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					     KEEPING IT FAST BY MERGING                          importance as transfer limitations can have a

    AROUND CONSENTS TO ASSIGN                            significant impact on the overall value of the

               By Jolisa Dobbs                           deal, the speed of the deal, or, in some

          Thompson & Knight LLP                          circumstances, determine if there is even

        FAST PACED is the perfect way to                 going to be a deal. A merger is a common

describe the current oil and gas market.                 vehicle employed to maneuver around

Properties are trading at a feverish pace                consents to assign, thus increasing the speed

fueled by favorable prices and the ever                  of closing a transaction and, in some

increasing    stories   of   quick   riches   for        circumstances, avoiding requesting a consent

companies acquiring leases in new or hot                 to assign.

plays such as the Barnett Shale. A few years                     The consent to assign provision is a

of acquisitions have netted some companies               very common obstacle to the transfer of

millions in profits.    With such promising              properties or agreements.          Some state

returns, everyone is trying to strike while it is        statutes expressly provide (either in the text of

hot. Companies are quickly acquiring leases,             the statute or in the official comments) that a

proving up the properties and subsequently               merger is not an assignment. These state

selling large packages.                                  statutes are usually based upon the Model

        Under any market conditions, the                 Business Corporation Act.          The Model

structure of the acquisition is usually the first        Business Corporation Act contains an “Effect

issue addressed by the parties. The structure            of Merger” provision which provides that when

of the transaction is selected for a variety of          a merger becomes effective “all property

reasons such as favorable tax considerations,            owned by, and every contract right possessed

liability concerns or even the ability to transfer       by, each corporation or other entity that

properties or agreements. This paper will                merged into the survivor is vested in the

focus on the last of these issues, the

transferability of the assets, which is of utmost

                                                     1
survivor without reversion or impairment.”1                     This paper also provides an in-depth

The official comment to this model form                 look at case law addressing mergers and

explains that a merger is not a conveyance,             interpreting these statutes. Very few state

transfer or assignment and that a contract              courts have interpreted the Model Business

claim does not exist for breach of anti-                Corporation Act’s provisions deeming a

assignment clauses, unless the contract                 merger not to be a transfer. A few courts

specifically provides that it does not survive          have addressed whether a merger or other

the merger.                                             reorganization is a transfer requiring consent

        This paper provides a state-by-state            without reference to a statue.

analysis applying the effect of merger statutes                 The various state statutes provide

in active oil and gas states to consent to              favorable support for mergers in general.

assignment      clauses    found     in   private       States want to promote business activity and

agreements. These conclusions are based                 facilitate combinations of entities in a variety

upon a “typical” anti-assignment clause which           of ways. The transfer of properties should not

simply prohibits assignment without the                 be an impediment to any merger and the

consent of the other party. Anti-assignment             Model Business Corporation Act embodies

clauses may contain more detailed language,             this view. A merger should not create a claim

including additional language         prohibiting       for breach of a “typical” anti-assignment

assignment by merger or by operation of law.            clause. It is as simple as that – or is it?

As a general rule, these more specific anti-                    The states of Alabama, Alaska,

assignment clauses will be enforced by courts           Arkansas, Colorado, Kansas, Louisiana,

and, due to the fact-specific nature of such            Mississippi,    Montana,       New      Mexico,

decisions, are beyond the general scope of              Oklahoma, Texas, Utah, and Wyoming have

this paper.                                             all created statutes (a) based on the Model

                                                        Business Corporation Act in some form,

1
                                                        (b) with similar language to such act, or
 Model Business Corporation Act § 11.07 (1998/99
Supp.).
                                                    2
(c) with more express language than the act.               held that the transfer of an oil and gas lease

Such effect of merger statutes support the                 under a merger was not an assignment, but

argument that in a merger, a transfer has not              rather a succession. The court further held

occurred which would require consent to                    that a merger does not even create an

assignment under a typical anti-assignment                 assignment by operation of law. In this case,

clause.          Courts generally uphold such              the oil and gas lease prohibited assignment

interpretation of the statutes unless the                  without the written consent of the landowners.

contracts involve more personal rights and                 The anti-assignment clause did expressly

properties such as patents and             licenses        provide consent for the assignment to a

(which also may be governed by federal law).               specific entity. After the oil and gas lease was

However, some personal contracts, namely                   assigned to the specified entity, the entity

employment contracts, are held by the courts               merged several times. The landowners

to not require a consent upon merger.                      blocked access to the oil and gas wells based

Overall, most courts continue to disfavor the              upon the alleged breach to the anti-

forfeiture of real estate whether by a merger              assignment provision and the successor

or other non breach reasons, and have                      corporation sued to enforce the lease. The

consistently held that mergers as to leases or             court’s decision that the merger did not create

other interests in real estate are not an                  an assignment was based upon Pittsburgh

assignment or transfer requiring consent.                  Terminal Coal Corporation v. Potts3 which

                         Leases                            held that after a merger, the successor was

           Leases have been addressed in the               not in the position of an ordinary assignee,

merger context involving an oil and gas lease              instead it “succeeds” to the interests under

containing an anti-assignment provision. In                the lease.

Santa       Fe    Energy      Resources,   Inc.   v.

