Nissen Corp. v. Miller
323 Md. 613, 60 U.S.L.W. 2169, 594 A.2d 564 (1991)
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Rule of Law:
A corporation that purchases the assets of another is not liable for the torts of the predecessor corporation, unless: 1) there is an express or implied assumption of liability; 2) the transaction is a de facto merger or consolidation; 3) the successor is a mere continuation of the predecessor; or 4) the transaction is fraudulent. Maryland law does not recognize an additional 'continuity of enterprise' exception to this rule in products liability cases.
Facts:
- On January 31, 1981, Frederick B. Brandt purchased a treadmill from Atlantic Fitness Products.
- The treadmill was designed, manufactured, and marketed by American Tredex Corporation.
- On July 31, 1981, Nissen Corporation entered into an asset purchase agreement with American Tredex, acquiring its trade name, patents, and inventory.
- The agreement expressly excluded Nissen's assumption of liability for injuries arising from any product previously sold by American Tredex.
- The agreement required American Tredex to continue in existence for five years under the new name AT Corporation.
- After the purchase, Nissen continued the treadmill business, hired some former American Tredex employees, and sold replacement parts for older models.
- On October 18, 1986, Brandt was injured while using the treadmill.
- On December 31, 1987, AT Corporation (formerly American Tredex) was administratively dissolved.
Procedural Posture:
- Frederick Brandt and his wife filed suit against Nissen and others in the Circuit Court for Baltimore City (trial court).
- Nissen filed a motion for summary judgment, which the trial court granted.
- Brandt and co-defendant Atlantic (as appellants) appealed to the Court of Special Appeals (intermediate appellate court).
- The Court of Special Appeals reversed the trial court's grant of summary judgment.
- Nissen (as petitioner) appealed to the Court of Appeals of Maryland (the state's highest court), which granted a writ of certiorari.
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Issue:
Does Maryland law recognize a 'continuity of enterprise' exception to the general rule of corporate successor nonliability in products liability cases?
Opinions:
Majority - Chasanow, J.
No. Maryland law does not recognize a 'continuity of enterprise' exception and adheres to the traditional rule of corporate successor nonliability with its four established exceptions. The court reasoned that Maryland’s adoption of strict liability in tort did not abandon the fundamental concept of fault. A successor corporation, which did not manufacture, sell, or place the defective product into the stream of commerce, is not at fault and bears no causal relationship to the plaintiff's injury. Imposing liability on a successor based merely on the continuation of the predecessor's business operations would be patently unfair, especially to smaller businesses, and would penalize socially valuable actions like continuing customer service for old products. The court reviewed and rejected the reasoning of the minority of jurisdictions that have adopted the continuity of enterprise theory, choosing instead to align with the majority that upholds traditional principles of corporate law, which promote the free alienability of assets.
Dissenting - Eldridge and Hinkel, JJ.
Yes. While agreeing with the adoption of the general rule and its four traditional exceptions, the dissent would also adopt a fifth exception for 'continuity of enterprise' in cases involving defective products.
Analysis:
This decision firmly establishes Maryland as a jurisdiction that follows the traditional, more restrictive rule of corporate successor liability. It prioritizes the predictability and stability of corporate transactions and the free alienability of assets over the products liability policy of ensuring a remedy for injured consumers. By rejecting the 'continuity of enterprise' exception, the court reinforces that Maryland's strict liability doctrine remains rooted in fault, making it significantly harder for plaintiffs to recover from a successor corporation for harms caused by a predecessor's products when the predecessor is no longer a viable entity. The ruling provides clarity and protection for corporations acquiring assets, as they are shielded from the unassumed tort liabilities of the seller so long as the transaction does not fall into one of the four narrow, traditional exceptions.
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