Hernandez v. Enterprise Rent-A-Car Co. of S.F.

Filed 7/8/19

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION FOUR

JANINE HERNANDEZ,
Plaintiff and Appellant,
A152703
v.
ENTERPRISE RENT-A-CAR (San Mateo County
COMPANY OF SAN FRANCISCO et al., Super. Ct. No. CIV518068)
Defendants and Respondents.

In 2004, Janine Hernandez was a passenger in a 1992 Oldsmobile Cutlass that was
involved in a head-on collision with another car. Hernandez, who was 11 years old at the
time, was seriously injured. In 2012, she filed this action against Enterprise Rent-A-Car
and its affiliates (Enterprise) to recover damages resulting from the car accident, alleging
a single cause of action for strict products liability. In 2017, the trial court granted
Enterprise summary judgment. Because Enterprise did not succeed to whatever liability
for this accident a different car rental company might have had, we affirm.
FACTUAL AND PROCEDURAL BACKGROUND
Hernandez contends the 1992 Oldsmobile Cutlass involved in her 2004 accident
was defective because it was not designed to be crashworthy. Specifically, she alleges
that the Oldsmobile did not provide adequate protection to children riding in the back seat
when the vehicle was involved in a frontal collision. Hernandez does not here attempt to
hold the product manufacturer liable for this alleged defect. Instead, she contends that a
rental car company called National Car Rental Systems (NCRS) would have been strictly

1
liable for her damages because NCRS placed the Oldsmobile “into the stream of
commerce,” and that Enterprise is strictly liable as a successor in interest of NCRS.
Although Hernandez filed this action in 2012, the case was stayed for several
years while she litigated an identical legal claim against other alleged affiliates of NCRS
in San Joaquin County. Following a defense judgment in the San Joaquin County case,
Hernandez amended her pleading in this case, filing her operative second amended
complaint on March 17, 2016.
In April 2017, Enterprise moved for summary judgment. The motion was
supported by evidence establishing the following facts about the ownership history of the
Oldsmobile involved in Hernandez’s accident: The car was manufactured by General
Motors Corporation. From May 1992 until February 1993, NCRS used the Oldsmobile
in its car rental business. On February 26, 1993, NCRS transferred ownership of the
Oldsmobile to a married couple (the S. family). The Oldsmobile was transferred to
another private party in 2000 and again in February 2004.
The summary judgment evidence also established the following facts about
NCRS: In 1995, NCRS sold the assets of its rental car business to NCR Acquisition.
NCRS then changed its name to GM National Holding Co. and in 1996 merged with
General Motors Corporation. Meanwhile, NCR Acquisition changed its name to
National Car Rental Systems (New NCRS). In 2001, New NCRS declared bankruptcy.
In 2003, Cerberus Capital Management L.P. purchased the assets of New NCRS pursuant
to an “Asset Purchase Agreement” that was approved by the bankruptcy court.
According to Hernandez’s complaint, Enterprise is a joint owner of the assets of
the NCRS rental car business that were purchased by Cerberus in 2003. Enterprise did
not dispute this allegation in its summary judgment motion.
In July 2017, the trial court granted Enterprise summary judgment, finding that
Hernandez could not hold Enterprise strictly liable for damages allegedly caused by the
defective Oldsmobile for two reasons. First, as a lessor of the vehicle, the original NCRS
was strictly liable for a lessee’s damages resulting from a product defect, but its exposure
to strict liability ended when it sold the Oldsmobile to the S. family as a used car.

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Second, even if NCRS retained strict liability for the defective Oldsmobile, that liability
cannot be traced to Enterprise.
DISCUSSION
Summary judgment may be granted “if all the papers submitted show that there is
no triable issue as to any material fact and that the moving party is entitled to a judgment
as a matter of law.” (Code Civ. Proc., § 437c, subd. (c); Aguilar v. Atlantic Richfield Co.
(2001) 25 Cal.4th 826, 850 (Aguilar).) “We review a trial court’s grant of summary
judgment de novo. [Citation.] ‘[T]he party moving for summary judgment bears an
initial burden of production to make a prima facie showing of the nonexistence of any
triable issue of material fact; if he carries his burden of production, he causes a shift, and
the opposing party is then subjected to a burden of production of his own to make a prima
facie showing of the existence of a triable issue of material fact.’ ” (Casey v. Perini
Corp. (2012) 206 Cal.App.4th 1222, 1228.)
Hernandez contends that summary judgment of her case must be reversed because
there are triable issues regarding (1) NCRS’s strict liability for alleged defects in the
Oldsmobile, and (2) Enterprise’s liability as a successor of NCRS. We question whether
Enterprise has established, as a matter of law, that NCRS was not strictly liable for
defects in the 1992 Oldsmobile after it sold the vehicle. However, we need not resolve
those difficult issues because the summary judgment evidence establishes no triable issue
on the second ground upon which summary judgment was granted, regarding Enterprise’s
liability as a successor of the original NCRS.
Even if NCRS would have been strictly liable for a defect in the 1992 Oldsmobile,
Hernandez has to establish that Enterprise acquired successor liability for the alleged
defect. Hernandez argues she can make this showing by establishing that (1) New NCRS
became strictly liable for the product defect in the Oldsmobile when it acquired the assets
of NCRS, and then (2) the Cerberus entities became strictly liable for that defect when
they purchased the assets of New NCRS out of bankruptcy. We conclude this successor
liability theory fails as a matter of law on both of these points.
I. Successor Liability Principles

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 Under generally accepted rules, when a corporation purchases the principal assets
of another corporation, “the purchaser does not assume the seller’s liabilities unless (1)
there is an express or implied agreement of assumption, (2) the transaction amounts to a
consolidation or merger of the two corporations, (3) the purchasing corporation is a mere
continuation of the seller, or (4) the transfer of assets to the purchaser is for the fraudulent
purpose of escaping liability for the seller’s debts.” (Ray v. Alad Corp. (1977)
19 Cal.3d 22, 28 (Alad).)
In Alad, the Supreme Court carved out an exception to these traditional rules by
establishing a three-prong test for plaintiffs in product liability cases to hold a successor
to a manufacturer strictly liable for the plaintiff’s injuries. (Alad, supra, 19 Cal.3d at
pp. 30–31.) Under the Alad test, a corporation that purchases the assets of a
manufacturing business assumes the seller’s liabilities for a defective product when all of
the following elements are established: (1) the plaintiff’s remedies against the seller are
virtually destroyed by the purchaser’s acquisition of the business; (2) the purchaser has
the ability to assume the seller’s risk-spreading role; and (3) it is fair to require the
purchaser to assume responsibility for the defective products as a burden necessarily
attached to the seller’s goodwill, which the purchaser enjoys in the continued operation of
the business. (Ibid.)
Though originally applied to a product manufacturer, the Alad test is now used to
determine successor liability for other entities that participated in the production and
distribution of a defective product. (Kaminski v. Western MacArthur Co. (1985)
175 Cal.App.3d 445, 453–454 (Kaminski); Phillips v. Cooper Laboratories (1989)
215 Cal.App.3d 1648, 1654 (Phillips).) Given the policies underlying strict liability,
“[w]hen a distributor or retailer acquires a corporation and takes advantage of its
goodwill and other corporate assets and facilities to inject the predecessor’s product line
into the stream of commerce, it continues ‘the overall producing and marketing enterprise
that should bear the cost of injuries resulting from defective products.’ ” (Kaminski at
p. 456.) Courts applying this test have emphasized that the successor does not have to
cause the destruction of the plaintiff’s remedies before it will be held liable, as long as

4
there is a causal connection between the successor’s acquisition and the unavailability of
the predecessor as a potential defendant. (Stewart v. Telex Communications, Inc. (1991)
1 Cal.App.4th 190, 198–199 (Stewart); Kaminski, supra, 175 Cal.App.3d at p. 458.)
II. Analysis of Asset Sale to New NCRS
The summary judgment evidence shows that after NCRS sold its principal assets
to New NCRS in 1995, NCRS continued to exist as a legal entity under a different name
until it merged with General Motors in 1996. Thus, the asset sale did not destroy or
diminish Hernandez’s remedies against NCRS. If NCRS was strictly liable for the
allegedly defective 1992 Oldsmobile, that liability was assumed by General Motors, not
by New NCRS.
Evidence establishing these facts includes documents pertaining to the 1995 sale
of the assets of NCRS to New NCRS, which were produced during a demurrer
proceeding and are included in Appellant’s Appendix. 1 Excerpts from a Form 10-K/A
and a Form 8-K that General Motors filed with the Securities and Exchange Commission
(SEC) describe a sale of substantially all of the operating assets of its subsidiary NCRS, a
transfer of “certain liabilities” to the entity that later became New NCRS, and the
retention of responsibility by General Motors for the sale and liquidation of NCRS’s
remaining assets and considerable liabilities that were not sold to New NCRS. The
record also documents the name change of NCRS and its merger into General Motors in
1996. In light of this evidence, Hernandez conceded during discovery and during the
summary judgment proceeding that, after NCRS sold its car rental business and changed
its name to GM National Holding Co., it merged with General Motors.

1
Enterprise’s motion for summary judgment states that the motion is based on “all
of the pleadings, records, and files herein and on such other argument or documentary
evidence as may be presented” at the summary judgment hearing. We assume this is why
the Appellant’s Appendix that Hernandez filed in this court includes evidence from the
superior court record that pertains to the asset sales at issue in this appeal. (See Cal.
Rules of Court, Rule 8.124(b)(3)(A) [The Appellant’s Appendix “must not . . . [c]ontain
documents . . . that are unnecessary for proper consideration of the issues.”].)

