Seller of business had no contractual duty to indemnify buyer for asbestos claims

In 1993, Buyer purchased from Seller the business operations related to certain lines of fragrance and cosmetic products pursuant to an asset purchase agreement. Among the product lines Buyer purchased were talcum powder products, which later became the subject of product liability suits asserting personal injury claims allegedly caused by asbestos contained in the powder.

Buyer and Seller disagreed over who was responsible for the talcum powder products liability claims for product sold prior to the closing. The dispute ended up in a Connecticut federal court. Buyer alleged that Seller retained liability for and was required to indemnify Buyer from such asbestos claims. Seller moved to dismiss the majority of Buyer’s claims, arguing that Buyer expressly assumed all liability for the claims.

At the outset, Buyer conceded that it assumed certain liabilities for product liability relating to the fragrance products produced by Seller prior to the closing, but only did so for claims accruing and products sold after the closing.

Simply put, under section 1.3 of the asset purchase agreement, Buyer assumed all product liability claims, when the first written notice of the product liability claim was received at least 18 months after the closing date. This assumption language did not was not limited to products produced by Seller before closing but sold by Buyer after closing.

Section 1.4 stated that Buyer did not assume any of Seller’s liabilities except for the liabilities referred to above in section 1.3. Section 1.4 went on to say that Buyer was not assuming liabilities of Seller that were incurred prior to the closing date. This section 1.4 went on to emphasize that Buyer did not assume any liability of Seller to the extent based upon an event that occurred prior to the closing date or after the closing date in the case of claims in respect of products sold by Seller prior to the closing date and attributable to acts performed or omitted by Seller prior to the closing date.

Buyer argued that under section 1.4 of the asset purchase agreement with Seller, Buyer specifically disclaimed products liability claims related to talcum powder products sold by Seller prior to closing. Buyer maintained that it had assumed liability only for talcum powder products sold after the closing.

Seller disagreed, stating that Buyer in Section 1.3 specifically assumed Seller’s product liability claims with no exclusion for those sold before closing if the claim was made more than 18 months after the closing.  Seller noted that “product liability” claims are not mentioned in section 1.4, which meant that Buyer’s non-assumption of Seller’s liabilities applied to “liabilities” other than the “product liability” claims referred to in section 1.3; which Buyer agreed to assume.

The court agreed with Seller.

Seller had also said that Buyer waited too long for seeking indemnification from Seller. Section 8.2 of the asset purchase agreement stated that Seller was not be responsible for indemnifying Buyer for the products liability claims unless asserted by Buyer within 5 years from the closing date, or in 1998.

Buyer responded that the imposition of the five-year limitation on indemnification was unreasonable, because the asbestos claims that were the subject of this dispute simply did not exist until 2015. Buyer contended that enforcement of the 5-year limitations period would make a timely lawsuit for indemnification impossible.

The court did not agree with Buyer saying that it should have been clear to Buyer that claims arising in 2015 fall outside the indemnification window that closed 5 years after the 1993 closing date.

This case is referred to Parfums De Coeur LTD. v. Conopco, Inc.,  No. 3:18-cv-00749-WWE., United States District Court, D. Connecticut, (January 31, 2019).

Comment. In 20/20 hindsight Seller would have wanted clearer provisions in the asset purchase agreement describing what liabilities of Seller that Buyer was assuming and not assuming. Language matters.

In this case you might say in one section (not like here in two sections) that Buyer is not assuming any of Seller’s liabilities except for a list of specified liabilities.

By John McCauley: I help people start, grow, buy and sell their businesses.



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