Manners2, the Superior Court of Pennsylvania


2
    635 A.2d 648 (Pa. Super. Ct. 1993).                    3
                                                            92 Pa. Super. 1 (Pa. Super. Ct. 1927).
                                                       3
           In Aiello v. Austrian4, the Appellate       merger is by operation of law and was thus

Court of Connecticut faced a commercial                not an assignment prohibited by the lease.6

lease for a medical practice. The commercial                    Ohio      law    also     provides      some

lease was to a medical partnership and                 guidance, in Middendorf v. Fuqua Industries,

contained an anti-assignment clause requiring          Inc.7, the Sixth Court of Appeals upheld a

Aiello’s consent. The partnership reorganized          district court’s decision that the transfer under

into a corporation and Aiello refused to               a merger is by operation of law and not by

consent to the assignment of the lease. The            assignment. This appellate case, however,

court held that an assignment does not result          focused       on   liabilities   assumed        by    a

from a change of form from a partnership to a          subsequent lessor and did not deal with an

corporation. Although the facts of this case           anti-assignment clause directly. The court

are more limited as the ownership of the               merely affirmed the district court’s decision on

lessee did not change, this case still lends           this point.

support to the argument that consents need                      Pennsylvania courts have also held

not be obtained for mergers.                           that a merger is not a transfer of a lease. In

           The Supreme Court of Missouri faced         Segal v. Greater Valley Terminal Corp.8, the

the transfer of a lease under a merger in              Superior Court of New Jersey Appellate

Dodier Realty & Investment Co. v. St. Louis
                                                       5
National Baseball Club, Inc.5 In this case, St          238 S.W.2d 321 (Mo. 1951).
                                                       6
                                                        The Supreme Court went one step further in holding
                                                       that a transfer under a merger did not even fit within a
Louis, the lessee under a lease containing an
                                                       prohibition of transfer by operation of law in an anti-
                                                       assignment clause in Standard Operations, Inc. v.
anti-assignment clause merged into National            Montague, 758 S.W.2d 442 (Mo. 1988). However,
                                                       in this case the anti-assignment clause also defined a
Sports, Incorporated. The lease prohibited             series of involuntary transfers such as bankruptcy so
                                                       the court focused on the voluntary nature of a merger
assignment without the consent of Dodier.              in holding that a merger was not within the intent of
                                                       the parties - especially since they had been so explicit
The court applied the Missouri effect of               in the rest of the clause. Although this case could
                                                       provide support for ignoring express prohibitions
merger statute in holding that transfer by             against assignment by operation of law, the facts are
                                                       so specific that such reliance would be risky.
                                                       7
                                                        623 F.2d 13 (6th Cir. 1980).
4                                                      8
    479 A.2d 1234 (Conn. App. Ct. 1984).                199 A.2d 48 (N.J. Super. Ct. App. Div. 1964).
                                                   4
Division was faced with the transfer of a 99            principal office location. This lease contained

year lease.       The lease contained an anti-          an anti-assignment clause requiring the

assignment         provision    that   prohibited       permission of the landlord and expressly

assignment without Segal’s consent. Greater             included assignments by operation of law in

Valley Terminal Corp. merged with Paragon               such prohibition.     Century merged into

Oil Co., Inc. and Segal filed suit for breach of        Citizens and the landlord sought increased

the lease. The court held that no assignment            rent in return for its approval to the

or similar transfer of the lease occurred. The          assignment of the lease. Citizens brought this

court further held that even if the merger were         action for a declaration that it had not

considered to create an assignment, the                 breached the anti-assignment clause. The

assignment would not violate the lease since            court held that a transfer had occurred based

the effect of merger statute provided that all          upon the statutory language and this transfer

rights and every other interest shall “vest” in         was by operation of law and thus in violation

the surviving corporation.                              of the anti-assignment clause. The court

           Although these cases provide support         interpreted the effect of merger statute which

for not obtaining consents to assign, the               holds that the property becomes that of the

express language of the anti-assignment                 successor corporation “without any deed,

clause is very important. The courts have               transfer or other action” meant the transfer

applied the statutes to typical anti-assignment         was by operation of law, not that a transfer

clauses but private parties can agree to more           had not occurred. The court supported this

stringent terms.       The Court of Appeals of          conclusion by distinguishing it from cases

Maryland faced a commercial lease in The                holding a merger is not a assignment since

Citizens Bank & Trust Company of Maryland               this case resulted in a change in ownership as

v. The Barlow Corp.9 In this case, Century              well and the fact that this anti-assignment

National Bank held a commercial lease for its           clause included transfers by operation of law.

                                                        Relying upon the precedence of this case,
9
    456 A.2d 1283 (Md. 1983).
                                                    5
agreements which include transfers by                    the heels of each other in developing glass

operation of law as a prohibited assignment              fabrication technology. The two companies

are an area of concern.                                  shared this technology with each other by

            Based on the statutes and case law           entering into agreements, which in part

mentioned above, consents to assign should               granted a non-exclusive, non-transferable,

not be needed for leases transferred by                  royalty-free license to Permaglass for a

merger unless the parties under the original             portion of PPG’s patent rights.              The

leases       had established more stringent              agreement contained an anti-assignment

consent triggers - such as a prohibition                 provision dictating that the agreement is non-

expressly mentioning mergers or transfers by             assignable without the written consent of

operation of law. In addition, in this hot oil and       PPG. (However, the licenses granted to PPG

gas market and the constant flipping of oil and          were assignable to any successor and only

gas leases, one should remember that unlike              assignable    to   others     with   Permaglass’

most leases, oil and gas leases are generally            consent.) In addition, the agreement provided

estates in real estate (except for Louisiana)            that in the event a majority of the common

and courts tend to disfavor the forfeiture of            stock of Permaglass shall become owned or

such interest.                                           controlled,   directly   or   indirectly,   by   a

                Patents and Licenses                     automobile or glass manufacturer, then the

