By David Yucht, J.D.
When two corporations merge, the successor corporation becomes responsible for both former corporations’ liabilities as if it had incurred them itself. However, generally a corporation "which acquires the assets of another is not liable for the torts of its predecessor."
A state appeals court in California found that a trial court correctly granted summary judgment to auto maker FCA US LLC, dismissing a civil action brought by a consumer who was injured in 2014 allegedly as a result of the defective design of his 1979 American Motors Corporation (AMC) Jeep vehicle. When FCA purchased the assets of AMC’s successor, it did not incur AMC’s tort liabilities (Clissold v. FCA US LLC, June 11, 2020, Codrington, C.).
In 1987, Chrysler Corporation, a car manufacturer, acquired AMC as part of a merger. In 1998, Chrysler Corporation merged into another corporate entity, which merged into yet another corporate entity, Chrysler LLC, in 2007. Chrysler LLC later became Old Carco LLC. In 2009, Old Carco filed for bankruptcy. New Carco agreed to purchase "substantially all" of Old Carco’ sassets through a Master Transaction Agreement (MTA). The Bankruptcy Court’s "Sale Order" approved the MTA, which allowed New Carco to purchase Old Carco’s assets free of liability for product liability claims arising after the 2009 sale relating to vehicles manufactured before 2009. A few months later, New Carco reversed course and announced that it would "accept product liability claims on vehicles manufactured by Old Carco" before the sale date that were "involved in accidents on or after that date." The MTA was amended accordingly (Amendment No. 4). New Carco was converted into FCA US LLC in 2014.
A consumer was injured in 2014 while driving his 1979 Jeep vehicle, which had been manufactured by AMC. He sued FCA for products liability and negligence on the ground that the Jeep was defectively designed. On summary judgment, the trial court found that FCA could not be liable for his injuries because it was not the "manufacturer" of the Jeep. Consequently, the court granted FCA’ smotion for summary judgment. The consumer appealed.
Successor liability. The appellate court upheld the lower court’s decision to dismiss the case. The consumer argued that the trial court erred because FCA had assumed AMC’ sliabilities, including AMC’s liabilities for design defect claims, as part of a chain of corporate mergers and acquisitions. FCA argued, however, that it had assumed liabilities only for product liability claims associated with vehicles "manufactured by" a discrete list of corporate entities, which did not include AMC. The appellate court noted that by merging with AMC, Chrysler Corporation became responsible for AMC’s liabilities as if it had incurred them itself. However, that did not mean that this liability was transferred to FCA. Amendment No. 4 provided that FCA assumed liability only for claims associated with vehicles "manufactured by" the "Sellers" (i.e., Old Carco and its subsidiaries). The consumer’s Jeep was "manufactured by" AMC, who was not a Seller under the MTA or Amendment No. 4. Old Carco did not merge with FCA. FCA only purchased "substantially all" of Old Carco’s assets. The court found this distinction to be critical because" the general rule [is] that a corporation which acquires the assets of another is not liable for the torts of its predecessor."
The consumer argued that Old Carco "manufactured" the Jeep as a matter of law because AMC, who actually "manufactured" it, merged with Old Carco and, consequently, the two entities were the same under the MTA and Amendment No. 4. However, this argument was against the "plain and ordinary meaning" of the MTA and Amendment No. 4. Under Amendment No. 4, FCA only assumed liability for vehicles manufactured and sold by Old Carco, not AMC. Second, Amendment No. 4 defined "Sellers" as "Old Carco, LLC, formerly known as Chrysler LLC" and its subsidiaries "identified on the signature pages" of the MTA. As the Sale Order confirmed, AMC was not identified as a "Seller." The Sale Order provided that the sale of Old Carco’s assets to New Carco (i.e., FCA) "shall not result in the imposition of liability on [New Carco] for any Claims for any success or liability or any products liability for the sale of any vehicles by [Old Carco] or [its] predecessors except as expressly identified as an Assumed Liability."
The appellate court also concluded that the trial court did not abuse its discretion when it denied the consumer’s request to conduct further discovery to oppose FCA’s summary judgment motion. Allowing the consumer further discovery about the AMC Chrysler Corporation merger would not have changed the outcome, as it would have had no effect on the terms of the MTA or Amendment No. 4, which confirmed that FCA was not liable for the claims.
The case is No. E070981.
Attorneys: Holly N. Boyer (Esner, Chang & Boyer) for Walter Scott Clissold. Philip R. Cosgrove (Nelson Mullins Riley & Scarborough LLP) for FCA US LLC.
Companies: FCA US LLC
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