decided by the Appellate Division of the Supreme Court, Fourth Department (an intermediate appellate court) on October 7, 2011. It involved claims by the estate of a welder who died in an industrial accident at a plant in Western New York. At the time the f
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   A recent New York case highlights the importance of complying with statutory requirements when implementing mergers. Preston v. APCH, Inc. was decided by the Appellate Division of the Supreme Court,Fourth Department (an intermediate appellate court) on October 7, 2011. It involvedclaims by the estate of a welder who died in an industrial accident at a plant in WesternNew York. At the time the fatal accident occurred in 2008, the welder was an employeeof Alstom Power, Inc., a Delaware corporation. APCH, Inc., another Delawarecorporation, was also named as a defendant. APCH was a former wholly ownedsubsidiary of Alstom that had held title to the plant where the accident occurred from2002 until it was merged into Alstom in 2007. APCH sought dismissal of the action against it claiming that ownership of the planthad been transferred to Alstom by virtue of the merger before the accident. Alstom, inturn, sought dismissal on grounds that the Workers’ Compensation Law precludedplaintiff’s action against it.The Court examined the merger of APCH into Alstom. It found that Alstom hadcompleted a short-form merger of APCH into Alstom in accordance with the DelawareGeneral Corporation Law. It also found, however, that nothing with respect to themerger had been filed either with the Department of State of the State of New York (“DOS”) or the county clerk of the county in which the plant was located. In fact, theCourt found that APCH had never been qualified in New York to do business as aforeign corporation despite owning the plant, an activity that would generally constitute“doing business” in the State.Examining the law applicable to the transfer of New York real property by a foreigncorporation, the Court cited Section 1307 of the New York Business Corporation Law (“BCL”) which states simply that: “A foreign corporation may acquire and hold realproperty in this state…and may convey the same by deed or otherwise in the samemanner as a domestic corporation.”The Court noted that a New York corporation can transfer real estate by mergerprovided the requirements of the BCL are satisfied. BCL §904(a) requires the filing of acertificate of merger signed by each constituent corporation with DOS. BCL §904(b)provides that a copy of that certificate of merger, certified by the DOS, must be filed inthe recording office of each county in which a corporation that is disappearing in themerger holds real property.BCL §906(b)(2) relating to the effects of mergers states that when the merger becomeseffective, all property, including real property, owned by each constituent corporation vests in the surviving corporation “without further act or deed.” BCL §906(a) provides This client alert is not intended to render legal services;the publisher assumes no liability for the reader’s use of the information herein. © 2011 Hiscock & Barclay, LLP Attorney Advertising  When is a Merger Not a Merger? (When You Don’t Pay Attention to Details) Labor &Employment (Continued on back)   Legal ALERT! www.hblaw.com albany  boston  buffalo  new york  rochester  syracuse  toronto  washington,dc This client alert is not intended to render legal services;the publisher assumes no liability for the reader’s use of the information herein. © 2011 Hiscock & Barclay, LLP Attorney Advertising October 2011  James J. Canfield, Chair315.425-2763jcanfield@hblaw.com W. Cook Alciati Jeffrey B. AndrusH. Douglas Barclay  William A. Barclay Christopher J. BonnerEileen A. Casey Roger F. Cominsky Donald S. Day Richard J. Day George S. DeptulaRichard S. FischbeinZachary D. ForwardLawrence J. Gallick Herbert J. Glose James S. GrossmanRobert P. Heary Holly J. Hoehner John A. JadonRonald S. Kareken John Kelepurovski, Jr.Susan S. Laluk Robert J. LanzaEdwin M. LarkinRobert N. Latella John P. Lowe, Jr.Oksana M. LuddCharles C. MartoranaFrancis X. Matt, IIIGerard M. MeehanGary L. Mucci Jessica R. Murray Sandra S. O’LoughlinLaurence B. OppenheimerNicholas A. ScarfoneGerald F. Stack Edward J. Trombly Mark E. Welchons Arnold N. Zelman Legal Alert Author:  John P. Lowe, Jr. Corporate  Branding, Trademarks &CopyrightsCommercial LitigationConstruction & Surety CorporateCreditors’ RightsEconomic & ProjectDevelopmentEnergy & UtilitiesEnvironmentalFinancial Institutions &LendingHealth Care & HumanServicesImmigrationIndian Law Insurance Coverage &RegulationIntellectual Property LitigationInternational BusinessLabor & EmploymentLobbying & ElectionLaw ComplianceMedia & First Amendment Law Municipal & Land UseProfessional Liability Public FinanceReal EstateReal Property Tax &CondemnationRegulatory