## Facts

- Raymond A. Schmoll sued multiple defendants in a products-liability action alleging injury from inhaling asbestos dust from defendants’ products.
- Raymark Industries, Inc. manufactured and distributed asbestos-containing products and faced rapidly increasing asbestos personal-injury lawsuits beginning in the 1970s.
- By mid-1988 Raymark had been sued in tens of thousands of asbestos cases, with substantial ongoing filings, contributing to severe financial decline.
- Between 1982 and 1988 Raymark implemented a multi-step corporate restructuring that created Raytech Corporation as a holding company owning Raymark’s corporate structure.
- Raymark described the restructuring to shareholders as enabling acquisition and operation of new non-asbestos businesses in a structure that “should not subject” the holding company or acquired businesses to asbestos-related liabilities.
- In 1987 Raytech acquired Raymark’s most profitable non-asbestos business assets for roughly $85 million, largely paid via unsecured notes; the acquired businesses had not been named in asbestos claims.
- After the transfers, Raymark remained burdened with massive asbestos liabilities and comparatively few productive assets.
- Raymark (through its corporate chain) was later sold to Asbestos Litigation Management (ALM) for about $1 million, again largely through unsecured notes; ALM focused on managing asbestos litigation.
- The same ownership group that previously owned Raymark ended up owning Raytech and the profitable businesses while asbestos liabilities remained with an undercapitalized entity.

## Issues

1. Whether Raytech Corporation should be treated as a successor in liability for Raymark Industries’ asbestos-related strict products-liability claims despite the formal corporate separations created by restructuring and asset transfers.
2. Whether the transactions, viewed in substance, fit recognized exceptions to the general rule that an asset purchaser is not liable for a seller’s torts, including de facto merger, mere continuation, and transactions undertaken to hinder or defraud claimants.

## Decision

- The court held Raytech is a successor in liability to Raymark Industries and is responsible for Raymark’s asbestos-related liabilities.
- The court decided the successor-liability question on a stipulated written record after the parties bifurcated the proceedings to submit that discrete issue for determination.

## Legal Principles

- A purchaser or reorganized entity may be held liable for a predecessor’s torts under recognized successor-liability exceptions, including express assumption, de facto merger, mere continuation, and transactions structured to escape liability.
- Courts may look to the substance and economic reality of related corporate transactions, treating formally separate steps as a single integrated scheme when appropriate.
- Successor liability may be imposed where corporate restructuring is designed for an improper purpose of hindering, delaying, or defrauding tort claimants by shifting valuable assets away from liabilities.
- Continuity of ownership and continuation of business operations support successor-liability theories such as de facto merger or mere continuation.
- Asset transfers leaving the liability-bearing entity undercapitalized or effectively judgment-proof, particularly where consideration is largely unsecured, support an inference of improper purpose and justify imposing successor liability to protect involuntary tort claimants.

## Conclusion

The court determined that Raytech could not avoid responsibility for Raymark’s asbestos-related strict products-liability claims through a restructuring that shifted profitable assets to a commonly owned holding company while leaving asbestos liabilities with an undercapitalized entity, and it held Raytech liable as Raymark’s successor.


Schmoll v. ACandS, Inc., 703 F. Supp. 868 (D. Or. 1988)