Learn about the legal complexities in an M&A deal where the buyer purchased the seller’s trade name which was used for two product lines acquired by the buyer, but had also been used by the seller for a steam turbine product line containing asbestos, retained by the seller. Discover how this dispute unfolded and the potential consequences for asset buyers.
M&A Stories
April 20, 2021
Introduction:
In an asset purchase deal, buyers can choose which liabilities they wish to assume, offering an advantage over stock acquisitions. However, buyers may still face lawsuits from seller creditors for significant financial claims.
The Deal:
In 1987, the buyer purchased two product lines from the seller and explicitly assumed liabilities for these product lines. Additionally, the buyer acquired the trade name used by the seller for all product lines, including a steam turbine line containing asbestos that the seller retained.
The Lawsuit:
In 2019, a claimant filed a damages petition against one of the seller’s customers, alleging that the seller sold to the customer a steam turbine containing asbestos, which caused the claimant’s mesothelioma. The claimant argued that the buyer assumed liability for this because the purchase agreement included liabilities associated with the seller’s business, which involved the steam turbine line under the shared trade name.
The Buyer’s Argument:
The buyer claimed it did not purchase the steam turbine line and never manufactured steam turbines. As a result, the buyer sought summary judgment to dismiss the claim against it.
The Court’s Decision:
The court denied the buyer’s motion, stating that the buyer’s facts did not conclusively prove that it had not acquired the assets and liabilities related to the steam turbine line. This left the dispute unresolved and subject to further litigation.
This case is referred to as Egendre v. Lamorak Insurance Company, Civil Action No. 19-14336, United States District Court, E.D. Louisiana, (March 31, 2021).
Conclusion:
This case highlights the potential liability issues for buyers of business assets, especially concerning asbestos-containing products sold before the purchase. While it may be a stretch to argue that the buyer assumed liability solely based on acquiring the trade name, the outcome remains uncertain, pending further litigation.
By John McCauley: I help people manage M&A legal risks.
Email: jmccauley@mk-law.com
Profile: http://www.martindale.com/John-B-McCauley/176725-lawyer.htm
Telephone: 714 273-6291
Check out my book: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles
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