On April 5, the Court of Appeals for the Eighth Circuit wiped out a jury verdict in a products liability action and $13 million punitive damages award against a manufacturer and its wholly owned subsidiary on the basis that the parent company manufacturer could assert a successor liability defense. The 8th Circuit ruling, which rightfully reinforced the bedrock principle that parent companies are not responsible for the liabilities of their subsidiaries, provides some valuable lessons for corporations that acquire other companies with potential (or known) liabilities. Of vital importance to this ruling was the manner in which the parent company had publicly described its acquisition in other litigation.
Kirk v. Schaeffler Group USA, Inc., No. 16-3417, 2018 WL 1630005 (8th Cir. Apr. 5, 2018) involves FAG Bearings Corporation, a designer and manufacturer of precision ball and roller bearings that has a production facility in Joplin, Missouri. From 1973 to 1982, FAG Bearings released thousands of gallons of trichloroethylene (TCE), a hazardous substance, at its facility. The EPA ultimately discovered the TCE dumping and litigation determined that FAG Bearings was solely responsible for the TCE contamination in nearby communities. In 2005, Schaeffler Group USA (“Schaeffler”), a large corporation that engineers, produces, sells, and markets rolling and plain bearings, among other products, acquired FAG Bearings and its facility. The plaintiff in Kirk was born in 1987 in one of the communities contaminated by TCE and was subsequently diagnosed with autoimmune hepatitis, which she claims resulted from defendants’ negligent release of TCE.
Now, of course, in most jurisdictions and under most circumstances, the successor liability defense bars claims that arise as a result of a predecessor’s defective product, so it would seem that Schaeffler was in the clear. Schaeffler acquired FAG Bearings Corporation and converted the company to FAG Bearings, LLC as a wholly owned subsidiary. Despite this, the district court denied summary judgment and the ensuing jury trial resulted in punitive damages imposed jointly against Schaeffler and FAG Bearings, LLC because plaintiff argued that FAG Bearings Corporation merged with Schaeffler. Read more ›