Sports & EntertainmentTax TelecommunicationsTorts & ProductsLiability DefenseTrusts & Estates that upon the filing of the certificate of merger with the DOS, the merger “shall beeffected.” Therefore, the Court found that a merger is not effective in New York unlessand until a certificate of merger is filed with DOS.Thus, the Court held that, whether or not the merger of APCH into Alstom waseffective in Delaware, it was not effective in New York for purposes of transferring New  York real property. APCH was, therefore, still subject to suit in New York as the ownerof the plant. With respect to Alstom’s Workers’ Compensation Law defense, the Court held thatan exception applied to the general rule that Workers’ Compensation is the sole remedy of an employee injured in the course of employment. Under the so-called Billy  exception, (so named for a 1980 decision of New York’s high court, the Court of  Appeals, Billy v. Consolidated Mach , 51 NY2d 152), an employer that voluntarily assumesthe assets, obligations and liabilities of a third-party tort-feasor cannot avail itself of theexclusive remedy provision of the Workers’ Compensation Law.The rationale behind the Billy exception is that Workers’ Compensation has neverprecluded a worker from suing a third-party ( i.e. non-employer) tort-feasor, such as thecompany that designed or manufactured the tool that injured the worker. If theemployer later acquires the assets and liabilities of that tort-feasor, for example by merger,the third-party claim can still be maintained and the now employer cannot claim thebenefit of the serendipity of that status.The Court held that the Billy exception applied here because Alstom had voluntarily assumed the assets, obligations and liabilities of APCH in the merger. Thus,paradoxically, the Court refused to dismiss the case against APCH on the grounds themerger did not happen (at least for purposes of transferring New York real property), while refusing to dismiss Alstom on the grounds that it did.The lesson here is that the requirements of New York law must be followed where aforeign constituent corporation to a merger holds New York real property. Preston may also be emblematic of the cascade of ills that can result for an initial mishap. In thiscase, the failure to qualify APCH to do business in New York when it acquired the plantin 2002 may have influenced the failure to file a copy of the Delaware certificate of merger with the DOS in 2007. While BCL §1311 provides a procedure for filingcertificates of merger from sister states with respect to disappearing foreign constituentcorporations that are qualified to do business in New York, there is no such procedurefor filings with respect to foreign corporations that are not qualified. That makes sensesince New York would have little interest in what becomes of foreign corporations thatare not qualified in New York and thus presumably not “doing business” within itsborders.Had Alstom tried to file the Delaware certificate of merger in New York, the DOS would have found no record of APCH. DOS would have likely required Alstom toqualify APCH in New York and to file reports and tax returns for the entire period APCH owned the plant. Confronted by this likelihood, the architects of the Alstom/ APCH merger may have decided to take their chances. In hindsight, a poor decision.The application of the Billy exception to Alstom is also cautionary. Where a company is cobbled together through mergers and acquisitions, an injured employee may be ableto avoid the rule of Workers’ Compensation exclusivity if the injury can be traced to theact of a now-merged constituent.  If you require further information regarding the information presented in this Legal Alert and its impact on your organization, please contact any of the members of the Practice Area listed on this Alert. Hiscock & Barclay is a full service, 200-attorney law firm, with offices throughout the major cities of New York State, as well as in Boston, Washington, D.C. and Toronto. We provide comprehensive legal and businesscounsel to a diverse client base in 30 specialized practice areas with statewide and regional expertise as well as with national and international capabilities. Branding, Trademarks &CopyrightsCommercial LitigationConstruction & Surety CorporateCreditors’ RightsEconomic & ProjectDevelopmentEnergy & UtilitiesEnvironmentalFinancial Institutions &LendingHealth Care & HumanServicesImmigrationIndian Law Insurance Coverage &RegulationIntellectual Property LitigationInternational BusinessLabor & EmploymentLobbying & ElectionLaw ComplianceMedia & First Amendment Law Municipal & Land UseProfessional Liability Public FinanceReal EstateReal Property Tax &CondemnationRegulatory Sports & EntertainmentTax TelecommunicationsTorts & ProductsLiability DefenseTrusts & Estates
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