Vivint v. Northstar Alarm Services
MEMORANDUM DECISION (redacted) AND ORDER DENYING PLAINTIFFS' MOTION FOR PARTIAL SUMMARY JUDGMENT: Signed by Judge Jill N. Parrish on 8/14/17. (jlw)
IN THE UNITED STATES DISTRICT COURT
IN AND FOR THE DISTRICT OF UTAH
VIVINT, INC., a Utah corporation,
MEMORANDUM DECISION AND
ORDER DENYING PLAINTIFFS’
MOTION FOR PARTIAL SUMMARY
NORTHSTAR ALARM SERVICES, LLC, a
Utah limited liability company,
Case No. 2:16-cv-00106-JNP-EFJ
Judge Jill N. Parrish
Before the court is Plaintiff Vivint, Inc.’s (“Vivint”) Motion for Partial Summary
Judgment on its First Cause of Action for Declaratory Judgment (the “Motion”). [Dkt. No. 70].
Specifically, Vivint seeks a declaration that Defendant NorthStar Alarm Services, LLC
(“NorthStar”) is the successor in interest to third-party Vision Security, LLC (“Vision”) and is
therefore bound by the terms of a settlement agreement between Vivint and Vision. The court
held oral argument on the Motion on February 23, 3017. Because genuine disputes of material
fact exist, the court denies the Motion.
Vivint and NorthStar are both in the business of marketing, selling, and installing
electronic home automation and security systems. Companies in the home alarm and automation
industry market their products and services in a variety of ways, including door-to-door direct
sales. As two of the more established companies in the industry, Vivint and NorthStar have been
competing against each other since 2001.
In 2010, Vivint sued Vision, another competitor in the home security industry, alleging,
inter alia, deceptive sales practices towards Vivint’s customers. In December 2014, Vivint and
Vision entered into a settlement agreement (the “Settlement Agreement”) to resolve that
litigation. The Settlement Agreement includes a provision that requires Vivint and Vision to
follow an arbitration procedure to settle future disputes relating to allegations of deceptive sales
practices. The Settlement Agreement also states that its terms are binding on Vivint and Vision’s
successors and assigns.
Beginning in early 2014, Vision and NorthStar discussed a possible transaction between
the two. Those discussions were consummated by the execution of an Asset Purchase
Agreement, dated January 16, 2015 (the “APA”), whereby Vision sold approximately 8,000
customer accounts and related assets to NorthStar, and NorthStar hired certain Vision employees
Vivint now seeks a declaratory ruling that NorthStar is bound to the terms of the
Settlement Agreement as the successor in interest to Vision. Vivint argues that the APA
transaction constitutes a “de facto merger” of Vision and NorthStar and that NorthStar is
therefore bound to the Settlement Agreement under Utah’s successor liability doctrine. NorthStar
responds by arguing that it never agreed to be bound by the Settlement Agreement, that the APA
transaction was an asset purchase and not a “de facto merger,” and that the successor liability
doctrine does not apply.
“The court shall grant summary judgment if the movant shows that there is no genuine
dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R.
Civ. P. 56(a). When considering a motion for summary judgment, the court must examine all of
the evidence in the light most favorable to the nonmoving party. Jones v. Unisys Corp., 54 F.3d
624, 628 (10th Cir.1995) (citation omitted). This requires that all reasonable inferences be drawn
in favor of the nonmoving party. Sports Unltd., Inc. v. Lankford Enters., Inc., 275 F.3d 996, 999
(10th Cir. 2002) (citation omitted). A dispute of fact is genuine only if “a reasonable [trier of
fact] could find in favor of the nonmoving party on the issue.” Macon v. United Parcel Serv.,
Inc., 743 F.3d 708, 712 (10th Cir. 2014). “At the summary judgment stage, the judge's function
is not to weigh the evidence and determine the truth of the matter.” Concrete Works of Colo.,
Inc. v. City & Cty. of Denver, 36 F.3d 1513, 1518 (10th Cir. 1994) (citing Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 249 (1986)). “Nonetheless, ‘[w]here the record taken as a whole could
not lead a rational trier of fact to find for the nonmoving party,’ summary judgment in favor of
the moving party is proper.” Id. (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475
U.S. 574, 587 (1986)).
Utah case law regarding successor liability in this context is sparse. The few cases that
discuss and analyze claims of successor liability do so in the context of products liability cases.
