17‐381‐cv
Audio Emotion S/A v. McIntosh Group, Inc.
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY
ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE
OF APPELLATE PROCEDURE 32.1 AND THIS COURTʹS LOCAL RULE 32.1.1. WHEN CITING A
SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE
FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION ʺSUMMARY ORDERʺ). A
PARTY CITING A SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED
BY COUNSEL.
At a stated term of the United States Court of Appeals for the Second
Circuit, held at the Thurgood Marshall United States Courthouse, 40 Foley Square, in
the City of New York, on the 12th day of September, two thousand seventeen.
PRESENT: RALPH K. WINTER,
DENNY CHIN,
SUSAN L. CARNEY,
Circuit Judges.
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AUDIO EMOTION S/A,
Plaintiff‐Appellant,
17‐381‐cv
v.
McINTOSH GROUP, INC., DBA FINE SOUNDS
GROUP,
Defendant‐Appellee.
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FOR PLAINTIFF‐APPELLANT STEPHANIE F. BRADLEY, Watkins Bradley
LLP, San Francisco, California.
FOR DEFENDANT‐APPELLEE MIRIAM SKOLNIK, Herzfeld & Rubin, P.C.,
New York, New York.
Appeal from the United States District Court for the Southern District of
New York (Torres, J.).
UPON DUE CONSIDERATION, IT IS HEREBY ORDERED,
ADJUDGED, AND DECREED that the judgment and order of the district court are
AFFIRMED.
Plaintiff‐appellant Audio Emotion S/A (ʺAudio Emotionʺ) appeals from
(1) an August 8, 2016 judgment of the district court granting a motion filed by
defendant‐appellee McIntosh Group, Inc. (ʺMcIntoshʺ), d/b/a Fine Sounds Group (ʺFS
Groupʺ), to dismiss the amended complaint, and (2) a January 11, 2017 order denying
Audio Emotionʹs motion to alter or amend the judgment and for leave to file an
amended complaint. We assume the partiesʹ familiarity with the facts, procedural
history, and issues on appeal.
We accept as true the allegations in the amended complaint, which can be
summarized as follows. Audio Emotion is a Brazilian distributor of high‐end audio
products. Fine Sounds S.p.A. (ʺFS S.p.A.ʺ) is (or was) an Italian company also in the
business of distributing high‐end audio equipment. In February 2013, Audio Emotion
entered into an agreement with FS S.p.A. (the ʺAgreementʺ) to be the latterʹs exclusive
representative and distributor in Brazil.
In February 2014, although Audio Emotion had been meeting its sales
targets under the Agreement, FS S.p.A. ʺtook actions to unilaterally terminate the
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Agreement.ʺ Am. Compl. ¶ 17.1 Audio Emotion contends that by doing so, FS S.p.A.
breached the Agreement.
In April 2014, FS Group announced that it was acquiring FS S.p.A.ʹs audio
distribution business and relocating it to New York. FS Group was incorporated in
Delaware on April 21, 2014 and registered to do business in New York as a foreign
business corporation on March 6, 2015. In connection with FS Groupʹs incorporation, FS
S.p.A.ʹs ʺaudiophile business, including its assets and goodwill, was transferred to
Defendant.ʺ Am. Compl. ¶ 8.
Audio Emotion commenced this action for breach of contract in the
district court on July 22, 2015. In accordance with the district courtʹs individual rules,
McIntosh wrote a letter to Audio Emotionʹs counsel setting forth the specific
deficiencies that McIntosh believed to warrant dismissal of the complaint, in
anticipation of seeking the courtʹs leave to file a motion to dismiss. In response, Audio
Emotion amended its complaint. Thereafter, McIntosh moved to dismiss the amended
complaint. The district court granted the motion, concluding that Audio Emotion had
not sufficiently pled successor liability, and entered judgment. Audio Emotion filed a
motion to alter or amend the judgment to provide that dismissal was without prejudice,
which the district court construed as a motion for reconsideration, and for leave to file
1 Although the amended complaint states that FS Group terminated the
agreement, the reference should be to FS S.p.A, as Audio Emotion makes clear in its
brief on appeal.
