Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-86-01656/USCOURTS-ca10-86-01656-0/pdf.json

Nature of Suit Code: 365
Nature of Suit: Personal Injury - Product Liability
Cause of Action: 

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P U B L I S H 

IN THE UNITED STATES CQURT OF.APPEALS 

FOR THE TENTH CIRCUIT 

GEORGE W. FLOROM, ) 

) 

Plaintiff-Appellant, ) 

) 

v. ) 

) 

·ELLIOTT MANUFACTURING, a ) 

Nebraska Corporation, and )· 

ELLIOTT EQUIPMENT CORPORATION ) 

a Ne~raska Corporation, ) 

) 

Defendants-Appellees. ) 

No. 86-1656 

FILED 

United Statea Court of Appeals . Tenth Circuit 

FEB 0 61989 

ROBERT L. HOECKER 

Clerk 

ON APPEAL FROM THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF COLORADO 

(D.C. No. 83-JM-2187) 

James A. Cederberg, Bragg & Dubofsky, P.C., Denver, Colorado (John 

W. Hornbeck, Bragg & Dubofsky, P.C., Denver, Colorado was also on 

the brief) for Plaintiff-Appellant 

John M. Lebsack, White and Steele, P.C., Denver, Colorado (John M. 

Palmeri, White and Steele, P.C., Denver, Colorado was also on the 

brief) for Defendants-Appellees 

B.efore HOLLOWAY, Chief _Judge, MOORE, Circuit Judge, and RUSSELL, 

District Judge*. 

HOLLOWAY, Chief Judge 

*The Honorable David L. Russell, United States District·Judge for 

the Western District of Oklahoma, sitting by designation. 

Appellate Case: 86-1656 Document: 01019598721 Date Filed: 02/06/1989 Page: 1 
This appeal arises from the plaintiff's claim that the 

defendant, a. successor. corporation, fs liable for the injuries 

suffered· while the plaintiff was using a hydraulic crane 

manufactured and sold by the defendant's predecessor corporation. 

The plaintiff-appellant, George w. Flo~om (Florom), filed an 

action based on theories of strict liability, negligence, and 

breach of implied warranties against the defendant-appellee, 

Elliott Equipment Co. (New Elliott) as the successor to Elliott 

. Manufacturing Co. (Old Elliott), which manufactured and sold the 

crane to Florom's employer, and against Old Elliott. Old 

Elliott's motion for summary judgment was granted by_ Chief Judge 

Finesilver, and in a separate order he granted summary judgment 

for New Elliott, which was ~ppealed. 629 F. Supp. 1145. We 

affirm in part and reverse in part. 

I 

A. 

Florom was injured on January 23, 1981 while using a Hi Reach 

hydraulic crane (''cherry picker") during the course of his 

employment. He was ejected from the basket of the hydraulic crane 

while working on electrical transmission lines and fell 85 feet to 

the ground. As a result of the fall, Florom is a paraplegic. 

Old Elliott manufactured and sold the crane at issue to 

Florom's employer, Crawford Electric Company, in July 1969, prior 

to July 1972 when New Elliott purchased the assets of Old Elliott. 

Brief of Defendant-Appellee Elliott Equipment Corporation at 3; 

see Undisputed Facts stated by the magistrate. I R. Item 8 at 1. 

Pursuant to a court-supervised sale of Old Elliott, the two 

co~porations entered into a. purchase and sale agreement. This 

2 

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transaction was between·Old Elliott and the corporation which was 

£ormed explicitly for this acquisition purpose by Maynard Weaver 

(Weaver) and Stuart Borg. The successor corporation was 

originally named the same as the predecessor, Elliott 

·Manufacturing Co.. In 1975, New Elliott changed its na~e to 

Elliott Equipment Co. 

Under the terms of the purchase and sale agreement, Old 

Elliott sold "its assets consisting of machinery, inventory, 

tools, sup~lies, manufacturing plant and real estate on which it 

is located, goodwill, patents and copyrights." Exhibit 1, 1. The 

agr~ement stipulated that prior to closing the seller would 

furnish the purchaser a statement that all debts of the transferor 

had been paid in full or otherwise provided for, which statement 

would cause the purchaser to waive any requirement that the seller 

comply with Article 6 of the Nebraska Uniform Commercial Code 

pertaining to bulk tranfers. The agreement designated New Elliott 

as the purchaser and Weaver signed in his capacity as the 

President of New Elliott. Id. at 3 and Exhibit 7. Old Elliott 

received in consideration the sum of $601,000. 

New Elliott received_ al~ work in progress, customer accounts 

and records, and the liabilities necessary to carry on the d~y to 

day transaction of business. New Elliott closed the business for 

ten days to two weeks for inventory and then reopened. It 

continued the business using the same employees, sales force, 

facilities, stationery, ?nd invoices. At this time New Elliott 

also used the same name as the Old Elliott •. New Elliott did not 

retain the corporate officers,. board of directors, or stockholders 

of Old Elliott; no stock was provided to any Old Elliott 

3 

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stockholders, directors, or officers as part of the purchase and 

sale transaction. New Elliott did not inform its sales force, 

customers, or sales distributors that there had been an ownership 

change. 

