THE LEGAL ENVIRONMENT DIMENSION

Generally, a corporation that purchases the assets of another is not automatically responsible for the liabilities of the selling corporation, with some exceptions. Which exception applied to this case? Explain.

American Standard, Inc., sold its Kewanee Boiler division to OakFabco, Inc. The parties’ agreement stated that OakFabco would purchase Kewanee assets subject to Kewanee liabilities. The phrase Kewanee liabilities was defined as “all the debts, liabilities, obligations, and commitments (fixed or contingent) connected with or attributable to Kewanee existing and outstanding at the Closing Date.” The boilers manufactured by Kewanee had been insulated with asbestos, and as a result, many tort claims were brought in the years and decades following the purchase of the business. Some of those claims were brought by plaintiffs who had suffered injuries after the closing of the transaction, allegedly attributable to boilers manufactured and sold before the closing. American Standard brought an action against OakFabco, asking the court for a declaratory judgment on the issue of whether liabilities for such injuries were among the Kewanee liabilities that OakFabco assumed. The trial court entered a declaratory judgment holding that OakFabco had assumed the liabilities. An intermediate appellate court affirmed the trial court’s ruling, and OakFabco appealed to New York’s highest court, the New York Court of Appeals.