In the course of her employment as a machine operator, Lori Ann Nilsson was inju
ID: 387307 • Letter: I
Question
In the course of her employment as a machine operator, Lori Ann Nilsson was injured by a pipe and tube cutoff machine. This machine had been manufactured and sold by Continental Machine Co. before 1978.
In 1986, Fredor Corp. purchased all of the production assets of Continental, including the pipe and tube machine product line. Fredor then formed Continental Machine Manufacturing Co. (CMM). The assets purchased from Continental were transferred to CMM, and CMM's product lines were the same as Continental's had been. The shareholders of Continental did not become shareholders, officers, or employees of Fredor or CMM. Most of the employees of Continental became employees of CMM, however. There was no evidence that the transaction was undertaken for a fraudulent purpose, nor did Fredor or CMM agree to assume Continental's liabilities.
After the sale of assets, Continental continued to exist, but it had no productive assets. Continental continued to own the building in which the assets were located and leased that same building to CMM. Nilsson brought a product liability lawsuit against CMM. CMM claimed that it had merely purchased Continental's assets and had not assumed its liabilities.
Was CMM liable for Nilsson's injuries? Why or why not?
a. Yes. The court most likely held that CMM was liable for Nilsson's injuries, because Continental's employees became CMM employees. b. Yes. The court most likely held that CMM was liable for Nilsson's injuries, because CMM's purchase of Continental's assets constituted a de facto merger. c. No. The court most likely held that CMM was not liable for Nilsson's injuries, because there was a de jure corporation. d. No. The court most likely held that CMM was not liable for Nilsson's injuries, because there was no continuity of ownership between Continental and CMM.Explanation / Answer
b. Yes. The court most likely held that CMM was liable for Nilsson's injuries, because CMM's purchase of Continental's assets constituted a de facto merger.
In this case it is a de facto merger in which the assets and voting stocks are acquired by CMM and therefore they may have to be liable for the injuries caused by their assets.