For The Defense, November 2012 - DRI Today
For The Defense, November 2012 - DRI Today
For The Defense, November 2012 - DRI Today
Create successful ePaper yourself
Turn your PDF publications into a flip-book with our unique Google optimized e-Paper software.
John Robinson was allegedly exposed while<br />
he served in the United States Navy.<br />
In 1963, Crown’s predecessor acquired<br />
a majority of the stock in Mundet. Within<br />
a few months Mundet sold all its assets<br />
related to insulation, and two years later,<br />
in February 1996, Mundet and Crown<br />
merged. Crown acknowledged that as a<br />
successor it succeeded to Mundet’s liabilities<br />
under traditional successor liability<br />
principles. Although Crown acquired Mundet<br />
for only around $7 million, by the early<br />
2000s, Crown had paid over $400 million<br />
in asbestos settlements, and Mundet’s<br />
insurance coverage totaled about $3.7 million.<br />
To say the least, Crown executives<br />
suffered buyer’s remorse. This was not,<br />
however, either the first or the last time<br />
that a successor company has been saddled<br />
with the weight of costly asbestos litigation.<br />
Many companies<br />
have structured their<br />
acquisitions carefully<br />
to minimize liability for<br />
product defects that may<br />
be associated with a<br />
predecessor’s product.<br />
Successor Liability <strong>The</strong>ories<br />
Used in Asbestos Litigation<br />
Under traditional principles of corporate<br />
law, the nature of a transaction determines<br />
whether a corporate successor assumes the<br />
liabilities of its predecessor. If the parties<br />
transfer the corporate enterprise through<br />
a merger or a consolidation, the successor<br />
assumes the predecessor’s liabilities,<br />
including product liability claims. If the<br />
successor purchases the assets of the predecessor,<br />
however, the successor does not<br />
assume the predecessor’s liabilities unless<br />
(1) the successor expressly or impliedly<br />
assumes those liabilities; (2) the transaction<br />
is a de facto merger; (3) the successor<br />
is considered a “mere continuation” of the<br />
predecessor; or (4) the successor executed<br />
the transaction fraudulently to escape liability.<br />
Call Ctr. Techs., Inc. v. Grand Adventures<br />
Tour, 635 F.3d 48, 52 (2d Cir. 2011);<br />
Patin v. Thoroughbred Power Boats, 294<br />
F.3d 640, 649 (5th Cir. 2002).<br />
Knowing the risks associated with<br />
merging with companies involved in the<br />
asbestos industry, many companies have<br />
structured their acquisitions carefully to<br />
minimize liability for product defects that<br />
may be associated with a predecessor’s<br />
product. Structuring a deal as an asset purchase<br />
rather than as a merger or a stock<br />
purchase is one method that companies<br />
have used to try to avoid the tort liabilities<br />
of predecessor companies. Even though<br />
companies may structure their transactions<br />
as asset purchases, however, they<br />
may still find themselves holding the bag if<br />
plaintiffs can prove that one of the exceptions<br />
to excusing successor liability applies.<br />
In Schmoll v. ACandS, Inc., 703 F. Supp.<br />
868 (D. Or. 1988), the court found that<br />
although the asset restructuring of<br />
Raybestos- Manhattan, Inc., a manufacturer<br />
of asbestos- containing products, met<br />
the technical formalities of corporate form,<br />
the restructuring was designed with the<br />
improper purpose of escaping asbestosrelated<br />
liabilities. In that case, Raymond<br />
Schmoll brought a products liability action<br />
for alleged exposure to asbestos from products<br />
manufactured by the defendants, including<br />
Raymark Industries, Inc., which<br />
manufactured and distributed asbestoscontaining<br />
energy absorption and transmission<br />
products. In the 1970s, Raymark<br />
Industries, previously known as Raybestos-<br />
Manhattan, Inc., was named in an everincreasing<br />
number of asbestos cases and,<br />
as a result, suffered a precipitous decline<br />
in net worth. Through a complicated series<br />
of transactions taking place over a six-year<br />
period, Raymark Corporation, a holding<br />
company that operated through its subsidiary,<br />
Raymark Industries, reorganized its<br />
corporate structure, ultimately transforming<br />
Raybestos Manhattan into Raymark<br />
Industries and Raytech. In doing this,<br />
ownership of the two historically lucrative<br />
businesses of Raymark Industries was<br />
transferred to Raytech, and other restructuring<br />
efforts freed Raytech of the drain of<br />
the asbestos litigation.<br />
Schmoll took the position that Raytech<br />
should be held liable for Raymark Industries’<br />
production, sale, and distribution of<br />
asbestos- containing products because Raytech<br />
and Raymark Industries were one and<br />
the same corporate entity. <strong>The</strong> court stated<br />
that the defendants and their counsel “engineered<br />
an elaborate, apparently unique<br />
transfer of corporate assets” but that both<br />
the “context of the corporate restructuring<br />
and the participants’ statements show[ed]<br />
that the elaborate transfer of assets was designed<br />
to escape liability.” Id. at 873. <strong>The</strong><br />
court looked closely at the financial issues<br />
facing Raymark Industries at the time of<br />
the restructuring, the backlog of asbestos<br />
cases pending against Raymark Industries,<br />
the total value of the pending claims<br />
and damages awarded, and the high percentage<br />
of its insurance coverage already<br />
used. <strong>The</strong> court also looked at statements<br />
made to shareholders about the purpose of<br />
the restructuring, which included the desire<br />
to protect shareholder investment and limit<br />
exposure for asbestos claims to businesses<br />
currently threatened. After completing the<br />
analysis the court held that there was no<br />
reason to respect the integrity of the transactions<br />
because it was clear that they were<br />
designed with the improper purpose of escaping<br />
asbestos- related liabilities.<br />
Traditional Exceptions<br />
Successor liability has served as both a<br />
sword and as a shield in asbestos litigation,<br />
depending on the circumstances. In<br />
a traditional context, plaintiffs have sued<br />
successor defendants when the original<br />
manufacturer of the a product at issue no<br />
longer existed; when it was unclear which<br />
one was the responsible entity, the predecessor<br />
or successor; or when the successor<br />
simply was the lower hanging fruit due<br />
to accessibility or solvency. In those situations,<br />
the plaintiffs have had to prove<br />
that one of the four previously enunciated<br />
exceptions to the rule excusing successor<br />
liability applies. <strong>The</strong> rules in play vary from<br />
state to state, and which state’s law applies<br />
will play a significant role in determining<br />
whether a company does or does not have<br />
asbestos- related successor liability.<br />
Many states have at minimum adopted<br />
the four traditional exceptions to excusing<br />
successor liability. However, plaintiffs’<br />
attorneys in asbestos cases typically focus<br />
on the de facto merger and mere continu-<br />
<strong>For</strong> <strong>The</strong> <strong>Defense</strong> ■ <strong>November</strong> <strong>2012</strong> ■ 31