An asset purchase limited to one division of the seller doesn’t include liabilities stemming from products made before the division became an entity separate from the rests of the seller’s business.
Wisconsin Court of Appeals Judge Joan F. Kessler wrote for the court, “We find no provision in the Agreement by which [the buyer] assumed liability for products [the seller] manufactured and sold prior to the creation of the division.”
Generac Power Systems Inc. originally manufactured only large generators. In the early 1960s, it began adding portable generators and other portable products to its product line. In early 1997, Generac created a Portable Products Division with the intent of selling it. In 1998, it did sell the division to GPPC Inc., which in turn sold it to Briggs and Stratton Corp. in 2001.
The asset purchase agreement between Generac and GPPC (which the parties agreed is binding on Briggs), provided that the buyer agreed to assume the liabilities that relate to the “Division,” which is consistently defined in the agreement as Generac’s Portable Pro-ducts Division.
In 2005, a product liability action was filed against Generac in Alabama federal court, alleging that a portable gas generator made in 1992 was defective.
Generac tendered its defense to Briggs, but Briggs declined to accept the defense. Instead, Briggs filed suit in Wisconsin state court, seeking a declaration that it was not liable.
The circuit court granted the declaration, and on Feb. 8, the Court of Appeals affirmed.
The court began by setting forth the general rule that a corporation which purchases the assets of another corporation does not succeed to its liabilities An exception exists when the purchasing corporation expressly or implicitly agrees to assume that liability.
In light of the agreement’s consistent use of “Division,” and the definition of that term in the agreement limiting it to the Portable Products Division, the court held that Briggs could not be held liable for liabilities arising from a product made before the division was created.
The court explained: “Because the Division did not exist until Jan. 1, 1997, Generac could not have owned or operated the Division before that time. The Closing Date identified in the Agreement is June 30, 1998. Thus the Assumed Liabilities for which Briggs agreed to be responsible must relate to Generac’s ownership or operation of the Division between Jan. 1, 1997 and June 30, 1998.”
David Ziemer can be reached at firstname.lastname@example.org
What the court held
Issues: Is a corporation that purchases a division of another corporation responsible for unknown liabilities arising from products made before the division was created?
Holdings: No. Where the asset purchase agreement narrowly defined the division of the corporation being sold, the buyer cannot be liable for products not made by that division.
Attorneys: For Plaintiff: Donald H. Carlson, J. Timothy Maciolek, Milwaukee; For Defendant: Christopher Banaszak, Robert S. Driscoll, Milwaukee