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A Primer for Successor Corporations on Avoiding Potential Product Liability Exposure

By Peter A. Antonucci and B. Keith Gibson
January 06, 2006

The first part of this article discussed traditional criteria for successor liability and the expanded theory of successor liability provided by the continuity of enterprise exception. The conclusion continues the discussion of expanded successor liability law pursuant to the product line exception.

Product Line Exception

The “product line” exception, originally created by the California Supreme Court in Ray v. Alad Corporation 19 Cal. 3d 22, 30 (1977), holds that even in connection with an asset sale, “a party which acquires a manufacturing business and continues the output of its line of products … assumes strict tort liability for defects in units of the same product line previously manufactured and distributed by the entity from which the business was acquired.” This exception has been relied upon in some jurisdictions to hold a successor corporation liable where it continues to produce a product line of the seller that caused the liability. Courts applying the product line exception will hold a successor liable where: 1) there has been a destruction of the plaintiff's available remedies because of the predecessor's sale and/or subsequent dissolution; 2) the purchaser is able to assume the original manufacturer's risk-spreading role through adjusting prices of the products in question; and 3) the purchaser enjoys the corporate goodwill of the predecessor associated with the product in question, thereby making it fair for the purchaser to assume the corresponding liabilities.

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