Navigate the intricate world of mergers and acquisitions with insights into post-closing liabilities and product claims. Learn from a recent case in New Mexico’s federal district court, delving into the complexities of asset buyer’s liability and strategic maneuvers in M&A deals.
M&A Stories
May 28, 2018
In the intricate dance of mergers and acquisitions, buyers often aim to sidestep the pre-closing liabilities of sellers, strategically selecting which obligations to assume. Yet, as demonstrated by a recent case in a federal district court in New Mexico, this maneuver isn’t always foolproof.
In this particular instance, the buyer acquired the assets of a manufacturer specializing in tar luggers—containers for hot tar used in roofing—intending to integrate them into its existing product line. However, fate took a twist when a roofing mishap involving one of the seller’s tar luggers triggered a lawsuit against both buyer and seller.
The crux of the buyer’s defense lay in the delineation of responsibilities outlined in the asset purchase agreement. While the buyer had not continued the production or sale of the specific tar lugger model implicated in the accident, the plaintiff invoked New Mexico’s product line exception—a legal doctrine extending liability to successors who perpetuate the predecessor’s product line.
Central to the court’s ruling was the buyer’s divergence from the seller’s tar lugger design and production methods. By opting to continue manufacturing its own distinct tar lugger—the “Panther” model—the buyer successfully navigated the legal shoals, evading liability under the product line exception.
This outcome underscores a critical distinction: in most cases, buyers aren’t automatically liable for pre-closing product claims unless expressly assumed in the purchase agreement. However, select jurisdictions, such as New Mexico and California, employ the products liability exception, potentially exposing buyers to inherited product liabilities.
In essence, the buyer’s escape from liability hinged on its strategic divergence from the seller’s product line. While this strategy proved effective in New Mexico, the outcome might have diverged under different legal regimes—illustrating the nuanced terrain of M&A liability.
Case Reference:
Ramos v. Foam America, Inc., CV No. 15-980 CG/KRS, United States District Court, D. New Mexico (April 5, 2018).
By John McCauley: I help people start, grow, buy and sell their businesses.
Email: jmccauley@mk-law.com
Profile: http://www.martindale.com/John-B-McCauley/176725-lawyer.htm
Telephone: 714 273-6291
Check out my book: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles
Recent Comments