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an amended complaint. The district court denied the motion, concluding that Audio
Emotionʹs proposed amendments would be futile. Audio Emotion timely appealed
both the dismissal and denial of leave to amend the amended complaint.
1. Successor Liability
We review the district courtʹs grant of a motion to dismiss de novo,
ʺaccepting as true all allegations in the complaint and drawing all reasonable inferences
in favor of the nonmoving party.ʺ Wilson v. Dantas, 746 F.3d 530, 535 (2d Cir. 2014)
(citation omitted). The complaint must include ʺenough facts to state a claim to relief
that is plausible on its face.ʺ Id. (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570
(2007)).
Under New York law, a corporation that purchases the assets of another
corporation does not acquire its liabilities unless ʺ(1) the buyer ʹexpressly or impliedly
assumed the predecessorʹs tort liability, (2) there was a consolidation or merger of seller
and purchaser, (3) the purchasing corporation was a mere continuation of the selling
corporation, or (4) the transaction [wa]s entered into fraudulently to escape such
obligations.ʹʺ N.Y. State Elec. & Gas Corp. v. FirstEnergy Corp., 766 F.3d 212, 227‐28 (2d
Cir. 2014) (alteration in original) (citation omitted). Below and on appeal, Audio
Emotion relies on the ʺconsolidation or mergerʺ and ʺmere continuationʺ theories.
First, Audio Emotion contends that it has plausibly alleged that the second
exception applies ‐‐ specifically, that the transaction between FS Group and FS S.p.A.,
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ʺalthough not in form a merger, is in substance a consolidation or merger of seller and
purchaser,ʺ or a de facto merger. Priestley v. Headminder, Inc., 647 F.3d 497, 505 (2d Cir.
2011) (quoting New York v. Natʹl Serv. Indus., Inc., 460 F.3d 201, 209 (2d Cir. 2006)).
Relevant factors in assessing whether there has been a de facto merger include ʺ(1)
continuity of ownership; (2) cessation of ordinary business and dissolution of the
acquired corporation as soon as possible; (3) assumption by the purchaser of the
liabilities ordinarily necessary for the uninterrupted continuation of the business of the
acquired corporation; and (4) continuity of management, personnel, physical location,
assets, and general business operation.ʺ Id. (citation omitted). We have recognized that
the doctrine cannot apply absent continuity of ownership, which is ʺthe essence of a
merger.ʺ Id. at 505‐06 (citation omitted).
The amended complaint alleges only that ʺboth Fine Sounds S.p.A. and
Fine Sounds Group share the same senior management.ʺ Am. Compl ¶ 8. It does not
allege facts from which we can infer continuity of ownership, cessation of operations by
the predecessor company, assumption of liabilities by the successor company, or
continuity of personnel, physical location, assets, or general business operations.
Although Audio Emotion admits that it does not ʺdirectly allege
continuity of ownership,ʺ it asks us to infer continuity of ownership because ʺin a
management buyout, high level company officers would have already held stock in the
corporation whose assets they purchased in the name of the successor corporation.ʺ
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Appellantʹs Br. at 25‐26 (citation omitted). Without any additional factual assertions,
however, this allegation is mere speculation. See Priestley, 647 F.3d at 506 (noting that
allegations of ʺcontinuity of officersʺ are inadequate to support finding of de facto
merger ʺabsent . . . allegations that th[ose] officers actually owned the corporationsʺ).
Furthermore, as the district court noted, the amended complaint does not allege that FS
Group (or McIntosh) assumed FS S.p.A.ʹs liabilities, that FS Group operates at the same
location, with the same personnel, or with the same general business operation, or that
FS S.p.A. has ceased operations. Accordingly, we cannot reasonably infer from the
allegations in the amended complaint that a de facto merger occurred between FS S.p.A.
and FS Group.
Second, Audio Emotion argues that it can claim successor liability under
the exception for purchasing entities that are a ʺmere continuationʺ of the selling entity.
This argument fails for the separate reason that FS S.p.A. survived the transfer of assets
to McIntosh. See Wensing ex rel. Wensing v. Paris Indus. N.Y., 558 N.Y.S.2d 692, 694 (3d
Depʹt 1990) (ʺThe record reveals that Paris Industries Corporation survived the asset
transfer as a distinct corporation, albeit in bankruptcy. Under such circumstances,
Leander cannot be cast as its mere continuation.ʺ).
