Legislature(2001 - 2002)

05/12/2002 01:50 PM RLS

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
The  committee  took  up  CSHB  499(JUD)-SUCCESSOR  LIABILITY  FOR                                                          
PRODUCT LIABILITY.                                                                                                          
MS. HEATHER  NOBREGA, counsel  to the  House Judiciary  Committee,                                                              
stated that  HB 499 covers  a very small  area of law,  that being                                                              
products liability.  Within that area  of law, the  bill clarifies                                                              
when  a  successor  corporation  should  be held  liable  for  the                                                              
liabilities of  the predecessor corporation's assets.  The general                                                              
rule is  that when a corporation  purchases another's  assets, the                                                              
successor   corporation  is  not   responsible  for   liabilities.                                                              
However, in products  liabilities, courts have made  exceptions to                                                              
that doctrine  to provide recovery  for an injured  plaintiff. The                                                              
court has  used four generally  recognized exceptions to  the rule                                                              
to  determine when  a  corporation  is not  liable.  The issue  of                                                              
products liability has not yet been  addressed in Alaska statutes.                                                              
SENATOR  ELLIS asked  which  court case  set  this legislation  in                                                              
MS. NOBREGA said  the ongoing case is Savage v.  Western Auto. She                                                              
     There  is a  products liability  case right  now in  the                                                                   
     courts. They  - since products liability has  never been                                                                   
     addressed in Alaska, they had  to - they appealed to the                                                                   
     Supreme Court  for the Supreme  Court to decide  whether                                                                   
     it is the law of the land in  this state. In their case,                                                                   
     the  plaintiffs asked  for the  law  of the  land to  be                                                                   
     three doctrines. The Supreme  Court adopted two of those                                                                   
     doctrines.  They  didn't  even  look at  the  third  one                                                                   
     because they  decided it just  wasn't necessary  at that                                                                   
     point in time to even look at that.                                                                                        
     One of  the doctrines  is one of  the four [indisc.]  of                                                                   
     those  generally accepted by  the law  of the land.  The                                                                   
     other doctrine that was called  continuity enterprise is                                                                   
     a  modern  theory  -  a modern  doctrine  that  over  36                                                                   
     jurisdictions   in  the  country   have  rejected.   The                                                                   
     restatement  of  torts  has   rejected  it  and  we  are                                                                   
     rejecting  it with  this bill  because we  do not  think                                                                   
     that that should  be the law of the land  in this state.                                                                   
     It  is  an ongoing  litigation.  The  trial is  set  for                                                                   
     November. What this bill will  do is say this is the law                                                                   
     of the  land in this state  and this is what  you should                                                                   
     be applying to  the facts of the case, and  not that one                                                                   
     exception.  It is only taking  away that one  exception.                                                                   
     It  is not in  any way  affecting the  final outcome  of                                                                   
     this ongoing litigation.                                                                                                   
SENATOR COWDERY  said it  is his  understanding that Western  Auto                                                              
was a  distributor of  Savage Arms products.  Western Auto  sold a                                                              
weapon to a customer. After the weapon  was then sold several more                                                              
times,  an accident  occurred  and the  victim's  family sued  the                                                              
insurance company.  The insurance company settled the  suit and is                                                              
now trying to recover  its costs. He asked if that  is an accurate                                                              
TAPE 02-14, SIDE B                                                                                                              
MS.  NOBREGA said  that several  companies  are involved.  Western                                                              
Auto was  the final company to  sell the product. The  family sued                                                              
both Western  Auto and the  makers of  the rifle, which  is Savage                                                              
Industries. Western Auto settled  and now its insurance company is                                                              
trying to  sue the company  that purchased  the company  that made                                                              
the rifle for the amount it paid to the family.                                                                                 
SENATOR COWDERY asked if the settlement  was less than $5 million.                                                              
MS. NOBREGA said she believes it was about $5.4 million.                                                                        
SENATOR COWDERY asked if it is two  or three times that amount now                                                              
due to interest and attorneys' fees.                                                                                            
MS.  NOBREGA said  she  has heard  it is  about  $14 million.  She                                                              
repeated that HB 499 will not affect  the outcome of the trial; it                                                              
will determine the law of the land.                                                                                             
SENATOR  HALFORD questioned  Ms. Nobrega's  statement that  HB 499                                                              
will not affect the outcome of the trial.                                                                                       
MS.  NOBREGA  said that  is  correct  because  there is  no  final                                                              
outcome yet. She added:                                                                                                         
     The Supreme Court is deciding  what the law is therefore                                                                   
