Decision of Interest: Does purchaser assume tort liabilities of

Daily Record (Rochester, NY), Mar 10, 2008

Brinkman v. Bondex International Inc., et al., Oswego County Supreme Court

In an asbestos-exposure case, did the purchaser of a car dealership assume the tort liabilities of the seller?

No. The Asset Purchase Agreement expressly excluded the assumption of the seller's liabilities, there was no continuation of the seller's business by the purchaser, and there was no "de facto" merger of the two businesses.

In a products liability action alleging exposure to asbestos, the plaintiff, Joseph Brinkman, sued "various manufacturers, ... distributors and installers of asbestos fibers and products containing asbestos."

One of the defendants, Rome Ford Lincoln Mercury, moved for summary judgment to dismiss the complaint against it. Justice James McCarthy, Oswego County Supreme Court, granted the motion to dismiss.

The action against Rome Ford claimed that Brinkman, in 1963 and 1964, "was exposed to asbestos from brake pads purchased from [Rome Ford's] predecessor in interest, Stockholm Ford."

The central issue before Justice McCarthy concerned whether Rome Ford could be held liable for the torts of Stockholm Ford, based on Rome Ford's purchase of Stockholm Ford's assets in 1996.

Quoting from Sweatland v. Park Corp., 181 AD2d 243 (Fourth Dept. 1992), the judge explained the applicable law: "Generally, a corporation which acquires the assets of another is not liable for the torts of its predecessor unless: (1) it expressly or impliedly assumed the predecessor's tort liability; (2) there was a consolidation or merger of seller and purchaser; (3) the purchasing corporation was a mere continuation of the selling corporation; or (4) the transaction is entered into fraudulently to escape such obligations.

"With respect to the express or implied assumption of liability, the judge determined "the Asset Purchase Agreement demonstrates that there was neither an express or implied assumption of Stockholm Ford's tort liability. To the contrary, the Asset Purchase Agreement specifically disclaims any liability for Stockholm Ford's preexisting liabilities."

Turning to the allegation that Rome Ford is a "mere continuation" of Stockholm Ford, Justice McCarthy determined: "[R]ecords from the New York Department of State establish that Stockholm Ford was not dissolved until over two years after the sale, thus surviving the transaction at issue. ... Thus, where, as here, Stockholm Ford continued to exist, there is no basis to find an issue of fact with respect" to the "mere continuation" exception to the general rule.

Finally, the judge addressed the claim that there was a de facto merger of Stockholm Ford and Rome Ford. Quoting from In re New York City Asbestos Litigation, 15 AD3d 254 (First Dept. 2005), the judge described the applicable legal principles: "A transaction structured as a purchase-of-assets may be deemed to fall within this exception as a de facto merger, even if the parties chose not to effect a formal merger, if the following factors are present: (1) continuity of ownership; (2) cessation of ordinary business operations and the dissolution of the selling corporation as soon as possible after the transaction; (3) the buyer's assumption of the liabilities ordinarily necessary for the uninterrupted continuation of the seller's business; and (4) continuity of management, personnel, physical location, assets and general business operation."

The judge determined none of the four criteria for a de facto merger was met by the facts of the case and held: "[T]he Asset Purchase Agreement establishes that the transfer was a cash transaction, rather than a purchase of stock [and] that the former directors and officers of Stockholm Ford as well as its senior management team were replaced."

Therefore, there was no "continuity of ownership."

Stockholm Ford did not cease operation until two years after the sale.

The Asset Purchase Agreement "specifically excluded the assumption of any liabilities of Stockholm Ford."

Stockholm Ford's continuation of its operation after the sale at the same location was not enough to demonstrate a de facto merger. After the sale, Stockholm operated "with new officers and directors as well as management personne."

There was, Justice McCarthy determined, no factual basis for the lawsuit to go forward against Rome Ford.

Attorney for the plaintiff, Joseph W. Belluck. Attorney for the defendant, John T. Refermat.