. Old Elliott assigned and transferred to New Elliott "all 

contracts and obligations incurred by Elliott Manufacturing Co. 

[Old· Elliott] in the normal course of business." Exhibit 8 and 

Schedule A. This included ''[a]ll warranty obligations arising 

under the terms of the product warranty" issued by Old Elliott. 

Id. at Schedule A, ~ 4, also Exhibit 41. Under the purchase and 

sale agreement, Old Elliott agreed to a five year covenant not to 

compete. Old Elliott was incorporated under the laws of Nebraska. 

After its assets were sold with judicial approval, Old Elliott 

filed articles of dissolution with the Secretary of State of 

Nebraska on July 12, 1972. According to its attorney, Old Elliott 

"was dissolved on July 19, 1973." Exhibit 28. 

When New Elliott and Old Elliott completed their sale 

transaction, the cherry picker model EHE-75 used by Florom was not 

being manufactured. Subsequent to the sale transaction, New 

Elliott produced and sold a different model of the hydraulic crane 

while using the trade name "Hi Reach'' and the patent rights, 

copyrights, and royalty agreements associated with the model EHE75. New Elliott continued to service and provide replacement 

parts for the cranes produced by Old Elliott. It is undisputed 

that New Elliott provided service and replacement parts for the 

unit involved in Florom's injuries. 

4 

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B • 

. Florom filed this diversity action in the district court. 

Western Fire Insurance Company (Western) was a co-plaintiff as it 

insured Flor.om' s employer fo·r \'?Orkmen' s compensation coverage. At 

. issue in this appeal are claims which Florom alleged in. his 

amended complaint. Both Old and New Elliott were named as 

defendants. Florom asserted claims on theories of negligence, 

strict liability for a defective product, breach of implied 

warranty of fitness for a particular purpose, breach of implied 

warranty for mercha.ntabili ty, and workmen's compensation 

subrogation for Western. 

Both defendants filed motions for summary judgment. New 

Elliott and Florom objected to Old Elliott's motion. These two 

motions were addressed by a magistrate who recommended that both 

motions be granted on his proposed findings and conclusions. 

Florom objected to the Magistrate's recommendations. 

After review, the district judge concluded that both 

defendants' motions should be granted, though on reasoning 

different from the Magistrate's. The district judge determined 

that for conflicts of law purposes, the action presented a tort 

law problem. Because the most significant contacts occurred in 

Colorado, the court held that Colorado law would govern. 

The court granted New Elliott's motion for summary judgment, 

holding: (1) Colorado continues to adhere to the traditional 

corporate law view of successor nonliability; (~) Florom failed to 

come within any of the four exceptions to the corporate successor 

nonliability rule;· and (3) Colorado law, as· articulated by state 

courts and.the Colorado Products Liability Act (CPLA), has not 

5 

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adopted the theories of Froduct line and continuity of enterprise 

exceptions for strict liability claims. Florom- filed a motion to 

alter or amend the judgment and to certify the questions of law on 

successor corporate liability to the Supreme Court of Colorado, 

which was denied. 1 

Florom's timely appeal challenges only the summary judgment 

for New Elliott. Florom argues that the district court erred when 

it (1) concluded that there was no issue of ~aterial fact as to 

whether New Elli6tt, as a successor corporation, expressly or 

impliedly agreed· to assume Old Elliott's liabilities; (2) held 

that New Elliott, as a successor corporation, was not liable under 

the product line theory for injuries caused by defective products 

manufactured by its predecessor; (3) held similar nonliability 

under a continuity of enterprise theory for its predecessor's 

defective product; and (4) rejected, without discussion, Florom's 

claim that the successor corporation, New Elliott, had an 

independent duty to warn of unreasonable dangers associated with 

the products placed on the market by Old Elliott. 

We will first address the theories recognized by Colorado 

law, the exception to successor corporate nonliability where the 

successor has expressly or impliedly agreed to assume the 

predecessor's liabilities and a successor's independent duty to 

1 

The court also granted Old Elliott's motion for summary 

judgment on the basis that it dissolved in accordance with 

Nebraska law and that Florom' s a·ction was barred as to it for 

failure to file timely claims against a dissolved corporation. 

western is no longer a party as the plaintiff received an 

assignment of any sub~ogation interests for Western. 

6 

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warn which may arise £rom ~elation~hips between the successor and 

the predecessor's customers. 

