## Facts

- Jeannette Franklin alleged she developed mesothelioma from childhood exposure to asbestos fibers brought home on her parents’ work clothes.
- Both parents worked at Western Pipe & Steel Shipyard (WPS) in South San Francisco from 1942 to 1945 while ships were built under wartime contracts requiring asbestos-containing materials.
- The parents did not work directly with asbestos but allegedly worked in areas with airborne asbestos dust from insulation and related activities.
- Plaintiffs sued for personal injury, premises liability, and loss of consortium, seeking to impose liability on USX Corporation as WPS’s corporate successor.
- The parties stipulated to a bench trial on successor liability based on agreed/disputed facts and an agreed documentary record, without live testimony.
- The trial court found USX was the successor in interest to WPS and thus liable for WPS-caused damages.
- In a bifurcated proceeding, a jury later returned a verdict against USX exceeding $5 million.
- USX appealed the successor-liability determination and resulting judgment.
- The asserted succession chain was: WPS assets sold to Consolidated Steel Corporation of California (Con Cal) with assumed liabilities; Con Cal later sold the assets to Consolidated Western Steel Corporation of Delaware (Con Del) for over $17 million; Con Del later merged into United States Steel, which later became USX.

## Issues

1. Whether USX could be held liable for alleged WPS asbestos-related torts under California successor-liability exceptions, including (a) express or implied assumption of liabilities, (b) de facto merger or consolidation, (c) “mere continuation,” or (d) the product-line successor doctrine.
2. Whether the asset-sale and later corporate transactions supported treating USX as a continuation of WPS/Con Cal’s corporate entity rather than merely a continuation of business operations.

## Decision

- The Court of Appeal reversed the trial court’s successor-liability ruling and the resulting judgment against USX.
- The court held the governing agreements did not effect an express or implied assumption by USX (or its predecessors) of contingent asbestos tort liabilities.
- The court held the transactions did not constitute a de facto merger or a “mere continuation” because the record lacked continuity of ownership and reflected substantial consideration paid for the assets.
- The court held the product-line successor doctrine did not apply because the claims were not strict products liability claims for a defective product line continued by the successor.
- The court found no basis to apply a fraudulent-transfer exception.
- Because successor liability failed, the court did not reach challenges related to the jury’s liability and damages findings.

## Legal Principles

- A corporation purchasing another’s assets is not liable for the seller’s debts and liabilities unless an exception applies: (1) express or implied assumption, (2) consolidation or merger (including de facto merger), (3) mere continuation, or (4) fraudulent transfer to escape liability.
- Contractual assumption of liabilities turns on the agreement’s language; where unambiguous, interpretation is reviewed de novo and limits on assumed liabilities are enforced as written.
- De facto merger and “mere continuation” focus on continuation of the corporate entity (including continuity of shareholders/ownership), not simply continuation of business operations; substantial consideration and lack of shareholder identity weigh against these doctrines.
- The product-line successor doctrine is confined to strict products liability where a successor acquires substantially all manufacturing assets and continues producing the same product line; it does not extend to premises-based asbestos exposure claims.
- Absent evidence the transaction was structured to evade liabilities, the fraudulent-transfer exception does not apply.

## Conclusion

The court held USX could not be treated as WPS’s successor for asbestos-related premises and personal-injury claims because the record did not establish an assumed tort-liability obligation, a de facto merger or continuation of the corporate entity, or applicability of the product-line successor doctrine, and it therefore reversed the judgment against USX.


Franklin v. USX Corp., 87 Cal. App. 4th 615 (Cal. Ct. App. 2001)