The Basics: Successor Liability in Products Liability Actions

By Brian A. Comer

As I have begun settling in with my new law firm, I have received a couple of case files that have successor liability issues in the products liability arena. Therefore, it seemed like a good topic for a quick blog entry to summarize this area of the law.

A former colleague of mine, Tim Orr, wrote an excellent article for South Carolina Lawyer in the March 2006 edition that fully summarizes this area of the law, and I would highly recommend the article for anyone with a products liability successor liability issue. The article is aptly titled "Successor Liability" and fully analyzes this area of the law. It also provided me with a great primer for a conference call with a client today.

In a nutshell, Simmons v. Mark Lift Indus., Inc., 366 S.C. 308, 622 S.E.3d 213 (2005) addressed this issue in a certified question from the United States District Court. The court stated as follows:

[I]n the absence of statute, a successor or purchasing company ordinarily is not liable for the debts of a predecessor or selling company unless (1) there was an agreement to assume such debts, (2) the circumstances surrounding the transaction warrants [sic] a finding of a consolidation or merger of the two corporations, (3) the successor company was a mere continuation of the predecessor, or (4) the transaction was entered into fraudulently for the purpose of wrongfully defeating creditors’ claims.

Id. at 312, 622 S.E.2d at 215 (quoting Brown v. Am. Ry. Express Co., 128 S.C.428, 123 S.E. 97 (1924). Simmons is significant because it adopted the court's opinion in the commercial case of Brown v. Am. Ry. Express Co. and extends the test applied by the Brown court for successor liability to all products liability actions. Adoption of these four exceptions aligns South Carolina with the majority of states that have adopted these same four exceptions. As of the date of Tim's article, he cites to 30 states that have also retained an applied these exceptions in the products liability setting. See Tim Orr, Successor Liability, March 2006 edition of South Carolina Lawyer, at 35.

As I am learning, it is critical to examine the transaction documents at issue in a successor liability case to determine if the purchasing entity intended to assume the seller's liabilities. This can also become a "form versus substance" issue where the purchasing company is merely a continuation of the predecessor, i.e., it has a "common identity" of the officers, directors and stockholders between the predecessor and successor. In such cases, a court may find that the owners and directors of a company merely dissolved the company and formed a new one to avoid the prior debts and liabilities. In such cases, the "mere continuation" exception may apply to make the successor company liable.

I will try to profile each of these exceptions in future blog entries, but the above serves as "the basics" for now.

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Case Brief: Allen v. Long Mfg. NC, Inc.

Today's case brief is of Allen v. Long, Mfg. NC, Inc., 332 S.C. 422, 505 S.E.2d 354 (Ct. App. 1998). This is a warnings case, and it is significant because it discusses the adequacy of warnings, rejects that compliance with industry standards is conclusive evidence of adequacy, and establishes the heeding presumption in South Carolina.

FACTUAL BACKGROUND: Otis Allen, Sr. ("Allen") was using a portable grain auger to load grain onto a grain drill. 332 S.C. at 424, 505 S.E.2d at 355. The auger's center of gravity could change when grain was conveyed to the top of the auger without replacing the material at the bottom (which kept it stable and prevented it from becoming top heavy). Id. Allen was standing beneath the auger's discharge end when it became unstable and struck him in the head, killing him. Id. He had not anchored the lower end or supported the discharge end. Id. The auger contained a warning label with the word "CAUTION" preceding eleven different instructions. 332 S.C. at 425, 505 S.E.2d at 356.

PROCEDURE: Allen's estate ("Plaintiff") brought a wrongful death and pain and suffering action against Defendant Long Mfg. NC, Inc. ("Long", the manufacturer of the auger) and Glen Kinard, the auger's owner. 332 S.C. at 424-25, 505 S.E.2d at 355. The theories of recovery were strict liability and negligence. Id. at 424, 505 S.E.2d at 355. The trial court granted Long's motion for summary judgment. Id. Plaintiff appealed to the South Carolina Court of Appeals.

ISSUES: The questions on appeal were whether genuine issues of material fact existed regarding (1) whether the auger was in a "defective condition unreasonably dangerous" to Allen, (2) whether Long breached its duty of care by failing to provide an adequate warning, and (3) whether Allen's failure to follow the warning was the proximate cause of his injuries. 332 S.C. at 425-26, 505 S.E.2d at 356.

