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From Products Liability Law Daily, February 8, 2018

Successor to manufacturer of hip replacement system not covered by product line exception

By Kathleen Bianco, J.D.

An entity that acquired substantially all of a manufacturer’s assets associated with the production of a hip replacement system was not liable as a successor to the original manufacturer for product liability claims arising from alleged defects in the system, a federal district court in the state of Washington held in a decision granting the purchasing company’s motion for summary judgment. In reaching this conclusion, the court determined that there was no evidence to support application of the product line exception to the general rule of successor corporation non-liability (Gentle v. Portland Orthopaedics, February 7, 2018, Peterson, R.).

In January 2009, the patient received an M-Cor Modular Hip System during a hip replacement surgery. At some later time, the patient and his wife filed a product liability action against various manufacturers and sellers of the hip replacement system alleging claims of negligence, breach of warranty, negligent misrepresentation, and fraud. Three of the defendants, Mirpo US, Inc., Maxx Orthopedics, Inc., and Maxx Health Inc, filed motions for summary judgment, arguing that they were not liable under any successor liability theory. The patient and his wife conceded that Maxx Orthopedics, Inc. and Maxx Health Inc. were not liable for their injuries and damages, but argued that Mirpo US was subject to liability under the product line liability rule, which is an exception to the general rule that a purchaser of a company’s assets does not, by reason of the purchase, become liable for the debts and liabilities of the seller under Washington law.

Corporate structure. The hip implant at issue was designed and manufactured by Portland Orthopaedics Ltd, which entered into receivership in December 2008. The Singapore parent of Mipro, US purchased the M-Cor product line and other items related to the product. Later, the Singapore parent entered into a subsidiary agreement with Mipro US pursuant to which the latter became the spec manufacturer of record for the M-Cor Hip System product line in the United States from April 2009 until December 2015.

Successor liability. Upon review of Washington law, the court found that successor liability did not apply to liability arising out of the patient’s claims. The court noted that there are four common-law exceptions whereby successor liability is assumed: (1) the successor corporation either expressly or impliedly agrees to assume the predecessor’s liabilities; (2) the transaction is a de facto merger; (3) the successor may be considered a mere continuation of the predecessor; or, (4) the transaction is fraudulent. While none of the four traditional exceptions apply to Mipro, Washington recognized another exception related to the production of a predecessor’s product line.

The Washington Supreme Court found in Martin v. Abbott Laboratories, 102 Wash.2d 581, 609 (1984) that this traditional rule of non-liability and the four exceptions to it failed to prevent inequitable results in products liability cases—i.e., products liability plaintiffs were left without remedy. Therefore, the Washington high court adopted another exception to the rule of non-liability—the "product line" exception—specifically to protect products liability plaintiffs. Under this exception, a transferee will assume the liabilities of the transferor if it: (1) has acquired substantially all the transferor’s assets, leaving no more than a mere corporate shell; (2) is holding itself out to the general public as a continuation of the transferor by producing the same product line under a similar name; and (3) is benefitting from the goodwill of the transferor. The policy justifications for the exception necessitated the transfer of substantially all of the predecessor’s assets to the successor corporation as a prerequisite to imposing liability on the successor.

Product line exception. After reviewing the evidence and arguments presented by the parties, the court found that the product line exception was not applicable to the case at hand. First of all, the court determined that in order to assert product line liability, the patient was required to show that he had no remedy via the predecessor corporation and that the successor corporation contributed to the unavailability of the predecessor corporation as a remedy source. The court opined that the patient failed to establish the required causation element. Nonetheless, the court held that even if the patient had shown causation, the successor corporation had acquired only one single product line and not all or substantially all of the predecessor company’s assets. Finally, the court concluded that the successor entity had not benefitted from the goodwill of the predecessor. Based on the evidence, the court held that the patient had failed to demonstrate the essential elements needed to invoke product line liability. Consequently, the alleged successor entity was entitled to summary judgment.

The case is No. 2:16-CV-121-RMP.

Attorneys: Patrick K. Fannin (Patrick K. Fannin, Attorney at Law) for Travis Gentle. Jeffrey Singer (Segal McCambridge Singer & Mahoney Ltd.) for Symmetry Medical Inc. d/b/a Symmetry Medical Othy.

Companies: Portland Orthopaedics Ltd.; Portland Orthopaedics Inc.; Symmetry Medical Inc. d/b/a Symmetry Medical Othy

MainStory: TopStory SCLIssuesNews MedicalDevicesNews WashingtonNews

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