            Patents and licenses create an area of       agreement terminates. Permaglass merged

concern regarding consents for assignment                with Guardian and listed patents as property

under a merger. The Sixth Circuit Court of               to be vested with Guardian as part of the

Appeals was faced with an assignment of                  merger.   PPG filed this suit to enforce its

patents under federal and Ohio law in PPG                rights under the agreement and receive

Industries, Inc. v. Guardian Industries Corp.10          declaration that Guardian had no right to use

In this case, Permaglass and PPG were on                 the patents or the license rights reserved by

                                                         Permaglass as such license rights were
10
     597 F.2d 1090 (6th Cir. 1979).
                                                     6
personal and thus non-assignable and non-                   Middendorf     v.   Fuqua    Industries,    Inc.13

transferable.       The court held that the                 regarding leases and described above.

assignability of a patent license is controlled                     The United States District Court for the

by federal law (which holds a patent license to             Northern District of California followed the

be nonassignable), and also looked to the                   PPG decision in SQL Solutions, Inc. v. Oracle

language of the Ohio merger statutes. The                   Corporation.14 In this case the rights under a

court     interpreted     the    merger      statute,       software licensing agreement were in dispute.

specifically “deemed to be transferred to and               Oracle entered into this software licensing

vested in... without further act or deed”, to be            and services agreement with D&N Systems,

a transfer by operation of law, not an absence              Inc.    This agreement granted D&N a

of transfer at all.      Further, in applying the           perpetual, nonexclusive license to software

language of the agreement, the court held                   and some related documentation.                The

that if the parties had intended for an transfer            agreement dictated that the rights under the

exception for merger, they would have                       agreement were not to be assigned or

expressly provided for such an exception. As                transferred to a third party without the consent

a result, the merger did constitute a transfer in           of Oracle. D&N merged with SybaseSub, Inc.

violation of the agreement and federal law.11               and the surviving corporation took the name

There are conflicting decisions within the Ohio             of SQL Solutions, Inc.       Oracle sought to

court system: (1) Standard Register Company                 terminate the agreement but SQL sought

v.      Cleaver12       regarding      noncompete           protection under the merger.          The court

agreements       described      below,     and    (2)       followed    California   precedent      that    an

                                                            assignment or transfer of rights does occur

                                                            through the change in legal form of ownership
11
   But see Syenergy Methods, Inc. v. Kelly Energy           - the merger with SybaseSub, a subsidiary of
Systems, Inc., 695 F.Supp. 1362 (D.C. R.I.
1988)(holding that the nonassignability of patents by
the operation of law is not absolute and should be
                                                            13
disregarded when such transfer or merger is for a            623 F.2d 13 (6th Cir. 1980).
                                                            14
change in form only).                                        1991 U.S. Dist. LEXIS 21097, at *1, 1991
12
   30 F. Supp.2d 1084 (N.D. Ind. 1998).                     WL626458 (N.D. Cal. Dec. 18, 1991)
                                                        7
Sybase, Inc. However, a mere change in                         Marathon.      The    geophysical    company

name will not result in a transfer or                          demanded     that Marathon pay for the

assignment. In addition, the court recognized                  information and filed this suit to enforce the

the precedent of lease cases as an exception                   claim. The court held, in this case of first

to this rule due to the disfavor on restraints on              impression, that the merger was not an

alienation.                                                    assignment or transfer that would violate the

           SQL         presents            unfavorable         contracts in the case. The court looked to the

precedence, but any rights relating to real                    intent of the writers of the Texas statute. The

estate can be distinguished under the                          Texas statute was based upon the Model

exception that this court recognized. Just as                  Business Code, the comments to which

above, this case addresses a license to use                    provide that a merger is not a conveyance or

privileged        information        -     copyrighted         transfer. The court also distinguished from

information - and can be distinguished on this                 cases holding that a merger is a transfer by

set of facts if the issue faced is dissimilar.                 relying on the fact that this merger was with a

           However, PPG is not the only view. In               related company.     Although the additional

TXO Production Co. v. M.D. Mark, Inc.,15 the                   basis for the decision was on the relation

Texas Court of Appeals faced the assignment                    between the companies, the comment to the

of geophysical information to a successor by                   statute does not provide such limitations.

merger.       In this case, a geophysical firm                 This unusual decision is too fact specific to

conducted seismic surveys and entered into                     provide general guidance.

contracts with TXO which allowed TXO to use                         Partnerships and Distributorships

a portion of this data.              However, each                    There are some contracts that create

agreement         contained      a       confidentiality       more of a personal relationship between the

provision. Marathon merged with TXO and                        parties thereto - one based on faith and trust.

TXO automatically transferred the data to                      The existence of the special relationship has

                                                               led to varying interpretations by the courts
15
     999 S.W.2d 137 (Tex. App. - Houston, 1999).
                                                           8
concerning the need for consents in the event          in the assignment and as a result, could have

of a merger. One special relationship is a             provided an exception for the transfer by

partnership. The United States District Court          operation of law, just as the PPG court had

for the District of Columbia followed the PPG          held. The court reasoned against following

decision in Nicolas M. Salgo Associates v.             the other line of cases by holding that most of

Continental Illinois Properties.16 In this case,       these cases focused on interest in real

Continental was a general partner in a limited         property and the public policy against restraint

partnership governed by an agreement                   on the alienability of land was the basis of

containing an anti-assignment clause. This             those decision and not applicable to this

clause prohibited a partner from assigning its         contract.

interest in the partnership without consent of                 As is typical with oil and gas

the other general partners.           Bouverie         properties, joint operating agreements are

