Justice Angela Mazzarelli
Defendant "Senior Lenders" extended loans to Tap Operating Co. LLC (Tap). Through a series of purported technical violations of covenants, loan accelerations and defaults, the Senior Lenders allegedly gained constructive control over Tap, which then entered into a "Foreclosure Agreement" under which its assets were transferred to Tap Automotive Holdings LLC (New Tap), itself controlled by the Senior Lenders. The Senior Lenders—who allegedly operated New Tap as a continuation of Tap's business—then engaged in a series of activities that purportedly rendered Tap insolvent and unable to pay $38 million worth of subordinated notes. First Department affirmed supreme court's denial of the motion by New Tap and the Senior Lenders' motion to dismiss the second amended complaint's eighth cause of action. Among other things, that cause of action adequately alleged New Tap's formation so as to siphon Tap's funds, and cut off the subordinated note holders' ability to collect. Further New Tap's successor liability under the three exceptions to the general rule that a corporation acquiring another's assets is not liable for the other's torts—the"mere continuation" doctrine, de facto merger, and fraudulent transfer—was adequately alleged.
