Session: State Capitol, Room 118 Juneau, AK 99801-1182 Phone: (907) 465-4968 Fax: (907) 465-2040 Subscribe to Newsletter District 11 & Judiciary Committee Info Interim: 716 W 4th, Suite 350 Anchorage, AK 99501-2133 Phone: (907) 269-0117 Fax: (907) 269-0119

Sponsor Statement for HB 499
Successor Liability For Product Liability

An Act declaring legislative intent to reject the continuity of enterprise exception to the doctrine of successor liability adopted in Savage Arms, Inc. v. Western Auto Supply, 18 P.3d 49 (Alaska 2001) as it relates to products liability; providing that a successor corporation or other business entity that acquires assets of a predecessor corporation or other business entity is subject to liability for harm to persons or property caused by a defective product sold or otherwise distributed commercially by the predecessor only if the acquisition is accompanied by an agreement for the successor to assume the liability, results from a fraudulent conveyance to escape liability for the debts or liabilities of the predecessor, constitutes a consolidation or merger with the predecessor, or results in the successor's becoming a continuation of the predecessor; defining 'business entity' that acquires assets to include a sole proprietorship; and applying this Act to the sale, lease, exchange, or other disposition of assets by a corporation, a limited liability company, a partnership, a limited liability partnership, a limited partnership, a sole proprietorship, or other business entity that occurs before, on, or after the effective date of this Act

It is vitally important to Alaska commerce and business that a corporation, partnership or other entity that purchases assets from another company or business not be held legally responsible for the liabilities of the selling business, unless expressly agreed to by the purchasing company. However, the Alaska Supreme Court, in an interim ruling last year in Savage Arms, Inc v. Western Auto Supply Co., 18 P.3d 49 (Alaska 2001), held otherwise under the doctrine of successor liability as it relates to products liability, and remanded the case to trial consistent with its opinion.

Generally, when one company sells all its assets to another, the acquiring corporation or company is not liable for the debts and liabilities of the selling company. Contrary to this rule, the Alaska Supreme Court adopted two theories of successor liability in cases of products liability, "mere continuation" and "continuity of enterprise." These theories are exceptions to the general rule, and allow a purchasing company to be held responsible for the product liabilities of the selling company, including those that may have been unknown at the time of the sale. While the "mere continuation" theory is a commonly recognized exception, the Supreme Court acknowledged that "continuity of enterprise" has been rejected by the American Law Institute: Restatement (Third) of Torts, and a vast majority of courts that have decided the issue.

The Supreme Court stated it was deciding the issue of successor liability because "…neither this court nor the Alaska state legislature has resolved the successor liability questions presented in this case…" The Savage Arms case is set for trial in November 2002, and before the Supreme Court's ruling becomes final following trial and appeal, we seek to respond to the invitation of the Supreme Court and fill the legislative void and declare the law of Alaska on this subject.

HB 499 specifically addresses successor liability as it relates to products liability. The bill expressly rejects the continuity of enterprise exception adopted by the Supreme Court and adopts the generally recognized exceptions to the doctrine of successor liability as listed in the Restatement of Torts. Those four exceptions are:

1. the successor expressly assumed the liability;
2. the transfer was a fraudulent conveyance;
3. the transfer constituted a consolidation or merger;
4. or the transfer was a mere continuation of the predecessor.

We believe this legislation will prevent inequities that will otherwise occur to the purchaser of assets who would be exposed to liabilities they did not anticipate and to sellers of assets who may receive less than fair market value if the purchaser must discount the purchase price to factor in unknown and unwanted liabilities.

This bill is expressly made retroactive so there will be uniformity of application.

The committee urges your support of this bill.

# # #

Attachments:

• Print Friendly Version
  Requires Adobe Acrobat Reader - 2 page(s) - 12K

| Rep. Rokeberg's Page | House Judiciary Committee's Page |

| Top | Home | Site Search | Breaking News | Legislators | Bills |
| Committees | E-Newsletter | Surveys | Research | Help |

The Official Web Site of the House and Senate Legislative Majorities
for the 22nd Alaska State Legislature
To Report Technical Problems or Contact Webmasters