II 

Florom argues that on two theories recognized under Colorado 

law there were disputed material facts and that ~he district court 

improperly granted summary judgment to New Elliott on those 

claims. We agree. First, on the claim that New Elliott expressly 

or impliedly assumed liability for Old Elliott's liabilities, 

neither the contract documents nor the record of New Elliott's 

post-acquisition conduct show that there is no genuine issue of 

fact and that the moving party is entitled to a judgment as a 

matter of law. Rule 56(a), Fed. R. Civ. P. Second, the district 

court did not address the issue whether New Elliott had a duty to 

warn Old Elliott's customers because of service relationships 

which were maintained with those customers. We likewise conclude 

there is a genuine fact question on this theory. 

When reviewing a summary judgment, we must examine the record 

to determine whether any genuine issue of material fact pertinent 

to the ruling remains, and if not, whether the substantive law was 

correctly applied. Western Casualty & Surety Co. v. National 

Union Fire Insurance Co., 677 F.2d 789, 791 n.l (lOth Cir. 1982). 

Under Rule 56, the movant must demonstrate that he is·entitled to 

a summary judgment beyond a reasonable doubt. Madison v. Desert 

Livestock Co., 574 F.2d 1027, 1037 (10th Cir. 1978). In making 

this evaluation, pleadings and .documentary evidence are to be 

construed liberally and in favor of the party opposing the motion. 

Harmon v. Divesified Medical Investment Corp., 488 F.2d 111, 113 

(10th Cir. 1973), cert. denied, 425 U.S. 951 (1976). However only 

7 

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disputes over facts -that might affect the outcome of the suit 

under the governing law will properly preclude entry of summary 

judgment. Anderson v. Liberty Lobby, 477 U.S. 242, 248 (1986). 

Express or Implied Assumption of Liabilities 

Under Colorado law, the general rule of nonliability of 

~uccessor .corporations . and four traditional exceptions to that 

rule are followed. Fl6rom invoked the exception arising when the 

predecessor sells or otherwise transfers all its assets to the 

successor and becomes liable because "the_purchaser expressly or 

impliedly agrees to assume" the debts and liabilities of the 

transferor. Ruiz v. ExCello Corp., 653 P. 2d 415, 416 (Colo. App. 

1982), cert. denied (1982). 2 

Besides affirming that Colorado continued to recognize the 

assumption exception after passage of the CPLA, Colo. Rev. Stat. 

tit 13, § 21-401 et. seq. (1987), Ruiz directs us to both the 

terms of the purchase and sale agreement and the successor's 

conduct. 

2 

[I]n order that a promise may be implied on the 

part of a corporation to pay the debts of another 

corporation, to the property and franchises of 

which it has succeeded by -valid purchase, the 

conduct relied upon must show such an intention. 

The general rule of nonliability and the traditional 

exceptions to it provides that where one company sells or 

otherwise transfers all its assets to another company the latter 

is not liable for the debts and liabilities of the transferor, 

except where (1) the purchaser expressly or impliedly agrees to 

assume such debts; (2) the transaction amounts to a consolidation 

or merger of the seller and purchaser; (3) the purchasing 

corporation is .merely a continuation of the selling corporation; 

or (4) the transaction is entered fraudulently in order to escape 

liability for such debts. Ruiz, 653 P.2d at 416; s€e generally 

Fletcher, Cyclopedia of the Law of Private Corporations, § 7123.5 

(1983). "' 

8 

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Beaver Park Co. v. Hobson, 283.P. 772,-777 (Colo. 1929) (quoting 

Colorado Springs Rapid Transit Railroad Co. v. Albrecht, 123 P. 

957, 960 (Colo. App. 1912) (emphasis added); Ruiz, 653 P.2d at 

416. 

Ordinarily, the construction of a contract is-a question of 

law for the court. Resort Car Rental System, Inc. v. Chu_ck Ruwart 

Chevrolet, Inc., 519 F.2d 317, 320 (10th Cir. 1975). Unless the 

words used. by the parties to express their agreement are found to ' 

be ambiguous in some material respect, the court should give them 

legal effect according to their plain, ordinary and.popular 

meaning. Id. An unambiguous contract between the seller and 

purchaser corporations, with explicit provisions which exclude any 

liability for the debts and liabilities of the predecessor, weighs 

against our finding that an exception can be implied. However, 

where the plaintiff makes a showing sufficient to raise questions 

of material fact as to whether the successor fits within the 

assumption exception, then the disputed facts preclude granting a 

summary judgment. See Ruiz, 653 P.2d at 417. 

Florom argues that the purchase and sale agreement is 

ambiguous and that New Elliott's postacquisition conduct with 

regard to liability insurance raises an issue of fact to be 

resolved by the trier of fact. New Elliott counters that no such· 

ambiguity exists in the documents and that its postacquisition 

conduct does not.indicate nor establish an implied assumption of 

Old Elliott's liabilities ~rising from products manufactured and 

sold by Old Eliiott. 

