Possibility of Successor Liability Enough to Defeat Diversity Jurisdiction U.S. District Court, Eastern District of Pennsylvania, June 28, 2017

The plaintiffs alleged Maynard Herman contracted mesothelioma due to occupational asbestos exposure. Defendants removed on the basis of diversity, and the plaintiffs moved to remand. The court granted the remand.

The defendants argued that defendant Ametek, Inc., although a citizen of Pennsylvania, was fraudulently joined to defeat diversity. The plaintiffs argued Ametek was not fraudulently joined because it was the successor for Mr. Herman’s exposure to asbestos products made by Haveg Industries. The plaintiffs acknowledged that when Ametek purchased Haveg, the agreement facially concerned only the purchase of Haveg’s assets. However, the plaintiffs correctly asserted that there were several recognized exceptions that could create successor liability for Ametek.

Courts consider four factors in determining whether a transaction was a de facto merger or a mere continuation of the general business operation. These include: (1) the existence of some sort of proof of continuity of ownership or stockholder interest; (2) the cessation of the ordinary business by, and dissolution of, the predecessor; (3) the assumption by the successor of the obligations or liabilities ordinarily necessary for the uninterrupted continuation of the business; and (4) a continuity of the management, personnel, physical location, and the general business operation. All four need not exist to find successor liability.

Here, the plaintiffs produced some proof of continuity of ownership between Ametek and Haveg. Although unclear in what capacity, Haveg continued to exist. Regarding the third factor, Ametek did assume all of Haveg’s accounts payable, its rights and obligations under existing contracts, its related purchase and sales orders, and its obligations regarding salary payments and vacation time for retained employees. “The aforementioned obligations are exactly the type which the Pennsylvania Supreme Court indicated would allow the continuation of business and could meet this prong.” Finally, the defendants raised no real argument that the fourth factor was not met. Thus, construing all arguments against removal and resolving all doubts in favor of remand, the court concluded that defendants did not meet their heavy burden of establishing that the plaintiffs’ claim of successor liability had no reasonable basis.

Read the full decision here.


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