Business owners in Grand Prairie, Fort Worth, Dallas, Arlington, Cedar Hill, Irving, De Soto, Duncanville, Mesquite, Garland, Carrollton, Farmers Branch, Richardson, and other places in Texas might be interested in the following case if they find themselves in a position where they are buying or selling a business.
The style of the case is, Ford Bacon & Davis, L.L.C. v. Travelers Insurance Co., et al. This case was decided on March 14, 2011, by the United States Court of Appeals for the Fifth Circuit. This is a case where one company purchased the assets of another company.
A 1996 Asset Purchase Agreement (the agreement) was between Ford, Bacon & Davis, L.L.C. (FBD LLC) and Ford, Bacon & Davis, Inc. (FBC Inc.) The agreement explicity excluded coverage relevant to this lawsuit, which is “asbestos related lawsuits.”
None the less, FBD LLC argued that Travelers had a duty to defend against the asbestos litigation.
The agreement at issue spelled out certain assets that were being purchased. It also spelled out certain assets that were not being purchased, including “all policies of insurance relating to the business or assets or any rights thereunder,” except for certain rights and claims not relevant to this litigation.
The agreement also excluded certain liabilities, including “any liability or obligation, direct or indirect, absolute or contingent, known or unknown, of FBD or any FBD subsidiary ….”
FBD LLC argued that the asbestos litigation transferred by “operation of law” regardless of what the agreement said. This arguement is valid in some states, specifically California and Washington. One of the legal “rules” here is the product-line successor liability rule.
This court got into a discussion and explanation why it did not and would not follow California and Washington law. In doing so they cited the Texas Business Organizations Code, which provides that “a person acquiring property described by this section may not be held responsible or liable for a liability or obligation of the transferring domestic entity that is not expressly assumed by the person.” This is found in Section 10.254.
The court then stated, “Therefore, because Texas, unlike California and Washington, does not follow the product-line successor liability rule, the Northern Insurance rule has no application here. Where, as here, the entity purchasing assets has expressly not assumed liability for the assets it purchased, such liability will not extend under “operation of Texas law.” Therefore, Travelers does not have a duty to defend FBD LLC, as FBD LLC is admittedly not an insured under Travelers’s policies with FBD Inc. and the policies do not extend to FBD LLC by operation of law.
In conclusion the court ruled, “FBD LLC’s purchase of assets explicitly excluded both liability for the assets relevant to this case and the insurance policies that covered those assets. Because Texas law does not permit liability to extend by “operation of law” under a product-line successor theory, neither does it permit the insurance coverage of those assets to extend by “operation of law.” We therefore affirm the ruling of the district court granting summary judgment to Travelers.”
This case is confusing, but it is also important to people who find themselves in the position of buying or selling a business.
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