14 N.Y.3d 402 (2010)
When a business is sold “subject to all debts, liabilities, and obligations connected with or attributable to such business and operations,” the buyer assumes tort liabilities arising from the business’s pre-sale activities, even if the injury occurs post-sale, unless the agreement explicitly limits such assumption.
Summary
American Standard sold its Kewanee Boiler division to OakFabco. The purchase agreement stated OakFabco would acquire the assets subject to all liabilities connected to the boiler business. Years later, tort claims arose from asbestos in boilers manufactured before the sale, with injuries occurring after the sale. American Standard sought a declaratory judgment that OakFabco assumed these liabilities. The New York Court of Appeals held that OakFabco did assume these liabilities, based on the agreement’s broad language indicating a complete transfer of the business and its associated obligations.
Facts
In 1970, American Standard, Inc. sold its Kewanee Boiler division to Kewanee Boiler Corp., now OakFabco, Inc. The asset purchase agreement stated OakFabco would acquire substantially all assets of the Kewanee Boiler business. The agreement specified that the purchase was “subject to all debts, liabilities, and obligations connected with or attributable to such business and operations.” The agreement defined “Kewanee Liabilities” as “all the debts, liabilities, obligations and commitments (fixed or contingent) connected with or attributable to Kewanee existing and outstanding at the Closing Date.” Subsequently, numerous tort claims arose due to asbestos in Kewanee boilers, with some injuries occurring after the sale but attributable to boilers manufactured and sold before the sale.
Procedural History
American Standard initiated a declaratory judgment action against OakFabco to determine liability for the asbestos-related tort claims. The Supreme Court held that OakFabco assumed these liabilities. The Appellate Division affirmed the Supreme Court’s declaration and enjoined OakFabco from relitigating the issue. OakFabco appealed, and the Court of Appeals granted leave to appeal.
Issue(s)
Whether the language in the asset purchase agreement, specifically the phrase “liabilities…existing and outstanding at the Closing Date,” includes tort claims arising from pre-sale activities where the injury occurred post-sale.
Holding
Yes, because the agreement’s intent was to transfer the entire Kewanee Boiler business and all related obligations to OakFabco, encompassing liabilities for injuries arising from boilers manufactured pre-sale, even if the injury manifested post-sale.
Court’s Reasoning
The court emphasized the agreement’s stated purpose: the sale of substantially all assets of the Kewanee Boiler business “subject to all debts, liabilities, and obligations connected with or attributable to such business and operations.” The court reasoned that this broad language indicated an intent to transfer all obligations related to the business. While OakFabco argued the phrase “liabilities . . . existing and outstanding at the Closing Date” limited their assumption, the court found this interpretation inconsistent with the overall intent of the agreement. The court distinguished this case from Grant-Howard Assoc. v General Housewares Corp., noting that the agreement in that case contained explicit limitations on the assumption of liabilities, unlike the broad transfer of obligations in this case. The court highlighted a specific clause in the agreement relating to warranty, service, repair, and return obligations, stating it would be “absurd” to interpret this clause to exclude claims arising after the closing date. This clause demonstrated the parties’ intent to cover future claims related to pre-sale products. The court concluded that OakFabco assumed liabilities for claims brought by tort claimants injured after the closing date by boilers installed before that date. However, the court vacated the Appellate Division’s injunction against OakFabco relitigating the issue, stating that parties should generally be allowed to take any position in litigation with a good-faith argument. While the court’s decision may preclude relitigation, an injunction was unnecessary.