A significant portion of Maryland personal injury lawsuits are filed against corporations. One issue that frequently comes up when discussing the potential liability of a corporate defendant is how the sale of business assets impacts a business’ exposure to liability. Successor liability is the legal term used to describe this concept.
When discussing successor liability, it is helpful to understand a few terms. The purchasing corporation is referred to as the successor company, and the selling corporation is referred to as the predecessor company. Under Maryland law, when a company buys the assets of another company, the successor company is not liable for the predecessor’s liabilities. However, there are four exceptions to this general rule:
- If there is an express assumption of liability in the articles of transfer;
- The transaction is a consolidation or a merger;
- The successor company is a mere continuation of the predecessor company; and
- The transaction was fraudulently entered into solely for the purposes of avoiding debt.
Thus, if a plaintiff hopes to name a successor company in a Maryland personal injury lawsuit, they must establish one of the above exceptions. Each exception is described in more detail below.
An Express Assumption of Liability
When a company is sold, the parties will often generate a document called the “articles of transfer.” As of 2018, this document is not required; however, it is still commonly used. An articles of transfer document explains the transaction in short form. Often, this document will discuss whether the successor company will inherit any potential liability of the predecessor company. If there are no articles of transfer, courts will look to the sales agreement to see if there is any mention of the transfer of liabilities.
- Consolidation or Merger: If the transaction amounts to a consolidation or merger between the two companies, the liabilities of the predecessor company will carry over to the successor company. In these cases, the successor company will take on “all debts and obligations” of the predecessor company.
- Mere Continuation: One of the most commonly cited exceptions, the mere continuation exception results in the transfer of liability to the successor company when the successor company is “substantially the same” as the predecessor company. For example, a sale may be a mere continuation if the successor company retains the same management as the predecessor company.
- Fraudulent Transaction: Courts engage in a fact-specific analysis of the transaction to determine whether the sale was solely for the purposes of avoided debt obligations. If so, the successor company will not be protected from the predecessor company’s liabilities.
Determining whether a successor company retains any of the predecessor company’s liabilities is a complex legal task. Anyone considering a personal injury case involving successor liability should consult with a dedicated Maryland injury attorney for assistance.
Contact an Experienced Maryland Personal Injury Lawyer
If you or someone you love has recently been injured in a Maryland personal injury accident involving a corporate defendant, and you believe that there may be issues involving successor liability, or you are unsure which parties should be named as defendants, contact the law firm of Lebowitz & Mzhen, LLC. At Lebowitz & Mzhen, we represent accident victims in all types of injury claims, including Maryland car accidents and product liability claims. To learn more about how we can help you and your family obtain the compensation you deserve, call 410-654-3600 today.