Properties, Inc. gained control of Continental         common agreements affecting the properties

through a tender offer and then merged                 and are transferred along with the oil and gas

Continental into Bouverie. Nicolas brought             leases. A partnership agreement could be

this suit to enforce the terms of the                  held to be similar to a joint operating

partnership agreement. The court recognized            agreement - creating concern if in the rare

two lines of cases for the effects of mergers          case the joint operating agreement contained

on anti-assignment clauses.           One line         an anti-assignment clause - but this analogy is

followed PPG holding that a merger violated            mitigated and such agreements can be

the anti-assignment clause. The other line             distinguished when they contain typical

was a group of state cases holding that a              disclaimers that the joint operating agreement

merger does not violate the anti-assignment            does not create a partnership or joint venture.

clause.       This court chose to follow PPG                   Another consideration is that the court

because the parties did provide for exceptions         also reached this decision in part because of

                                                       the detailed exceptions the parties had
16
     532 F.Supp. 279 (D.D.C. 1981).
                                                   9
included in the contract. The court held that if        the anti-assignment provision was not violated

the parties provided detailed exceptions to the         and approval was not required. The court

consent to assignment provision, then the               looked to the official comment to the Georgia

parties should have considered (and ruled               effect of merger statute which explains that a

out) a transfer by operation of law as an               merger is not a conveyance or transfer. This

exception.                                              combined with the general meaning of the

        However, the precedence of the Salgo            term “transfer” led the court to the conclusion

case is countered by decisions leaning                  that a merger is not a transfer. The court also

towards the other side of the partnership               stated that if the parties wanted to include

table. The Court of Chancery of Delaware                merger within the term transfer, they would

faced a general partnership assignment                  have included transfers by the operation of

transferred by a merger in Star Cellular                law   expressly     in   the    anti-assignment

Telephone Company, Inc. v. Baton Rouge                  provision.

CGSA, Inc.17 In this case, Baton Rouge was                      This case may provide support for first

the general partner of a partnership whose              impression cases on the right to operate

governing agreement contained an anti-                  properties under a joint operating agreement,

assignment provision. This provision required           or similar status’ arising under contracts.

unanimous approval from the other partners              However,      the     particular     assignment

for a transfer or assignment. Baton Rouge               restrictions in each contract in any transaction

merged with a sister corporation (both                  must be reviewed for express limitations such

corporations were owned by BellSouth                    as prohibiting assignment by operation of law

Mobility, Inc.) and the other partners refused          as well.

to recognize the surviving corporation as the                   Similar to partnerships, appointments

general partner. The court held that a merger           under contracts have also been held not to

is neither a transfer or assignment and thus,           require consent. In All Brand Importers, Inc.


                                                        17
                                                         1993 Del. Ch. LEXIS 158, at *1 (Del. Ch. July 30,
                                                   10
v. Department of Liquor Control18, the                       because the merger statute vested Star with

Supreme Court of Connecticut addressed the                   these rights automatically.

issue of distributorships transferred by                              Although there is conflicting case law,

merger. In this case, Gallo was a designated                 there are opportunities to distinguish against

distributor in Fairfield county for All Brand.               the Nicolas decision - such as for interests in

Gallo merged with Star Distributors and All                  land and for general contracts. In addition,

Brand refused to recognize Star as a                         the majority of decisions hold that a merger is

distributor.       Gallo     claimed      that   the         not an assignment and may present greater

distributorship       was    personal     and    not         weight in a jurisdiction of first impression.

assignable,       which     the   court    declared                       Employment Contracts

irrelevant     upon    deciding    that    the    no                  Protections      under      noncompete

assignment occurred in this merger.              The         agreements were addressed in Standard

court noted that the Connecticut effect of                   Register Co. v. Cleaver20, where the United

merger statutes which were based upon the                    States District Court for the Northern District

Model Business Corporation Act, should be                    of Indiana applied both Indiana and Ohio law.

construed broadly. These statutes vested Star                In this case, Cleaver accepted employment

with the distributorship by operation of law                 with Uarco and signed a noncompete

given the statutory language that                “all        agreement with the company. Uarco merged

property … shall be taken and transferred to                 with Standard Register and Cleaver left the

and vested in such single corporation without                company and began competing with the

further act or deed.”19 The court held that no               business.     Standard Register filed suit to

authority (i.e. consent) was needed from All                 enforce the noncompete agreement and

Brand for Star to serve as a distributor                     Cleaver defended that the agreement was not

                                                             enforceable by Standard Register because it

                                                             was a personal contract and was not
1993).
18
   567 A.2d 1156 (Conn. 1989).
19
   Conn. Gen. Stat. ' 33-820 (West, Westlaw through
                                                             20
2006 legislation).                                             30 F. Supp.2d 1084 (N.D. Ind. 1998).
                                                        11
assignable. The court rejected this argument                  allowed such mergers would be seriously

with the application of Ohio law which holds                  disrupted”.22 The court held that the merger

that the agreement was transferred to                         should not prohibit assignment based upon

Standard Register by operation of law and not                 principle and because a merger is similar to a

by assignment. The court also noted that                      stock purchase which would not have

Indiana law is not inapposite. This case is in                triggered the assignment. However, the court

conflict with and more recent than the PPG                    did not specifically hold that a merger was not

case above and will provide support to                        an assignment but rather reached the result

distinguish    and    argue        against     PPG’s          based upon the foregoing principles.

application.                                                           These    noncompete       cases     could

         Along the same line is Alexander &                   provide useful support for personal contracts

