Knowles vetoes product liability bill

Posted: Friday, June 28, 2002

JUNEAU (AP) -- Gov. Tony Knowles vetoed a bill Thursday that would have helped a gun manufacturer in a product liability case. Knowles said the bill was designed to inappropriately affect the outcome of the case.

The bill dealt with a lawsuit pending in Superior Court in Kenai.

In that case an 11-year-old boy was rendered paraplegic when a bullet from a malfunctioning .22-caliber rifle hit him in the head while he was target shooting in 1989 near Nikiski.

The family sued the manufacturer, Savage Industries of Springfield, Mass., and the retailer, Western Auto Supply.

Western Auto settled with the family for millions of dollars, said Jim Powell, an Anchorage attorney representing the company. Western Auto's insurer then tried to recover its damages from the manufacturer.

Savage Industries, however, had filed for bankruptcy in 1988. It sold its assets between the time the child was injured and the time the lawsuit was filed, Powell said.

At issue is whether the company that bought its assets, Savage Arms Inc., must reimburse Western Auto's insurer for the settlement it paid the family.

The Alaska Supreme Court ruled on some issues in the case in March 2001, delving into relatively new legal ground in Alaska, the area of successor companies' liability.

Rep. Norm Rokeberg, chairman of the House Judiciary Committee, which sponsored the bill, said the Supreme Court adopted a different doctrine of ''successor liability'' than is accepted in 46 other states.

In most states, a company that buys another is not liable for products manufactured by the previous company with four exceptions: the purchaser agrees to assume liability; the transaction is actually a merger of two companies; the sale amounts to a ''fraudulent conveyance'' done to avoid liability; or the new company is a ''mere continuation'' of the selling company, with the same officers, shareholders, products and so forth.

The Supreme Court ruled that the trial court should also consider a ''continuity of enterprise'' doctrine.

That would allow a new company to be held liable even if it did not have the same officers and shareholders, as long as certain other factors existed, including continuity of key personnel, assets and business operations.

Powell, the Western Auto attorney, did not want to discuss whether Savage Arms had the same officers and shareholders, saying the issue is complicated and could be debated at the upcoming trial.

He did say without the ''continuity of enterprise'' doctrine adopted by the court, his case would be much more difficult.

The Supreme Court sent the case back to the Kenai Superior Court to settle other factual questions at a trial set for November.

After the Supreme Court decision, Savage Arms hired a powerful Juneau lobbyist, Joe Hayes, and worked this year to get the Legislature to overturn the court's ''continuity of enterprise'' decision.

The Legislature did so in House Bill 499, which adopted the four-part standard accepted by most other states. The bill was retroactive, so it would have covered the Western Auto-Savage Arms case.

Rokeberg, R-Anchorage, said the Supreme Court decision was itself retroactive since most companies would have believed the more common standard applied in the absence of other Alaska law in that area.

Rokeberg said the standard applied by the Supreme Court could hurt the economy by making companies reluctant to purchase other firms for fear of later finding themselves liable for the prior company's mistakes.

''Few, if any, jurisdictions follow that line of legal theory,'' Rokeberg said. ''It sets a cloud up here, and it sets Alaska apart from almost any other jurisdiction in the country.''

Knowles, however, said, the Legislature's decision to reject the Supreme Court decision was based on no evidence that the stricter standard hurts business.

Knowles said the bill would potentially deny Alaskans the opportunity to pursue claims against manufacturers who sell defective products that cause serious injury.

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