Chapter 9-13 Liability of Successor for Tortious Conduct of Predecessor

• Jurisdiction: United States

9-13 Liability of Successor for Tortious Conduct of Predecessor

9-13:1 Overview

The form of an entity takeover will generally dictate whether a successor entity is liable for the tortious conduct of its predecessor. In Texas, an entity takeover may occur through merger, share exchange, conversion or sale of the entity's assets.⁶⁴ When an entity merges,⁶⁵ executes a share exchange⁶⁶ or converts,⁶⁷ all of the predecessor's liabilities are allocated to the surviving or new entities.

MUST READ CASE

Lockheed Martin Corp. v. Gordon, 16 S.W.3d 127 (Tex. App.—Houston [1st Dist.] 2000, pet. denied)

9-13:2 Expressly Rejected in Texas

When an entity purchases property from a predecessor entity, the general rule is that the successor assumes none of the predecessor's liabilities⁶⁸ unless the successor expressly assumes the predecessor's liabilities.⁶⁹ A successor's assumption of the predecessor's tort liability must expressly include the words "tort liability."⁷⁰

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Notes:

^[64] Tex. Bus. Orgs. Code Ann. §§ 10.001-10.254.

^[65] Tex. Bus. Orgs. Code Ann. § 10.008(a)(3).

^[66] Tex. Bus. Orgs. Code Ann. § 10.055.

^[67] Tex. Bus. Orgs. Code Ann. § 10.106.

^[68] Tex. Bus. Orgs. Code Ann. § 10.254.

^[69] Lockheed Martin Corp. v. Gordon, 16 S.W.3d 127, 139 (Tex. App.—Houston [1st Dist.] 2000, pet. denied). In contrast, other jurisdictions have a more permissive approach to successor liability. See Lockheed Martin Corp. v. Gordon, 16 S.W.3d 127, 134 (Tex. App.—Houston [1st Dist.] 2000, pet. denied) (quoting the four exceptions recognized in the Restatement (Third) of the Law of Torts, Products Liability § 12 (1998)).

^[70] Lockheed Martin Corp. v. Gordon, 16 S.W.3d 127, 139-40 (Tex. App.—Houston [1st Dist.] 2000, pet. denied) (holding that a purchase agreement's assumption of "ordinary course of business" liabilities and obligations does not include tort liabilities).