When does successor liability apply in Utah employment discrimination cases? Decius v. Action Collection Service, Inc. Explained

The Utah Court of Appeals in Decius v. Action Collection Service, Inc. addressed when a company that purchases another company’s assets becomes liable for the predecessor’s employment discrimination claims. The decision provides important guidance for practitioners handling successor liability issues in corporate transactions.

Background and Facts

Four former employees of Allstate Credit and Collections filed age discrimination claims with the EEOC and later sued Allstate in federal court. After obtaining a settlement judgment against Allstate, they discovered that Action Collection Service had purchased Allstate’s accounts and assets six months earlier. The employees then sued Action in state court for a declaratory judgment that Action was liable as Allstate’s successor. Action had purchased Allstate’s assets but expressly refused to assume any liabilities, had no common directors or officers with Allstate, and hired only some former Allstate employees including the former president.

Key Legal Issues

The court analyzed whether Action was liable under Utah’s successor liability doctrine, specifically the “mere continuation” exception to the general rule that asset purchasers do not assume the seller’s liabilities. The plaintiffs also argued that federal employment discrimination law should apply with its more expansive successor liability test.

Court’s Analysis and Holding

Under Utah law, the court applied the traditional mere continuation test, which requires “a common identity of stock, directors, and stockholders and the existence of only one corporation at the completion of the transfer.” The court declined to adopt Michigan’s expanded Turner test, noting it has been applied primarily in products liability cases with different policy rationales. Under federal law, applying the three-factor test from employment discrimination cases, Action lacked prior notice of the claims and the predecessor remained capable of providing relief.

Practice Implications

This decision reinforces Utah’s adherence to traditional successor liability principles requiring actual continuation of corporate identity. Practitioners should carefully document asset purchase transactions to establish the absence of common ownership, control, and notice of pending claims to avoid successor liability exposure.