9 

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The agreement included a sworn state'ment .signed by the 

president of Old .Eliiott that "Seller further declares that except 

for obligations and agreements specifically assumed by purchaser, 

seller has paid or otherwise provides for the .payment-of all its 

liabilities and claims, both actual and contingent." Exhibit 3. 

An assignment and acceptance document signed by the presidents of 

Old and New Elliott addressed "all contracts and obligations 

incurred by [Old Elliott] in the normal course of business, but 

limited to those shown on Schedule A attached hereto. In 

consider~tion for this assignmerit, [New Elliott] hereby accepts 

all such contracts and obligations and agrees to be bound thereby 

to the same extent the assignor would be bound in the absence of 

this assignment." Exhibit 8. Schedule A listed specific 

contracts and obligations, including "all warranty obligations 

arising under the terms of the product warranty of [Old Elliott]." 

Id., Schedule A, at 11 4. The purchase and sale agreement also 

provided for the transfer of insurance prepaid by Old Elliott. 

Exhibit 1, ~ 3(a). 

New Elliott argues that these provisions unambiguously 

establish that the successor corporation did not intend to assume 

Old Elliott's liabilities which might arise from products 

liability claims. New Elliott further cites as contractual 

evidence the provision in the purchase and sale agreement which 

states that "Prior to closing, Seller shall furnish Purchaser with 

a statement that all debts of the transferor have been paid in 

full or otherwise provided for." Exhibit 1, at ~ 5. Paragraph 

ffve further says that this "statement shall cause Purchaser to 

waive any requirem~nt that Seller comply with Article 6 of the 

10 

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· Nebraska Uniform .. Commercial Code [ UCC} pertaining 

transfers." Id. This last statement is thus tied to 

to bulk 

its UCC 

purpose and 

from defects 

accompanying 

does not unambiguously exclude liabilities arising 

in Old Elliott's· products. The agreement and 

documents do not specif lcally mention liabilities 

arising from tort or products liability claims. 

Florom argues that New Elliott's postacquisition conduct 

included the continuation of the liability insurance which covered 

claims arising from the cranes made and sold by Oid Elliott as 

well as· those made by New Elliott. The ~ecord shows that this 

coverage was maintained and paid for by New Elliott from 1972 

through 1976. In May 1973, the insurer stated that liability 

coverage included 457 units produced by Old Elliott and 43 units 

produced by New Elliott. Exhibit 22. In 1976 the liquidating 

agent for Old Elliott agreed to assume 25% of the premium for the 

insurance. Exhibit 29. After 1977, New Elliott and the 

liquidating agent for Old Elliott disagreed as to whether New 

Elliott agreed to insure Old Elliott for liabilities arising from 

cranes sold by the predecessor. Exhibits 28, 29, 40, 41, 42. 

During this 1977-1981 period the insurer and the two entities were 

facing product liability lawsuits arising from injuries suffered 

whil~ plaintiffs were· using assorted models of Hi-Reach cranes. 

Exhibit 42 (listing 12 actions and status). 

Besides the fact of the insurance coverage being continued by 

New Elliott, Florom 

facts are in 'dispute as 

Elliott. Weaver, the 

points to depositions to show that material 

to the postacquisition intent of New 

president. of New Elliott, stated that he 

"can't give a logical answer" as to why the successor corporation 

11 

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~ 

continued paying for the coverage.to Ansure liabilities arising· 

from' the predecessor's products. I R~ Exhibit A, Deposition of 

Weaver, 18-20. The attorney who handled the acquisition 

transaction.stated that the purchaser's intent in buying the 

assets, rather than the .corporate stock, was to "future tort 

lawsuits." Id., Exhibit·B, Deposition of Matthews, 33-35; see 

also Exhibit A at 21. 

The contract documents and conduct do not demonstrate an 

undisputed account of how the two corporations intended that 

postacquisition liabilities would be handled. Old Elliott 

promised that it "paid or o~herwi~e provided for the payment of 

all its liabilities and claims, both actual and contingent." Some 

claims were specifically addressed, such as those arising under 

the UCC. However, there is ambiguity in the handling of the 

liability insurance and New Elliott's conduct in maintaining 

coverage on the predecessor's potential liabilities. Insurance is 

arguably within the scope of means "otherwise provided'' to comply 

with the terms of the purchase and sale agreement. Bouton v. 

Litton, 423 F.2d 643, 652 (3rd Cir. 1970) (transfer of product 

liability insurance as provision in agreement between predecessor 

and successor corporation demonstrates the latter's assumption of 

liability claims). Beginning in 1977, ·the correspondence between 

predecessor and successor reveals disagreement as to the latter's 

responsibility for claims arising from Old Elliott's products. 

New Elliott has not demonstrated the absence of a genuine 

issue of material fact with respect to the issue of a~ express· or 

implied agreement that New Elliott would assume the tor~ 

liabilities of Old Elliott such as Florom's claim. Thus the 

12 

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... summary judgment. on that claim must be reversed. Ruiz, 653 P.2d 

at 417. 

