Products Liability Law Daily Wrap Up, SUPPLY CHAIN LIABILITY ISSUES—HOUSEHOLD PRODUCTS—E.D. N.C.: Absence of proof of successor liability extinguishes seller’s third-party claim in gel fuel product liability action, (Jan 11, 2016)

By Kathleen Bianco, J.D.

A third-party claim by the seller of a gel fuel product against a company that purchased all of the assets and business of the former bottler of the product failed to state a claim because the seller had not sufficiently asserted successor liability against the new company, a federal district court in North Carolina ruled in a decision granting the company’s motion to dismiss (Leonard v. Bed, Bath & Beyond, Inc., January 8, 2016, Fox, J.).

The seller’s third-party claims arose from a product liability action filed by a consumer who was burned while attempting the use the gel fuel product that had been purchased from the seller. The seller’s third-party claim sought compensation from the current bottler of the product in the event that the seller was found liable to the consumer. The current bottler filed a motion to dismiss, asserting that it could not be held liable because it had purchased the assets of the former bottler after the injuries in this case had occurred.

Successor liability. Generally, if a company sells or transfers all of its assets to another company, the new company is not liable for the debts and liabilities of the transferor. In North Carolina, there are four exceptions to this rule against successor liability, including: (1) where there is an express or implied agreement by the purchasing company to assume the debt and liability; (2) where the transfer amounts to a de facto merger of the two companies; (3) where the transfer of assets was an attempt to defraud corporate creditors; or (4) where the purchasing company is a “mere continuation” of the selling corporation. A company may be found to be a continuation of the selling company where the new company has some of the same shareholders, directors, and officers.

Based on this analysis, in order to allege a valid claim against a company based on the conduct of its predecessor, there must be evidence of at least one basis for successor liability. The seller’s third-party complaint fails to satisfy this requirement. The allegations made by the seller—same management, same line of business, and same facilities—describe a standard sale of business assets. They do not evidence the type of unusual transaction that would support a finding of successor liability. Consequently, the motion to dismiss was granted without prejudice to allow the seller the opportunity to amend its complaint to sufficiently allege successor liability.

The case is No. 5:15-CV-00284-F.

Attorneys: Michael A. Trunk (Kline & Specter, PC) for William Leonard. David W. Hearn (Sands Anderson PC) for Bed, Bath & Beyond, Inc. Richard T. Boyette (Cranfill Sumner & Hartzog, LLP) for CyCan Industries, Inc.

Companies: Bed, Bath & Beyond, Inc.; CyCan Industries, Inc.

Cases: CourtDecisions SCLIssuesNews HouseholdProductsNews NorthCarolinaNews