“Illinois courts have recognized a limited cause of action against the purchaser of a product line for failing to warn of defects in its predecessor's products.” Caballero, 2003 WL 22053629, at *8 (citing Kaleta v. Whittaker Corp., 221 Ill.App.3d 705, 715, 164 Ill.Dec. 651, 583 N.E.2d 567 (1991) and Gonzalez v. Rock Wool Eng'g and Equip. Co., Inc., 117 Ill.App.3d 435, 438, 72 Ill.Dec. 917, 453 N.E.2d 792 (Ill.App.Ct.1983)). “[T]he critical element required for the imposition of this duty is a continuing relationship between the successor and the predecessor's customers benefitting the successor.”
To determine the presence of a nexus or relationship effective to create a duty to warn, the following factors have been considered: (1) the succession to a predecessor's service contracts; (2) coverage of the particular machine under a service contract; (3) service of that machine by the purchaser corporation; and (4) a purchaser corporation's knowledge of defects and the location or owner of that machine. Gonzalez v. Rock Wool Eng'g & Equip. Co., 117 Ill.App.3d 435, 72 Ill.Dec. 917, 453 N.E.2d 792, 795 (1983); see also Kaleta v. Whittaker Corp., 221 Ill.App.3d 705, 164 Ill.Dec. 651, 583 N.E.2d 567, 574 (1991). “[T]he critical element required for the imposition of this duty is a continuing relationship between the successor and the predecessor's customers benefiting the successor.”
Illinois courts have recognized a limited cause of action against the purchaser of a product line for failing to warn of defects in its predecessor's products. See Kaleta v. Whittaker Corp., 221 Ill. App.3d 705, 715 (1991) ( Kaleta); Gonzalez v. Rock Wool Eng. Equip. Co., 117 Ill. App.3d 435, 438 (1983) ( Gonzalez). The critical element required for imposition of such a duty is a continuing relationship between the successor and the predecessor's customers benefitting the successor. See Gonzalez, 117 Ill. App.3d at 438.
But when a corporation merely purchases the assets of another corporation, the purchasing corporation is not liable for the debts and liabilities of the selling corporation by reason of its succession. Kaleta v. Whittaker Corp., 221 Ill. App.3d 705, 708-09, 583 N.E.2d 567 (1991). But a purchasing corporation will be liable if the plaintiff establishes that the purchase amounts to a de facto merger.
In Illinois, "`[t]he purpose of strict liability in tort is to place the loss caused by defective products on those who create the risk and reap the profit by placing such products in the stream of commerce, regardless of whether the defect was caused by "negligence" on the part of the manufacturer.'" Kaleta v. Whittaker Corp., 221 Ill. App. 3d 705, 713 (1991), quoting Johnson v. Marshall Huschart Machinery Co., 66 Ill. App. 3d 766, 769 (1978). There is a threefold rationale underlying strict liability in tort: (1) that the demands of our public interest in human life and safety require the implementation of broad protection against the sale of products that are defective; (2) that manufacturers represent that their product is safe and suitable and solicit and invite the public to use the product; and (3) that the business that reaps profits by placing the defectively dangerous product into the stream of commerce should bear the losses.
) There exist four exceptions to this general rule: (1) where there is an express or implied agreement of assumption; (2) where the transaction amounts to a consolidation or merger of the purchaser or seller corporation; (3) where the purchaser is merely a continuation of the seller; or (4) where the transaction is for the fraudulent purpose of escaping liability for the seller's obligations. (Kaleta v. Whittaker Corp. (1991), 221 Ill.App.3d 705, 164 Ill.Dec. 651, 583 N.E.2d 567; Hernandez v. Johnson Press, 70 Ill.App.3d at 667, 26 Ill.Dec. 777, 388 N.E.2d 778.) The second exception has been interpreted to include a de facto merger.
Compare Wilson v. Fare Well Corp., 140 N.J.Super. 476, 356 A.2d 458, 461 (1976) (imposing successor liability where stock comprises less than half of purchase price), with McKee v. Harris-Seybold Co., 109 N.J.Super. 555, 264 A.2d 98, 104 (1970) (no continuity of ownership in mixed cash/stock transaction).Compare Cargill, Inc. v. Beaver Coal Oil Co., Inc., 424 Mass. 356, 361, 676 N.E.2d 815 (1997) (Massachusetts law) (finding continuity of ownership where seller receives 12.5% stake in acquiring company), and Glynwed, Inc. v. Plastimatic Inc., 869 F.Supp. 265, 277 (D.N.J. 1994) (New Jersey law) ("continuity of ownership, not uniformity, is the test"), with Savage Arms, 18 P.3d at 58 (Alaska 2001) (noting that percentage of shares owned is an "important fact"), and Kaleta v. Whittaker Corp., 221 Ill.App.3d 705, 164 Ill.Dec. 651, 583 N.E.2d 567, 571 (1991) (finding no continuity of ownership where seller received a "de minimis" .00037% stake in buyer). A more uniform and predictable federal liability standard corresponds with specific CERCLA objectives by encouraging settlements and facilitating a more liquid market in corporate and "brownfield" assets.
The "products line" exception can apply in Illinois courts only through the choice of foreign law. On numerous occasions, Illinois courts have specifically declined to make the "product line" exception part of Illinois law, and they have therefore declined to apply it to tort claims governed by Illinois law. See, e.g., Myers v. Putzmeister, Inc., 232 Ill.App.3d 419, 173 Ill.Dec. 130, 133-134, 596 N.E.2d 754, 757-58 (1992); Kaleta v. Whittaker Corp., 221 Ill.App.3d 705, 164 Ill.Dec. 651, 657, 583 N.E.2d 567, 573 (1991); Gonzalez v. Rock Wool Eng'g Equip. Co., Inc., 117 Ill.App.3d 435, 72 Ill.Dec. 917, 921, 453 N.E.2d 792, 796 (1 Dist. 1983); Nguyen v. Johnson Mach. Press, 104 Ill.App.3d 1141, 60 Ill.Dec. 866, 868-69, 433 N.E.2d 1104, 1106-07 (1 Dist. 1982); Domine v. Fulton Iron Works, 76 Ill.App.3d 253, 32 Ill.Dec. 72, 76, 395 N.E.2d 19, 23 (1 Dist. 1979); Hernandez, 26 Ill.Dec. at 780-81, 388 N.E.2d at 781-82. Illinois courts have not, however, specifically decided whether they would apply the "products line" exception to an issue governed by the law of a state which accepted that exception.
Once "a merger is established, the successor corporation takes on the obligations and liabilities under the insurance policies." Knoll Pharm. Co. v. Auto. Ins. Co., 167 F. Supp. 2d 1004, 1010 (N.D. Ill. 2001); see also Kaleta v. Whittaker Corp., 221 Ill.App.3d 705, 164 Ill.Dec. 651, 583 N.E.2d 567, 570 (1991) (noting that "the general rule is that a corporation that merges with another corporation takes on the latter corporation's obligations and liabilities"); accord Cont'l Ins. Co. v. Daikin Applied Americas Inc., 998 F.3d 356, 361 (8th Cir. 2021) (noting that, under Minnesota law, "a surviving corporation may assert claims under insurance policies issued to an acquired company for pre-merger liabilities of the acquired company, even though the survivor was not named on the policy.") (quotation omitted).
Union Pacific cites cases that state that the purchasing corporation must buy the selling corporation's assets with shares of stock so that the seller becomes a constituent part of the purchasing corporation. E.g., Myers, 596 N.E.2d at 756; Kaleta v. Whittaker Corp., 583 N.E.2d 567, 570-71(Ill. App. 1st Dist. 1991).