Successor Duty to Warn 

Florom also invoked the theory supported by Colorado law 

allowing recovery based pn a successor manufacturer's independent 

duty to warn about the use of the product so as to prevent it from 

·being unreasonably dange~ous. This issue was raised in the 

response to New Elliott's motion for summary judgment. The 

district court's order granting the motion did not discuss this 

claim, although it was also implicitly rejected by the judgment. 

When Colorado adopted the doctrine of strict liability of 

§ 402A of the Restatement (Second) of Torts, it also held that a 

failure to warn adequately can render a product, otherwise free of 

defect, defective for purposes of § 402A. Hiigel v. General 

Motors Corporation, 544 P.2d 983, 987 (Colo. 1976); see also 

Hamilton v. Hardy, 549 P.2d 1099, 1107-1108 (Colo. App. 1976)(test 

under strict liability is whether the failure of the manufacturer 

to adequately warn of the potentially dangerous propensities of 

its product rendered that product unreasonably dangerous). Under 

the terms of the CPLA a manufacturer or seller can be held liable. 

Colo. Rev. Stat. tit. 13, §§ 21-401, 402. 

We must also consider whether such a duty applied to a 

successor corporation which did not manufacture or sell the 

equipment involved in the plaintiff's injury. Under traditional 

tort principles, this duty is not dependent upon the terms of the 

purchase and sale agreement executed between the piedecessor and 

successor corporations. Leannais v. Cincinnati, Inc., 565 F.2d 

437, 441-442 (7th Cir. 1977). Succession alone does not impose a 

13 

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dut-y to· warn the· prede·cessor 's ·customers of recently-di~covered 

defects. Gee v. Tenneco, Inc., 615 F.2d 857, ,866 (9th Cir. 1980). 

Where such a duty arises, it stems from the existence of the 

relationship between the successor and the customers of the 

predecessor.· Polius v. Clark Equipment Co.,'802 F.2d 75, 84 (3rd 

Cir. 1986); accord Mozingo v. Correct Manufacturing Co., 752 F.2d 

168, 177 and n.12 (5th Cir. 198S) (auty arises from continuation 

of relationship between successor and predecessor's customers); 

Travis v. Harris Corp., 565 F.2d 443, 448-449 (7th Cir. 1977). 

"The successor.corporation's liability stems not from .its status 

as a successor, but from its establishment of a relationship with 

the customer that imposes certain duties and responsibilities." 

Polius, 802 F.2d at 84; Mozingo, 752 F.2d at 177; Travis, 565 F.2d 

at 449. 

The court must look at factors such as the succession to 

service contracts, 

contract, service of 

coverage of the 

that machine by 

particular machine by a 

the successor, and the 

successor's knowledge of the defect and of the machine owner's 

location. Polius, 802 F.2d at 84; Mozingo, 752 F.2d at 177; 

Travis, 565 F.2d at 449; see also Downing v. Overhead Door Corp., 

707 P.2d 1027, 1033 (Colo. App. 1985) (duty to warn exists where a 

danger concerning the 'product becomes knowri to the manufacturer 

subsequent to the sale and delivery of the product, even though it 

was not known at the time of the sale). 

Here there is evidence that New Elliott succeeded to Old 

Elliott's service contracts; provided service and parts to the 

particular crane involved in Florom's injuries; and knew the name 

of the customer and the location of the machine. The purchase and 

,14 

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' \ . \ 

sale agreement by its .. _ terms. required. some continuing relationships 

with Old Elliott's eustomers. The specific 'relationship between 

Florom's employer and New Elliott, which ~rovided service and 

replacement parts, suffices to demonstrate a genuine issue of 

material fact as to the existence. of a duty to warn and whether 

New Elliott breached such a duty. Whether New Elliott obtained 

knowledge ~f any defects in the course of its relationship wifh 

Florom' s employer, as well as other ·relational fac.tors; remain 

disputed material fadts. 

The claim of breach of the duty to warn was not proper for 

disposition by summary judgment. Leannais, 565 F. 2d at 442. 

While our conclusion is based on the federal rules of procedure, 

we note that Colorado's procedural and substantive law mandates 

the same result. ~' Union Supply v. Pust, 583 P.2d 276, 279, 

283 (Colo. 1978) (failure to warn is jury question and "trial 

judge should only invade the fact-finding function of the jury in 

the clearest cases when the facts are not in dispute."). Thus the 

summary judgment on this claim must be reversed. 

III 

New Strict Liability Theories 

Florom also invoked two theories which hold a successor 

corporation liable for claims arising from use of the 

predecessor's products if ( 1) the successor continues 

manufacturing the same "product line" as the predecessor, or (2) a 

"continuity of enterprise" is demonstrated by certain elements 

common to the predecessor and successor. This new and. expanded 

continuity of enterprise theory is distinct from the "continuation 

15 

Appellate Case: 86-1656 Document: 01019598721 Date Filed: 02/06/1989 Page: 15 
of the -selling corporation'~· theory- r·ecogniz~d in Ruiz, 653' P. 2d 

3 415, 416. 

