Buyer of Manufacturer’s Assets Has No Liability for Product Sold Before Closing

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M&A Stories

October 28, 2020

Introduction

Management of product liability risk when buying a company is always an issue, even in an asset acquisition. Especially, if there is a history of seller products liability claims.

The deal

This deal involved the November 2017 acquisition of the assets of a business which made and sold an intrauterine device. It was a copper-wound, T-shaped contraceptive that is placed in the uterus to prevent pregnancy.

The seller had a history of products liability claims. However, the buyer did not assume liability for injuries the seller’s device caused before the date of the asset purchase agreement.

The lawsuit 

A claimant had seller’s device implanted in 2010. She had it removed in 2016. During its removal, part of the device broke and became embedded in the lining of the claimant’s uterus. She later opted for surgery to remove the embedded part, but it was unsuccessful. Claimant’s doctor advised her to leave the broken part in her uterus.

The claimant sued multiple defendants for her injuries, including the buyer and the seller. The lawsuit ended up in a Houston federal district court. The buyer asked the court to dismiss the claim against it on the grounds that it did not make or sell the device.

The buyer argued that because it did not manufacture or sell the device, it cannot be liable for the claimant’s injuries under applicable Texas or Pennsylvania law. The claimant agreed that the buyer did not manufacture or sell the device; she argued that buyer is liable under a successor-liability theory because the buyer purchased the device assets from the seller in an alleged fraudulent transfer.

The court dismissed the claim, with prejudice, noting that the claimant did not plead any factual basis for finding, or any legal claim for, successor liability or fraudulent transfer in her complaint:Only one factor is present: that the … (buyer) … allegedly knew of pending litigation against … (the seller) … before the asset sale. Nothing indicates that … (the seller) … sold the … assets for inadequate consideration, … (or) … that the transfer was concealed …” 

This case is referred to as Barcelo v. Teva Pharmaceuticals Usa, Inc., Civil Action No. H-20-00017, United States District Court, S.D. Texas, Houston Division, (April 2, 2020) 

Comment

The court applied Texas law.  The result might have been different if California was the applicable law. California developed a product line exception which might have imposed successor liability upon the buyer in this deal.  Few states have followed California’s lead.

By John McCauley: I help people manage M&A risks involving privately held companies.

Email:             jmccauley@mk-law.com

Profile:            http://www.martindale.com/John-B-McCauley/176725-lawyer.htm

Telephone:      714 273-6291 

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Posted in sale of product line, successor liability Tagged with: ,

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