See, e.g., Tabor v. Metal Ware Corp., 168 P.3d 814, 816–17 (Utah 2007). These cases indicate
that Utah adheres to the traditional corporate law view of successor nonliability, subject to four
exceptions, as outlined in section 12 of the Restatement (Third) of Torts. Id. (stating the general
rule of successor nonliability and its four exceptions and citing Restatement (Third) of Torts:
Products Liability). Utah courts have described that traditional view as follows:
[W]here one company sells or otherwise transfers all its assets to another
company the latter is not liable for the debts and liabilities of the transferor,
except where: (1) the purchaser expressly or impliedly agrees to assume such
debts; (2) the transaction amounts to a consolidation or merger of the seller and
purchaser; (3) the purchasing corporation is merely a continuation of the selling
corporation; or (4) the transaction is entered into fraudulently in order to escape
liability for such debts.
Macris & Assocs., Inc. v. Neways, Inc., 986 P.2d 748, 752 (Utah Ct. App. 1999) (quoting Florom
v. Elliott, 867 F.2d 570, 575 n.2 (10th Cir. 1989) (quotation marks omitted)), aff'd, 16 P.3d 1214
(Utah 2000). Vivint argues that the second of the four enumerated exceptions applies in this case.
The second of the four exceptions described in Macris is commonly referred to as the de
facto merger exception. Courts applying the de facto merger exception look beyond the form of
an asset sale to determine whether there has been, in substance, a merger or consolidation. See,
e.g., MBIA Ins. Corp. v. Countrywide Home Loans, Inc., 965 N.Y.S.2d 284, 297 (Sup. Ct. 2013)
(citations omitted). Whether a de facto merger has occurred generally depends on the presence of
the following factors:
(1) there is a continuation of the enterprise of the seller in terms of continuity of
management, personnel, physical location, assets, and operations;
(2) there is a continuity of shareholders;
(3) the seller ceases operations, liquidates, and dissolves as soon as legally and
practically possible; and
(4) the purchasing corporation assumes the obligations of the seller necessary for
uninterrupted continuation of business operations.
Ekotek Site PRP Comm. v. Self, 948 F. Supp. 994, 1002 (D. Utah 1996) (citation omitted)
(analyzing successor liability for CERCLA claims). See also Decius v. Action Collection Serv.,
Inc., 105 P.3d 956, 959 (Utah Ct. App. 2004) (“The second exception, the ‘de facto merger,’
considers whether the business operations and management continued and requires that the buyer
paid for the asset purchase with its own stock.” (citation omitted)). And, as other courts have
recognized, “[i]t bears noting that the de facto merger doctrine is rooted in equity, and has the
purpose of avoiding patent injustice which might befall a party simply because a merger has
been called something else.” Nature's Plus Nordic A/S v. Nat. Organics, Inc., 980 F. Supp. 2d
400, 410 (E.D.N.Y. 2013) (citations and quotation marks omitted). See also Gray v. Loyola Univ.
of Chi., 652 N.E.2d 1306, 1310 (Ill. App. Ct. 1995) (“The de facto merger doctrine applies where
statutory merger formalities are not followed, but where, for reasons of equity, the acquiring
corporation is treated as if they had been followed.”); Lehman Bros. Holdings v. Gateway
Funding Diversified Mortg. Servs., L.P., 989 F. Supp. 2d 411, 431 (E.D. Pa. 2013), aff'd, 785
F.3d 96 (3d Cir. 2015) (“The de facto merger determination is a matter of equity, designed to
look beyond the contract.”); DeJesus v. Bertsch, Inc., 898 F. Supp. 2d 353, 362 (D. Mass. 2012),
aff'd sub nom. DeJesus v. Park Corp., 530 F. App'x 3 (1st Cir. 2013) (“The successor liability
doctrine is an equitable doctrine, and the Court considers whether the shareholders used a
disguised mechanism to transfer the legal ownership of the corporation but ultimately retain the
same effective control.”).
