The debtor company sold its assets or business to avoid paying your judgment. Now the "new" company operates just like the old one. California successor liability doctrine may let you collect from the buyer even though they weren't party to your original lawsuit.
When one company buys the assets of another, the general rule is that the buyer does not assume the seller's liabilities. This protects innocent purchasers from unknown debts.
However, California recognizes several exceptions to this rule. If any exception applies, the buyer becomes liable for the seller's debts - including your judgment.
Debtors often try to escape judgments by selling the business to a "new" company (often owned by the same people or family). The old company is left empty while the new company operates the same business with the same assets. Successor liability prevents this shell game.
A successor corporation may be liable for the predecessor's debts when:
The buyer expressly agreed to assume the seller's liabilities (in the purchase agreement), or the assumption can be implied from the circumstances.
The transaction amounts to a consolidation or merger of the two companies, even though it's structured as an asset sale.
The buyer is merely a continuation of the seller - same people, same business, different name.
The sale was structured specifically to escape liability to creditors (this overlaps with fraudulent transfer law).
Exception #4 is essentially the same as a fraudulent transfer claim. If the sale was fraudulent, you may have both successor liability and fraudulent transfer claims - pursue both theories.
California also recognizes a fifth exception, the "product line" or "continuity of enterprise" exception, developed in Ray v. Alad Corp. (1977).
This exception is most commonly applied to product liability claims (defective products), but California courts have extended it to other contexts where the policy reasons apply - preventing escape from liability by restructuring.
The product line exception was developed for strict product liability cases. While some courts extend it to contract and tort claims generally, others limit it to product defect cases. The strength of this argument depends on the nature of your underlying claim.
Like alter ego claims, you have two main procedural options:
File a motion in your existing case under CCP 187 to add the successor as a judgment debtor.
File a separate action against the successor for a judgment declaring them liable for the original debtor's obligations.
Conduct thorough post-judgment discovery on the original debtor before filing your successor liability claim. Through debtor examination and document subpoenas, you can discover the details of the sale and gather evidence supporting each exception.
The successor will likely argue:
The sale was a legitimate business transaction between unrelated parties for fair value - not a scheme to avoid liabilities.
The buyer has completely different owners, negating de facto merger and mere continuation claims.
Fair market value was paid, money went to seller who could have paid creditors, no fraudulent intent.
The purchase agreement expressly excluded certain liabilities, including your judgment or the underlying claim.
Buyer had no knowledge of your claim at time of purchase (relevant for product line exception).
This is strong evidence of a sham transaction. Family relationships suggest the sale may be mere continuation or de facto merger rather than a true arm's length transaction. Courts are skeptical of business sales within families, especially when the timing suggests judgment avoidance.
Form doesn't defeat substance. Courts look past the formalities to the reality of the transaction. A new name, new entity, and new licenses mean nothing if the same people are running the same business with the same assets serving the same customers. It's continuity that matters, not labels.
Yes. Keep your judgment against the original debtor in place while pursuing the successor. You can collect from either until your judgment is fully satisfied. Having multiple judgment debtors increases your chances of full recovery.
Fair value defeats some theories (fraud, fraudulent transfer) but not others. The de facto merger and mere continuation exceptions can apply even if fair value was paid, if other factors show the transaction was really a reorganization rather than a true sale. The consideration is one factor among many.
For a CCP 187 motion, you can bring it while your judgment is enforceable (10 years, renewable). For a separate lawsuit, courts typically apply the statute of limitations for the underlying claim. The successor liability theory relates back to your original cause of action. Don't delay - file promptly after discovering the successor relationship.
I investigate asset sales and pursue successor liability claims against buyers who took over the business without taking the debts.