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 As a result of this two-part transaction, well-settled principles of successor liability
establish General Motors as the corporation that succeeds to NCRS’s strict liability for
defective products. General Motors succeeds to NCRS’s liabilities because when a
corporation merges with its subsidiary, the surviving corporation succeeds to the
erstwhile subsidiary’s liabilities, even if the operating assets of the subsidiary have been
transferred elsewhere. (Petrini v. Mohasco Corp. (1996) 61 Cal.App.4th 1091, 1098
(Petrini).) For example, in Petrini defendant Mohasco Corporation owned a wholly-
owned subsidiary that made floor tiles containing asbestos. (Id. at p. 1093.) Deciding to
liquidate this subsidiary, Mohasco caused its floor tile business to be sold to unrelated
third parties. (Ibid.) When little more than a corporate shell remained of the subsidiary,
Mohasco merged with it, becoming responsible for its liabilities. (Id. at pp. 1093, 1098.)
As our colleagues in Division Two explained, “The surviving corporation under a
statutory merger is responsible for the liabilities of the merged corporation under both
common law and statute,” including liabilities unknown at the time of the merger such as
Mr. Petrini’s later-manifesting mesothelioma. (Id. at pp. 1098–1099.) Here, General
Motors stands in the same position as did Mohasco; having sold off the operating
business of its NCRS subsidiary and then merging with what remained of NCRS, General
Motors succeeds to NCRS’s liabilities, including any strict liability for Hernandez’s
accident.
Because General Motors succeeds to NCRS’s liabilities, New NCRS does not.
This is a straight-forward application of Alad, which requires, as its first condition for
imposing successor liability on the purchaser of a product line, a “virtual destruction of
the plaintiff’s remedies against the original manufacturer caused by the successor’s
acquisition of the business.” (Alad, supra, 19 Cal.3d at p. 31.) The first prong of the
Alad test is not met here, where New NCRS’s acquisition of the car rental business did
nothing to destroy or impair plaintiff’s remedies against the original NCRS. The transfer
of assets to New NCRS did not prevent Hernandez from seeking recourse against General
Motors, so Alad’s special rule for successor liability in product-line cases does not

6
impose liability on New NCRS. (See Phillips, supra, 215 Cal.App.3d 1648; Kline v.
Johns-Manville (9th Cir. 1984) 745 F.2d 1217 (Kline).)
The facts of Phillips are somewhat convoluted but offer an instructive parallel.
Ms. Phillips and her husband attempted to sue a company (Cooper Laboratories, Inc.) that
succeeded to the liabilities of a company (SMP-NY) that had purchased, for adequate
consideration, a fertility drug distribution business from E.S. Miller Laboratories, Inc.
(Miller). (Phillips, supra, 215 Cal.App.3d at pp. 1652, 1655.) Miller and SMP-NY were
both subsidiaries of Nestle, and after Miller sold the drug distribution business to SMP-
NY, Miller continued as a profitable subsidiary, running warehouse operations for a
decade until Nestle dissolved it. (Id. at p. 1658.) When plaintiffs sought to hold Cooper
strictly liable for injuries allegedly suffered as a result of Ms. Phillips having ingested
Miller’s fertility drug, they failed. Cooper was not liable under Alad because the transfer
of the drug distribution business from Miller to SMP-NY did not cause “ ‘the virtual
destruction of the [Phillipses’] remedies against’ ” Miller. (Id. at p. 1657.) Miller had
“continued as a separate viable corporate entity” and in the ensuing decade “was more
profitable as a warehouse operation than it had been as a pharmaceutical operation.” (Id.
at p. 1658.) So, here, NCRS continued as a viable corporate entity after the sale of its car
rental business, until its assets and liabilities were assumed by merger with General
Motors. Nothing about the sale of its assets to New NCRS inhibited, let alone destroyed,
Hernandez’s remedies against NCRS, as she could have proceeded against NCRS or,
after the merger, against General Motors for years after the sale to New NCRS.
Our dissenting colleague discounts evidence tracing successor liability for NCRS
to General Motors, positing that corporate successorship liability may fall simultaneously
on two companies if both have a sufficient relationship to the predecessor corporation.
(Dissent, p. 17.) We think this theory is inconsistent with the first requirement of Alad,
that one who buys the assets and continues the operations of a business will be strictly
liable for previously-sold products only if the purchaser’s acquisition effectively
destroyed the plaintiff’s remedies against the seller. (Alad, supra, 19 Cal.3d at pp. 30–
31.) The evidence that General Motors’s spin-off of NCRS’s car rental business did not

7
impair Hernandez’s remedies against NCRS is therefore dispositive of her effort to hold
the unrelated acquiring company liable for her accident.
The Kaminski case on which the dissent relies is not to the contrary. The
Kaminskis alleged injury as a result of asbestos supplied by, among others, a defunct
corporation called Western Asbestos, and they sued in place of Western Asbestos a
corporation named Western MacArthur that was carrying on Western Asbestos’s
business. (Kaminski, supra, 175 Cal.App.3d at pp. 451, 455.) Kaminski held that
Western MacArthur was liable as a successor corporation because Western MacArthur’s
parent had used its “financial and managerial control” over Western Asbestos to “cause it
to dissolve,” thereby “extinguish[ing] the Kaminskis’ remedies against Western
[Asbestos].” (Id. at pp. 458–454.) These facts satisfied the “virtual destruction of
plaintiff’s remedies” prong of Alad, notwithstanding that the Kaminskis could (and did)
also sue and settle with the other defendants who they alleged had manufactured or
distributed asbestos that caused their harm. (Id. at pp. 450, 459.) “The presence of
another legitimate target defendant” in a case alleging joint and several liability against
multiple tortfeasors “does not defeat successor liability” under Alad, the Kaminski court
held. (Id. at p. 459.) But Kaminski is distinguishable from Hernandez’s case, where
nobody relies on the existence of jointly and severally liable co-defendants to argue
against successor liability for New NCRS. Here, unlike in Kaminski, the predecessor
corporation did not dissolve but was merged into a successor, so that plaintiff’s remedies
against NCRS were not extinguished in the transaction.
Hernandez herself has never argued that NCRS transferred liability for the
Oldsmobile to more than one entity. To the contrary, she insists that New NCRS rather
than General Motors acquired NCRS’s strict liability for defects in the 1992 Oldsmobile,
but she makes this argument without relying on the Alad test. Instead, Hernandez argues
that summary judgment should not have been granted because Enterprise failed to
discredit theories of successor liability pleaded in her complaint, which relied on
traditional exceptions to the general rule of successor non-liability.

8
 The complaint alleges that Enterprise assumed strict liability for Hernandez’s
injuries because Enterprise “continued the business of NCRS,” “merged with NCRS,”
and/or “assumed the liabilities of NCRS.” These legal theories are not fleshed out by any
allegations of material fact, however, and Hernandez has abandoned any allegation that
Enterprise or New NCRS merged with NCRS. She argues on appeal that (1) New NCRS
was a mere continuation of Old NCRS, and (2) New NCRS expressly assumed the
liabilities of Old NCRS. We reject both arguments.
Hernandez’s theory that New NCRS succeeded to NCRS’s liabilities as a mere
continuation of the prior company relies on the undisputed evidence that New NCRS
continued to operate NCRS’s rental car business after acquiring its assets. But more is
required. To establish that an acquiring corporation is a mere continuation of the seller, a
plaintiff must “demonstrate ‘(1) no adequate consideration was given for the predecessor
corporation’s assets and made available for meeting the claims of its unsecured creditors;
[or] (2) one or more persons were officers directors, or stockholders of both
corporations.’ ” (CenterPoint Energy, Inc. v. Superior Court (2007)
157 Cal.App.4th 1101, 1121.) “[E]ven when the same persons are officers or directors of
the two corporations, liability is not imposed on the acquiring corporation when recourse
to the debtor corporation is available and the two corporations have separate identities.”
(Beatrice Co. v. State Bd. of Equalization (1993) 6 Cal.4th 767, 778.)
Here, the record establishes that recourse to NCRS and then its merger partner
remained available, and the selling and acquiring companies were separate entities.
According to General Motors’s and New NCRS’s SEC filings, New NCRS paid
approximately $1.5 billion to acquire the assets of NCRS, a sum much larger than the net
liabilities NCRS retained. More importantly, General Motors became responsible for the
assets and liabilities not sold to New NCRS, and then merged with NCRS after the sale.
Hernandez has neither alleged facts in her complaint nor introduced evidence in
opposition to the motion for summary judgment that would create an issue of material
fact as to either the corporate separateness of NCRS and New NCRS, or the adequacy of

9
the resources available for meeting claims against NCRS after the sale of its operating
assets to New NCRS.
As for Hernandez’s theory of express assumption, she has admitted in an
interrogatory response that she does not have documentary evidence that New NCRS
expressly assumed liability from NCRS for accidents such as hers. The same
interrogatory response baldly asserts, without support or explanation, that Enterprise does
have such documents, but the response goes on to admit that Hernandez sought the
documents in discovery without success. For good measure, counsel for Enterprise
represented to this Court at oral argument that his client does not have the transaction
documents that show what liabilities New NCRS acquired along with the assets it
purchased from NCRS. Hernandez’s unsupported allegation that Enterprise has evidence
that it insists it does not have does not detract from the force of her admission that, after
pursuing relevant discovery, she still lacks evidence to establish that New NCRS
expressly assumed NCRS’s liability for this accident. A defendant satisfies its summary
judgment burden by producing evidence of this kind of admission. (Aguilar, supra,
25 Cal.4th at p. 855.)
Enterprise having carried its initial burden of producing evidence that New NCRS
did not assume the liabilities of NCRS after it acquired the rental car business, the burden
shifted to Hernandez to show a triable issue of material fact regarding the alleged
successor liability of New NCRS. (Aguilar, supra, 25 Cal.4th at p. 853.) She did not
carry that burden. This failure alone justifies affirming the trial court’s grant of summary
judgment, but we nevertheless turn to the second part of Hernandez’s successor liability
theory, purporting to trace strict liability from New NCRS to Enterprise.
III. Analysis of Cerberus’s Purchase Out of Bankruptcy Estate
The summary judgment evidence shows that New NCRS went into bankruptcy in
2001 and that the Cerberus entities purchased assets from the New NCRS bankruptcy
estate in 2003 pursuant to an agreement that was approved by the bankruptcy court. This
evidence supports Enterprise’s argument that it did not assume the alleged strict liability
of New NCRS for a product defect in the 1992 Oldsmobile by acquiring the rental car

