Asset Buyer Fights Claim That It Assumed Liability for Product Line Containing Asbestos

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Buyer only purchased certain product lines of seller but also purchased the trade name that seller used for all product lines including a steam turbine product line that contained asbestos which the seller did not sell to the buyer.

M&A Stories

April 20, 2021

Introduction

One major advantage of an asset purchase over a stock acquisition is that the buyer can generally pick and choose what liabilities the buyer wishes to assume. However, a seller creditor may still sue the buyer when the financial claim is significant.

The deal

The buyer in this deal purchased 2 product lines from the seller in 1987. The purchased product lines were “the Commercial and Industrial heating and Make-Up Air business”. The buyer expressly assumed seller’s liabilities for the purchased product lines.

The buyer also purchased the trade name that the seller used in its business operations. This trade name had also been used by the seller before the closing, for the product lines retained by the seller. Those lines were the “Heat Recovery Wheel business and a… Draft Inducer business …”  After the closing, the seller could not use the trade name for those product lines because the trade name had been sold to the buyer

The lawsuit

In 2019, a claimant filed a petition for damages against a customer of the seller. He alleged that the seller sold a steam turbine to this customer, a company that manufactured ships for the military, which contained asbestos. The claimant alleged that he was recently diagnosed with malignant mesothelioma, and that his mesothelioma was caused by exposure to asbestos from several sources, including asbestos allegedly brought home on the work clothes of his father, who worked at the ship manufacturer from 1943 to 1945.

The seller’s customer sued the buyer arguing that the buyer had assumed this liability because it had expressly assumed in the asset purchase agreement the liabilities associated with the business, purchased from the seller, and the business included the seller trade name.

The buyer filed a motion for summary judgment asking the court to dismiss the ship manufacturer’s claim against it, saying that it did not purchase the steam turbine product line and in fact never manufactured steam turbines.

The court denied the buyer’s motion for summary judgment: “This Court agrees that … (the buyer) … has not established that it is entitled to summary judgment as a matter of law on the issue of whether it acquired the assets and liabilities associated with the steam turbines and turbine-driven blowers. Genuine issues of material fact exist as to what assets and liabilities … (the buyer) … intended to acquire from … (the seller) … and what assets and liabilities it legally assumed.

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). 

Comment

Liability for asbestos products sold decades before a closing can still be a problem for business asset buyers.

In this case it would seem a stretch to say that the buyer assumed the liabilities for the offending steam turbine line simply because it purchased the seller’s trade name; especially if there is convincing evidence that the steam turbine products were part of seller’s retained assets.

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

 

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Posted in buyer assumption of seller liability, successor liability Tagged with: ,

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