Does liability transfer when a compan...

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Author Message David G. Axt, CDT, CCS, CSI, SCIP Senior Member Username: david_axt Post Number: 2099 Registered: 03-2002 Posted on Friday, December 06, 2024 - 12:58 pm:    Let's say that ABC Architecture gets bought up by XYZ Architecture. Sometime later, one of the buildings that ABC designed has problems due to many things, including poor design/detailing. Since XYZ bought up ABC, does XYZ now have liability for the issues that ABC made? David G. Axt, CDT, CCS, CSI, SCIP Specifications Consultant Axt Consulting LLC Jeffrey Potter Senior Member Username: jpotter Post Number: 51 Registered: 02-2017 Posted on Saturday, December 07, 2024 - 12:30 am:    Thats a great question! I would think two things and I could be wrong but: 1. Yes, XYZ assumes the liability if its within the States statute of limitations for liability (California is 7 years). 2. The Architect of Record and Engineer of Record is also responsible even if they are no longer with the XYZ firm. Having a conversation with ChatGPT: 1. Type of Acquisition Asset Purchase: If XYZ only purchased specific assets of ABC (e.g., equipment, intellectual property, or brand name) and not the company itself, liability for ABC's past work may not transfer to XYZ unless explicitly agreed upon. Stock Purchase or Merger: If XYZ acquired ABC by purchasing its stock or through a merger, XYZ usually assumes ABC's liabilities, including legal and financial obligations stemming from prior projects. 2. Contractual Agreements The acquisition agreement often details whether liabilities are transferred. Key considerations include: Were liabilities for past projects explicitly excluded or included in the purchase agreement? Does the contract have indemnification clauses that protect XYZ from ABC's past liabilities? 3. Professional Liability Insurance ABC's Insurance: ABC's professional liability (errors and omissions) insurance may still cover claims arising from projects completed while ABC was operational. XYZ's Insurance: After the acquisition, XYZ may need to ensure that their insurance policy accounts for legacy liabilities, especially for claims against work completed by ABC. 4. Statutes of Limitation or Repose Limitation: The time frame during which a claim can be filed may affect liability. Repose: Some jurisdictions have a statute of repose that prevents claims after a certain period, regardless of when the problem was discovered. 5. State Laws Laws governing liability in corporate acquisitions vary by jurisdiction. Some states have exceptions that could shield XYZ from ABC's liabilities unless there is continuity in operations or explicit assumption of liabilities. 6. Continuation of Operations If XYZ operates as a direct continuation of ABC (e.g., keeping the same branding, employees, and client contracts), courts might determine that XYZ has effectively inherited ABC's liabilities. Likely Outcome: If XYZ merged with or acquired ABC in a way that explicitly included liabilities or constitutes a continuation of operations, XYZ would likely be held liable for the design issues. If XYZ explicitly excluded liabilities in an asset purchase agreement, they might avoid liability, but plaintiffs might argue otherwise depending on local laws and the nature of the claim. Recommended Actions for XYZ: Review the acquisition agreement to confirm the extent of assumed liabilities. Consult legal counsel to assess exposure based on jurisdiction and the specifics of the acquisition. Ensure appropriate insurance coverage for legacy issues. Document all design and project-related issues for future reference. David G. Axt, CDT, CCS, CSI, SCIP Senior Member Username: david_axt Post Number: 2101 Registered: 03-2002 Posted on Friday, December 13, 2024 - 12:13 pm:    Here is what brought up the question. I am intentionally being vague here in case this goes to court. Years ago, I worked with an architectural firm. The head of the firm died suddenly, and another architectural firm acquired his firm. Well, one of the projects now has a serious issue due to many mistakes made by the contractor, manufacturer, and architect. So, I wondered if the new firm inherited the previous firm's problems. David G. Axt, CDT, CCS, CSI, SCIP Specifications Consultant Axt Consulting LLC ken hercenberg Senior Member Username: khercenberg Post Number: 1655 Registered: 12-2006 Posted on Friday, December 13, 2024 - 12:34 pm:    Unfortunately I have no idea about liability in this sort of thing but I am curious whether the new firm did any work on the project. Who sealed the Documents? Who completed CA and signed off at Substantial Completion? I imagine that may have some bearing on responsibility but I could be wrong. David G. Axt, CDT, CCS, CSI, SCIP Senior Member Username: david_axt Post Number: 2102 Registered: 03-2002 Posted on Monday, December 16, 2024 - 01:45 pm:    The new firm did not do any work on the project. The project is a few years old. The old firm sealed the documents, specifically the owner that died. The old firm did the CA on the project. The project was completed, and the owner moved in when the new firm acquired the old firm. David G. Axt, CDT, CCS, CSI, SCIP Specifications Consultant Axt Consulting LLC Rosa Cheney Senior Member Username: rdcaia Post Number: 34 Registered: 07-2018 Posted on Monday, December 16, 2024 - 02:12 pm:    David, I don't think you are going to get a valid answer on this forum regarding the legal obligations/liability, or lack thereof, of either party. Even if we were all lawyers and you were on a law forum, there are too many variables that are unknown that would control the outcome. -What was in the purchase agreement between the new firm and the old firm's successor when the new firm bought the old firm? -What was in the Contract between the old firm and the project's Owner? -What laws are in effect based on the jurisdiction? If you are being pulled into a lawsuit, consider reaching out to either or both your insurance provider and a lawyer. Good luck.