NorthStar argues that, under Utah law, it cannot be liable as Vision’s successor in interest
unless it purchased all of Vision’s assets. In support of this argument, NorthStar relies on the
Utah Court of Appeals’ decision in Decius, which articulates the successor liability rule as
follows: “Where one company sells or otherwise transfers all its assets to another company, the
latter is not responsible for the debts and liabilities of the transferor,” subject to the four wellsettled exceptions already noted above. 105 P.3d at 958–59 (emphasis added) (brackets,
quotation marks, and citations omitted). However, a subsequent decision by the Utah Supreme
Court, which articulated the successor liability rule in the context of products liability, omitted
the requirement that all assets be sold or transferred. Tabor, 168 P.3d at 816–17. And the Utah
Supreme Court has only required the acquisition of “all or substantially all the assets” in order
for successor liability to attach in the employment benefits context. True-Flo Mech. Sys., Inc. v.
Bd. of Review of the Indus. Comm’n of Utah, 743 P.2d 1161, 1163 (Utah 1987). Thus, under
Utah law, the sale or transfer of all assets is not an absolute prerequisite to a finding of successor
liability. 1 However, the Restatement (Third) of Torts does point out that the de facto merger
exception “most frequently ha[s] significance when the predecessor has transferred all of its
assets to the successor and, at least formally, has ceased to exist.” Restatement (Third) of Torts:
Prod. Liab. § 12 cmt. h. (1998).
NorthStar’s Evidentiary Objection
NorthStar objects to the court’s consideration of the materials attached to Vivint’s Motion
as Exhibits 7–10. NorthStar objects to those exhibits on grounds that they are inadmissible parol
evidence. The parol evidence rule “operates in the absence of fraud to exclude contemporaneous
conversations, statements, or representations offered for the purpose of varying or adding to the
terms of an integrated contract.” MediaNews Grp., Inc. v. McCarthey, 494 F.3d 1254, 1262 (10th
Cir. 2007) (applying Utah law) (citation, quotation marks, and emphasis omitted). But the court
is not construing or interpreting the language of the APA under Utah law. Rather, the court is
looking beyond the APA itself to determine whether the practical effect of the transaction was a
de facto merger. MBIA Ins. Corp., 965 N.Y.S.2d at 297. Accordingly, NorthStar’s objection is
Requiring the sale or transfer of all assets would also render meaningless one of the factors to be considered in
determining the existence of a de facto merger. The first factor requires the court to consider whether “there is a
continuation of the enterprise of the seller in terms of continuity of management, personnel, physical location,
assets, and operations.” Ekotek, 948 F. Supp. at 1002 (emphasis added). If the sale of all assets were a prerequisite to
finding a de facto merger, there would be no reason to inquire into the continuity of the seller’s enterprise in terms of
its assets because they would all necessarily have transferred to the buyer.
Although the court overrules NorthStar’s objection pursuant to the parol evidence rule, the court notes that the
relevance of Exhibits 7–10 to the de facto merger inquiry is marginal. Exhibits 7–10 may be evidence of the intent
of the parties when they entered into the APA, but the parties’ intent is not one of the factors to be considered in the
de facto merger analysis. The court’s inquiry is to look beyond what the APA said it was, or how the parties
characterized the transaction, and determine the practical effect of the transaction. See MBIA Ins. Corp., 965
N.Y.S.2d at 297.
Application Of The De Facto Merger Factors
The court now turns to the de facto merger test and concludes that there are genuine
disputes of material fact that preclude summary judgment. Based on the record before the court,
a rational trier of fact could find in favor of NorthStar on the question of whether a de facto
merger occurred. Accordingly, summary judgment is inappropriate and Vivint’s Motion must be
There is a genuine dispute of fact as to whether NorthStar continued the
The first factor to consider in evaluating whether the APA resulted in a de facto merger
between Vision and NorthStar is whether “there is a continuation of the enterprise of [Vision] in
terms of continuity of management, personnel, physical location, assets, and operations.” Ekotek,
