For The Defense, November 2012 - DRI Today
For The Defense, November 2012 - DRI Today
For The Defense, November 2012 - DRI Today
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Another nontraditional exception<br />
adopted in some jurisdictions is the<br />
product- line exception first enunciated in<br />
Ray v. Alad Corp., 560 P.2d 3 (Cal. 1977).<br />
This exception applies to a purchasing corporation<br />
that continues to produce and to<br />
sell the line of products previously manufactured<br />
and sold by the predecessor corporation,<br />
imposing successor liability on that<br />
purchasing corporation. Some courts may<br />
find successor liability even if the successor<br />
was not involved in the manufacture or the<br />
distribution of the defective product but<br />
the successor purchased substantially all<br />
the manufacturing assets and undertook<br />
essentially the same manufacturing operation<br />
as the selling corporation. Ramirez<br />
v. Amsted Indus., Inc., 431 A.2d 811 (N.J.<br />
1981). <strong>The</strong> analysis reviews whether (1) the<br />
successor corporation has acquired all of<br />
the predecessor’s assets, leaving no more<br />
than a mere corporate shell; (2) whether<br />
the successor has held itself out to the general<br />
public as a continuation of the predecessor<br />
by producing the same product line<br />
under a similar name; and (3) whether the<br />
successor has benefitted from the goodwill<br />
of the predecessor. Martin v. Abbott Labs,<br />
689 P.2d 368, 387 (Wash. 1984).<br />
While the traditional theories of successor<br />
liability were developed in the<br />
framework of the law of corporations, the<br />
product- line exception emerged as a way<br />
for courts to find successor liability in<br />
the framework of product liability litigation.<br />
<strong>The</strong> court in Ray found the following<br />
considerations supported the decision to<br />
expand the exceptions to the rule against<br />
successor liability: (1) the successor’s<br />
acquisition of the business almost entirely<br />
destroyed the plaintiff’s remedies against<br />
the original manufacturer; (2) the successor<br />
had the ability to assume the original<br />
manufacturer’s risk- spreading model; and<br />
(3) it appeared fair to require the successor<br />
to assume responsibility for defective products<br />
as a burden of enjoying the original<br />
manufacturer’s goodwill, which the successor<br />
did enjoy in continuing to operate the<br />
business. Ray, 560 P.2d at 8–9; see also Garcia<br />
v. <strong>The</strong> Coe Mfg. Co., 933 P.2d 243, 248–<br />
50 (N.M. 1997) (adopting the product- line<br />
exception); Martin v. Abbott Labs., 689 P.2d<br />
at 388 (same).<br />
Not all jurisdictions have adopted the<br />
product- line exception to the rule against<br />
successor liability, and some will focus only<br />
on the four traditional exceptions. Currently,<br />
only a minority of courts takes the<br />
product- line approach, and several courts<br />
have expressly declined to adopt it, reasoning<br />
that expanding successor liability<br />
through this approach belongs to the legislatures<br />
and not to the courts. See, e.g.,<br />
Semenetz v. Sherling & Walden, Inc., 851<br />
N.E.2d 1170 (N.Y. 2006); Winsor v. Glasswerks<br />
PHX, LLC, 63 P.3d 1040 (Ariz. Ct.<br />
App. 2003)); Downtowner, Inc. v. Acrometal<br />
Prods., Inc., 347 N.W.2d 118 (N.D. 1984).<br />
Armed with the traditional and emerging<br />
exceptions to the rule against successor liability<br />
in asset transactions, plaintiffs’ attor-<br />
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<strong>For</strong> <strong>The</strong> <strong>Defense</strong> ■ <strong>November</strong> <strong>2012</strong> ■ 33