If you manufacture or distribute a product that could possibly cause an injury to someone, you could find yourself involved in a lawsuit many years after dissolving your business. Fighting a case like this in court can be extremely expensive and time consuming. The following example is loosely based on a real case, Hunter v. Forth Worth Capital Corporation, which was heard by the Texas Supreme Court in 1981.
The Facts: Dissolving Your Company
Your company installs and services elevators. After ten years, your business fails to profit in a way you consider appropriate, so you transfer your assets to Bravo Elevator in exchange for Bravo Elevator preferred stock and distribute the shares among your shareholders. Your shareholders have voted to dissolve your corporation and after following the appropriate procedures mandated by your state statutes, state taxing authorities and the IRS, you are issued a Certificate of Dissolution by the secretary of state.
Eleven years later, while Mr. Smith was servicing one of the elevators you installed, the hydraulic system failed, and he was permanently injured when the elevator fell on him. Mr. Smith and his attorneys will pursue whomever they can to compensate Mr. Smith for his injuries. You have a lot to lose and your attorney feels that you have a good defense, so you decide to fight this case, even if it means going to the state supreme court. The litigation unfolds as follows:
Mr. Smith sues the former shareholders of your company and Bravo Elevator shareholders in state court for his personal injuries. He alleges that his injuries were caused by the negligent installation, inspection, and maintenance of the elevator by your company.
Bravo Elevators files suit against your shareholders to indemnify it in the event that a judgment is rendered against it.
Your shareholders, upon receiving the complaint, retain an attorney who has experience in both corporate law and products liability.
Your shareholders contact the insurance carrier who provided liability insurance to your company and determine whether any of the costs of the suit will be covered.
Your attorney rejects Mr. Smith's claim, a good strategy, because your state has a law that requires the injured party to pursue a claim within sixty days of a rejection by a dissolved corporation.
Mr. Smith's attorney pursues the claim within the sixty days.
Your attorney then attempts to have the suit thrown out of court because your state has a law that says an injured person only has three years to bring a law suit against a dissolved corporation.
The trial court agrees with you, and throws out the suit against your shareholders.
Mr. Smith appeals the trial court's judgment to the intermediate court of appeals.
That appellate court disagrees with the trial court, reverses that court's finding in your favor, and tells the trial court to proceed with the products liability case against your shareholders and Bravo Elevators.
You appeal the appellate court's decision to your state supreme court.
The state supreme court agrees with the trial court and, in effect, you are finally out of the law suit. Mr. Smith will have to proceed against Bravo Elevators.
In the Texas case, the original shareholders won because the Texas Supreme Court decided that it was unfair to make corporations indefinitely remain in existence. Eleven years was too long. This is not to say that every state court will come to the same conclusion.
Hire a Lawyer for Product Liability Cases
In the above example, the company had a strong enough case to make the expenditure for attorney's fees an appropriate strategy. In other instances, if a case is not very strong or you do not have the money to pay attorney fees, you may opt for making a monetary settlement with the injured party. This is a decision that merits serious consideration in consultation with a business and commercial law attorney.