Title: American Standard, Inc. v. Oakfabco, Inc., formerly known as Kewanee Boiler Corp.

State: new-york

Issuer: New York Appellate Court

Document:

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This opinion is uncorrected and subject to revision before
publication in the New York Reports.
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No. 44  
American Standard, Inc.,
            Respondent,
        v.
Oakfabco, Inc., formerly known as 
Kewanee Boiler Corp.,
            Appellant.
William G. Ballaine, for appellant.
Yvette Harmon, for respondent.
SMITH, J.:
The issue here is whether the buyer of a boiler
business assumed the seller's liabilities for tort claims based
on boilers sold before the business was acquired, where the tort
claimants were not injured until after the acquisition.  We hold
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that the language of the parties' agreement, read in context,
shows that the buyer did assume those liabilities.
I
In 1970, American Standard, Inc. sold its Kewanee
Boiler division to Kewanee Boiler Corp., now known as OakFabco,
Inc. (OakFabco).  The parties entered an asset purchase and sale
agreement which described the purpose of the transaction in the
following words:
   "Seller desires to sell, and Buyer desires
to purchase, substantially all the assets of
Seller, real and personal, tangible and
intangible belonging to it, which are used in
connection with Seller's [Kewanee Boiler]
business and operations . . . subject to all
debts, liabilities, and obligations connected
with or attributable to such business and
operations."
The agreement said that OakFabco would purchase
"Kewanee Assets" subject to "Kewanee Liabilities."  The term
"Kewanee Liabilities" was defined as "all the debts, liabilities,
obligations and commitments (fixed or contingent) connected with
or attributable to Kewanee existing and outstanding at the
Closing Date." 
The boilers manufactured by Kewanee had been insulated
with asbestos, and as a result many tort claims were brought in
the years and decades following the purchase of the business. 
Some of those claims were brought by plaintiffs who had suffered
injuries after the closing of the transaction, allegedly
attributable to boilers manufactured and sold before the closing. 
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In this declaratory judgment action brought by American Standard
against OakFabco, the issue is whether liabilities for such
injuries were among the "Kewanee Liabilities" that OakFabco
assumed. 
On cross-motions for summary judgment, Supreme Court
held that these liabilities were assumed by OakFabco, and entered
a declaratory  judgment accordingly.  The Appellate Division
affirmed Supreme Court's declaration with minor changes, and also
granted American Standard's request "to permanently enjoin
[OakFabco] from relitigating its assumption of the aforementioned
obligations in any forum" (American Std., Inc. v OakFabco, Inc.,
58 AD3d 485, 486 [1st Dept 2009]).  We granted leave to appeal,
and now affirm the Appellate Division's declaration, but modify
its order by vacating the injunction.
II
American Standard's position -- that OakFabco assumed
all tort liabilities arising out of boilers manufactured by the
Kewanee Boiler division, whether the injury was suffered before
or after American Standard sold the division -- is strongly
supported by the purpose of the transaction, as described in the
agreement itself: It was a purchase and sale of substantially all
the assets of the Kewanee Boiler business "subject to all debts,
liabilities, and obligations connected with or attributable to
such business and operations."  Nothing in the nature of the
transaction suggests that the parties intended OakFabco, which
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got all the assets, to escape any of the related obligations.  
OakFabco, however, argues that the definition of
"Kewanee Liabilities" -- the liabilities OakFabco assumed -- is
less broad than the purpose of the transaction would imply.  It
stresses the words "existing and outstanding" in the definition -
- "all the debts, liabilities, obligations and commitments . . .
existing and outstanding at the Closing Date" (emphasis added). 
According to OakFabco, a tort claim cannot be "existing and
outstanding" before the tort plaintiff has been injured, because
until then it is not possible for a tort lawsuit to be brought.
If the words "liabilities . . . existing and
outstanding" were read in isolation, OakFabco's interpretation of
them would be plausible.  Indeed, we adopted a similar
interpretation of similar language, "liabilities . . . which
exist at the Closing Date," in Grant-Howard Assoc. v General
Housewares Corp. (63 NY2d 291, 295 [1984]).  But the transaction
at issue in Grant-Howard was of a different kind from the one we
are now considering.  
The defendant in Grant-Howard, General Housewares
Corporation, had entered into a "Reorganization Agreement" with
Holt Howard Associates, Inc. by which General Housewares bought
substantially all of Holt Howard's assets, but carefully limited
its assumption of liabilities.  The agreement provided that
General Housewares would not "be liable for any damages, claims,
losses, liabilities or expenses . . . with respect to any
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liabilities, obligations or other commitments not assumed" (id.). 
By contrast, the agreement in this case shows that OakFabco
simply took over all of American Standard's Kewanee Boiler
business; nothing in the purchase and sale agreement suggests an
intention to leave any obligations related to that business
behind.
That there was no such intention is made clear by a
clause in the agreement relating to certain obligations owed to
the boiler division's customers.  The agreement said that the
buyer would deliver at the closing:
   "An executed undertaking wherein the Buyer
will assume and agree to pay, and defend and
hold Seller harmless against, all Kewanee
Liabilities, including, by way of
specification but not limitation, the
following:
 . . .
"(iii) warranty, service, repair and
return obligations of Kewanee and other
claims and complaints arising out of or
in connection with any products
manufactured, sold, leased or installed
by Kewanee on or prior to the Closing
Date;"
. . .
   
This language clearly meant that the buyer would deal
with any problems customers had after the closing date with
boilers that had been installed previously.  It would have been
absurd for OakFabco to tell a customer whose boiler failed after
the closing that, since the customer's claim was not "existing
and outstanding" on the closing date, it was not OakFabco's
problem.  By including warranty, service, repair and return
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claims of this kind in the definition of "Kewanee Liabilities,"
the parties demonstrated that they were not reading the words
"existing and outstanding" as OakFabco would have us read them.
We therefore agree with the Appellate Division that the
liabilities assumed by OakFabco include claims brought by tort
claimants injured after the closing date by boilers installed
before that date.  The Appellate Division erred, however, in
enjoining OakFabco from ever relitigating this issue.  As a
general rule, parties are allowed to take any position they like
in litigation, as long as they can make a good faith argument for
it, and we see no reason to make an exception to that rule here. 
It may well be that our decision today will preclude OakFabco
from relitigating the issue we decide, in the sense that any
attempt to relitigate it should be rejected; but OakFabco should
not be enjoined from arguing otherwise.
Accordingly, the order of the Appellate Division should
be modified by vacating the award of injunctive relief and as so
modified affirmed, without costs.    
*   *   *   *   *   *   *   *   *   *   *   *   *   *   *   *   *
Order modified, without costs, by vacating the award of
injunctive relief and, as so modified, affirmed.  Opinion by
Judge Smith.  Chief Judge Lippman and Judges Ciparick, Graffeo,
Read, Pigott and Jones concur.
Decided April 6, 2010