Parent Company May Be Sued for Asbestos-Containing Products of Bankrupt Subsidiary

7/9/2012

Revised: 11/28/2012

If you think that bankruptcy protection actually prohibits future liability, think again. In the ever expanding world of asbestos-related claims, plaintiffs' attorneys are pushing the envelope again. Now, parent companies whose subsidiaries have obtained bankruptcy protection might still be liable. The Second Circuit recently upheld a ruling that asbestos plaintiffs are not barred by a preliminary injunction from suing Pfizer, Inc. for the asbestos-containing products of a bankrupt subsidiary, Quigley Co., based on the "apparent manufacturer" doctrine of liability. In re Quigley Co., 676 F.3d 45 (2d. Cir. Apr. 10, 2012). The "apparent manufacturer" doctrine of liability should be a cause of concern for decision-makers assessing a company's potential asbestos litigation liabilities for any purpose.

In 1968, Pfizer, Inc. acquired Quigley, an insulation manufacturer. Significantly, Pfizer, Inc. then changed some of the marketing materials for one of Quigley's asbestos-containing products to include the Pfizer name, logo, and trademark. Idat 47. In 2004, Quigley filed for Chapter 11 bankruptcy and, in 2007, a bankruptcy court issued a preliminary injunction in connection with the establishment of a Trust to handle present and future asbestos claims. The injunction closely tracks the language of § 524(g)(4)(A)(ii) of the Bankruptcy Code and prohibits any legal action against Pfizer arising "by reason of" its ownership of Quigley, involvement in the management of Quigley, provision of insurance to Quigley, or involvement in a transaction affecting the corporate structure or financial condition of Quigley. Id at 48.

The Angelos Law Firm filed several lawsuits in Pennsylvania state court alleging asbestos liability against Pfizer under the "apparent manufacturer" doctrine, which is that "[one] who puts out as his own product a chattel manufactured by another is subject to the same liability as though he were its manufacturer." Forry v. Gulf Oil Corp., 428 Pa. 334, 237 A.2d 593, 599 (1968), quoting the Restatement (Second) of Torts § 400 (1965). The plaintiffs argued, in pursuing their claims directly against Pfizer, that Pfizer had breached a legal duty by marketing defective products using its name and logo. The plaintiffs argued, that Pfizer's liability is independent of its subsidiary's liability and arose under the "apparent manufacturer" doctrine when Pfizer attached its own name, logo, and trademark to marketing and packaging materials. Quigley at 50. Plaintiffs further argued that because the "apparent manufacturer" doctrine does not require the plaintiff to prove that Pfizer's liability occurs "by reason of" its ownership of Quigley, the ownership is legally irrelevant. The Second Circuit agreed and held that the preliminary injunction only prevents suit where plaintiff's theory of liability arises "by reason of" Pfizer's ownership of Quigley. Id at 60.

On September 4, 2012, Pfizer petitioned the Supreme Court for certiorari. Pfizer claims that if the Second Circuit's decision is allowed to stand that it will frustrate the intent of § 524(g) of the Bankruptcy Code by discouraging corporate parents from contributing funds to bankruptcy trusts designed to compensate asbestos claimants. Pfizer further argues that Quigley would never have affixed the Pfizer name and logo to its products but for Pfizer's ownership of Quigley. The Angelos Law Firm has until December 6, 2012 to file a response.

Parent companies whose names, logos, or trademarks were used in the marketing and packaging materials of their subsidiaries' asbestos products should be concerned whether or not they have subsidiaries who have filed for reorganization in the Second Circuit. Some states interpret the "apparent manufacturer" theory of liability quite broadly, and some even apply it to non-selling entities outside of the distribution chain.

Governo Law Firm LLC has defended asbestos litigation for over three decades and currently represents over 50 companies sued in asbestos litigation both in New England and across the country. We are a member of a specialty asbestos group www.alragroup.com which assists companies assessing potential asbestos liability arising from prior business or from mergers and acquisitions. Many companies have had some connection to asbestos which previously was used in thousands of products in virtually every aspect of our lives. In a proposed merger or acquisition, it is crucial to identify and analyze latent asbestos liability. The attorneys in our Asbestos Liability Risk Analysis Group are experts in this process. Please contact David Governo at dgoverno@governo.com or Chuck Sheehan atcsheehan@governo.com or call (617) 737-9045 if you have questions or would like additional information.


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