10
business from New NCRS. If Hernandez’s remedies against New NCRS were destroyed,
that destruction was not caused by Cerberus’s acquisition of the assets, but by the fact
that New NCRS went into bankruptcy. (See Stewart, supra, 1 Cal.App.4th at pp. 196–
200 [first element of Alad missing where successor corporation buys assets out of
bankruptcy estate]; Nelson v. Tiffany Industries, Inc. (9th Cir. 1985) 778 F.2d 533, 537–
538 [same]; Kline, supra, 745 F.2d at pp. 1219–1220 [Alad test not satisfied when asset
sale was unrelated to subsequent bankruptcy].)
The Stewart case illustrates the significance of a predecessor company’s
bankruptcy for successor liability under Alad. Stewart was horribly burned while
installing an allegedly defective antenna manufactured, designed, and distributed by a
company called Hy-Gain Electronics Corp. (Hy-Gain). (Stewart, supra, 1 Cal.App.4th at
pp. 192–193.) By the time of the accident, Hy-Gain “had long since declared bankruptcy
and gone out of business.” (Id. at p. 192.) The bankruptcy trustee had sold essentially all
of Hy-Gain’s assets—manufacturing facilities and equipment, inventory, designs,
blueprints, patents, trademarks, customer lists, sales orders, and so on—to defendant
Telex Communication’s Inc. (Telex), which then continued to operate the antenna
business and to sell the same model of antenna under the same trade name as the antenna
that later injured Stewart. (Id. at pp. 193–195.) The Stewart court recognized that “the
sole distinction between Alad and the present case is that ‘Telex purchased Hy-Gain
assets through the intermediary of the bankruptcy courts[] rather than directly,’ ” but it
nonetheless held that Telex was not liable as Hy-Gain’s successor. (Id. at pp. 196, 200.)
It explained that without some showing that Telex played a role in causing the voluntary
bankruptcy of Hy-Gain, or that the bankruptcy “was a mere subterfuge to avoid the
holding of Alad,[] summary judgment was properly granted, as the Alad exception was
inapplicable to Telex.” (Id. at p. 200.)
Here, New NCRS’s bankruptcy preceded by two years the sale of assets to the
Cerberus entities, and there is no evidence that any successor to New NCRS’s business
line played a role in curtailing or destroying Hernandez’s remedies against New NCRS.
(Compare Kaminski, supra, 175 Cal.App.3d 445.) Thus, under the well-established rule

11
of Stewart, the Alad exception to the general rule against successor liability does not
apply to the transfer of assets from New NCRS to Cerberus.
Hernandez contends there is a triable issue of material fact regarding the successor
liability of Cerberus because, when the Cerberus entities purchased New NCRS’s assets
in 2003, they expressly assumed liability for product defects in the 1992 Oldsmobile and
for accidents involving that vehicle.
The record contains a copy of a 2003 Asset Purchase Agreement (APA) pursuant
to which ANC Rental Corporation and its subsidiaries including New NCRS, collectively
referred to as debtors, sold assets relating to their operation of multiple car rental
businesses to a group of sellers that included Cerberus. The parties agree that this APA
was the agreement that accomplished the transfer of assets from the New NCRS
bankruptcy estate to the Cerberus affiliates.
Article II of the APA, which is titled “PURCHASE AND SALE OF ACQUIRED
ASSETS,” is divided into several sections. Section 2.1 contains a broad definition of
acquired assets, covering all of the sellers’ rights in their business, properties, and assets.
A non-exclusive list of said assets includes “all vehicles . . . owned by any Debtor used in
the Business.” Section 2.2, titled “Excluded Assets,” lists assets of the debtors that are
not included in the definition of Acquired Assets and are not part of the sale. This list of
excluded assets states that the equity securities of specific subsidiaries including New
NCRS are not acquired assets within the meaning of the APA. Section 2.3, which is
titled “Assumed Liabilities,” contains a list of specific liabilities that the purchasers agree
to assume from the seller entities (including New NCRS). Hernandez contends that two
provisions in section 2.3 establish that Cerberus expressly assumed liability for a product
defect in the 1992 Oldsmobile that later came to be involved in her accident.
First, Hernandez contends the Cerberus purchasers are liable to her under section
2.3(d) of the APA, which provides that the purchasers will assume liabilities “relating to
or incurred in connection with the Acquired Assets . . . that arise after the Closing Date.”
She reasons that (1) “Acquired Assets” included the rental car company assets of New
NCRS, and (2) liability for her accident was incurred after the closing date of the

12
agreement. However, the undisputed evidence shows that NCRS sold the 1992
Oldsmobile in 1993. Thus, this vehicle was not an asset of New NCRS in 2003 and
therefore not an “Acquired Asset” of the purchasers under the terms of the APA.
Applying the APA’s definition of “Acquired Asset,” the Oldsmobile was not a vehicle
“owned by any Debtor” involved in the transaction. Moreover, the summary judgment
evidence shows that New NCRS, the bankrupt corporation, was not acquired in toto by
Cerberus, even if its assets were. This means that Cerberus never acquired any asset—
neither the car nor the corporation—to which liability for Hernandez’s future accident
could have attached.
Second, Hernandez relies on section 2.3(g), pursuant to which the purchasers
assumed the following liabilities: “(g) Liabilities (except for vicarious Pre-Petition
Liabilities arising from pre-petition auto accidents) relating to accidents involving the
vehicles of the Business . . . (i) reflected on or of a category reserved against on the
March 31, 2003 consolidated balance sheet of Seller and outstanding on the Closing Date
or (ii) incurred in the Ordinary Course of Business after March 31, 2003.”
The Oldsmobile was not a “vehicle of the Business” when the Cerberus
transaction took place, in that NCRS had a decade earlier sold the Oldsmobile to a private
party. Hernandez contends that section 2.3(g) necessarily applies to vehicles that were
formerly used by NCRS, the predecessor to the bankrupt seller here. We disagree. The
contract language unambiguously limits assumed liabilities to “the vehicles of the
Business,” and it defines “Business” as “car rental businesses” licensed and operated
under brand names including National. We find no basis for extending this language to
include vehicles previously owned by such businesses. The Oldsmobile was a vehicle of
NCRS for less than a year before it was sold to the S. family in 1993. This vehicle was
not transferred to New NCRS when New NCRS purchased the assets of NCRS in 1995.
Thus, the Oldsmobile was never a vehicle of the business of New NCRS, and not a
vehicle of any relevant business when the Cerberus transaction occurred in 2003. We
reject Hernandez’s argument that there is any absurdity in construing section 2.3(g) in
this manner. The APA was dated as of June 12, 2003 and section 2.3(g) addresses

13
covered accidents before and after the close of the previous quarter. In section 2.3(g),
Cerberus assumes liability for accidents “incurred in the Ordinary Course of Business
after” the close of the previous quarter but only for “vehicles of the Business,” and
nothing in this provision sweeps in liability for vehicles never owned by New NCRS at
all.
Finally, Hernandez contends that even if Cerberus did not expressly assume
liability for alleged defects in the Oldsmobile, as a matter of law the sale of assets from
the bankruptcy estate of New NCRS did not eliminate successor liability based upon
claims that had not arisen at the time of the sale. Hernandez’s only authority for this
proposition is Elliott v. GM LLC (In re Motors Liquidation Co.) (2nd. Cir. 2016)
829 F.3d 135 (Elliott), which is inapposite. That case involved the Chapter 11
bankruptcy of General Motors pursuant to which “Old GM used 11 U.S.C. § 363 of the
Bankruptcy Code . . . to sell its assets to New GM ‘free and clear.’ ” (Id. at p. 143.) The
question presented was whether New GM could “use the Sale Order’s ‘free and clear’
provision to shield itself from claims primarily arising out of” a product defect that
General Motors knew (or should have known) about, but had not disclosed by the time of
the bankruptcy. (Id. at pp. 152, 159.) In circumstances not relevant here, the Second
Circuit concluded that the answer to this question is yes. (Id. at p. 156.) But in reaching
this conclusion it also considered the circumstance of a hypothetical future tort claimant
whose claim, although resulting from the debtor’s pre-petition conduct, does not accrue
until a post-petition accident occurs. (Ibid.) The claims of these individuals (like
Hernandez) will not be subject to the jurisdiction of the bankruptcy court because they
are still “completely unknown and unidentified at the time” of the bankruptcy. (Ibid.)
There is no dispute in this case that Hernandez did not have a claim against New
NCRS that the bankruptcy court could have discharged. After all, her accident had not
occurred when New NCRS filed its Chapter 11 petition. But this limitation on the reach
of federal bankruptcy law in no way detracts from the state-law rule, articulated in
Stewart and applied in both state and federal cases as a matter of California law, that
absent unusual circumstances not present here, successor liability under Alad will not

14
reach a successor who purchases assets out of a bankruptcy estate. (See Stewart, supra,
1 Cal.App.4th at p. 200; Nelson v. Tiffany Industries, supra, 778 F.2d at p. 537 [“it was
Moody’s bankruptcy and not Tiffany’s subsequent purchase of the assets that destroyed
Nelson’s remedies”]; see also Schuman v. Varn Internat., Inc. (W.D.Wash. Sep. 10, 2012,
No. C10-980-RSM) 2012 U.S.Dist.LEXIS 129221, at p. *9 [collecting authority].) These
cases turn on whether the successor corporation caused the financial difficulties that led
the predecessor to be unavailable to cover liabilities to future tort victims, not on the
scope or specifics of federal bankruptcy law. The portions of Elliott on which Hernandez
relies address a different question not relevant here: whether a bankruptcy court’s order
has the power to extinguish such claims. (Elliott, supra, 829 F.3d at p. 152; see also
Morgan Olson L.L.C. v. Frederico (In re Grumman Olson Indus.) (S.D.N.Y. 2012)
467 B.R. 694, 702 [distinguishing the question whether “there is a viable basis for state
successor liability based on prepetition conduct of the debtor” from the question whether
“a bankruptcy court’s sale order may be enforced to extinguish those claims where no
injury occurred to the claimant until after the bankruptcy closed”].) Enterprise does not
rely on the terms of the bankruptcy court’s sale order in this case, but on the fact that
New NCRS went into bankruptcy in the first place. Thus Stewart, rather than Elliott,
provides the rule of decision.
In sum, the record evidence establishes as a matter of law that, for two
independent reasons, Enterprise did not succeed to any liability NCRS would have had
for Hernandez’s injuries. First, New NCRS did not succeed to NCRS’s liability because
after the sale of NCRS’s assets plaintiffs such as Hernandez could have sought recourse
against General Motors. Second, even if New NCRS would have been liable to
Hernandez, no such liability carries through to Cerberus and Enterprise after New NCRS
entered bankruptcy through no fault of the acquiring entities. Because they did not cause
New NCRS’s bankruptcy, Cerberus and Enterprise do not come within Alad’s exception
to the general rule against successor liability in an asset sale. No triable issue of material
fact regarding Hernandez’s theory of successor liability remains, and the trial court did
not err in granting summary judgment.

