Liability for Lifetime Warranty
This post follows on the earlier posts by merb64 and TheLawMan, both dated 1/21/10. The topic is the “lifetime warranty” on vinyl residential windows manufactured by Traco.
Traco, based in Cranberry Township outside Pittsburgh, manufactured residential vinyl windows at its Red Oak, Iowa facility until late 2008, when it sold its residential window lines to a company called Echo Windows, LLC. According to Traco, the Red Oak plant and all of Traco’s residential window manufacturing equipment, assets, and records were transferred to Echo. Traco, which remained in business to manufacture its commercial aluminum window lines, was subsequently acquired by Alcoa in 2010 and now operates as a division of Kawneer North America, a subsidiary of Alcoa.
Echo collapsed in early 2009, a few months after its creation. MGM Industries, Inc., stepped in to purchase some (but not all) of the window lines that Echo had acquired from Traco, and immediately moved the associated manufacturing equipment from Iowa to MGM’s home facility in Hendersonville, TN. MGM announced that, for a limited period of time, it would honor warranty claims on Traco residential windows in the lines that MGM had purchased. That period ended in April 2011.
The question is whether anyone is legally responsible at this point for honoring the lifetime warranty on windows manufactured by Traco prior to the Echo transaction. I found the following on-line article, which discusses the issue of a successor’s legal obligations in the context of product liability claims: http://www.hg.org/articles/article_1725.html I believe that the same principles would apply to warranty claims.
As described in the article, the basic rule is that a company acquiring the assets of another company through sale or transfer is not responsible for the selling company's debts and liabilities. There are four widely-accepted exceptions to this rule; specifically where:
(1) the acquiring entity agrees to assume the debts and liabilities of the selling entity,
(2) the selling entity is merged or consolidated into the acquiring entity,
(3) the acquiring entity is a “mere continuation” of the selling entity (ordinarily meaning that there is at least partial overlap between the new and old business owners, plus continuity of management, personnel, physical location, assets, and general business operations), or
(4) the transaction is a fraudulent scheme designed to evade liability.
None of these exceptions applies to hold MGM liable. The sale of Traco’s residential window lines to Echo may have involved a commitment by Echo to honor Traco’s warranties, but Echo no longer exists. Apparently, MGM did not accept any warranty obligations from Echo, and MGM’s temporary policy of honoring Traco warranties was voluntary on MGM’s part.
Usually, a company that sells its assets to another firm then goes out of business. If the purchaser has agreed to assume the seller’s warranty obligations, the purchaser is obviously on the hook. If, however, the purchaser does not assume any warranty obligations, then – unless the fraudulent conveyance exception applies -- the selling firm’s customers are left holding the bag because the original firm no longer exists. (The same fate awaits the customers if the original firm simply goes bankrupt and disappears.) The question that remains here is what the law has to say about situations where the original firm (like Traco) is still in business. Is there any precedent for holding Traco liable for warranty claims in such circumstances?
