Legislature(2001 - 2002)

05/10/2002 05:26 PM JUD

Audio Topic
* first hearing in first committee of referral
+ 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                                                              
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                                                              
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                                                              
   · 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                                                                 
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                                                              
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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