Sixth Circuit Limits Successor Liability For Product Defects

When one company acquires another, the “successor” company is not automatically responsible for warning purchasers regarding alleged defects in products previously  sold by its predecessor.  In Holland v. FCA US LLC, the Sixth Circuit affirmed the district court’s grant of a motion for judgment on the pleadings in favor of a successor to an automobile manufacturer whose 2004-2005 vehicles were allegedly prone to premature rust and corrosion.

The court’s  holding that plaintiffs had failed to allege a sufficient “economic relationship” or any other assumption of a duty to warn by the successor. Among other things, the court rejected the plaintiffs’ attempt to hold the successor corporation liable under a failure-to-warn theory where the damages were purely economic—costs of repair to the vehicles themselves—pointing out that the costs were “the result of the defect, not [the defendant-successor’s] failure to warn.”  A post-succession warning by the defendant would have done nothing to avert any alleged premature rust or corrosion.  Thus, there was no need to reach the question of whether the successor knew of the defect or whether, under Ohio law, such knowledge would have been sufficient to impose a duty to warn.

This decision provides helpful additional guidance for those contemplating mergers and acquisitions of product manufacturers.