Explore a real-life case study in M&A law where asset buyers face product liability challenges. Learn about strategies to mitigate risk and protect your investments.
M&A Stories
October 24, 2023
Introduction:
In the world of M&A, asset buyers often face concerns about product liability lawsuits stemming from products sold long before a deal’s closing.
Case Background:
In this particular case, we examine the sale of the Powermatic table saw business. The original company manufactured these saws, but in 1986, they sold the business to the seller. Fast forward to 1999, the seller filed for bankruptcy and sold Powermatic Division assets to the buyer. The transaction closed on September 27, 1999, with no buyer stock involved. The purchase agreement made it clear that the buyer assumed liability for products sold after the closing, along with certain other liabilities. The seller retained responsibility for its remaining liabilities. Importantly, the bankruptcy court’s order confirmed that the buyer acquired Powermatic assets free and clear of all liabilities, except those expressly assumed as per the asset purchase agreement.
Legal Challenge:
The case arose on October 16, 2013, when a cabinet and furniture maker suffered severe injuries while using a 1979 Powermatic table saw made by the original company. The buyer had to defend a product liability lawsuit, contending that they assumed liability for this product and were responsible under successor liability.
Outcome:
The court ruled against the successor liability argument, mainly because no buyer equity was part of the deal. Moreover, the buyer did not assume responsibility for products sold before their closing, and the bankruptcy court explicitly stated that the buyer purchased the assets free of all other liabilities.
Key Takeaway:
It’s not uncommon for consumers to sue for injuries caused by products sold many years before an M&A deal. To mitigate this risk, buyers should strongly consider purchasing “tail coverage,” also known as “extended reporting period coverage” or “run-off coverage.” This coverage addresses past product liability risks associated with products sold long before the M&A transaction.
Case Reference:
Mastellos v. JPW Industries, InC., No. 17-CV-415 (MKB) United States District Court, E.D. New York (September 9, 2023).
By John McCauley: I write about recent legal 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
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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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