        SUPREME COURT OF THE STATE OF NEW YORK
           Appellate Division, Fourth Judicial Department

1039
CA 12-00617
PRESENT: CENTRA, J.P., FAHEY, PERADOTTO, AND CARNI, JJ.


HAMILTON EQUITY GROUP, LLC, AS ASSIGNEE OF
HSBC BANK USA, NATIONAL ASSOCIATION,
PLAINTIFF-RESPONDENT,

                    V                             MEMORANDUM AND ORDER

JUAN E. IRENE, PLLC, ET AL., DEFENDANTS,
AND JUAN E. IRENE, INDIVIDUALLY AND DOING
BUSINESS AS THE LAW OFFICE OF JUAN E.
IRENE, ESQ., DEFENDANT-APPELLANT.
(APPEAL NO. 2.)


HARRIS BEACH PLLC, BUFFALO (RICHARD T. SULLIVAN OF COUNSEL), FOR
DEFENDANT-APPELLANT.

RUPP, BAASE, PFALZGRAF, CUNNINGHAM & COPPOLA LLC, BUFFALO (CHARLES
D.J. CASE OF COUNSEL), FOR PLAINTIFF-RESPONDENT.


     Appeal from a judgment of the Supreme Court, Erie County (John A.
Michalek, J.), entered May 31, 2011. The judgment, insofar as
appealed from, awarded plaintiff money damages against defendant Juan
E. Irene, individually and doing business as The Law Office of Juan E.
Irene, Esq.

     It is hereby ORDERED that the judgment insofar as appealed from
is unanimously vacated and the order entered May 31, 2011 insofar as
appealed from is reversed on the law without costs.

     Memorandum: Plaintiff commenced this action seeking to collect
the outstanding balance owed on a line of credit by defendant Juan E.
Irene, PLLC (hereafter, PSLLC), a domestic professional service
limited liability company. Plaintiff moved for summary judgment
against defendants, jointly and severally, in the principal amount of
$124,984.37 together with interest, costs and attorneys’ fees.
Plaintiff also moved for an order of replevin and a writ of seizure
with respect to certain secured collateral. Juan E. Irene,
individually and doing business as The Law Office of Juan E. Irene,
Esq. (defendant), appeals from a judgment that brings up for review
the underlying order granting plaintiff’s motion in its entirety. As
limited by his brief, defendant contends that Supreme Court erred in
granting that part of plaintiff’s motion for summary judgment against
him. We agree with defendant.

     On November 25, 2002, the PSLLC entered into a business line of
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                                                         CA 12-00617

credit agreement with a bank. Pursuant to a general security
agreement, the PSLLC granted the bank a security interest in the
PSLLC’s assets, accounts and other intangible property. Defendant
executed the line of credit and security agreements in his capacity as
the sole member of the PSLLC. Defendant, however, neither cosigned
nor guaranteed the line of credit in his individual capacity. On May
27, 2009, the bank assigned the PSLLC’s line of credit to plaintiff.
On June 3, 2009, the PSLLC was dissolved by the filing of articles of
dissolution with the New York State Department of State.

     It is undisputed that, following the dissolution of the PSLLC,
defendant engaged in the practice of law in his individual capacity at
the same location where the PSLLC had been located and under an
assumed name, i.e., “DBA,” “The Law Office of Juan Irene, Esq.”
Personal injury cases previously handled by the PSLLC were transferred
to defendant’s law practice, and defendant does not dispute that
plaintiff has a security interest in a portion of the attorney’s fees
that may be generated by those personal injury cases. After the
dissolution of the PSLLC, plaintiff thereafter commenced this action.
As relevant to these appeals, plaintiff moved for summary judgment
seeking a money judgment for the amount outstanding on the line of
credit together with interest, costs and attorneys’ fees. The court,
concluding that defendant was liable to plaintiff as a “successor by
merger” to the PSLLC, granted the motion and judgment was entered
thereon.

