Corporate Parents, Beware in France: One Can Be Liable for Another’s Doing

Morgan Lewis

Morgan Lewis

France’s highest Court (Cour de Cassation) recently ruled that an acquiring entity, in this case Iron Mountain, could be found liable for violations committed by the target, here Recall France, before the transaction. The November 25, 2020 decision, which reversed French case law, foreshadows serious concerns for future acquirers in M&A transactions.

Recall France, via its subsidiary Intradis, specialized in archive storage and was indicted for the destruction of property caused by a violation of its legal safety obligations after a fire damaged the archives kept in one of its warehouses. Before the trial began, however, Recall France was acquired by Iron Mountain which was then also summoned to appear in court to answer for Recall’s actions. Iron Mountain argued that, based on the court’s previous case law (Cour de Cassation Chambre Criminelle, June 20, 2000; Cour de Cassation Chambre Criminelle, October 14, 2003) and on article 121-1 of the Criminal Code (“No one is criminally liable except for his own doing”), it could not be held criminally liable for the target’s actions unless the transaction had occurred for the purpose of evading liability. The court, perhaps surprisingly, responded that, the legal personality of the target does not disappear at the end of the acquisition; instead, it is continued by the acquiring entity which can thus be held liable for the infractions of the acquired entity.

While it constitutes a significant reversal of French case law, this decision is in line with the European Union approach and removes France’s outlier status on this issue. Undertakings intent on acquiring others will likely feel significant consequences as a result of this case.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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