Shearman & Sterling LLP | M&A and Corporate Governance Litigation Blog | Southern District of New York Grants Partial Summary Judgment Rejecting Successor Liability in Copyright Infringement Dispute<br >  
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  • Southern District of New York Grants Partial Summary Judgment Rejecting Successor Liability in Copyright Infringement Dispute
     
    07/25/2016
    On July 15, 2016, Judge Naomi Buchwald of the United States District Court for the Southern District of New York granted partial summary judgment to defendant Cowen & Company, LLC (“Cowen”) on successor liability claims brought by Energy Intelligence Group, Inc. and Energy Intelligence Group (UK) Limited (together, “EIG”).  Energy Intelligence Grp., Inc. v. Cowen & Co., No. 14-cv-03789 (S.D.N.Y. July 15, 2016).  The Court held that the assignment of the assets of Dahlman Rose & Company LLC (“Dahlman”) to Cowen following the acquisition of Dahlman by Cowen’s parent company, Cowen Group, did not create successor liability for alleged copyright infringement by Dahlman.  In so holding, the Court rejected the plaintiffs’ argument that two exceptions to the rule against successor liability for the assignment of assets applied, namely that Cowen had either expressly assumed Dahlman’s tort liability or that the acquisition was a de facto merger.

    EIG, which publishes oil industry newsletters, claimed that Dahlman personnel had internally forwarded newsletters in violation of Dahlman’s subscription restrictions and EIG’s copyright.  EIG relied on a provision of the Assignment and Assumption Agreement between Cowen Group and Dahlman (“AAA”) in which Cowen assumed “all known liabilities, contingencies and obligations” of Dalhman to support its successor liability claims against Cowen.  However, the disclosure schedule to the AAA made no mention of EIG’s copyright claims against Dahlman, nor were the claims identified to Cowen during the due diligence process, and EIG did not send its first demand letter or otherwise assert its claims until almost one year after the AAA was signed.  Accordingly, the Court found no record evidence that either party to the AAA knew about the EIG liability at the time of execution.  Citing EIG’s privilege log, which reflected limited communications with counsel prior to the date the AAA was signed, the Court questioned whether EIG itself knew of or had articulated a claim by that time.  Thus, the Court rejected EIG’s argument that the liability had been expressly assumed.

    The Court likewise rejected EIG’s argument that the AAA constituted a de facto merger between Dahlman and Cowen.  The Court concluded that none of the three elements of a de facto merger under Delaware law were met.  First, Dahlman had not transferred all of its assets to Cowen because $1,000,000 in assets remained with Dahlman under the AAA.  Second, consideration for the asset assignment was not paid in stock.  Third, Cowen had not assumed all debts and liabilities of Dahlman because certain assets were excluded from the transfer and the liabilities and debts assumed were limited.  The Court further noted that EIG did not allege fraud or undue influence in the transaction and, consequently, no equitable concerns were presented that might justify application of the de facto merger doctrine.  
    CATEGORY: Deal Disputes

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