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Does California Recognize The De Facto Merger Doctrine Outside The Successor Liability Context?

Yesterday, Professor Stephen Bainbridge noted that California has applied the de facto merger doctrine to an asset purchase transaction to hold the acquiring corporation liable for tort liabilities of the selling corporation.  Professor Bainbridge in his post tags me with the question of whether California recognizes de facto merger outside the successor liability context.

As an initial matter, it must be understood that there are at least two applications of the de facto merger doctrine.  The first, as described above, imposes a selling corporation's debts and liabilities on a successor corporation in an asset sale transaction.  The second involves whether shareholders of the selling corporation will enjoy voting and dissenters rights in an asset sale transaction.  In Jones v. H.F. Ahmanson & Co., 1 Cal. 3d 93, 117 (1969), Justice Roger Traynor noted that "Judicial protection has also been afforded the shareholder who is the victim of a "de-facto merger" to which he objects" (citing Farris v. Glen Alden Corp. 123 A.2d 25 (1958)).  

The Ahmanson case predates the current General Corporation Law which largely moots the discussion by defining a "reorganization" to include a sale-of-assets reorganization.  Cal. Corp. Code § 181(c).  See also When a Sale of Assets is not a "Sale-of-Assets Reorganization".  

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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm

Keith Paul Bishop is a partner in Allen Matkins' Corporate and Securities practice group, and works out of the Orange County office. He represents clients in a wide range of corporate transactions, including public and private securities offerings of debt and equity, mergers and acquisitions, proxy contests and tender offers, corporate governance matters and federal and state securities laws (including the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act), investment adviser, financial services regulation, and California administrative law. He regularly advises clients...