Audio Emotionʹs reliance on Thompson v. Real Estate Mortgage Network, 748
F.3d 142 (3d Cir. 2014), is misplaced. In that case, the Third Circuit, applying New
Jersey law, allowed a mere continuation successor liability claim to proceed absent
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specific allegations of continuity of ownership because the complaint ʺdescribe[d]
continuity of operations, management, physical location, assets, and general
operations,ʺ and ʺ[t]he predecessor corporation . . . went out of business shortly after
the transfer.ʺ Id. at 152‐53. Here, however, the amended complaint alleges only that FS
Group acquired FS S.p.A.ʹs assets and goodwill, and that they share the same senior
management. Furthermore, as noted above, New York courts routinely hold that the
continued existence of the predecessor entity is a bar to a mere continuation claim. See,
e.g., Ring v. Elizabeth Found. for Arts, 25 N.Y.S.3d 173, 175 (1st Depʹt 2016).
Accordingly, we conclude that Audio Emotion failed to state a claim in its
amended complaint for successor liability under either a de facto merger or mere
continuation theory.
2. Leave to Amend
The district court denied Audio Emotionʹs post‐judgment motion for leave
to amend further its complaint on the basis that the amendments proposed would be
futile. This Court ʺordinarily review[s] a district courtʹs denial of a motion to amend the
pleadings for abuse of discretion.ʺ AEP Energy Servs. Gas Holding Co. v. Bank of Am.,
N.A., 626 F.3d 699, 725 (2d Cir. 2010) (citation omitted). Leave to amend need not be
granted where the proposed amendments would be futile, however, Krys v. Pigott, 749
F.3d 117, 134 (2d Cir. 2014), and where the district courtʹs denial of leave to amend ʺis
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based on a legal interpretation, such as futility,ʺ we review de novo. Balintulo v. Ford
Motor Co., 796 F.3d 160, 164 (2d Cir. 2015).
Audio Emotionʹs post‐judgment motion sought further leave to amend
based on the fact that FS S.p.A. was in liquidation proceedings and had entered
liquidation soon after sale of the business. Even assuming Audio Emotion could further
amend its amended complaint to allege that FS S.p.A. had dissolved, any such
amendment would be futile. First, as Audio Emotion acknowledges, FS S.p.A. survived
the transaction with FS Group as a distinct entity and, more than two years later,
continues to exist. See Ring, 25 N.Y.S.3d at 175 (continued existence of the predecessor
entity is a bar to a mere continuation claim).
Second, Audio Emotionʹs motion failed to address any of the other
pleading deficiencies identified by McIntosh and the district court ‐‐ namely, the failure
to allege continuity of ownership, assumption of liabilities by the successor company, or
continuity of physical location, assets, or general business operations. For the first time
on appeal, Audio Emotion argues that it should be permitted to amend the complaint a
second time to allege continuity of ownership based on documents showing that
Charles Randall, one of the individuals who led the buyout of FS S.p.A., had a 0.13%
ownership share in FS S.p.A. Audio Emotionʹs speculation based on these documents,
not raised in the district court, is insufficient to plausibly allege continuity of ownership
as necessary to support its successor liability claim.
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Furthermore, Audio Emotion has enjoyed a full opportunity to cure its
pleading deficiencies in this case. Audio Emotion already amended its complaint once
in response to issues pointed out by McIntosh and had a second opportunity (under the
district courtʹs individual rules) to amend its complaint, without needing the courtʹs
leave, after McIntosh filed its motion to dismiss. Audio Emotion neither filed an
amended complaint in response to McIntoshʹs motion nor sought leave to amend in its
opposition. Moreover, as discussed above, Audio Emotion still has not identified
factual allegations that would remedy the problems with its claims identified by the
district court. Thus, under the circumstances of this case, we are unable to conclude
that the district court erred in denying Audio Emotion leave to amend again its
complaint.
We have considered all of Audio Emotionʹs remaining arguments and
conclude they are without merit. Accordingly, we AFFIRM the judgment and the order
denying Audio Emotionʹs post‐judgment motion for leave to amend.
FOR THE COURT:
Catherine OʹHagan Wolfe, Clerk
9