Legislature(2001 - 2002)
05/10/2002 05:26 PM JUD
* first hearing in first committee of referral
= bill was previously heard/scheduled
= 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.