These two more recent theories have developed in ·conjunction 

wi~h.the ·adoption of the principle of strict liability for 

products which are defective. Though Colorado has adopted the 

principle of strict liability as enacted in the Colorado Products 

Liability Act, foll6wing § 402A of the Restatement of Torts 

("Second), the district court found no basis in Colorado law for 

3 

The traditional rule of nonliability provides a "mere 

continuation exception" which has not been invoked by Florom and 

which is significantly different from the new continuity of 

enterprise theory. Florom's opening brief on appeal at 18 

acknowleges the distinction between the new exception to successor 

nonliability rule where the purchasing corporation is "merely a 

continuation" of the selling corporation and the "expanded" 

"continuity of enterprise" theory Florom relies on here. "A mere 

continuation, or reorganization of an existing corporation, may be 

found to exist where there is a continuation of directors and 

management, shareholder interest and, in some cases, inadequate 

consideration. The gravamen of the traditional 'mere 

continuation' exception is the continuation of the corporate 

entity rather than continuation of the business operation." L.R. 

Furner, M.I. Friedman, Products Liability, § 2.06[2][c], 2-182, 2-

183 (1988) (emphasis in original). 

Furner and Friedman document the decisions by courts which 

expanded the "mere continuation exception" into a new theory based 

on elements not found in the traditional exception. Id. at 

§ 2.06[3]. The First Circuit considered an arm's-length sale of a 

business, the assumption of the· predecessor's service obl.igations 

and contracts, purchase of predecessor's goodwill, lack of notice 

to the public of an ownership change and the successor holding 

itself out as an ongoing enterprise. Cyr v. B. Offen & Co., 501 

F.2d 1145, 1151-53 (lst Cir. 1974); but see Simoneau v. South Bend 

lathe, Inc., 543 A.2d 407 (N.H. 1988"}{New Hampshire law does not 

encompass product line theory). The court concluded that "if as a 

group the same employees continue, without pause to produce the 

same products in the same plant, with the same supervision, the 

ownership of the entity which maintains essentiai1y the same name 

cannot be the sole controlling determinant of liability." Cyr, 

501 F.2d at 1154. The-Michigan Supreme Court added to the factors 

used in another traaitional exception, the de facto merger, and 

developed what is called the new theory of continuity of 

enterprise. Turner v. Bituminous Casualty Co., 244 N.W. 2d 873 

(Mich. 1976). 

16 

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exceptions permitt~ng recovery under the theories of product line 

or the expanded continuity of enterprise relied on by Florom. 

Florom argues that under Coloraqo law, developing in an innovative 

and progressive manner, his claims based on these· ·new theories 

should be upheld, relying on Hickman v. Thomas c. Thompson Co., 

592 F. Supp. 1282 (D. Colo. 1984), inter alia. we· cannot agree. 4 

While Colorado has adopted the § 402A prin6iple of ·strict 

liability where a corporation manufactures or ~ells a defective 

produdt, neither the Gener~l Assembly nor the state courts have 

expressly determined whether the newer product line or continuity 

of enterprise theories should be adopted respecting liability of 

successors. The CPLA does not address the liability of successor 

manufacturers or sellers. Colo. Rev. Stat. tit. 13 §§ 21-401, 

402. The Colorado Court of Appeals has been the highest state 

court to address the subject of the consequences of the Act since 

4 

In the district court and at argument on appeal, Florom 

requested certification of questions of law to the Colorado 

Supreme Court concerning corporate successor liability in products 

liability actions. Colorado Appellate Rule 21.1 provides that a 

federal district court may certify a question to the state Supreme 

Court where an action involves "questions of law of this state 

which may be determinative of the cause then pending in the 

certifying court and as to which it appears td the certifying 

court there is no controlling precedent in the decisions of the 

Supreme Couit." · 7B Colo. Rev. Stat., Colorado A~pellate Rule 21.1 

at 618-619 (1984). 

We feel certification is not appropriate as this action fails 

to meet the first part of this dual requirement; any ruling by the 

Colorado Supreme Court would not be determinative of the cause 

before us on appeal. Ormsbee Development Co. v. Grace, 668 F.2d 

1140, 1149 (10th Cir.), cert. denied, 459 U.S. 838 (1982). We 

hold in Part· II that summary judgment. was improperly granted on 

two claims asserted under established Colorado law and remand. 

Certification "rests in the sound discretion of the ·f~deral court" 

and is not obligatory when there are unsettled questions of law. 

Lehman Brothers v. ·schein, 416 U.S. 38~, 390-91 (1974); Holler v. 

United States, 724 F.2d 104, 105-06 (10th Cir. 1984). 

