The buyer, in the asset purchase agreement, assumed warranty obligations owed to pre-closing sales made to Sears customers, except for customer claims made prior to the closing date.
M&A Stories
October 10, 2022
Introduction
In 2019, the buyer of Sears assets, acquired during Sears’ bankruptcy, was not held liable for a customer class action lawsuit filed in 2015 concerning warranty claims.
Background
Sears, which had filed for bankruptcy in 2018, faced a class action lawsuit in 2015 from customers seeking compensation for home appliances covered under Master Protection Agreements.
The Acquisition
The buyer purchased Sears’ assets out of bankruptcy for $5.2 billion in 2019. As part of the asset purchase agreement, the buyer assumed warranty obligations for pre-closing sales to Sears customers, with the exception of claims made before the closing date.
The Lawsuit
Following the acquisition, the class action customers argued that the buyer was responsible for the Master Protection Agreements. They referred to the “assumed liabilities” provision in the asset purchase agreement, which stated that the buyer would assume liabilities for warranties and protection agreements related to goods and services sold by Sears prior to the closing.
However, the buyer invoked the “excluded liabilities” provision, which clarified that they were not responsible for customer claims made prior to the closing, including the 2015 class action lawsuit. The court sided with the buyer, stating that they had agreed to assume liabilities for warranties and protection agreements but not for pending claims or litigation related to those agreements.
See In Re Sears Holdings Corporation, No. 21 Civ. 5437 (NSR), United States District Court, S.D. New York, (September 27, 2022).
Conclusion
This case involved interpreting the “Assumed Liabilities” and “Excluded Liabilities” provisions. Despite the complex language, the court concluded that the buyer was not obligated to address the class action lawsuit, which had been filed four years before the acquisition.
By John McCauley: I write about recent legal problems of buyer and sellers of small businesses.
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