Alexander, Inc. v. Koelz.21 In this case, a                   to be transferred by merger.           They also

corporation     entered     into      employment              provide support for the general principles of

contracts with employees which contained                      contract assignability by merger as well.

restrictive covenants, specifically noncompete                                    Insurance

agreements. The corporation merged and the                             Insurance cases are another hot topic.

successor corporation sought to enforce the                   The United States District Court for the

noncompete agreements.             The employees              Eastern Court of Pennsylvania was faced with

argued that the agreements were not                           the coverage to a merged corporation under a

assignable since they were personal service                   policy   containing     a    clause    prohibiting

contracts.     The court held that this was                   assignment without an insurer’s consent, in

unquestionably a statutory merger and if all                  Brunswick Corp. v. St. Paul Fire and Marine

rights   did   not   pass     to    the      surviving        Insurance Co.23       In this case, Brunswick

corporation, the “statutory scheme which                      acquired all of the stock in Filterite, the owner


21                                                            22
 722 S.W.2d 311 (Mo. Ct. App. 1986), but see Pro-              Id. at 313 (following Segal v. Greater Valley
Edge, L.P. v. Gue, 419 F. Supp.2d 1064 (N.D. Iowa             Terminal Corp., 199 A.2d 48 (N.J. Super. Ct. App.
2006).                                                        Div. 1964).
                                                         12
of the policy, and later merged into this wholly             prohibiting assignment by operation of law or

owned subsidiary. St. Paul refused to cover                  merger would prevail.

personal injury claims for Brunswick which                                 Statutory Analysis

had been asserted against both Filterite (now                        This paper is not intended to cover

merged with Brunswick) and Brunswick. St.                    every jurisdiction in the United States and is

Paul based the refusal on a clause in the                    limited to active oil and gas states. These

insurance policy which required its approval to              state statutes can be categorized into the

any assignment of the policy. The court held                 following categories:

that a merger does not violate the consent to                        (1) Statutes similar to the current

assignment clause unless there is explicit                   Model Business Corporation Act;

language prohibiting assignment through                              (2) Statutes similar to the 1969 version

merger. The court explained that such an                     of the Model Business Corporation Act;

involuntary assignment does not increase the                         (3) Statutes with express language

risk to the insurer and the insured should                   that a merger does not require consent, or is

obtain its benefit of the bargain, even if it is             not considered an assignment or transfer;

merged.24                                                            (4) Statutes with key terms to base a

         Insurance agreements may come into                  no transfer or assignment argument upon

play in the acquisition of oil and gas properties            (such as shall succeed, without transfer); and

and such case law also provides support for                          (5)   Statutes   with   miscellaneous

the transfer of contracts in general. However,               variations.

an    express      provision     in   the    contract        All state statutes are provided in abridged

                                                             form at the end of this paper (in alphabetical

                                                             order) but a categorical analysis will be
23
  509 F. Supp. 750 (E.D.Pa. 1981).                           provided first.
24
  See also, Federal Insurance Co. v. Purex
Industries, Inc., 972 F.Supp. 872 (D.C.N.J.
1997)(recognizing Brunswick and holding that, as a
matter of law, the insurance policy is transferred to
the successor corporation in a merger absent a
specific provision in the policy to the contrary).
                                                        13
        Arkansas, Mississippi, Montana, and                Official Comment of the Model Business

Wyoming25 all have statutes following the                  Corporation Act, a consent to assign clause

current Model Business Corporation Act                     will not be triggered by a merger.             No

described at the beginning of this memo.                   consents to assign should be necessary for

Mississippi is the only state whose statute                the properties transferred by merger, unless

matches the model act exactly. The other                   the anti-assignment provisions expressly

states’ statutes contain a different property              prohibit transfer by merger or by operation of

description but all of these states’ statutes still        law.

contain the same vesting language - i.e.                           Of all of the states following the

“[property]   is    vested    in   the    surviving        current Model Business Corporation Act, only

[corporation, entity or other descriptions]                one state’s court has interpreted this statute.

without reversion or impairment”. The Official             In Standard Register Company v. Cleaver 27,

Comment to the Model Business Corporation                  the United States District Court for the

Act explains that “A merger is not a                       Northern District of Indiana held that, under

conveyance, transfer, or assignment. It does               Ohio and Indiana law, a merger is not an

not give rise to claims of reverter or                     assignment. This case is described in more

impairment of title based on a prohibited                  detail above. Indiana’s statute is similar to the

conveyance or transfer. It does not give rise              model act. With the courts in the other states

to a claim that a contract with a party to the             listed above having no precedent to follow in

merger is no longer in effect on the ground of             their own jurisdiction, it can be strongly

nonassignability,      unless      the     contract        argued that these courts should follow the

specifically provides that it does not survive a           Standard decision when facing this issue of

merger.”26         Based   upon     the statutory          first impression. This will only strengthen the

language in these states, as explained by the              argument that consents to assign will not be


                                                           26
                                                              Official Comment to Model Business Corporation
25
 See also, Florida, Idaho, Indiana, Kentucky,              Act ' 11.07(a) (1998/99 Supp.).
                                                           27
Michigan, Nebraska and Oregon statutes.                       30 F. Supp.2d 1084 (N.D. Ind. 1998).
                                                      14
required in the above states. Also, in general,                such merger or consolidation..”29 Alaska is

the case law described above supports this                     the only state that did not contain the

conclusion.                                                    “deemed to be transferred” language for all

           Alabama, Alaska, and New Mexico28                   property.       However, all of the states

all have statues following the 1969 Model                      mentioned above included the limitation on