15
 DISPOSITION
The judgment is affirmed. Costs are awarded to respondent.

16
 _________________________
TUCHER, J.

I CONCUR:

_________________________
BROWN, J.

Hernandez v. Enterprise Rent-A-Car (A152703)

17
 Dissenting Opinion of Streeter, Acting P. J.
Streeter, Acting P.J., Dissenting.—At 11 years old, plaintiff Janine Hernandez
suffered grievous injuries when the car in which she was riding, a 1992 Oldsmobile
driven by her sister, was involved in a head-on collision. She survived, but as a
paraplegic. She tried to sue various defendants based on a defective design theory,
including General Motors Corporation (GM), the manufacturer of the 1992 Oldsmobile,
but her lawsuit against GM was stayed when GM went bankrupt. This action is an
attempt to hold Enterprise Rent-A-Car and its affiliates (Enterprise) liable as the
corporate successor to the National Car Rental System Inc. (NCRS), the original lessor
and seller of the car. I believe she is entitled to a trial. On both of the questions before
us—strict liability, and corporate successor liability—I conclude that Enterprise failed to
carry its burden as a summary judgment movant.
I. STRICT LIABILITY
If there was ever a textbook case in which the risk-spreading principles of strict
liability under Greenman v. Yuba Power Products, Inc. (1963) 59 Cal.2d 57 (Greenman)
and Vandermark v. Ford Motor Co. (1964) 61 Cal.2d 256 (Vandermark) should apply,
this is it. The trial court took the view that under Price v. Shell Oil Co. (1970) 2 Cal.3d
245 (Price), strict liability applies to car rental companies only during the period when
they lease a car to the public, and that upon selling a car after retiring it as a rental, they
get the protection of the rule that sellers of used goods are not subject to strict liability.
(Tauber-Arons Auctioneers Co. v. Superior Court (1980) 101 Cal.App.3d 268 (Tauber-
Arons); see also LaRosa v. Superior Court (1981) 122 Cal.App.3d 741 (LaRosa);
Wilkinson v. Hicks (1981) 126 Cal.App.3d 515 (Wilkinson).) I believe this was error, and
that we should say so.
At issue in Price was a truck leased by Shell Oil Company (Shell) to an airplane
service company, Flying Tiger Line, Inc. (Flying Tiger). (Price, supra, 2 Cal.3d at
p. 248.) The plaintiff, a mechanic employed by Flying Tiger, was injured while using the
leased truck. The Price court held that Shell could be held strictly liable, and that the
form of the transaction by which the truck reached Flying Tiger—lease, rather than

43
sale—was of no moment. What mattered, the court held, was not the transactional form
of distribution, but rather that Shell was “in the business of leasing” trucks on a “mass”
scale, as distinguished from having engaged in a one-off, “isolated or occasional
transaction.” (Id. at pp. 254–255.) The trial court thought applying Price would require
it to “extend” this holding, but I think that misreads the case. Nothing in Price suggests
that it applies only during the term of a leased vehicle. In fact, that idea is contrary to the
emphasis the Price court placed on looking past the form of the transaction by which a
product is offered to the public. (Id. at pp. 249–255.)
Price represented a key step in the gradual expansion of the stream of commerce
theory of strict liability first enunciated in Greenman and Vandermark. The basis of that
theory, of course—a common law innovation that has had reverberations nationwide—is
that the risk of injury caused by consumer goods should be allocated to those who are
best positioned to take action to minimize the risk of future injury. By passing goods
along the chain of distribution that ultimately reaches the consumer, any business within
the chain is deemed to be “an integral part of the overall producing and marketing
enterprise” and may be held accountable for “the cost of injuries resulting from defective
products[.]” (Vandermark, supra, 61 Cal.2d at p. 262.) Recognizing the reality that
vehicle leasing often goes hand-in-hand with vehicle sales in a marketing enterprise,
Price relied on a vehicle leasing case from New Jersey, Cintrone v. Hertz Truck Leasing
Etc. (1965) 45 N.J. 434, 440 [212 A.2d 769] (Cintrone). The defendant in Cintrone,
“Hertz Truck Leasing & Rental Service[,] [was] in the business of leasing and renting
various types of motor vehicles to the public.” (212 A.2d at p. 772.) Hertz, as a lessor,
was held to be strictly liable in tort to the employee of a customer who rented one of its
trucks. (Id. at pp. 771, 778–779.)
The Price court anchored its holding in the “broad philosophy” of strict liability,
animated by the overall “purpose of . . . ‘insur[ing] that the costs of injuries resulting
from defective products are borne by the manufacturers that put such products on the
market rather than by the injured persons who are powerless to protect themselves.’ ”
(Price, supra, 2 Cal.3d at p. 251.) “[T]he paramount policy to be promoted” by the rule

44
of strict liability, the court explained, “is the protection of otherwise defenseless victims
of manufacturing defects and the spreading throughout society of the cost of
compensating them.” (Ibid.)
With that as the doctrinal backdrop, the Price court discussed Cintrone at length,
observing that a large scale vehicle leasing business puts “ ‘vehicles in the stream of
commerce in a fashion not unlike a manufacturer or retailer,’ subjects such a leased
vehicle ‘to more sustained use on the highways than most ordinary car purchasers,’ and
by the very nature of [its] business, exposes ‘the bailee, his employees, passengers and
the traveling public to a greater quantum of potential danger of harm from defective
vehicles than usually arises out of sales by the manufacturer.’ ” (Price, supra, 2 Cal.3d at
p. 252.) “In today’s society,” the court concluded, “with ‘the growth of the business of
renting motor vehicles, trucks and pleasure cars’ . . . and the persistent advertising efforts
to put one ‘in the driver’s seat’ . . . we have no difficulty in finding the doctrine [of strict
liability] peculiarly applicable to the lessor of motor vehicles.” (Id. at p. 253.)
Applying Price to this case, the fact that the specific transaction at issue here was
a sale—at the end of the 1992 Oldsmobile’s one-year tour of duty as a rental car in
February 1993—is of no consequence. Central to the holding in Price is that the
difference between leasing and selling does not matter. When analyzing the stream of
commerce under Greenman and Vandermark, either mode of doing business may lead to
strict liability since they are both means for introducing products into the marketplace.
What is key is not the form of distribution, but whether a lessor may be said to have had a
“participatory connection, for [its own] profit or other benefit, with the injury-producing
product and with the enterprise that created consumer demand for and reliance upon the
product.” (Kasel v. Remington Arms Co. (1972) 24 Cal.App.3d 711, 725.)
In my view, there is such a “participatory connection” here. The key insight Price
draws from Cintrone is that the motor vehicle leasing business and the motor vehicle
manufacturing business, in modern commerce, are financially interdependent. Car rental
companies promote car manufacturers’ cars to the driving public—allowing rental
customers, in effect, to test drive the cars for extended periods—and, in return, rental car

45
companies benefit from the brand value of manufacturers in attracting potential rental
customers. That is enough to put Enterprise in the stream of commerce between GM and
the plaintiff in this case. No de facto distributorship or sales agency is required. Nor is
de facto manufacturing status required.
Thus, I think the trial court was incorrect to conclude that, to apply strict liability
here, it would have to “extend” Price. Our Supreme Court has already resolved the issue
presented here—in Price itself, by embracing Cintrone. This case is controlled by Price
as a matter of law, and even if there were some arguable factual question about whether
Price applies because we do not know what, exactly, Old NCRS’s relationship with GM
was, I think that on this record, the business reality is plain enough. After all, before Old
NCRS’s later incarnation as New NCRS in its mid-1990s corporate history, GM saw the
National Car Rental business which both Old NCRS and New NCRS operated as
sufficiently integral to its manufacturing and marketing enterprise to own it as a
subsidiary. As evidence of the business realities in this case, Old NCRS’s status as a GM
operating subsidiary speaks volumes.
The only extension of doctrine in play here is the legal position Enterprise argues
in reliance on Tauber-Arons, LaRosa, and Wilkinson. According to Enterprise, the sale
of the 1992 Oldsmobile in 1993 triggers the rule under these cases that the seller of used
machinery is not strictly liable in tort unless it rebuilds or reconditions the product and
thus assumes a role analogous to that of a manufacturer. Whatever utility Tauber-Arons,
LaRosa, and Wilkinson may have in promoting traditional modes of distribution for
second-hand goods through flea markets, consignment sales and auction houses, I think it
is unwise to apply those cases too broadly. They should be limited to situations in which
the product in question passes to the consumer (whatever the form of the transaction)
from some source outside of the marketing enterprise, as broadly defined in Kasel.
(Kasel, supra, 24 Cal.App.3d at p. 725.)
In today’s sharing economy, where many new forms of short-term rental
relationships are proliferating in the consumer marketplace, and the Internet has disrupted
quaint notions of tiered distribution from manufacturer to consumer, it is, in my view,

46
unwise to read Price narrowly while giving an unduly broad reading to Tauber-Arons and
its progeny. The used goods cases reflect an economic reality about the consumer
marketplace that is rapidly disappearing. Ultimately, the teaching of Greenman and
Vandermark—some might say the genius of those Traynor-era cases—is that they
instruct us as a common law court to adapt the law of torts to society’s current economic
realities.
II. CORPORATE SUCCESSOR LIABILITY
The primary ground of the trial court’s grant of summary judgment, and the focus
of almost all of its attention in its summary judgment order, was that the doctrine of strict
liability does not apply. But at the end of its summary judgment order, the court briefly
discussed and embraced Enterprise’s backup argument that, on this summary judgment
record, it has no liability as a corporate successor to NCRS. Without reaching strict
liability, the majority affirms on this alternative ground. I respectfully disagree and
would reverse on the issue of successor liability as well.
My colleagues and I start from the same well-established premises. Under
traditional principles of corporate successorship liability, the general rule is that a
successor by asset purchase does not assume the selling corporation’s debts and
liabilities. (Ray v. Alad Corp. (1977) 19 Cal.3d 22, 28 (Alad).) But there are five
exceptions to this general rule, and where we part ways is in whether any of those
exceptions applies. I think at least two of them do, including one that is specifically
designed for strict liability cases.
Successor liability attaches where “(1) there is an express or implied agreement of
assumption, (2) the transaction amounts to a consolidation or merger of the two
corporations, (3) the purchasing corporation is a mere continuation of the seller, or (4) the
transfer of assets to the purchaser is for the fraudulent purpose of escaping liability for
the seller’s debts.” (Alad, supra, 19 Cal.3d at p. 28.) Our Supreme Court created a fifth,
public-policy based exception known as the product line successor rule, tailored
specifically to products liability cases. (See Kaminski v. Western MacArthur Co. (1985)
175 Cal.App.3d 445, 456 (Kaminski) [“Given the policies underlying strict liability, the

