Sale of Assets. Lori Ann Nilsson, in the course of her employment as a machine operator, was injured by a pipe and tube cutoff machine that had been manufactured and sold by Continental Machine Co prior to 1978. In 1986, Fredor Corp purchased all of the
production assets of Continental, including the pipe and tube machine product line, and formed Continental Machine Manufacturing Co (CMM). The assets purchased from Continental were transferred to CMM. CMM continued to manufacture the same product lines as Continental had. The shareholders of Continental did not become shareholders, officers, or employees of Fredor or CMM. Most of the employees of Continental became employees of CMM, however. There was no evidence that the transaction was undertaken for a fraudulent purpose, nor did Fredor or CMM agree to assume Continental's liabilities. After the sale of assets, Continental continued to exist, but it had no productive assets. Continental continued to own the building in which the assets had been located, however, and leased the building to CMM. Nilsson brought a product liability suit against CMM. Will the court hold CMM liable for injuries caused by a machine manufactured by Continental? What factors will the court consider in reaching its decision? Discuss fully.
Sale of assets
The trial court granted summary judgment in favor of the manufacturer and the appellate court upheld the judgment, holding that there was no continuity of ownership between CMM and Continental and, therefore, CMM was not a mere continuation of Continental and was not liable for the injury allegedly caused by Continental's machine. The court pointed out that "the most important factor in determining whether a de jure or de facto merger has occurred is identity of ownership of the new and former corporations." The court explained that "continuity of stock ownership is critical to a finding of successor liability" and saw "no reason to deviate from the established requirement of the existence of an identity of ownership before there is liability under the facts of this case." The court also noted that under state law, the fact that CMM continued Continental's operations did not render CMM strictly liable for defects in Continental's products.
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