In the complex landscape of mergers and acquisitions, understanding the legal implications of product liability is crucial for asset buyers. This blog post explores a recent South Carolina case where a buyer faced unexpected legal challenges due to a defect in equipment manufactured by the seller before the acquisition. The discussion highlights the importance of indemnification agreements and the need for buyers to proactively manage risks associated with products liability claims that may arise long after a deal closes. By emphasizing strategies such as obtaining tailored insurance coverage, this post equips M&A professionals with practical insights to safeguard their investments.
M&A Stories
October 6, 2024
M&A asset buyers must carefully manage the risk of facing lawsuits for defective products produced by the seller.
In a recent case, the seller manufactured slitter rewinders, industrial machines that process large rolls of materials like paper and film, slicing them into narrower strips. This equipment plays a crucial role in industries such as packaging and printing, where precise dimensions are vital for production.
The buyer acquired the seller’s assets in 2014, with the seller promising to defend and indemnify the buyer against any product liability claims related to goods sold before the acquisition’s closing.
However, in late December 2021, an employee at one of the seller’s customers was seriously injured while handling the equipment. She subsequently sued both the seller and the buyer in a South Carolina federal district court.
In response, the buyer filed an indemnification claim against the seller, seeking defense against the employee’s claim and compensation for any losses incurred. The seller, having dissolved over five years prior to the lawsuit, moved to dismiss the claim, arguing it was filed too late. Given the five-year statute of limitations, the court ruled in favor of the seller and dismissed the buyer’s claim with prejudice.
This case highlights that products liability claims can emerge long after the acquisition has closed. To mitigate such risks, buyers should consult with insurance advisors to assess the merits of obtaining tail coverage through representations and warranties insurance or product liability insurance policies with extended reporting periods. Ensuring adequate coverage is crucial for managing potential liabilities.
Case Reference: Byers v. Pinnacle Converting Equipment and Services, LLC, Case No. 0:23-cv-04775-JDA , United States District Court, D. South Carolina, Rock Hill Division, (September 26, 2024).
Thank you for reading this blog. If you have any questions, insights, or if you’d like to engage in a more detailed discussion on this matter, I invite you to reach out directly.
Feel free to send me an email. I value thoughtful discussions and am always open to connecting with business owners, management, as well as professionals who share an interest in the complexities of M&A law.
By John McCauley: I write about recenegal problems of buyers and sellers of small businesses.
Email: jmccauley@mk-law.com
Profile: http://www.martindale.com/John-B-McCauley/176725-lawyer.htm
Telephone: 714 273-6291
Podcasts https://www.buzzsprout.com/2142689/12339043
Check out my books: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles and Selling Assets of a Small Business: Problems Taken From Recent Legal Battles
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