47
‘stream of commerce’ approach to liability should extend to successor entities. When a
distributor or retailer acquires a corporation and takes advantage of its goodwill and other
corporate assets and facilities to inject the predecessor’s product line into the stream of
commerce, it continues ‘the overall producing and marketing enterprise that should bear
the cost of injuries resulting from defective products.’ ”].)
The “[j]ustification for imposing strict liability upon a successor to a manufacturer
under the circumstances here presented rests upon (1) the virtual destruction of the
plaintiff’s remedies against the original manufacturer caused by the successor’s
acquisition of the business, (2) the successor’s ability to assume the original
manufacturer’s risk-spreading role, and (3) the fairness of requiring the successor to
assume a responsibility for defective products that was a burden necessarily attached to
the original manufacturer’s good will being enjoyed by the successor in the continued
operation of the business.” (Alad, supra, 19 Cal.3d at p. 31.)
At issue here are the first exception to the general rule of corporate successor
nonliability (express assumption by agreement) and the fifth exception (product line
liability under Alad). “To establish that it [was] entitled to summary judgment,”
Enterprise had the burden of showing that these two “exceptions . . . do not apply in this
case. Those issues are ‘extremely fact sensitive.’ ” (Fisher v. Allis-Chalmers Corp.
Product Liability Trust (2002) 95 Cal.App.4th 1182, 1188.) “Eliminating the exceptions
require[d]” Enterprise to “disprov[e] at least one element of each exception or show[] that
at least one such element cannot be established.” (Ibid.) Enterprise’s summary judgment
motion in this case sought to carry that burden by breaking the chain of successor liability
at two points in the corporate history of NCRS.
First, Enterprise argued, plaintiff cannot trace the liability beyond 1996, when GM
National Holding Co. (formerly Old NCRS) was merged into GM. Second, Enterprise
argued, plaintiff cannot trace successor liability past the purchase by Cerberus Capital
Management, L.P. (Cerberus) of the New NCRS assets out of bankruptcy in 2003. The
trial court held that plaintiff could not clear either hurdle. Adopting Enterprise’s
reasoning, the court explained, “the string of liability would have been broken [in 2003]

48
when NEW NCRS (assuming it [was] a successor to the liability of OLD NCRS, which
itself is debatable) went into bankruptcy and its assets were purchased by CERBERUS
MANAGEMENT pursuant to an ‘Asset Purchase Agreement’ in which Cerberus
Management did not assume liabilities such as the strict liability for the automobile at
issue in this case.” Then, without discussion, the court briefly concluded if “OLD NCRS
remained liable into the future, [its] liability would have been assumed by GM in OLD
NCRS’s merger with GM in 1996.”
Both grounds for granting summary judgment on successor liability are erroneous,
in my view.
A. Express Assumption
1. Contract Excerpts in the Summary Judgment Record
The summary judgment record addressing express assumption is not a model of
clarity. In its statement of undisputed facts, 1 Enterprise supported its summary judgment
motion with bits and pieces of the June 12, 2003 “Asset Purchase Agreement by and
among ANC Rental Corporation, and the Other Debtors Listed on Signature Pages
Hereof, debtors-in-possession, and Car Acquisition Company LLC and Cerberus Capital
Management, L.P.” Only a handful of pages from this contractual instrument are in the
summary judgment record, but based on what can be seen from the few pages Enterprise
provided, it is a lengthy, complex document. These excerpts—which include the caption
page, some recitals, a signature page, and two of the document’s many schedules—
include only two pages of actual contract language. They span pages 26 and 27 of the
contract and appear to include the entirety of section 2.3, which is entitled “Assumed
Liabilities.” In the briefs, the parties argue back and forth about whether, under section

1
See United Community Church v. Garcin (1991) 231 Cal.App.3d 327, 337 (the
“Golden Rule” of summary judgment and summary adjudication is that “if it is not set
forth in the separate statement, it does not exist’ ”).

49
2.3(d), or under section 2.3(g), Enterprise expressly assumed the potential liabilities at
issue in this case.
Under section 2.3(d), Enterprise assumed “[l]iabilities relating to or incurred in
connection with the Acquired Assets . . . that arise after the Closing Date.” And under
section 2.3(g), Enterprise assumed “[l]iabilities . . . relating to accidents involving the
vehicles of the Business and the ALM Business[ 2] (i) reflected on or of a category
reserved against on the March 31, 2003 consolidated balance sheet of Seller and
outstanding on the Closing Date or (ii) incurred in the Ordinary Course of Business after
March 31, 2003.” Based on these contract fragments from the summary judgment record,
the majority opinion takes Enterprise’s side of this debate, concluding, in essence, that it
is impossible that the potential liability involved in this case could have been expressly
assumed, because, by 2003—a decade after NCRS sold the 1992 Oldsmobile to the S.
family—the allegedly defective car at issue in this case could not have been an “Acquired
Asset” within the meaning of section 2.3(d), and could not have been a “vehicle of the
Business” under section 2.3(g). (Maj. opn., ante, at p. 13)
I do not think there is enough here to draw that conclusion. To begin with, and
most basically, a corporate asset purchase of the kind we have here typically includes far
more than simply the purchase of personalty. It may, and usually does, include the
transfer of cash, real estate, goodwill, and intellectual property, including trademarks and
other repositories of intangible brand value. There are many reasons this form of
acquisition is used as a mode of acquisition, but one of the most common is that it allows
a line of business comprising something less than an entire corporate entity to be
transferred (which explains why its distinguishing feature is that of a sale of assets rather
than a sale of stock). Why is this basic corporate mergers and acquisitions concept
important here? Because the premise of the majority is that, if the specific car at issue in

2
“ALM Business” was defined as “the car rental business previously operated by
Spirit Rent-A-Car, Inc. and its predecessors in the car replacement market throughout the
United States under one or more of the brand names ‘Spirit’, ‘CarTemps USA’ or ‘Alamo
Local’.” (Asset Purchase Agreement § 1.1.)

50
this case was no longer owned by NCRS as of 2003, liability for an accident caused by a
car it sold many years before—having been out of its ownership and control for more
than a decade—could not have been assumed by Enterprise.
Maybe that premise is right, or maybe it is wrong. But it is a problem of legacy
tort liability that is well known in the business world, especially among businesses that
operate over the course of many decades. Here, the question of express assumption
depends on the meaning of the terms “Acquired Assets” (§ 2.3(d)) and “Business”
(§ 2.3(g)). If Cerberus’s objective was to buy a line of business, including goodwill built
up over many years and the “National Car Rental” brand value, then, depending on what
exactly was negotiated in the bankruptcy proceedings, the purchase could easily have
included liabilities relating to formerly owned assets. The scope of the purchase may
have included all of the legacy liability, some of it, or none of it, but obviously the extent
to which those liabilities were taken on board would have fundamentally affected the
price and hence the amount of money received by the bankruptcy estate. All of which is
to say that this kind of issue can be, and often is, a focal point of negotiation in
bankruptcy, and as a result, it is not something we can safely make assumptions about
when all we have in the summary judgment record is a few pieces of the Asset Purchase
Agreement.
The majority opinion nevertheless reasons that section 2.3 “contains a list of
specific liabilities that the purchasers agreed to assume from the seller entities” and that
the 1992 Oldsmobile “was not an asset of New NCRS in 2003 and therefore not an
‘Acquired Asset’ of the purchasers under the terms” of the Asset Purchase Agreement.
(Maj. opn., ante, at pp. 12–13.) The majority also concludes that “Cerberus never
acquired any asset—neither the car nor the corporation—to which liability for
[plaintiff’s] future accident could have attached.” (Maj. opn., ante, at p. 13.) I find these
conclusions mystifying. We would never decide a contract interpretation issue in a
breach of contract case—as a matter of law, especially in a case involving a complex
contract—based on a record this scanty. Given the paucity of contractual materials in the
summary judgment record here, I come to the opposite conclusion on each point. There

51
is no list of specific assets in section 2.3, and there is no reference to formerly owned
vehicles, one way or the other.
Because the most pertinent wording in section 2.3 is broad and general (e.g.,
“Acquired Assets,” “Business”), and because those words are defined elsewhere in
sections of the contract that were not made part of the summary judgment record, it is
difficult to know the scope of the asset purchase based solely on the contractual language
Enterprise selectively chose to present. If, as appears to be the case, this was a purchase
of a line of business, and not a purchase of a discrete list of assets—say, a fleet of 5,245
specific automobiles with listed ownership registration numbers—then I would expect to
see provisions elsewhere in the contract that shed light on whether the contracting parties
addressed or contemplated the potential of legacy tort liability associated with that line of
business. Strangely, however, the summary judgment record does not include enough of
the Asset Purchase Agreement to discern whether the parties addressed that issue. At
best for Enterprise, in my view, the pieces of the Asset Purchase Agreement cited in the
statement of undisputed facts are ambiguous.
Perhaps the record Enterprise relies upon would be sufficient under a summary
judgment regime that only requires a movant to “point out” that a plaintiff cannot
produce evidence raising a triable issue on some element of his or her claim. But of
course under California rules of summary judgment procedure, more is required. A
moving defendant bears “an initial burden of production to make a prima facie showing
of the nonexistence of any triable issue of material fact.” (Aguilar v. Atlantic Richfield
Co. (2001) 25 Cal.4th 826, 850 (Aguilar); see id. at p. 854 [“Summary judgment law in
this state . . . continues to require a defendant moving for summary judgment to present
evidence, and not simply point out that the plaintiff does not possess, and cannot
reasonably obtain, needed evidence.”].) Under Aguilar, I would hold that Enterprise has
failed to bear its initial burden of producing evidence negating any triable issue on
successor liability, and reverse on that basis, without going further.