17 

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. its' adoption·• In Rui'z, 653 ;p. 2d 415·, ·the court reversed a summary 

judgment for a .successor corporatlon as to liability cinder the 

CPLA. The court held that the allegatio"ns made were su~f icient to 

raise questions of material fact as to whether that case fits 

within the 'traditional exceptions to the general rule bf 

nonliability of successor corporations. The court stated there 

was' nothing in the legislative history of the CPLA which indicated 

a legislative intent to abrogate the corporate rule. of successor 

liability as applied to a manufacturer. Id. at 417. The opinion 

earlier stated: 

The general rule, one of non-liability, and 

the traditional exceptions to that rule are as 

follows: 

"where one company sells or otherwise 

transfers all its assets to another company 

the latter is not liable for the debts and 

liabilities of the transferor, except where: 

(1) the purchaser expressly or impliedly 

agrees to assume such debts; (2) the 

transaction amounts to a consolidation or 

merger of the seller and purchaser; (3) the 

purchasing corporation is merely a 

continuation of the selling corporation; or 

(4) the transaction is entered into 

fraudulently in order to escape liability for 

such debts." Kloberdanz v. Joy Manufacturing 

Co., 288 F. Supp. 817 (D .• Colo. 1968). 

Ruiz, 653 P.2d ~t 416 (emphasis added).5 

Florom argues vigorously for elimination of the "harshness of 

the traditional corporate rule" in products liability cases and 

5 

The four generally recognized exceptions from the principle 

of successor ncinliability developed in connection with corporate 

and tax- law. See Polius· v. Clark Equipment Co., 802 F.2d 75, 78 

(3rd Cir. 1986); Cyr, 501 F.2d at 1152 & nn. 12-13 (1st Cir. 

197 4); see ~, West Texas Refining & Development Co• v •· IRS, 68 

F.2d 77 .(10th Cir. 1933) (rule used in determining successor not 

liable for taxes). 

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for adoption of the n~wei_product line theory and.for expansion of 

the continuity of ent~rprise theory. Opening Brief of PlaintiffAppellant at 10~17, 17-21. He contends that the new product line 

theory comports with the policy underlying strict tort liability 

for defective products. And he argues that the narrow confinement 

of the older continuation of enterprise exception to cases where 

there was a common identity of officers, directors, and 

shareholders should not be followed. 'Florom urges that in 

products iiability cases the expanded theory should be applied as 

in Mozingo, 752 F.2d 168,. where that court stated that it was 

influenced by the fact that it found "no indication, ancient or 

recent, that Mississippi courts would strictly adhere to the 

general rule." 752 F.2d at 176. 

We are not persuaded by Florom's arguments. The Ruiz opinion 

clearly recognizes the four exceptions as stated and that the 

general rule otherwise is one of successor corporation 

nonliability. 653 P.2d at 416. This statement on Colorado law 

from the Court of Appeals of Colorado is the latest one we find on 

these principles and no decision more recent than this 1982 Ruiz 

opinion is cited to us by the parties. Also lacking is any 

legislative enactment or indicia which expand the theories 

allowing for the liability of a successor corporation. We are 

convinced that we should follow Ruiz and that, doing so, we should 

reject Florom's argument that his two new theories should be 

adopted as further exceptions to the general rule of successor 

corpoiation nonliability~_ 

In· his Hickman opinion Judge Kane was not persuaded that in 

light of the Ruiz opinion, 6nly the four stated exceptions should 

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' be - --accepted •. ·. He .. recognized a ·fifth· exception and adopted the 

.newer product lin~ exception. 592 F. Sup~. at 1286. In his two 

later opinions on the question, Judg~ Kane acknowledged he was 

adopting a fifth exception. Ede v. Mueller Pump Co., 652 F. Supp. 

'656, 658 (D. Colo. 1987); Gibson v. Armstrong World Industries, 

~nc., 648 F. S4pp. 1538, 1540 (D. Colo. 1986). In doing so, he 

said Ruiz was not indicative of Colorado law as to the newer 

product line exception for four reasons: (1) the court in Ruiz in 

ruling in favor of the injured party did not have to examine the 

product line exception; _that the statement in Ruiz that there was 

nothing in the CPLA legislative history indicating an intent to 

abrogate the corporate rule on successor liability was "simplex 

dictum;" (2) the court's statement was not an expression of the 

Supreme Court of Colorado; (3) the product line exception is 

consistent with the law of strict product liability; and (4) 

Colorado statutes do envision vicarious liability of entities 

other than manufacturers when the manufacturer cannot be sued. 

592 F. Supp. at 1285. 

We are not convinced by Florom's arguments or the reasoning 

of Hickman that we should undertake the recognition of the two new 

theories as further exceptions t_o the general.rule of nonliability 

of successor corporations beyond those recognized in Ruiz. For 

reasons that follow, we agree with the conclusion of Chief Judge 

Finesilver in the instant case declining to adopt the product line 

theory and the expanded continuity of enterprise theory. 629 F. 

