Practice Tip: Buyer (of the Assets of a Company) Beware

Company X is evaluating whether it should purchase the assets of Company Y, which manufactures lawnmowers. Company X has been looking to break into the lawnmower market and sees the purchase of Company Y's assets as an excellent opportunity to do so. Company X is considering two courses of action if it purchases Company Y's assets: 1) continue the manufacture of Company Y's lawnmower product line, using Company Y's designs, specifications, diagrams, blueprints, personnel, and manufacturing facilities; or 2) cease the manufacturing of the product line, but continue Company Y's ancillary business of repairing and servicing the lawnmowers it sold to its customers. Company X comes to you with a seemingly straightforward question: Under these two scenarios, will it be held liable for product liability claims arising from Company Y's manufacture and sale of defective lawnmowers, even if, as part of the asset purchase, it expressly declines to assume Company Y's liabilities? Unfortunately, based on the current state of the law, you will not be able to provide Company X with an easy, clear-cut answer.

27 minute read December 28, 2006 at 01:03 PM

By

Kenneth R. Meyer And Brian P. Sharkey