Business Corporation Act.                This earlier          reverter and impairment for real estate and

version contained a more lengthy description                   interests therein.

of the effect of the merger which provided that                          The Comment to the Model Business

“such surviving or new corporation shall                       Corporation Act fails to shed any light upon

thereupon and thereafter possess all the                       the terminology and intent of the language. In

rights, privileges, immunities, and franchises,                addition, the language was revised in the next

of a public as well as of a private nature, of                 version     -   the   1983    Model     Business

each       of   the merging or consolidating                   Corporation Act - to vesting language similar

corporations; and all property, real, personal                 to the current model act. The 1983 model act

and mixed, and all debts due on whatever                       contains an Official Comment that “A merger

account, including subscriptions to shares,                    is not a conveyance or transfer, and does not

and all other choses in action, and all and                    give rise to claims of reverter or impairment of

every other interest of or belonging to or due                 title based on a prohibited conveyance.”30

to each of the corporations so merged or                       This comment did not expressly discuss

consolidated, shall be taken and deemed to                     claims of assignment like the current model

be transferred to and vested in such single                    act’s comment discusses and it did not

corporation without further act or deed; and                   express a change in the intent of the drafters

title to any real estate, or any interest therein,             from the 1969 model act. As a result, the

vested in any of such corporations shall not

revert or be in any way impaired by reason of                  statutes.
                                                               29
                                                                  1969 Model Business Corporation Act ' 76
                                                               (1971).
                                                               30
                                                                  Official Comment to Model Business Corporation
28
     See also, Illinois, Pennsylvania and West Virginia        Act ' 11.06 (1983).
                                                          15
intent for no transfer or assignment may only             that even if a merger was considered as an

have been clarified in later versions and                 assignment, then the anti-assignment clause

comments and the consistent language of                   should contain explicit language to that effect.

deemed transfer (except for Alaska) and “not              Along the same lines, the Court of Civil

revert or be in any way impaired” for real                Appeals in Alabama interpreted the Alabama

estate and interests therein is arguably                  statutes and relied upon previous case law to

intended to prevent the application of anti-              hold that a merger is not an assignment or

assignment clauses - just as more clearly                 transfer in the case of International Paper Co.

described in the later model acts.                        v. Broadhead.32 The court also held that the

            However, the assumptions on the               term “otherwise transfer” does not include a

statutes intent is not strong enough to base a            merger or transfer by operation of law. The

decision of whether consents to assign will be            issue of oil and gas lease assignability under

required. Without guidance on the statutory               Pennsylvania merger law (which is modeled

intent, court decisions must be relied upon.              after the 1969 Model Business Corporation

There are 3 cases which will provide                      Act) was addressed in Santa Fe Energy

guidance. In Brunswick Corp. v. St. Paul Fire             Resources, Inc. v. Manners.33 In this case the

and Marine Insurance Co.31, the United States             court held that the anti-assignment clause in

District Court for the Eastern District of                an oil and gas lease was not breached by a

Pennsylvania interpreted the effect of merger             merger because the successor succeeds to

statutes       for    Delaware,     Maryland   and        the lease and is not assigned the lease. All of

Pennsylvania.          The court held that the            these cases are described in more detail

property is vested in the surviving corporation           above. All provide guidance and support for

by operation of the merger statutes (i.e.                 interpreting the state statutes modeled after

operation of law) and the anti-assignment                 the 1969 Model Business Corporation Act.

clauses do not apply. The court explained                 Just as above, all will provide guidance for the


31                                                        32
     509 F. Supp. 750 (N.D. Pa. 1981).                      662 So.2d 277 (Ala. Civ. App. 1995).
                                                     16
jurisdictions with similar statutes who may be          that the a search for case law from Colorado

facing this issue as a first impression. Based          interpreting this statute or holding that a

upon the statutes and case law in these                 merger is not an assignment requiring

jurisdictions, mergers should not trigger               consent has not been found. The language of

consents to assign unless there is a                    this statute is clear and straightforward. The

prohibition for assignment by merger or by              transfers of property in this state by merger

operation of law. The case law mentioned                will not require consent under anti-assignment

above also supports this conclusion.                    provisions, unless the provision expressly

        Colorado, Texas and Utah provide                prohibits transfer be merger or by operation of

express language that a merger will not                 law.

require consent to assign or that a merger is                   The Utah Code almost mirrors the

not an assignment. The Colorado Statutes                Colorado provision.     It provides that “The

provide that for title to real estate and other         transfer to and vesting in the surviving

property “such transfer to and vesting in the           corporation occurs by operation of law. No

surviving corporation shall be deemed to                Consent or approval of any other person is

occur by operation of law, and no consent or            required in connection with the transfer or

approval of any other person shall be required          vesting unless consent or approval is

in connection with any such transfer or vesting         specifically required in the event of merger by

unless such consent or approval is specifically         law or by express provision in any contract,

required in the event of merger by law or by            agreement, decree, order, or other instrument

express provision in any contract, agreement,           to which any of the corporations so merged is

decree, order, or other instrument to which             a party or by which it is bound.”35 Again, it is

any of the corporations so mergers is a party           not a surprise that the search for case law

or by which it is bound.”34 It is not a surprise        from Utah interpreting this statute or holding

