It has long been assumed that a “cash only/assets only” corporate purchase absolves the purchasing company of the pre-existing liabilities of the purchased. This rule has been called into question in the case of Schmidt v. Boardman (PICS No. 08-1474 (Pa. Super. 2008). In Schmidt, Boardman was a fire truck manufacturer. As the apparent result of a design defect, a fire hose on the truck became loose during operation, flew into the air and set in motion a chain of events that led to the death of a young girl along with various other injuries to other parties. Sinar Manufacturing bought Boardman after the accident and the question that ultimately arose before the jury was – was Sinar responsible for Boardman’s liabilities? The jury answered in the affirmative (thereby holding that the product line exception applied) and Sinar appealed.
On appeal, the Superior Court affirmed the jury’s finding. The Court applied the so-called Ramirez test and held that when a corporation “acquires all or substantially all the manufacturing assets of another corporation, even if exclusively for cash, and undertakes essentially the same manufacturing operation”, it is “strictly liable” for injuries caused by defective units of the same product line, even if they were manufactured and distributed before the acquisition was made. The Superior Court also affirmed its Hill ruling that incorporated a California rule and held that for the product line exception to apply, three factors must be present: (1) the preclusion of the plaintiff’s remedies against the original manufacturer caused by the successor’s acquisition of it; (2) the successor’s ability to inherit the original manufacturer’s risk-spreading role; and (3) the fairness of requiring the successor to assume responsibility for the previous corporation’s defective products.