Opinion ID: 2067270
Heading Depth: 1
Heading Rank: 8

Heading: Punitive Damage Awards Against Successor Corporations

Text: Appellees urge, however, that we hold that punitive damages may not be awarded against Celotex Corp. for the conduct of Philip Carey Manufacturing Co., its predecessor, on the ground that there is no policy reason to punish an innocent party with punitive damages. Brief for Appellees at 28. We agree that in some circumstances it may make sense to permit only compensatory, and not punitive, damages to be awarded against a successor corporation. Suppose, for example, that a successor corporation manufactured the same line of products as were recklessly marketed by its predecessor, but shared neither shareholders, officers, directors, nor management personnel in common with its predecessor. It might be that the successor would nevertheless be liable for compensatory damages for the injuries caused by its predecessor, because it was in a better position to spread the cost of the loss than the injured consumers. See Dawejko v. Jorgensen Steel Co., 290 Pa. Super. 15, 434 A.2d 106 (1981); Ramirez v. Amsted Industries, Inc., 86 N.J. 332, 431 A.2d 811 (1981). But it would make little if any sense to impose punitive damages on the successor, for the actors responsible for the predecessor's reckless misconduct  shareholders, officers, directors, and management personnel  would neither be punished nor deterred from similar conduct by such an award. And if the successor had remedied the defect, there would be no conduct to deter, whereas if it had not, it would be liable in punitive damages for its own actions. Thus we agree with appellees to this extent  that it does not follow from the propriety of a compensatory award against a successor that punitive damages may also be imposed, even if the predecessor was reckless. See In re Related Asbestos Cases, 566 F.Supp. 818 at 822 (N.D.Cal. 1983) (The justifications underlying successor liability for compensatory damages articulated in Ray v. Alad [ Corp., 19 Cal.3d 22, 560 P.2d 3, 136 Cal.Rptr. 574 (1977)] simply are not present [when punitive damages are sought against successor corporation]). We believe, however, that in some circumstances a successor should be held accountable for the recklessness of its predecessor. This will be so when the goals that underlie the imposition of punitive damages  punishment and deterrence  will be advanced. In this regard, we may draw from the various formulations of the rule permitting the imposition of successor liability when the successor is a mere continuation of its predecessor. See generally Jacobs v. Lakewood Aircraft Service, Inc., 512 F.Supp. 176 (E.D.Pa. 1981) (collecting cases); Korzetz v. Amsted Industries, Inc., 472 F.Supp. 136 (E.D.Mich. 1979); Shannon v. Samuel Langston Co., 379 F.Supp. 797 (W.D.Mich. 1974); Kloberdanz v. Joy Manufacturing Co., 288 F.Supp. 817 (D.Colo. 1968); Wilson v. Fare Well Corp., 140 N.J.Super. 476, 356 A.2d 458 (1976); Turner v. Bituminous Casualty Co., 397 Mich. 406, 244 N.W.2d 873 (1976). We believe that when a legal change in corporate identity is not accompanied by major changes in the identity of the predecessor's shareholders, officers, directors, and management personnel, the imposition of punitive damages against the successor for the reckless conduct of the predecessor may be proper as advancing the goals of punishment and deterrence. For the actors responsible for the predecessor's reckless conduct will be punished and also deterred from similar conduct in the future. The fact that the successor does not continue the product line recklessly marketed by the predecessor, or cures the defect, will not necessarily preclude punitive damages. For in either circumstance, the fact remains that those who are in control of the successor have demonstrated a willingness to act in reckless disregard of the rights of others. [20] That the public is now safe from being injured by product x does not mean it is safe from the next reckless business practice these actors may undertake if not deterred. [21] We therefore hold that punitive damages are recoverable against a successor corporation when the plaintiff has shown such a degree of identity of the successor with its predecessor as to justify the conclusion that those responsible for the reckless conduct of the predecessor will be punished, and the successor will be deterred from similar conduct. [22]