52
 2. The More Complete Version of the Contract
Unmentioned by the majority is a more fulsome version of the Asset Purchase
Agreement that is included as part of appellant’s appendix. Though not specifically
included in the statement of undisputed facts that makes up the summary judgment
record, this version of the Asset Purchase Agreement was placed before the court in
connection with two earlier attempts to obtain a case-dispositive ruling on successor
liability, once by Enterprise, and once by a co-defendant, AutoNation, in support of
unsuccessful demurrers decided by different trial judges than the judge who granted
summary judgment. Notably, it is still not a fully complete copy of the Asset Purchase
Agreement, since it fails to include numerous schedules and exhibits, but it certainly sets
forth the terms of ANC’s asset sale to Cerberus in far greater detail than the bits and
pieces of the contract cited by Enterprise in its statement of undisputed facts. This more
complete version of the Asset Purchase Agreement fortifies my view that, at best for
Enterprise, the governing contractual language is ambiguous with respect to whether
there was an express assumption of the class of potential tort liability at issue in this case.
First, textually—when the fuller context of the defined terms is taken into
account—I think a reading of the Asset Purchase Agreement favoring plaintiff’s view
that there was an express assumption is not only plausible, but is the more reasonable
reading of it. The defined term “Acquired Assets” confirms that this was a sale of a line
of business. As defined, the term means that Cerberus would “purchase, acquire and
accept . . . all of [Debtors’] business, properties, assets, goodwill, contracts, rights and
claims of whatever kind or nature, real or personal, tangible or intangible, whether known
or unknown, actual or contingent, wherever located, other than the Excluded Assets.”
The defined term “Business” confirms that as well. As defined, “Business” means “car
rental businesses in the airport and off-airport leisure and business travel rental markets”
operated in various parts of the world “under the brand names Alamo, National and Guy

53
Salmon[.]” Thus, what was acquired here was a collection of lines of car rental
businesses, including one operated under the brand name “National.” 3
Second, based on the structure of the Asset Purchase Agreement, it is clear the
parties recognized there was a wide range of legacy liabilities associated with the
“Acquired Assets” and the past conduct of the “Business,” presenting contingent risk
going forward, after the closing date of the sale. These contingent risks are all dealt with
in the same general way: Cerberus, having been given a full opportunity to conduct a due
diligence investigation of the businesses being acquired, 4 accepted representations and
warranties from the sellers that (1) other than existing claims against them—which were
fully disclosed and reflected in current liabilities on the sellers’ balance sheets—they
knew of no potential or contingent liabilities that could have a material adverse effect on
the value of the businesses being acquired,5 and (2) the sellers had in place, and were
transferring to Cerberus, insurance and accounting reserves adequate to deal with
unknown, contingent liability. 6
This is a standard way of dealing with contingent liabilities in a corporate
acquisition, but it was not Cerberus’s only protection. For any categories of risk
Cerberus was particularly concerned about, it was able to, and it did, put such exposures

3
One of the additional pieces of information that can be gleaned from the more
complete version of the Asset Purchase Agreement is a list of companies—including
NCRS—whose stock was not included in the definition of “Acquired Assets.” (Asset
Purchase Agreement schedule 2.2(a) [Equity Securities not Included in Acquired
Assets].)
4
Asset Purchase Agreement sections 4.7 (Information), 5.2 (Access to
Information; Cooperation; Confidentiality).
5
Asset Purchase Agreement sections 3.10(a) (Litigation), 3.13(e) (Employee
Benefit Matters), 3.14(a) (Labor Relations and Employment), 3.15(f) (Environmental
Matters), 3.16(b) (Intellectual Property).
6
Asset Purchase Agreement sections 3.26 (Insurance), 3.5(d) (contingent
liabilities either disclosed or adequately reserved against), 6.2(a) (truth of all
representations and warranties qualified by material adverse effect threshold).

54
on a list of “Excluded Liabilities.” 7 Included on this list, for example, were certain kinds
of employment claims, contractual commitments under contracts that were not being
transferred, tax liabilities beyond those reflected in the audited financial statements being
relied upon at the time of closing, and liens on Acquired Assets other than the ones
specifically disclosed and permitted. Contingent environmental liabilities, the only form
of strict liability specifically identified in the Asset Purchase Agreement—which is, of
course, imposed by statute as a matter of public policy—is not on the list of “Excluded
Liabilities.” Legacy risk for strict liability claims arising from past operation of the
acquired “Business” is not on the list of Excluded Liabilities either.
Reading the Asset Purchase Agreement as a whole, I conclude it is at least a
reasonable construction, possibly a compelled construction as a matter of law, that there
was an express assumption of the class of tort liabilities we are dealing with here.
Nothing in the trial court’s summary judgment order indicates that it considered the
actual wording of the Asset Purchase Agreement. Based on some fragments of the
contract language, the majority affirms, accepting Enterprise’s argument that, since
NCRS sold the 1992 Oldsmobile at issue here a decade before the asset sale to Cerberus
in bankruptcy—thus showing that the car was not a “vehicle of the business” at the time
of the asset purchase—it was impossible for any liability on plaintiff’s yet-to-be-asserted
claim to be expressly assumed. (Maj. opn., ante, at pp. 12–13.) This reading of the Asset
Purchase Agreement is flawed. 8 It rests on a mistaken understanding of how contingent

7
Asset Purchase Agreement section 2.4 (Excluded Liabilities).
8
As just one example of how, textually, that interpretation is problematic, the
Asset Purchase Agreement defines the term “Existing Vehicles” to have a literal meaning
specific to autos currently owned, since it requires disclosure of detailed identifying
information for each one. (Asset Purchase Agreement § 3.19 (Vehicles).) The phrase
“vehicle of the Business” in section 2.3(g) does not use this defined term, which suggests
it has a broader meaning. That broader meaning could mean Existing Vehicles and all
vehicles acquired by the Business hereafter; it could mean Existing Vehicles and vehicles
that have ever been owned by the Business; or it could have both prospective and
retrospective meanings. In short, the phrase is reasonably susceptible of more than one
meaning.

55
liability is handled in corporate acquisitions, and how it was handled here, as the Asset
Purchase Agreement, when read in its entirety, plainly shows.
Without delving into the difficult questions of contract interpretation that
Enterprise’s proffered construction of the Asset Purchase Agreement presents, my
colleagues never address whether the contract language is “reasonably susceptible” to an
alternate reading favoring plaintiff. (See Morey v. Vannucci (1998) 64 Cal.App.4th 904,
912–913.) I cannot join in their analysis. Summary judgment should have been denied
because Enterprise presented selective excerpts of the Asset Purchase Agreement which
are themselves ambiguous, thus raising a triable issue whether the contract should be
construed to include an express assumption of the liability at issue. And upon
consideration of what appears to be a nearly complete version of the Asset Purchase
Agreement that is in the appellate record (though it was never tendered in support of the
statement of undisputed facts), I am even more convinced that plaintiff is entitled to try
the issue of express assumption.
B. The “Virtual Destruction” Element of Ray v. Alad
The trial court did not explain why its finding that Old NCRS’s liability was
assumed by GM in 1996 entitled Enterprise to summary judgment, but in so concluding it
implicitly embraced two arguments Enterprise made in support of summary judgment,
and continues to make here on appeal. First, Enterprise argued, and still argues, that
there was no “virtual destruction” of plaintiff’s remedies because GM—not New
NCRS—was the sole corporate successor to Old NCRS by merger, and as a result,
plaintiff retained the ability to seek recourse against GM. (Petrini v. Mohasco Corp.
(1998) 61 Cal.App.4th 1091, 1096, 1098 (Petrini) [corporate successor following
statutory merger assumes liability of predecessor by operation of law].) Second, and in
the alternative, Enterprise argued, and still argues, even if GM was not the sole successor
to Old NCRS, any successor liability New NCRS carried forward was cut off in its 2003
bankruptcy. (Stewart v. Telex Communications, Inc. (1991) 1 Cal.App.4th 190, 200
(Stewart)). The majority erroneously accepts both of these arguments.

56
 1. GM as the Purported Sole Successor to Old NCRS
The first step in Enterprise’s “virtual destruction” line of argument is
unsustainable. It skips over the fact that, on June 1, 1995—more than a year before the
merger of Old NCRS (as renamed GM National Holding Co.) into GM—Old NCRS sold
substantially all of its assets to NCR Acquisition Corporation (as renamed National Car
Rental System Inc.). 9 The majority acknowledges this, but suggests that “NCRS
continued to exist as a legal entity under a different name” until it merged with GM.
(Maj. opn., ante, at p. 5.) But there is nothing in the record showing that after the 1995
asset sale, the predecessor corporation, GM National Holding Co., continued to operate,
as was the case in Phillips v. Cooper Laboratories (1989) 215 Cal.App.3d 1648, where
the predecessor corporation, E.S. Miller Laboratories, Inc. continued to operate profitably
in changed form for a decade after the asset sale in question. (Id. at pp. 1652–1653.) A
holding company, in corporate parlance, is not an operating company.
After the June 1995 asset sale, GM National Holding Co. was left with net
liabilities of $293.9 million. There is no evidence whatsoever that it was a going concern
at this point, in the sense of having adequate resources to cover its debts as they came
due. The entity was nothing more than a paper company until GM absorbed it by merger,
a step which had previously been ordered by the GM board two months before the asset
sale. 10 It is a fair inference from the timing—first the asset sale, followed shortly

9
My colleagues and I, for clarity, refer to National Car Rental System Inc. at this
stage in its corporate evolution as New NCRS. In the corporate history after 1996, there
were two interim steps before Cerberus’s purchase of New NCRS’s assets in 2003. In
1997, Republic Industries, Inc. acquired New NCRS in a stock-for-stock exchange,
operating it as part of a conglomerate of car sales and rental car businesses for three
years. And in 2000, Republic Industries, Inc. spun off its rental car businesses to a
company known as ANC Rental Corporation (ANC). It is ANC and its affiliates that
filed for bankruptcy in 2003, selling the New NCRS assets to Cerberus at that point.
10
Certificate of Ownership and Merger Merging GM National Holding Co. Into
General Motors Corporation (June 24, 1996), Third Recital (the GM board of directors,
“by resolution duly adopted . . . on the 3rd day of April 1995, determined to merge with
and into itself GM National Holding Co.”). Advance documentation of the mandatory
wind-up of GM National Holding Co. was presumably required for GM to take a tax loss