948 F. Supp. at 1002.
Continuity of management and personnel
Vision had about 70 full-time employees at the time of the APA transaction. About half
of those employees accepted positions at NorthStar following the APA transaction. Additionally,
Vision had approximately 250 sales representatives during the 2014 sales season, of which 30–
35 (or between 12% and 14% of Vision’s 2014 sales force) sold for NorthStar after the APA
transaction. In total, about 67 individuals who had worked for Vision in some capacity were
hired by NorthStar. Each former Vision employee or sales representative who was hired by
NorthStar was required to complete new-hire paperwork and to accrue six months of
employment at NorthStar before paid time off was available to them. While NorthStar
recognized and assumed each employee’s unused vacation time, sick time, or holiday time that
the employee had accrued at Vision, Vision remained responsible for the payment of other
employee benefits, salaries, year-end bonuses, or other compensation due to its former
Included among the former Vision employees who were hired by NorthStar were several
former Vision senior managers or executives. These include Rob Harris, Vision’s CEO and
owner who became President of NorthStar, Dan Noble, Vision’s Chief Financial Officer who
became NorthStar’s Chief Operating Officer, Sean Brown, Vision’s General Counsel who
became NorthStar’s General Counsel, and Ryan Roche, Vision’s Vice President of Sales who
became Vice President of Sales at NorthStar. Despite becoming President of NorthStar, Rob
Harris continued as CEO and majority owner of Vision. Other than the positions listed above,
NorthStar’s executive team was the same before and after the APA transaction, including Jason
Christensen as CEO, Leah Young as Director of Human Resources, Kent Griffith as Chief
Financial Officer, Courtney Brown as Public Relations Manager, and Matt Fletcher as Director
of Information Technology. When all was said and done, the APA transaction left only two
people working at Vision: CEO and owner, Rob Harris, and Danielle Paletz. Ms. Paletz
continued as an employee of Vision until her employment was terminated approximately six
months after the APA transaction.
Continuity of physical location
Pursuant to the APA, NorthStar acquired Vision’s leases and office spaces located in
Orem, Utah, and Tempe, Arizona, assuming Vision’s obligations under those leases. NorthStar
also acquired “all of the furniture, fixtures and equipment used by or in connection with the
Business 3 that relates to the [c]ustomer [a]ccounts” that Vision sold to NorthStar. And Vision
“Business” is defined in the APA to be Vision’s “business of marketing, selling, installing, monitoring and
servicing electronic security systems and related services for consumers.”
also sold to NorthStar “all of the tangible and intangible properties and assets necessary for the
conduct of the Acquired Business 4 as currently conducted.” Despite selling the leases and office
spaces in Orem and Tempe to NorthStar, Vision has continued operating out of other office
space that it leases in Pleasant Grove, Utah.
Continuity of assets and operations
NorthStar purchased approximately 8,000 customer accounts from Vision, along with
eleven existing contracts that Vision had with third-parties, including service agreements,
equipment leases, and Vision’s contract with its alarm equipment supplier. Other assets acquired
by NorthStar included Vision’s goodwill associated with the 8,000 accounts and some cash
representing deferred revenue relating to the 8,000 accounts. But the APA excluded many of
Vision’s other assets. For example, Vision maintained 2,000 other customer accounts that it
continued to service (it also sold approximately 12,000 accounts to another company during
2014 and early 2015), as well as contracts with third parties for alarm system monitoring and
cellular monitoring. Also excluded were Vision’s bank accounts, cash, accounts receivable,
intellectual property, insurance policies and related claims or causes of action, and certain office
equipment. Vision has never dissolved and continues to exist as a Utah limited liability company
in good standing. Vision still maintains a customer base of 1,500 customers, generates
substantial monthly revenue, and otherwise continues to operate as a profitable enterprise.
In sum, there is evidence that would support a rational trier of fact to conclude that there
was no continuation of Vision’s enterprise at NorthStar after the APA transaction. Although
many of Vision’s employees and managers ended up working at NorthStar, many of them did
“Acquired Business” is defined in the APA to be “the goodwill of the Business, including the goodwill related to
the Customer Accounts,” as well as the “furniture, fixtures and equipment used by or in connection with the
Business that relates to the Customer Accounts.”
not. And although NorthStar assumed the leases and office spaces in Orem, Utah, and Tempe,
Arizona, Vision still leased and operated out of an office in Pleasant Grove, Utah. Further, it is
unclear from the record whether there was a continuity of assets and operations in light of the
accounts and contracts that remained with Vision and its continued operations after the APA
transaction. Accordingly, there is a genuine dispute of fact material to the continuity factor.
Continuity of shareholders
The second factor looks at whether there is a continuity of shareholders. Ekotek, 948 F.
Supp. at 1002. This factor, although not dispositive, is an important factor in light of the de facto
merger doctrine’s roots in equity. See DeJesus, 898 F. Supp. 2d at 362–63 (“The successor
liability doctrine is an equitable doctrine, and the Court considers whether the shareholders used
a disguised mechanism to transfer the legal ownership of the corporation but ultimately retain the
same effective control.”). Thus, “the question is whether [the seller’s] shareholders or parent
company sought to remain in control of its business through a merger while avoiding any
continued liability.” Id. at 363.