                                                        that a merger is not an assignment requiring
33
  635 A.2d 648 (Pa. Super. Ct. 1993).
34
  Colo. Rev. Stat. ' 7-111-106 (West, Westlaw
through 2006 legislation).
                                                   17
consent has not been found. The transfers of               occurred.”37 In addition, Texas courts have

property in this state will not require consent            faced the issue of whether a merger is an

under anti-assignment provisions, unless the               assignment of the property.          In TXO

provision expressly prohibits transfer by                  Production Co. v. M.D. Mark, Inc., the Court of

merger or by operation of law.                             Appeals of Texas faced the issue of whether

        The Texas Statutes provide that “all               a merger and the transfer of geological

rights, title and interest to all real estate and          information breached a restriction under an

other property...shall vest...without reversion            agreement containing an anti-assignment

or impairment, without further act or deed, and            clause. The court looked to case law, and the

without any transfer or assignment having                  comments to the model act to hold that a

occurred...”.36 This clear and straightforward             merger is not an assignment, conveyance or

language is the result of a recent amendment               transfer. This case is described in more detail

to the Texas Statutes. The previous Texas                  above.     Thus a merger will not require

Statute was fashioned after the 1969 Model                 consent to assign unless the provision

Business Corporation Act described above.                  expressly prohibits transfer by merger or by

The Comment of Bar Committee dated 1996                    operation of law.

provides that, “In 1987, Article 5.06 was                           Other states’ statutes of concern

amended to make clear that while a merger                  contain miscellaneous clauses. All of these

vests the rights, privileges, immunities and               statutes appear to be a personalized variation

franchises of the merged corporation in the                of the 1969 Model Business Corporation Act

surviving corporation, this is accomplished                described above.     Kansas and Oklahoma

without a transfer or assignment having                    have left “deemed transfer” out of the statute

                                                           so that the term “vested” is the only

                                                           conveyance language remaining. Also, the

35
                                                           “without further act or deed” describing the
  Utah Code Ann. ' 16-10a-1106 (West, Westlaw
through 2006 legislation).
36
   Tex. Bus. Corp. Act. Ann. art. 5.06 (Vernon 2003
& Supp. 2006-2007).
                                                      18
vesting has been omitted. Louisiana’s Statute                followed the statutes. Courts have deviated

follows the 1969 Model Business Corporation                  from the statute when faced with personal

Act except it does not contain the provision                 contracts such as patent licenses or faced

prohibiting reverter or impairment of real                   with laundry list exceptions in the consent to

estate and other interests.         The revisions            assignment provisions (leading the court to

made by these three states, coupled with the                 believe that the parties intended the transfer

lack of case law in these states regarding the               by operation of law not to be an exception).

merger exception for consents to assign,                     Further, in every sale, one must carefully

leave these states open for question.                        review the express terms of the relevant

Although the case law described above may                    agreements as such express agreement will

provide some support for a merger not                        prevail.

creating an assignment, the state statutes                              However, the merger can serve as the

under       the   case    law   above     may      be        perfect vehicle, in some instances, in avoiding

distinguished from the statutes supporting                   consent to assign delays or obstacles. The

those decisions and general principles will be               parties can KEEP IT FAST BY MERGING

the only thing remaining to base an argument                 AROUND CONSENTS TO ASSIGN.

upon. Not obtaining consents to assign in

these states present a significantly higher

business risk than in other states.

                         Conclusion

           Despite the belief of most states that a

merger should not be deemed a transfer and

that the transfer of property should happen

automatically, one cannot rely upon the

statutes entirely. Courts have not consistently


37
     Comment of Bar Committee - 1996 to Tex Bus.             Corp. Act. Ann. art. 5.06 (Vernon 2003).
                                                        19
     Abridged State Statutes Alphabetically                 revert or be in any way impaired by reason of

                       Alabama                              a merger or consolidation...”.39

           The Alabama Code provides that                                        Arkansas

when a merger takes effect, “the surviving                          The     Arkansas      Code      of   1987

corporation       thereupon      and    thereafter          Annotated provides that when a merger takes

possesses all the rights ... of a public as well            effect, “the title to all real estate and other

as of a private nature, of every corporation                property owned by each corporation party to

party to the merger; and all property, real,                the merger is vested in the surviving

personal and mixed ... are taken and deemed                 corporation         without     reversion        or

transferred and vested in the surviving                     impairment...”.40

corporation without further act or deed; and                                     Colorado

title to any real estate, or an interest therein,           The Colorado Revised Statutes provide that

vested in any such corporation shall not revert             when a merger takes effect, “the title to all real

not in any way be impaired by reason of such                estate and other property owned by each

merger...”.38                                               other corporation party to the merger is

                       Alaska                               transferred to and vested in the surviving

           The Alaska Statutes provide that when            corporation without reversion or impairment;

a merger or consolidation becomes effective                 and such transfer to and vesting in the

“the surviving or new corporation possesses                 surviving corporation shall be deemed to

all the public and private rights...all property,           occur by operation of law, and no consent or

real,      personal,    and     mixed...shall     be        approval of any other person shall be required

transferred to and vested in the surviving or               in connection with any such transfer or vesting

new corporation without further act; and the                unless such consent or approval is specifically

title to real estate, or an interest in real estate,

vested in any of the corporations may not                   through 2006 legislation).
                                                            39
                                                               Alaska Stat. ' 10.06.560 (West, Westlaw through
                                                            2005 legislation).
                                                            40
                                                               Ark. Code Ann. ' 4-27-1106 (West. Westlaw
38
     See Ala. Code ' 10-2B-11.06 (West, Westlaw             through 2006 legislation).
                                                       20
required in the event of merger by law...”41             revert or be in any way impaired by reason of

and “all of the rights...[and] all real, personal        this act...”.43

and mixed property...shall vest as a matter of                               Louisiana

law in the surviving entity....      Title to any                 The Louisiana Statutes provide that

property vested...shall not revert or be in any          upon the effectiveness of the merger, “all of

way impaired by reason of the merger…. A                 the property and assets of whatsoever kind or

merger does not constitute a conveyance,                 description...shall be taken and be deemed to

transfer, or assignment...”.42                           be transferred to, and vested in, the surviving