DISPOSITION: The Court of Appeals reversed the trial court's grant of summary judgment. 332 S.C. at 426, 505 S.E.2d at 356. It found that the sufficiency of the auger's warnings was a question of fact for the jury. Id.

RULES AND OPINION: With regard to whether the auger was in a defective condition, unreasonably dangerous to the user, the court pointed out that "[i]f a warning is given which, if followed, makes the product safe for use, the product cannot be deemed defective or unreasonably dangerous." 332 S.C. at 427, 505 S.E.2d at 357 (citing Restatement (Second) of Torts section 402A cmt. j (1965)). Whether a warning is adequate is a question of fact for the jury as long as evidence has been presented that the warning was not adequate. Id. at 428, 505 S.E.2d at 357. Plaintiff's expert provided testimony regarding the auger's warning that created a genuine issue of material fact. 332 S.C. at 429, 505 S.E.2d at 358. There was nothing in the auger's warnings to explain that the machine's center of gravity could change as it emptied. Id. Furthermore, the court disagreed with the trial court's interpretation of Bragg v. Hi-Ranger, Inc., 319 S.C. 531, 462 S.E.2d 321 (Ct. App. 1996) as establishing that a warning is adequate as a matter of law if it complies with industry standards. 332 S.C. at 430-31, 505 S.E.2d at 358-59 ("We reject this principle as unsound since it would allow the industry to set its own standard of safety, a proposition which finds no support from other jurisdictions, and which is antithetical to the underlying premise of strict liability."). Finally, the court stated that it need not address whether a feasible design alternative must be presented to survive summary judgment. Id. at 431, 505 S.E.2d at 359. The court agreed that Plaintiff failed to present a factual issue on this point, but it concluded that the court erred in ruling upon it because Long conceded that the auger required a warning to be made safe. Id. This concession foreclosed Plaintiff's argument that the auger could have been redesigned to be made safer and rendered the trial court's holding moot. Id. at 431-32, 505 S.E.2d at 359.

With regard to Long's duty of care, the court reversed the trial court's determination that Long satisfied its duty of care because its determination was premised on the legal adequacy of the auger's warning, which the Court of Appeals (supra) held was an issue of fact for the jury. Id. at 432, 505 S.E.2d at 359.

Finally, the court reversed the trial court's finding that the Plaintiff failed to introduce evidence of causation. 332 S.C. at 432-33, 505 S.E.2d at 359-60. At trial, Long successfully argued that Allen's failure to heed the auger's warning was the proximate cause of his injuries because Plaintiff's expert stated that if Allen had followed the warnings, the accident would not have occurred. Id. at 432, 505 S.E.2d at 359-60. The court stated that when an adequate warning is given, the manufacturer may assume that it will be heeded by the product user. Id. at 432-33, 505 S.E.2d at 360. However, the testimony by Plaintiff's expert created a factual issue as to whether a different, adequate warning could have changed Allen's conduct. Id. at 433, 505 S.E.2d at 360.

This post is subject to the DISCLAIMER & TERMS OF USE of this website.

Changing Firms

I am proud to announce that I will be joining Collins and Lacy, effective July 13, 2009.

Collins and Lacy is a litigation firm with approximately 28 attorneys in three South Carolina offices (Greenville, Columbia, and Myrtle Beach). The firm will provide me with the opportunity to do a greater variety of litigation, including products liability work. I will be working with Gray T. Culbreath, who is the firm's managing shareholder and has a fantastic litigation practice (including an extensive products liability practice). This platform will also provide me with a great opportunity to grow my practice over the long-term.

I will be in the Columbia office, and that contact information is as follows:

Collins and Lacy
1330 Lady Street, Sixth Floor
P.O. Box 12487 (29211)
Columbia, SC 29201
TEL: 803.256.2660
TOLL FREE: 888.648.0526
FAX: 803.771.4484

This blog will continue as it has been, but I wanted to provide an explanation for some changes in my contact information, certain hyperlinks, etc. I sincerely thank the great folks at Collins and Lacy for this opportunity. I will miss the people at Nelson Mullins and look forward to keeping in touch!