     then  - just  ignoring this  bill  for right  now -  the                                                                   
     Supreme Court  then sends what  the law is back  down to                                                                   
     the court.  Then you  have to argue  whether or  not the                                                                   
     facts of  the case - applying  the facts of the  case to                                                                   
     the law  will equal  some kind  of judgment for  Western                                                                   
     Auto to get money. The Supreme  Court found two areas of                                                                   
     the law they decided, or two,  let's say, [indisc.] that                                                                   
     you  can argue  in  the lower  court.  One is  generally                                                                   
     recognized and it's allowed  for in this bill. The other                                                                   
     is a  modern theory that has  been rejected by  many and                                                                   
     we're also  rejecting. They  will be able  to -  if this                                                                   
     bill becomes  law - there are four actual  exceptions in                                                                   
     there  they would be  able to  argue. So there  actually                                                                   
     has  been no arguing  of the  law and  the facts.  We're                                                                   
     still in the  setting the law phase of the  litigation -                                                                   
     what is  the law that we  want to apply these  facts to.                                                                   
     There  will be  a long  trial to  look into  all of  the                                                                   
     facts  of who  the shareholders  were  of each  company,                                                                   
     what   assets    were   purchased,   are    they   still                                                                   
     manufacturing,  what are they  still manufacturing,  how                                                                   
     those  two  companies -  the  successor who  bought  the                                                                   
     company  and  the  company who  manufactured  the  rifle                                                                   
     initially,  how   those  two  work  together.   That  is                                                                   
     successor  liability and  that is what  the whole  trial                                                                   
     would be  about. Should this  company be liable  for the                                                                   
     rifle  manufacturer's  defective  product? There  is  no                                                                   
     final  judgment now.  They're  only looking  at the  law                                                                   
     right now and what the law is.                                                                                             
SENATOR HALFORD  asked if  the reason HB  499 will not  affect the                                                              
final judgment is  because it does not exist but  that HB 499 will                                                              
affect the outcome  of the case and who wins, who  loses, who pays                                                              
and who receives.                                                                                                               
MS.  NOBREGA said  how  the facts  are applied  in  the case  will                                                              
[indisc.] the  final judgment  but there have  not been  any facts                                                              
argued to any theories of law.                                                                                                  
SENATOR HALFORD asked if the people  arguing the other side of the                                                              
case agree with Ms. Nobrega's interpretation.                                                                                   
MS. NOBREGA said they do not.                                                                                                   
SENATOR HALFORD remarked that this bill will change the rules.                                                                  
MS.  NOBREGA  said  that  changing the  rules  and  affecting  the                                                              
outcome  are two different  things.  She agreed  that HB 499  will                                                              
change the rules.                                                                                                               
SENATOR HALFORD  said the threshold  is to convince  the committee                                                              
that the rules in the case should be changed.                                                                                   
SENATOR THERRIAULT  commented that changing the  rules will change                                                              
the outcome  because  the one exception  they  may have relied  on                                                              
would no longer be available.                                                                                                   
SENATOR COWDERY  said that he owned  an excavating company  at one                                                              
time. The name of the company still  exists but he sold all of the                                                              
equipment  at  an  auction.  He said  he  doesn't  understand  how                                                              
someone  who  was  injured  on  that  equipment  could  blame  his                                                              
MS. NOBREGA  said she  does not believe  that scenario  would fall                                                              
under HB 499  because he was not a manufacturer  or distributor of                                                              
that equipment.  She explained  that products  liability  does not                                                              
hold users of equipment liable.                                                                                                 
SENATOR   COWDERY  said   he  manufactured   rollover   protection                                                              
equipment for his equipment.                                                                                                    
MS. NOBREGA  said the maker  of a product  will always  be liable.                                                              
Whether or not  the company that buys that product  and resells it                                                              
is liable is the  question. She said she was not  sure how to work                                                              
Senator  Cowdery's scenario  into  the discussion  right now.  She                                                              
said  the general  rule is  that no  one wants  to hold  successor                                                              
companies liable  because no  one would  buy an existing  company.                                                              
That is the reason the exceptions exist.                                                                                        
SENATOR THERRIAULT  asked if the four other exceptions  will still                                                              
be available.                                                                                                                   
MS. NOBREGA said that is correct.                                                                                               
