A recent decision by a New York State court has expanded the potential liability of successor corporations under New York law by adopting the "product line" exception to the doctrine of successor corporate liability. In Hart v. Bruno Machinery Corporation, the Appellate Division, Third Department, ruled that a successor corporation can be held strictly liable for injuries caused by products manufactured by a corporation from which it purchased assets. The Hart court thus joins other courts in California, New Jersey, New Mexico, and Pennsylvania in adopting the "product line" theory of successor corporate liability.
In Hart, the plaintiff brought a products liability action against Bruno Machinery Corporation ("Bruno Machinery") after his left hand was crushed by an allegedly malfunctioning leather embossing press that was manufactured more than forty years earlier by T.W. & C.B. Sheridan Co. Although T.W. & C.B. Sheridan Co. dissolved in 1964, the Sheridan press product line continued to be produced by Bruno Machinery, which previously had acquired the assets and goodwill associated with the manufacture of the press.
The Hart court noted that as a general rule, under the doctrine of successor corporate liability, a corporation that acquires the assets of another corporation does not assume the seller corporation's liabilities. The court observed, however, that there are four generally recognized exceptions to this rule. According to the court, a purchasing corporation may assume the selling corporation's liabilities if:
- there is an express or implied agreement of assumption of liabilities;
- the transaction amounts to a consolidation or merger;
- the purchasing corporation is a mere continuation of the seller; or
- the transfer of assets to the purchaser is for the fraudulent purpose of escaping liability for the seller's debts.
The Hart court concluded that none of these four generally recognized exceptions were applicable to the case before it. Nevertheless, the court imposed liability by adopting the "product line" exception to successor corporate liability, in apparent recognition that the purpose of the rule of strict products liability is to assure that a responsible source is available to compensate the injured party. The court then set forth four conditions that must be met in order to invoke the product line exception to successor corporate liability, as detailed in the box below. Because material issues of fact existed as to whether Bruno Machinery could be held strictly liable for plaintiff's injuries under the newly-articulated product line exception, the Hart court affirmed the trial court's denial of summary judgment. Hart v. Bruno Machinery Corp., 1998 WL 770354 (N.Y.A.D. 3d Dept. Nov. 5, 1998).
New York's Product Line Exception To Successor Corporate Liability
The Hart court stated that to invoke the product line exception to successor corporate liability under New York law, four conditions must be met:
- The injured party's remedy against the original manufacturer must be virtually destroyed by the successor's acquisition of substantially all the predecessor's assets;
- The successor must continue to manufacture essentially the same line of products as its predecessor;
- The successor must have the ability to assume the original manufacturer's risk-spreading role; and
- The successor must benefit from the original manufacturer's goodwill.