Supp. at 1148-49. 

~trst, it is true that the Ruiz opinion m~de no ruling on the 

product line theory; nor was there a ruling on the continuity of 

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enterprise theory. However, in reasoning· its way through the 

issues the Ruiz opinion did make a considered pronouncement on the 

state of the law in Colorado on P!Oducts liability. The Court of 

Appeals laid out the general rule of nonliability of successor 

corporations and ·it sp~lled out the four traditional exc~p~ions, 

as quoted above. 653 P.2d at 416. The court said further there 

was · nothing in the legislative history of the CLPA . "which 

indicates a ·legislative int~nt to abrogate the corporate rule of 

successor liability as applied to a manufacturer." 653 P.2d at 

417. Then the conclusion of the court was stated tha~ the 

plaintiff's "allegations are sufficient to raise questions of 

material fact as to whether Excello fits within the traditional 

exceptions to the general rule • • • and whether ExCello is the 

'entity' which fabricated the product for sale to a customer or 

consumer." Id. (emphasis added). 

We are satisfied this is a c~se "[w]here an intermediate 

appellate state court rests its considered judgment upon the rule 

of law which it announces . " West v. A. T. & T. Co., 311 U.S. 

223, 237 (1940). Thus the Ruiz statement on the general rule of 

nonliability of successor corporations and the four exceptions is 

"a datum for ascertaining state law which is not to be disregarded 

by a federal court unless it is convinced by other persuasive data 

that the highest court of the state would decide otherwise." Id. 

at 237; Commissioner v. Estate of Bosch, 387 U.S. 456, 465 (1967); 

see Weiss v. United States, 787 F.2d 518, 525 (10th Cir. 1986); 

Delano v ~. Kitch, 663 F. 2d 990, 996 (10th Cir. 1981). We agree 

that in making a prognostication of what the highest state court 

will decide, the decisions of lower state courts and other federal 

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courts are of "somewhat less 

dicta by the state's· 

import'ance". than -even considered 

highest court." ~~~~~~~~--'-McKenna v. Ort~o 

Pharmaceutical Corp., 622 F.2d 657, 662 (3rd Cir.), cert. denied, 

449 U.S. 976 (1980). Nevertheless, we are not convinced that here 

there is "other persuasive .data" that the Supreme Court of 

Colorado would decide otherwise on the state _of Colorado law than 

was announced in Ruiz on the_ general rule, with only its four 

exceptions. 

What we have said explains our disagreement with Judge Kane's 

first and second points for not following Ruiz. Our disagreement 

also extends to the other points in Hickman. Third, his Hickman 

opinion reasoned that the product line exception is consistent 

with the law of strict product liability. Several states have 

adopted the exception in advancing their strict liability 

doctrine, but this is not a sufficient reason for us, as a federal 

court, to disregard the general rule of nonliability with only the 

four exceptions recognized in Ruiz. 

logical to conclude from this state 

We are persuaded that it is 

of Colorado law, that we 

should not expand the exceptions to include the two new theories 

pressed ~y Florom. See Conn v. Fales Division of Mathewson Corp., 

835 F.2d .145, 147-148 (6th Cir. 1987) (enumerating states which 

have statutorily adopted product liability but have rejected the 

product line theory); see also Tucker v. Paxson Machine Co., 645 

F.2d 620, 624-25 (8th Cir. 1981); Leannais, 565 F.2d at 440-41. 

The fourth reason given by Judge Kane for his views was that 

Colorado statutes do envision vicarious liability of entities 

other than manufacturers when the manufacturer cannot be sued. 

See Colo. Rev. Stat., tit. 13, § 21-401(3) ("seller" includes 

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wholesaler, distributor, or -retailer· who ls engaged in the 

business of selling or leasing any product for resale, use, or 

consumption). The statutes· may well permit the adoption of 

exceptions relied on by Florom, but the Colorado courts ~ave not 

so held nor has the General Assembly so enacted or indicated. 

Undet the general rule and the limited exceptions presently 

rec6gnized, we are convinced the federal court should not make 

that chang~ in policy. Meredith v. Winter Haven, 320 U.S. 228, 

234-235, 237 (1943). 

In sum, we are not convinced by Florom's arguments or the 

authorities he relies on · that the new theories of liability --

product line and continuity of enterprise are a valid basis for 

recovery in this case. Accordingly, we are in agreement with the 

district judge's ruling on those two claims. 

Accordingly, the 

Equipment Corporation 

IV 

summary judgment 

is AFFIRMED with 

for defendant Elliott 

regard 

liability under theories of product line and 

to corporate 

continuity of 

enterprise. The judgment is REVERSED and the case is REMANDED 

with regard to the plaintiff's claims based on ·the theory of the 

corporate successor's assumption of liabilities and the duty to 

warn theory. 

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