In Veritas Steel, LLC v. Lunda Construction Co. (2017AP822), the Court of Appeals District IV maintained a narrow application of the “de facto merger” and “mere continuation” exceptions to Wisconsin’s general rule against successor liability.

Construction contractor Lunda had secured a $16 million judgment against steel fabricator PDM Bridge, LLC. PDM also owed other lenders approximately $76 million. Those lenders used a series of transactions to acquire PDM’s assets, which were ultimately obtained by the entity Veritas. PDM could not satisfy Lunda’s $16 million judgment, and Lunda sought the instant successor liability claim against Veritas.

Relying on Wisconsin Supreme Court precedent in Fish v. Amsted Indus. Inc., the court of appeals dismissed Lunda’s claim for an exception to successor liability because there was not evidence showing identity of ownership between the original and successor entity. Under Fish, exceptions to successor liability include de facto mergers and cases where “the purchaser corporation is merely a continuation of the seller corporation.” Fish stated that these exceptions apply when there is an identity of ownership, evidenced by a transfer of ownership for stock or a continuity of owners between the selling and purchasing entities.

Lunda argued that an identity of control could show a mere continuation from seller to purchaser, establishing successor liability. In this case, Lunda said the purchasing entity had pre-acquisition control over seller PDM; therefore, the transaction was a mere continuation. The court acknowledged the tension between its narrow reading of the de facto merger and mere continuation exceptions in Fish and the ability of entities to achieve what is essentially a merger or continuation without satisfying the strict “identity of ownership” requirement. However, the court said it is bound by Fish, and only the Supreme Court could change this interpretation of the exceptions. Since Lunda failed to establish an identity of ownership between Veritas and PDM, the court dismissed its successor liability claim based on the mere continuation and de facto merger exceptions.