Legislature(2001 - 2002)
05/10/2002 05:26 PM Senate JUD
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 499-SUCCESSOR LIABILITY FOR PRODUCT LIABILITY
MS. HEATHER NOBREGA, counsel to the House Judiciary Committee,
sponsor of HB 499, said HB 499 would determine when a successor
in a corporation could be held liable for a previous
corporation's products liability.
CHAIRMAN TAYLOR said HB 499 was a complex piece of legislation
that would involve the legislature reversing a Supreme Court
decision. He said whether or not a successor corporation that
purchased the assets of a bankrupt business would be liable for
the activities of the previous corporation was a significant
policy question.
SENATOR THERRIAULT asked what kind of liability was being
addressed.
6:07 p.m.
CHAIRMAN TAYLOR said the case involves Savage Arms, Inc. and the
Western Auto Supply Corporation and is very unique. Western Auto
sold a .22 Savage Industries rifle that had design factors or
problems that caused a tragic accident. He explained that
Representative Chenault employed the father of the young man who
was shot in the temple by the rifle. Suit was brought against
Western Auto and full compensation has been provided to the
victim but additional subrogation claims have gone back and forth
between Western Auto and Savage Arms as to who was liable. He
said the matter was up on an interlocutory appeal to the Supreme
Court from a decision made by Judge Link. He said the Supreme
Court rendered a decision using a four-part test as to whether or
not the successor corporation was liable for the previous
corporation's products liability. He said Savage Industries had
been purchased along with the name. He thought Alaska's Supreme
Court was one of only three that came out with a different
continuity of enterprise theory. The Supreme Court decided that
the new corporation might have become liable with the purchase of
the assets of Savage Industries. He said the matter had not been
resolved yet and the new corporation would go to trial in the
fall to determine the matter of liability. He said the Supreme
Court indicated that successor liability affected the manner in
which the case would be tried and who would be held liable.
6:09 p.m.
SENATOR COWDERY thought the gun had been sold by Western Auto but
had passed through many owners before the young man was injured.
MS. NOBREGA said that was correct.
SENATOR COWDERY said he purchased a Helio Courier factory when
Piper Aircraft went bankrupt. He said they would have been
liable for the entire history of the aircraft even though they
were manufacturing a different model. He said that made him ask,
"Is the plumber responsible for what goes through the pipe?"
MS. NOBREGA said products liability was very interesting because
it could hold any entity liable throughout the chain of
possession. She said liability moved down the chain from the
manufacturer to the wholesaler and the retailer.
SENATOR COWDERY asked if that model of gun was still made and if
they had corrected the flaws if there were flaws.
MS. NOBREGA said she didn't know but assumed that either the gun
was no longer being made or the problem that resulted in the gun
exploding had been fixed.
REPRESENTATIVE ROKEBERG, Chairman of House Judiciary Committee,
said when Savage Industries purchased Savage Arms they purchased
four product lines but did not purchase that particular product
line. He said Western Auto had settled the case. He said the
case was now between the subrogated insurance companies AllState
and Lloyd's of London. He said HB 499 addressed the Restatement
(Third) of Torts to determine successor liability.
CHAIRMAN TAYLOR asked Ms. Lisa Hanby to provide testimony.
MS. LISA HANBY, Hughes Thorsness, said her supervisor, Mr. Jim
Powell, wished to provide testimony but was not available.
CHAIRMAN TAYLOR asked if Ms. Hanby had any testimony to provide.
MS. HANBY said Hughes Thorsness' major concern was that the
retroactivity of HB 499 would make the law applicable to parties
already in litigation.
CHAIRMAN TAYLOR asked how HB 499 would affect their case.
MS. HANBY thought it would eliminate their case. She said they
were seeking indemnification for about $12 million.
CHAIRMAN TAYLOR asked if there were any further questions for Ms.
Hanby. There were none.
REPRESENTATIVE ROKEBERG said HB 499 would overturn one of two
theories that were adopted by the Supreme Court to be utilized by
the trial court in applying products liability law. He said the
Supreme Court adopted the mere continuation theory, which was one
of the four tests allowed under the Restatement (Third) of Torts,
and the continuity of enterprise theory. He said HB 499
overturned the continuity of enterprise theory. He said the
Supreme Court retroactively applied that standard because the
legislature had never addressed the issue. He said HB 499 would
clarify what the law should be because the case was before the
Supreme Court to get clarification of the law. He said HB 499
would simply do what the Supreme Court had done in making it
retroactive. He felt the Supreme Court had picked the wrong law.
He said 46 other states agreed with the Restatement (Third) of
Torts. The Supreme Court picked a law that had been discredited
throughout the judiciary of the country.
TAPE 02-29, SIDE B
6:15 p.m.