     Defendant contends that the court erred in granting that part of
plaintiff’s motion for summary judgment against him because plaintiff
failed to establish that the de facto merger doctrine applies. We
agree. Initially, we note that, although the parties did not
originally brief the issue whether the de facto merger doctrine
imposes successor liability on an individual or sole proprietorship
allegedly merging with a domestic professional service limited
liability company, at oral argument this Court directed the parties to
make supplemental submissions on that issue, and they have done so.
Thus, the issue of the applicability of the de facto merger doctrine
to plaintiff’s successor liability claim against defendant is properly
before us (see 22 NYCRR 1000.11 [g]).

     The “corporate law doctrine” of de facto merger was originally
developed to protect, inter alia, shareholder rights, but it has been
applied in products liability and breach of contract actions
(Sweatland v Park Corp., 181 AD2d 243, 246; see Schumacher v Richards
Shear Co., 59 NY2d 239, 244-245; Washington Mut. Bank, F.A. v SIB
Mtge. Corp., 21 AD3d 953, 954; Ladenburg Thalmann & Co. v Tim’s
Amusements, 275 AD2d 243, 247-248). The doctrine “creates an
exception to the general principle that an acquiring corporation does
not become responsible thereby for the [preexisting] liabilities of
the acquired corporation” (Simpson v Ithaca Gun Co., LLC, 50 AD3d
1475, 1476, lv denied 11 NY3d 709 [internal quotation marks omitted]).

     We reject plaintiff’s contention that the de facto merger
doctrine renders defendant liable to plaintiff as a successor by
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                                                         CA 12-00617

merger to the PSLLC. Inasmuch as the PSLLC was a New York
professional service limited liability company created pursuant to
Limited Liability Company Law article 12, any merger or consolidation
between defendant and the PSLLC would be governed by that article.
Pursuant to Limited Liability Company Law §§ 1213 and 1216, a
professional service limited liability company may, under certain
circumstances, be merged or consolidated with another limited
liability company, a foreign professional service limited liability
company or some “other business entity.” Limited Liability Company
Law § 102 (v) defines “[o]ther business entity” as “any person other
than a natural person or domestic limited liability company” (emphasis
added), and the statute therefore specifically excludes a professional
service limited liability company from being merged or consolidated
with a “natural person” (§ 102 [v]; see §§ 1213, 1216). Here,
defendant is clearly a “natural person,” despite the fact that he
practices law under an assumed name and the fact that his law practice
is characterized as a “sole proprietorship” (see generally Steele v
Hempstead Pub Taxi, 305 AD2d 401, 401; Kaczorowski v Black & Adams,
293 AD2d 358, 358-359). Thus, even if defendant and the PSLLC desired
to be merged, rather than having such merger imposed upon them by a
judicially created doctrine, such a merger could not be accomplished
under the Limited Liability Company Law.

     Notably, although invited to do so by this Court, plaintiff has
not identified any New York authority that permits a New York
corporation or professional service limited liability company to merge
with an individual doing business as a “sole proprietorship,” i.e., a
natural person, or that imposes a merger under the de facto merger
doctrine. Instead, in support of its position, plaintiff cites Tift v
Forage King Industries, Inc. (108 Wis 2d 72, 73-74, 322 NW2d 14, 14-
15), wherein the court applied successor liability in a products
liability action that involved the acquisition of the assets of a sole
proprietor by a corporation. The court in Tift decided that action
based upon the public policy and common law of the state of Wisconsin
(id. at 82-83). We are unpersuaded by Tift. Significantly, the New
York Business Corporation Law limits mergers to corporations and
“other business entities” (§ 901 [c] [1]). The term “[o]ther business
entity,” as defined under the Business Corporation Law, excludes “a
natural person” (§ 901 [b] [7]). Thus, under New York law, neither a
professional limited liability company nor a corporation is permitted
by statute to merge with a “natural person,” individual or “sole
proprietorship.”

     We therefore vacate the judgment insofar as appealed from and
reverse the underlying order insofar as appealed from.




Entered:   December 28, 2012                    Frances E. Cafarell
                                                Clerk of the Court