                     Kansas                              or new business, nonprofit or foreign

        The Kansas Statutes provide that                 corporation without further act or deed...”.44

when a merger is effective, “the new                                        Mississippi

corporation [shall possess] all the rights...of a                 The Mississippi Code provides that

public [and] private nature...and all property,          when a merger becomes effective, “all

real, personal and mixed...shall be vested in            property owned by, and every contract right

the corporation surviving or resulting from              possessed by, each corporation or other entity

such merger or consolidation; and all                    that merges into the survivor is vested in the

property, rights, privileges, powers and                 survivor without reversion or impairment...”.45

franchises, and all and every other interest                                  Montana

shall be thereafter as effectually the property                   The Montana Code provides that

of the surviving or resulting corporation...and          when a merger takes effect, “the title to all real

the title to any real estate vested by deed or           estate and other property owned by each

otherwise, under the laws of this state, in any          corporation party to the merger is vested in

of such constituent corporations, shall not

                                                         43
                                                            Kan. Stat. Ann. ' 17-6709 (West, Westlaw
                                                         through 2005 legislation).
41                                                       44
   Colo. Rev. Stat. ' 7-111-106 (West, Westlaw              La.. Rev. Stat. Ann. ' 115 (West, Westlaw through
through 2006 legislation)(emphasis added).               2006 legislation).
42                                                       45
   Colo. Rev. Stat. ' 7-90-204 (West, Westlaw               Miss. Code Ann. ' 79-4-11.07 (West, Westlaw
through 2006 legislation)(emphasis added).               through 2006 legislation).
                                                    21
the surviving corporation without reversion or             corporation shall posses “all the rights...of [a]

impairment...”.46                                          public      [and]       private     nature...and     all

                    New Mexico                             property...shall be vested in the corporation

        The New Mexico Statutes provide that               surviving or resulting from such merger or

when a merger becomes effective, “the                      consolidation...and the title to any real estate

surviving or new corporation shall thereupon               vested by deed or otherwise, under the laws

possess all the rights...and all property, real,           of this state, in any of such constituent

personal    and      mixed...and    every    other         corporations, shall not revert or be in any way

interest...shall be taken and deemed to be                 impaired by reason of the provisions of the

transferred to and vested in such single                   Oklahoma General Corporation Act...”.49 In

corporation without further act or deed, and               addition, the Oklahoma Statutes relating to

the title to any real estate, or any interest              partnerships define the term “transfer” to

therein, vested in any of such corporations                include an assignment, conveyance, lease,

shall not revert or be n any way impaired by               mortgage, deed, and encumbrance.”50

reason of the merger or consolidation...”.47                                         Texas

The compilers Note to the statute explains                            The Texas Codes provide that when a

that this section was derived from the ABA                 merger takes effect, “all rights, title and

Model Business Corporation Act.48                          interest     to   all    real     estate   and     other

                    Oklahoma                               property...shall be allocated to and vested in

        The Oklahoma Statutes provide that                 one or more of the surviving or new domestic

when a merger becomes effective, the new                   or foreign corporations and other entities as

                                                           provided in the plan of merger without
46
   Mont. Code Ann. ' 35-1-817 (West, Westlaw
through 2006 legislation).                                 reversion or impairment, without further act or
47
   N.M. Stat. Ann. ' 53-14-6 (West, Westlaw through
2006 legislation).
48
   Compilers Notes to N.M. Stat. Ann.' 53-14-6
(West, Westlaw through 2006 legislation). This             History (1998/99 Supp.).
                                                           49
section is derived from Section 76 of the ABA Model           Okla. Stat. tit. 18 ' 1088 (West, Westlaw through
Business Corporation Act. Section 76 was                   2006 legislation).
                                                           50
renumbered and amended to Section 11.07 under the            Okla. Stat. tit. 54 § 1-101 (West, Westlaw
1984 Act. Model Business Corporation Act ' 11.07           through 2006 legislation).
                                                      22
deed, and without any transfer or assignment              the surviving corporation without reversion or

having occurred...”.51                                    impairment...”.53

                      Utah

        The Utah Code provides that when a

merger take effect, “the title to all real estate

and other property owned by each corporation

party to the merger is transferred to and

vested in the surviving corporation without

reversion or impairment. The transfer to and

vesting in the surviving corporation occurs by

operation of law. No consent or approval of

any other person is required in connection

with the transfer or vesting unless consent or

approval is specifically required in the event of

merger by law or by express provision in any

contract, agreement, decree, order, or other

instrument to which any of the corporations so

merged is a party or by which it is bound...”.52

                   Wyoming

        The Wyoming Statutes provides that

when a merger takes effect, “the title to all real

estate and other property owned by each

corporation party to the merger is vested in




51
  Tex. Bus. Corp. Act. Ann. art. 5.06 (Vernon
2003 & Supp. 2006-2007) (emphasis added).
52                                                        53
  Utah Code Ann. ' 16-10a-1106 (West, Westlaw               Wyo. Stat. Ann. ' 17-16-1106 (West, Westlaw
through 2006 legislation) (emphasis added).               through 2006 legislation).
                                                     23

				
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