REPRESENTATIVE ROKEBERG said the previous testimony from Mr.
Powell was that there was approximately $14 million involved in
the case. He said the case was a clear tort case and it was
clear in case law that there was no vested right to the $14
million until the entire case had been tried and brought to final
judgment. He said there was case law in the brief in the bill
packet going all the way back to Chief Justice John Marshall's
decision in the The Schooner Peggy case in 1801 that stated that
legal principle. He said it was very well tested and HB 499
would not interfere with the case. He said the Superior Court
would look at the Supreme Court's decision and HB 499 in making
judgment. He said they would get to retry the case based on what
the law should be. He said it was up to the facts to determine
responsibility.
CHAIRMAN TAYLOR asked Mr. Ted Pease to provide testimony.
MR. TED PEASE, Burr Pease & Kurtz, said his firm was counsel to
Savage Arms. He pointed out that HB 499 would adopt section 12
of the American Law Institute's Restatement (Third) of Torts. He
said the American Law Institute was a respected agency that
studied laws and presented an analysis on what the law was and
what it should be. He said they adopted the following four
conditions that would make a successor corporation liable in
1998:
· If the successor corporation expressly assumed liability;
· If it was a merger or consolidation of two corporations;
· If it was fraud; or
· If the new corporation was a clear continuation of the old
corporation.
He said clear continuation was when the two companies had the
same shareholders, stockholders, directors and business but was a
different corporation.
MR. PEASE said HB 499 would eliminate Western Auto's ability to
use the continuity of enterprise theory to answer the question of
liability in their case against Savage Arms. He said the
continuity of enterprise theory was a wide-open theory that said
if a successor company appeared to be the same corporation the
jury could decide the successor corporation was liable.
He said the original corporation went bankrupt because of
financial problems. He said the new corporation decided to
purchase part of the bankrupt corporation including most, but not
all, of the assets. It did not purchase the product line that
included the gun that hurt the young man. He said the accident
hadn't happened when the negotiations were going on. He said the
accident had happened by the time the deal was closed but neither
corporation nor the bankruptcy court knew about it. He said a
year later the suit was filed. He said Savage Industries was
looked at for liability but had gone out of business so the suit
went after Western Auto, the original seller of the gun.
He urged the passage of HB 499 because it would protect any
corporation or individual who purchased all or part of the assets
of another business that could find themselves liable for
products liability for an accident that hadn't even happened yet.
CHAIRMAN TAYLOR maintained that the Restatement (Third) of Torts
said the successor corporation was liable if liability was
assumed, if fraudulent conveyance was used to escape debts or
liabilities, if it was a consolidation or merger or if the
successor corporation was really a continuation of the
predecessor. He asked if the Supreme Court decided that Savage
Arms was a continuation of Savage Industries.
MR. PEASE said Judge Link decided that there were fact issues to
be examined and recognized two theories that might be applicable.
One theory was the continuity of enterprise theory.
CHAIRMAN TAYLOR asked if that applied in this case.
MR. PEASE said it did not. He said the corporation that
purchased the assets of Savage Industries was wholly owned by an
international, publicly traded corporation called Challenger.
CHAIRMAN TAYLOR said he appreciated the hard work Mr. Pease and
Mr. Powell had put in on HB 499. He wasn't convinced that HB 499
was appropriate but believed there should be some finality in the
marketplace. He thought everyone would agree that liability
should continue if the transaction fell under any of the
exceptions under the Restatement (Third) of Torts.
SENATOR COWDERY asked if the corporation was purchased at a
bankruptcy.
MR. PEASE said it was purchased from Chapter 11 bankruptcy
proceedings with the approval of the bankruptcy court.
CHAIRMAN TAYLOR asked if there was anyone else who wished to
testify on HB 499. There was nobody.
SENATOR COWDERY moved CSHB 499(JUD) out of committee with
attached zero fiscal note and individual recommendations.
SENATOR ELLIS objected.
SENATOR DONLEY had not made up his mind about HB 499. He didn't
know if he opposed moving it out of committee. He asked what
Senator Ellis' objection was.
SENATOR ELLIS said he had a bad feeling about HB 499. He didn't
think the committee understood the bill. He said the next
committee of referral was the Senate Rules Committee and then the
bill would be on the floor where a group of uninformed people
would be asked to cast a vote on this complicated measure in the
closing days of session.
SENATOR DONLEY said he would not oppose moving HB 499 out of
committee but he shared Senator Ellis' concerns.
Upon a roll call vote, Senators Donley and Cowdery and Chairman
Taylor voted in favor of moving CSHB 499(JUD) out of committee
and Senator Ellis voted in opposition. Therefore, CSHB 499(JUD)
moved out of committee by a vote of three to one with attached
zero fiscal note and individual recommendations.
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