57
thereafter by the merger—that these two steps were part of the same transaction. To this
extent, I agree that the proper analysis here is governed by a “straight-forward
application” of Alad (maj. opn., ante, at p. 6), a case where substantially all of the assets
of a predecessor (there Alad I) were sold to a successor (there Alad II), followed
immediately by liquidation of the predecessor, thus destroying a product liability
plaintiff’s ability to sue the predecessor. (Alad, supra, 19 Cal.3d at pp. 26, 33.) 11
Instead of taking on the 1995 asset sale and grappling with its implications,
Enterprise elides the issue by shifting the focus ahead to the GM merger in 1996.
Pointing to this second intra-corporate step in the transaction, Enterprise announces that
GM, not New NCRS, is the true successor to Old NCRS and accuses plaintiff of adopting
“the absurd position” that there were two successors to Old NCRS, GM and New NCRS.
Enterprise insists that that cannot be the case. Alad, it contends, “did not hold that more
than one entity can be held liable as a successor”; rather, “successor liability may apply
where, as a result of the acquisition, there is no recourse against the original manufacturer
at the time of the acquisition.” In this case, we are told, “NCRS’[s] acquisition of Old
NCRS’[s] assets did not prevent plaintiff from seeking recourse against old NCRS or
GM, neither of which were liquidated as part of the sale of old NCRS.”
Aside from being contrary to the record—Old NCRS was liquidated “as part of”
the 1995 asset sale to New NCRS, since the 1996 absorption of Old NCRS into GM was
ordered by GM’s board shortly before the asset sale took place—this argument is legally

of $147 million in 1995 on the sale of Old NCRS’s assets, which is what was reported in
GM’s fiscal year 1995 audited consolidated financial statements, as disclosed in GM’s
SEC Form 10-K that year.
11
The majority points out that plaintiff pleaded successorship liability under the
“mere continuation” and express assumption exceptions, but abandoned any theory of
successorship under the de facto merger exception. (Maj. opn., ante, at pp. 8–9.) I’m not
sure why this is relevant. No one disputes that plaintiff adequately pleaded successor
liability generally, which allows her to rely on product line successorship under Alad.
And based on Alad, the record creates a triable issue of successorship liability from Old
NCRS to New NCRS as a result of the 1995 asset sale, and that is enough.

58
wrong. First, and most fundamentally, it misconceives the nature of corporate
successorship. The rules of successor liability are not designed to pinpoint what entity
has the status of the one and only true successor. The purpose of these rules, instead, is
to identify circumstances in which a corporate entity has a sufficient relation to a
predecessor entity to trigger an exception to the general rule of corporate successor
nonliability, thus allowing us to say that the successor will be held derivatively liable for
its predecessor’s debts. Where a corporation, by asset sale, transfers all its assets and
goodwill to Corporation No. 1, and then its empty shell, by statutory merger, disappears
into Corporation No. 2, both Corporation No. 1 and Corporation No. 2 may be said to
have a such a relationship to the predecessor—albeit by different routes. That is what we
have in this case. Plaintiff simply has two different theories of derivative liability
(liability under Alad vis-a-vis New NCRS, liability under statutory merger principles vis-
a-vis GM) that may reach more than one entity in the chain of distribution.
Second, the argument rests on the flawed premise that so long as GM could be
held to account for what was left of Old NCRS’s liabilities after the dissolution of Old
NCRS (upon its merger into GM), there was no “virtual destruction of . . . remedies”
(Alad, supra, 19 Cal.3d at p. 31), and thus there were no liabilities for New NCRS (and
hence, ultimately, Cerberus) to inherit. This line of argument was made in Kaminski,
where the Western Asbestos Company (Western Asbestos), the original distributor of the
asbestos insulation product to which Jack Kaminski was exposed, sold all of its assets to
Western MacArthur Company (Western MacArthur). Two years after the asset sale,
Western MacArthur dissolved Western Asbestos. (Kaminski, supra, 175 Cal.App.3d at
pp. 450–453.) On appeal from a judgment holding Western MacArthur liable for
personal injury to Mr. Kaminski traceable to Western Asbestos’s distribution of asbestos
long before acquiring its assets, Western MacArthur, relying on the “complete denial of
redress” prong of the Alad test (Alad, supra, 19 Cal.3d at p. 32), attempted to argue that
successor liability under Alad “is only appropriate where the injured plaintiff has no other
remedy or recovery against any other defendant.” (Kaminski, supra, 175 Cal.App.3d at
p. 459.)

59
 The Kaminski court rejected the argument. “Products liability defendants in the
chain of commerce suffer joint and several liability,” the court explained. (Kaminski,
supra, 175 Cal.App.3d at p. 459.) Because “[t]he presence of another legitimate target
defendant in the case does not defeat successor liability against another legitimate
defendant,” the court construed the phrase “complete denial of redress” in Alad to mean
“the complete denial of redress against a major defendant in the chain of commerce, be it
manufacturer or distributor.” (Ibid., italics added.) Here, the merger of Old NCRS (as
renamed GM National Holding Co.) into GM in 1996 eliminated “a major defendant in
the chain of commerce,” namely Old NCRS, the rental company that launched the 1992
Oldsmobile into the stream of commerce. It makes no difference that GM remained on
the hook for whatever remained of Old NCRS’s liabilities after the 1995 asset sale to
New NCRS. To adopt the language used in Kaminski, the problem with the majority’s
reliance on Petrini, supra, 61 Cal.App.4th 1091 is that the merger of Old NCRS into GM
“effectively remove[d] the predecessor from the plaintiff[’s] pool of recovery.”
(Kaminski, supra, 175 Cal.App.3d at p. 456.)
Greenman and its progeny authorize consumers injured by defective products to
sue any target of their choice within the marketing chain of distribution, from the
manufacturer on down the line. Because its predecessor Old NCRS was a cog in GM’s
marketing machine when the 1992 Oldsmobile involved in this case initially entered the
flow of commerce, Enterprise cannot escape liability under these cases by arguing that,
following the 1996 merger, plaintiff remained free to sue GM in its place. That
argument, in my view, stands the rule of Greenman on its head. Recourse against the
manufacturer is always an available remedy for a plaintiff in a product liability case, but
Greenman recognizes it may not be a sufficient one. Indeed, as I see things here, the
practical difficulty plaintiff encountered when she attempted to pursue GM—whose
bankruptcy arguably serves as the most famous example in United States business history
that no company is too big to fail—nicely illustrates the wisdom of the risk spreading
rationale on which Greenman is founded.

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 2. Stewart v. Telex Communications, Inc.
On the facts presented here, plaintiff pursued recovery against multiple targets
within the chain of distribution, as was her right. She sued GM, but was stymied when
GM went bankrupt. She also sued Enterprise in an effort to trace the current ownership
of the National Car Rental brand and assert successor liability against New NCRS. The
dispositive issue, then, has nothing to do with the Old NCRS-GM merger and the GM
bankruptcy, but rather is whether successor liability may be traced forward from New
NCRS to Enterprise by asset sale out of the ANC bankruptcy. Enterprise apparently
recognizes this, because at the end of its argument it lays heavy emphasis on Stewart,
supra, 1 Cal.App.4th 190, arguing that “the purchaser of assets out of a bankruptcy is not
liable for claims against the bankrupt entity.”
Stewart was a product liability case involving an accident caused by a defective
antenna manufactured by a company called Hy-Gain Electronics Corp. (Hy-Gain). (Id. at
p. 193.) By the time of the accident, Hy-Gain had filed a voluntary petition of
bankruptcy, and in the bankruptcy proceedings Telex Communications, Inc. (Telex)
bought all of its assets and goodwill and continued manufacturing antennas using its
blueprints and trademark. (Id. at p. 194.) Declining to apply Alad, the Stewart court held
that Telex could not be held liable on a corporate successor theory because it was the
voluntary bankruptcy of Hy-Gain, not the asset sale to Telex, that caused the destruction
of the plaintiff’s remedies against Hy-Gain. (Id. at pp. 195–200.)
The majority suggests that the principle announced in Stewart has been “applied in
both state and federal cases as a matter of California law[.]” (Maj. opn., ante, at p. 14.)
To the extent this implies Stewart is part of a well-established vein of precedent not only
in California but elsewhere, that is simply not the case. For the most part, we are talking
about a few scattered federal district court decisions, plus Nelson v. Tiffany Industries,
Inc. (9th Cir. 1985) 778 F.2d 533 (Nelson), a federal diversity case which simply reflects
the Ninth Circuit’s prediction in 1985 of how the California Supreme Court would apply
Alad. Other than Stewart itself, that prediction has not borne much fruit. Over the course
of nearly three decades, Stewart has been cited twice in published California appellate

61
decisions, both times on background points of law and not once for its central holding on
destruction of remedies in the context of a Chapter 11 bankruptcy. 12
I respectfully disagree that Stewart and other cases in this rather thin body of
precedent “turn on whether the successor corporation caused the financial difficulties that
led the predecessor to be unavailable to cover liabilities to future tort victims.” (Maj.
opn., ante, at p. 15, italics added.) As I read these cases, they hold more narrowly that,
absent evidence that a purchaser of assets in bankruptcy colluded with the bankrupt entity
by inducing it to file for Chapter 11 protection, such a purchaser cannot be said to have
“caused” the destruction of future tort claimants’ remedies. (Nelson, supra, 778 F.2d at
p. 538; see Stewart, supra, 1 Cal.4th at p. 200, fn. 5.) The logic is that, since Chapter 11
bankruptcy is designed to give the bankrupt entity a fresh start free of “inchoate and
unknown tort liability” (Stewart, supra, 1 Cal.App.4th at p. 200)—at least that is how the
Stewart court understood what always happens in a voluntary bankruptcy—the
bankruptcy process is, in effect, an intervening cause, which breaks any chain of
causation traceable to the buyer. (See ibid. [adopting the reasoning in Nelson that “ ‘it
was Moody’s bankruptcy and not Tiffany’s subsequent purchase of the assets that
destroyed Nelson’s remedies’ ”].)
Stewart grounded its holding in bankruptcy policy, explaining that the discharge of
indebtedness in bankruptcy “could be inhibited by a holding that assets of the bankrupt
would be infected with the bankrupt’s inchoate and unknown tort liability,” since that
kind of legacy exposure would tend to drive down the price in any sale of the bankrupt’s
assets. (Stewart, supra, 1 Cal.App.4th at p. 200.)13 In my view, Stewart does not resolve

