Legislature(2001 - 2002)
05/12/2002 01:50 PM RLS
* first hearing in first committee of referral
= bill was previously heard/scheduled
= 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 motion. MS. NOBREGA said the ongoing case is Savage v. Western Auto. She explained: 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 description. 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 corporation. 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 bankruptcy. 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 extends. 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 million. 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.