SENATOR THERRIAULT cautioned  that the state does not  want to get                                                              
into  a situation  where someone  may try  to break  the chain  by                                                              
selling just the machinery and not the stock.                                                                                   
MS. NOBREGA  said most  of the exceptions  work around  the theory                                                              
that these are good reasons to hold the company.                                                                                
SENATOR   HALFORD  suggested   the  evaluation   is  whether   the                                                              
continuation  of  a 75-year  old  name  is  worth picking  up  the                                                              
liability of a product that carries that name.                                                                                  
SENATOR  THERRIAULT said  he believes  that would  be an  integral                                                              
part of arguing  that it was either a merger or  a continuation of                                                              
the predecessor.                                                                                                                
SENATOR HALFORD  said in this case  there was actual  distress and                                                              
MS. NOBREGA  said when  a company  purchases another's  assets and                                                              
continues  to make the  same products  and use  the same  name, it                                                              
would be subject  to liability and that would be  entered into the                                                              
valuation of how much was paid for that company.                                                                                
SENATOR HALFORD  said that  is what happened  in the  Western Auto                                                              
case - they  kept the name and  most of the products  although not                                                              
the product that caused the accident.                                                                                           
SENATOR THERRIAULT asked if they  kept the name of the business or                                                              
the name of the product.                                                                                                        
MS. NOBREGA said  it is her understanding that they  kept the name                                                              
but they did not buy the particular rifle that exploded.                                                                        
SENATOR  ELLIS  asked  if  one  of  the  parties  in  the  lawsuit                                                              
requested the bill.                                                                                                             
MS. NOBREGA said  the request came from representatives  of Savage                                                              
Arms. She pointed out that concerns  have been expressed about the                                                              
retroactivity  provision. She  maintained that  most attorneys  in                                                              
the state  would say  the bill contains  what was  the law  of the                                                              
land until the Supreme Court adopted  the continuity of enterprise                                                              
theory. She noted that without the  retroactivity provision, there                                                              
will  be a "bubble  in time  of a  weird theory  that most  people                                                              
aren't used to..."  By making it retroactive, the  law of the land                                                              
regarding  successor liability  will  be kept  at  the status  quo                                                              
before, during, and after the case.                                                                                             
SENATOR  ELLIS  asked  how  far back  in  time  the  retroactivity                                                              
MS. NOBREGA  said it extends forever,  which is the  way attorneys                                                              
figured the law was before this case.                                                                                           
SENATOR  ELLIS asked  how she knows  what attorneys  all over  the                                                              
state think and whether she polled them.                                                                                        
MS. NOBREGA  said she knows  because she  went to law  school. She                                                              
stated that before  this decision, the idea of  products liability                                                              
had never been addressed in Alaska.                                                                                             
SENATOR HALFORD asked what happened  to the victim of the accident                                                              
in this case from the perspective of equity.                                                                                    
MS. NOBREGA said she does not know  the specifics but believes the                                                              
injury was severe.                                                                                                              
SENATOR HALFORD  asked if  the injury  was one  that was  worth $5                                                              
MS. NOBREGA  said that is what  Western Auto settled for  but that                                                              
she does not know what the injury was worth.                                                                                    
SENATOR  HALFORD  asked if  Western  Auto  settled and  then  sued                                                              
Savage Arms.                                                                                                                    
MS. NOBREGA  said that is correct;  the manufacturer of  the rifle                                                              
is no longer  in existence so Western  Auto "is going to  the next                                                              
deepest pocket they can find."                                                                                                  
SENATOR HALFORD asked if the argument  is between two companies at                                                              
this point.                                                                                                                     
MS. NOBREGA  said the argument  is between Allstate  Insurance and                                                              
Lloyds of London, and Savage Arms.                                                                                              
SENATOR HALFORD asked if the injured party is taken care of.                                                                    
MS. NOBREGA said that is correct.                                                                                               
SENATOR  COWDERY moved  to  calendar CSHB  499(JUD)  and its  zero                                                              
fiscal note at the Chairman's discretion.                                                                                       
SENATOR ELLIS objected.                                                                                                         
CHAIRMAN  PHILLIPS  announced  the motion  carried  with  Senators                                                              
Cowdery,  Halford, Therriault  and Phillips  in favor and  Senator                                                              
Ellis opposed.                                                                                                                  

Document Name Date/Time Subjects