12
See Pepperell v. Scottsdale Ins. Co. (1998) 62 Cal.App.4th 1045, 1054; Wright
v. Stang Manufacturing Co. (1997) 54 Cal.App.4th 1218, 1223, fn. 1.
13
The assumption driving this policy rationale—that there is a preference in
Chapter 11 bankruptcy for promoting the discharge of indebtedness by ridding the debtor
of “inchoate and unknown tort liability” in order to maximize value in a sale of assets—is
a matter of considerable controversy among bankruptcy specialists. (See Swett, “Free
and Clear” Bankruptcy Sale Orders and State Law Successor Liability Claims: The
Overlooked Question of Preemption (2017) 25 Am. Bankr. Inst. L.Rev. 275, 309

62
anything here. Even if it were the case that, in theory, successor liability of Cerberus and
hence of Enterprise on unknown, yet-to-be-asserted claims could have been cut off in the
bankruptcy process—more on that below—there is a triable issue on express assumption.
Thus, before deciding the applicability and reach of Stewart on this record, it is important
to understand that all the case does is bring us back to the question whether there was an
express assumption by Cerberus of potential liability to plaintiff out of the ANC
bankruptcy in 2003. Only if there was not, as a matter of law, must we address Stewart.
I do think it is worth pointing out, however, that Stewart should be read with
caution. The notion that a Chapter 11 bankruptcy can insulate the bankrupt entity, and
hence purchasers of its assets, against what the Stewart court calls “inchoate and
unknown tort liability” (Stewart, supra, 1 Cal.App.4th at p. 200) has long been a
controversial one. That issue turns on whether, prior to confirmation of the bankrupt’s
plan of reorganization, the bankruptcy trustee may, in effect, shed corporate successor
liability by obtaining an order approving a sale of the bankrupt corporation’s assets “free
and clear of any interest in such property of an entity other than the estate” under 11
United States Code section 363(f) (section 363(f)). Most courts hold that successor
liability claims may be considered “interest[s] in property” that may be extinguished
under section 363(f). 14 But a growing body of law has developed recognizing an
important caveat: For successor liability to be extinguished at the time of the bankruptcy

[“Maximizing the estate on the backs of tort victims is not an imperative that can be
found in the [Bankruptcy] Code. And the idea that successor liability emanating from
product-related tort claims should be extinguished for the sake of equality of distribution
clashes in several different ways with usual premises of bankruptcy law.”].)
14
In re Trans World Airlines, Inc. (3d Cir. 2003) 322 F.3d 283, 288–291; In re
Leckie Smokeless Coal Co. (4th Cir. 1996) 99 F.3d 573, 581–582, 585–587; see In re
Paris Industries Corp. (Bankr. D.Me. 1991) 132 B.R. 504, 507–510; In re All American
of Ashburn, Inc. (Bankr. N.D.Ga. 1986) 56 B.R. 186, 189–190; Kuney, Misinterpreting
Bankruptcy Code Section 363(f) and Undermining the Chapter 11 Process (2002) 76
Am. Bankr. L.J. 235, 267 (“the dominant interpretation [of] . . . § 363(f) [is that it] can be
used to sell property free and clear of claims that could otherwise be assertable against
the buyer of the assets under the common law doctrine of successor liability”).

63
there must be an existing claim against the debtor, or short of that, some basis to identify
a relationship between a putative claimant’s right to demand money and the debtor’s use
of the assets, or appropriate notice to potential claimants. 15
3. Elliott v. GM LLC (In Matter of Motors Liquidation Co.)
Given the limited nature of a bankruptcy court’s ability to extinguish future
successor liability claims under section 363(f), I think plaintiff is correct to rely on the
latest circuit-level case to address the issue, Elliott v. GM LLC (In Matter of Motors
Liquidation Co.) (2d Cir. 2016) 829 F.3d 135 (Elliott), for the proposition that an asset
sale does not eliminate successor liability arising from unknown claims at the time of
sale. The majority suggests this limitation on the reach of federal bankruptcy law is “a
different question not relevant” to the state law principle of successor liability announced
in Stewart (maj. opn., ante, at p. 15), but I do not agree that the two questions can be so
easily separated. Even Enterprise argues that “[t]he federal bankruptcy law curtails the
plaintiff’s remedies, not the asset sale transaction.” That is a fair reading of Stewart,
which presupposes a voluntary Chapter 11 proceeding in which unknown claims are cut
off. (Stewart, supra, 1 Cal.App.4th at pp. 195–200.) At the time Stewart was decided,

15
See In re Savage Industries, Inc. (1st Cir. 1994) 43 F.3d 714, 720–722
(successor liability claim, even if it constituted an “interest” under § 363(f), could not be
extinguished where no notice provided to claimant); Truck Drivers Union v. Tasemkin,
Inc. (7th Cir. 1994) 59 F.3d 48, 50–51 (successor liability claim could proceed and was
not cut off by prior bankruptcy proceeding); see generally In re Piper Aircraft Corp.
(Bankr. S.D.Fla. 1994) 162 B.R. 619, 623–624, 627–629 (unknown future claimants
lacked any prepetition relationship with debtor’s conduct and thus had no claims in
bankruptcy proceeding); In re Fairchild Aircraft Corp. (Bankr. W.D.Tex. 1995) 184 B.R.
910, 917–918, 923–924, 933, vacated on other grounds (Bankr. W.D.Tex. 1998) 220 B.R.
909; American Bankruptcy Institute, 22nd Annual Spring Meeting (2004) Concurrent
Session: Successor Liability Revisited: Recent Developments and Trends, Cohen,
Successor Liability in Section 363 Sales, 041504 ABI-CLE 487, text accompanying fn.
17 (“There appears to have developed a bright-line rule that the failure to provide an
identifiable holder of a successor liability claim with adequate notice of the bankruptcy in
which a sale purports to be free and clear of successor liability claims renders the sale
subject to that successor liability claim. The lack of notice is a defect of constitutional
dimensions.”).

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bankruptcy law on this point was undeveloped. Not so anymore. Certainly after Elliott,
we now know that liability on unknown claims may be cut off, protecting purchasers in a
sale of business assets, only in certain narrowly defined circumstances.
Confirming a trend going back three decades in federal bankruptcy law, Elliott
confined the scope of the “free and clear” order in that case to disclosed claims for which
there was “(1) a right to payment (2) that arose before the filing of the petition” or
resulted from “ ‘pre-petition conduct fairly giving rise to’ ” the claim in circumstances
where there was “some contact or relationship between the debtor and the claimant such
that the claimant is identifiable.” (Elliott, supra, 829 F.3d at p. 156.) Under that holding
as applied here, to obtain an effective “free and clear” order, the onus was on the debtor
in the 2003 bankruptcy, ANC, to give notice to potential claimants, effectively charging it
with the necessary knowledge to identify the potential for such claims. (Id. at p. 160.)
To the extent Stewart rests on a different understanding of how Chapter 11 bankruptcy
works, I think more recent developments in bankruptcy law have cast the breadth of its
reasoning into doubt.
Subject to section 363(f) of the Bankruptcy Code, a corporate asset sale in a
Chapter 11 proceeding should be treated like any other corporate asset sale for purposes
of Alad. If the buyer of a product line in that setting succeeds to substantially all of its
predecessor’s assets and goodwill, it inherits whatever product liability exposure the
acquired product line carried with it, unless a “free and clear” order narrows the scope of
inherited liability. That is because, where the predecessor does not continue in the line of
business it has sold—here, there is no question that after 2003 there was nothing left of
ANC’s National Car Rental business—the purchase of assets in a Chapter 11 bankruptcy
does not, by itself, “cause” the destruction of remedies of future product liability
claimants. Only a “free and clear” order can block such claims, and even where there is
such an order, it will destroy remedies for purposes of Alad only to the extent Elliott
permits extinguishment of inherited liability.
The bottom line is this. The issue presented here is not that we are called upon to
apply a state law rule of successor liability (under Stewart), rather than a federal

65
bankruptcy rule (under Elliott), but instead whether we should reconcile those two
adjacent legal regimes. In my view, we should—by holding that the rule of Stewart
applies only when the criteria in Elliott for enforcing a federal bankruptcy court’s “free
and clear” order cutting off yet-to-be-asserted claims have been satisfied. Unless we
reconcile the tension between these two lines of authority in this way, who knows what
unintended confusion we could be sowing in an area of law where predictability and
certainty are as important as they are in bankruptcy. 16 Accordingly, because there is no
proof in the summary judgment record bearing on what the scope of the “free and clear
order” for the ANC-Cerberus asset sale was, or whether notice satisfying the rule in
Elliott was given, I would conclude that Stewart does not apply, even assuming there
were no triable issue on express assumption.
∗ ∗ ∗ ∗ ∗ ∗ ∗
This case presents two issues in the field of product liability law, the first
involving an application of the stream of commerce doctrine of Greenman, supra,
59 Cal.2d 57, and Vandermark, supra, 61 Cal.2d 256, and the second involving an
application of the closely related corporate successorship doctrine of Alad, supra,
19 Cal.3d 22. Both are close questions that have arisen persistently over the years but
that have not been definitively resolved. They both are deserving of the California
Supreme Court’s attention, if not in this case in some future case.

_________________________
Streeter, Acting P.J.

16
See Butner v. United States (1979) 440 U.S. 48, 55 (“Uniform treatment of
property interests by both state and federal courts within a State serves to reduce
uncertainty, to discourage forum-shopping, and to prevent a party from receiving ‘a
windfall merely by reason of the happenstance of bankruptcy.’ ”).

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Trial Court: San Mateo County Superior Court

Trial Judge: Hon. Richard H. DuBois

Counsel for Appellant: Law Offices of Carcione, Cattermole, Dolinski,
Stucky, Markowitz & Carcione, Joseph W. Carcione,
Jr., Aaron B. Markowitz and Joshua S. Markowitz for
Appellant

Counsel for Respondents: Crowell & Moring, Douglas W. Sullivan and Rebecca
M. Suarez; Yukevich Cavanaugh, James. J. Yukevich
and Delmar S. Thomas for Respondents

67