Here, the APA provided that NorthStar would acquire certain Vision assets in exchange
for a cash payment and a minority ownership interest in NorthStar’s holding company. The
ownership interest in NorthStar’s holding company was split with percentages allocated to a trust
associated with Rob Harris and a trust associated with Dan Noble. Both Mr. Harris and Mr.
Noble remain the principal owners of Vision.
Where the APA was consummated through both a cash payment and a conveyance of a
minority ownership interest in NorthStar, a rational fact finder could conclude that Vision’s
shareholders were not seeking to remain in control of its business because they took a minority
ownership interest in NorthStar. Accordingly, there is a genuine dispute of fact over the degree
to which there was a continuity of ownership after the APA transaction.
The seller ceases operations, liquidates, and dissolves as soon as legally and
It is undisputed that Vision has not ceased its operations, liquidated, or dissolved. But
Vivint maintains that this factor is satisfied when the seller shuts down its “ordinary business
operations.” See Tabor, 168 P.3d at 817 (stating the factors considered in analyzing the
“continuity of enterprise” exception to the successor liability rule in the products liability context
but ultimately rejecting that exception); Okla. ex rel. Doak v. Acrisure Bus. Outsourcing Servs.,
LLC, 529 F. App’s 886, 894 (10th Cir. 2013) (applying the de facto merger doctrine under
Michigan law); Bud Antle, Inc. v. E. Foods, Inc., 758 F.2d 1451, 1458 (11th Cir. 1985) (holding
that the dissolution factor is satisfied if “[t]he seller corporation ceases its ordinary business
operations”). Vivint argues that prior to the APA transaction, Vision was in the business of
selling and installing residential customer security alarm systems. After the APA transaction,
Vision ceased selling and installing those systems and continues to exist only to service the
remaining 2,000 accounts that were not sold to NorthStar. Vivint points to the fact that the APA
also included an agreement that Vision would stop competing with NorthStar in for 5 years.
NorthStar responds by pointing to Vision’s continued operations after the APA
transaction and arguing that servicing and selling customer accounts has long been a regular
aspect of its business. It specifically points to the fact that Vision continues to perform its
obligations under the Settlement Agreement by participating in expedited arbitration proceedings
with Vivint and by making settlement payments to Vivint. NorthStar also argues that because the
non-compete provision of the APA only applies for five years and only prevents Vision from
competing in the states where NorthStar does business, Vision could conceivably continue
selling residential alarms in more than half of the country. 5
The facts before the court reveal a genuine dispute over what Vision’s “ordinary business
operations” were before the APA transaction and whether Vision ceased those ordinary business
operations. Such a dispute can only be resolved by a trier of fact.
The purchaser assumes the obligations of the seller necessary for
uninterrupted continuation of business operations
The final factor examines the acquiring company’s assumption of obligations necessary
for it to continue the seller’s business operations. Vivint points out that NorthStar agreed to
assume a number of Vision’s office leases, service agreements, and equipment leases. Vivint
maintains that these contracts and obligations allowed for the uninterrupted continuation of
Vision’s ordinary business operations at NorthStar. But NorthStar focuses instead on the
contracts and liabilities that it did not assume under the APA, including a number related to the
continued servicing of the 2,000 customer accounts that Vision retained. NorthStar also points
out that it did not assume all of Vision’s obligations to its former employees and sales
representatives, nor did it assume any of Vision’s intellectual property. In sum, NorthStar argues
that it assumed only certain obligations related specifically to the accounts that Vision sold to
NorthStar; it did not assume all of Vision’s obligations that were necessary to continue Vision’s
Again, there is a dispute over what Vision’s ordinary business operations were and
whether the obligations that NorthStar assumed would allow for the uninterrupted continuation
of those ordinary business operations by NorthStar.
NorthStar does, or is qualified to do, business in 24 states.
On the record before it, the court concludes that a rational trier of fact could find in favor
of the nonmoving parties on each of the factors to be considered. Accordingly, summary
judgment is inappropriate and Vivint’s Motion [Dkt. No. 70] is DENIED.
IT IS SO ORDERED.
Signed August 14, 2017.
BY THE COURT
Jill N. Parrish
United States District Court Judge
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