Opinion ID: 1979914
Heading Depth: 1
Heading Rank: 4

Heading: Liability as Successor Corporation

Text: In granting Kenwel-Jackson's motion for summary judgment, the trial court relied heavily on the Nebraska Supreme Court's decision in Jones v. Johnson Mach. & Press Co., Etc., 320 N.W.2d 481 (1982). In this case, the plaintiff sought to recover damages in a products liability action for injuries he sustained while operating a punch press which was manufactured by one of the corporate defendants. A default judgment was entered against the corporate defendant which manufactured the press. The remaining defendants, (other than the plaintiff's employer), were successor corporations which subsequently manufactured, distributed, and sold the same type of press. The issue of successor corporate liability in Jones was one of first impression in Nebraska, just as it is in South Dakota. The general rule is that a corporation which purchases the assets of another corporation does not succeed to the liabilities of the selling corporation. Id. at 483; Downtowner, Inc. v. Acrometal Products Inc., 347 N.W.2d 118, 121 (N.D.1984); Leannais v. Cincinnati, Inc., 565 F.2d 437, 439 (7th Cir.1977). There are, however, four exceptions to the general rule under which liability may be imposed on a purchasing corporation. They are: (1) when the purchasing corporation expressly or impliedly agrees to assume the selling corporation's liability; (2) when the transaction amounts to a consolidation or merger of the purchaser and seller corporations; (3) when the purchaser corporation is merely a continuation of the seller corporation; or (4) when the transaction is entered into fraudulently to escape liability for such obligations. Jones, 320 N.W.2d at 483. (citations omitted). In finding that plaintiff's claim of liability did not fit under any of the exceptions to the general rule, the Jones court affirmed summary judgment in favor of the corporate successors. Id. at 484. There is no language in the contract between these parties to suggest that Kenwel-Jackson impliedly assumed responsibility for future products liability actions against Kenwel. In fact, the purchase agreement expressly conditioned the sale of assets upon Kenwel's promise to discharge, or to provide for, all of its current or long-term liabilities incurred or unsatisfied as of the date of closing. Hamaker asserts that the transaction between Kenwel-Jackson and its predecessor amounted to a merger of the two corporations, or that Kenwel-Jackson is a mere continuation of Kenwel; i.e., exceptions (2) and (3) to the general rule above. However, a merger involves the actual absorption of one corporation into another, with the former losing its existence as a separate corporate entity. When the seller corporation retains its existence while parting with its assets, a de facto merger may be found if the consideration given by the purchaser corporation is shares of its own stock. Leannais, 565 F.2d at 439, quoting Bazan v. Kux Machine Co., 358 F.Supp. 1250 (E.D.Wis.1973). No stock in Kenwel-Jackson was transferred as consideration for Kenwel's assets. Cf. Knapp v. North American Rockwell Corp., 506 F.2d 361 (3d Cir.1964) cert. den. 421 U.S. 965, 95 S.Ct. 1955, 44 L.Ed.2d 452 (1975) [Court found a merger despite manufacturer's continued existence for approximately 18 months after the sale, where manufacturer's assets had been exchanged for Rockwell Stock. (Emphasis added.)]. The key element of a continuation is a commonality of the officers, directors, and stockholders in the predecessor and successor corporations. Leannais, 565 F.2d at 440. The top management personnel of Kenwel was not carried over to Kenwel-Jackson. Nor did any shareholder of either corporation become an owner, shareholder, director, officer, or employee of the other. In Turner v. Bituminous Casualty Co., 397 Mich. 406, 244 N.W.2d 873 (1976), the Michigan Supreme Court deviated from the traditional requirement for a de facto merger by refusing to recognize a distinction between the purchase of assets with cash and the purchase of assets with the stock of the purchasing corporation. Id. 244 N.W.2d at 879-880. In Turner, the court held that cash consideration was sufficient to establish a prima facie case of continuation of a successor corporation's responsibility for products liability if: (1) There was basic continuity of the enterprise of the seller corporation, including, apparently, a retention of key personnel, assets, general business operations, and the corporate name. (2) The seller corporation ceased ordinary business operations, liquidated, and dissolved soon after distribution of consideration received from the buying corporation. (3) The purchasing corporation assumed those liabilities and obligations of the seller ordinarily necessary for the continuation of the normal business operations of the seller corporation. (4) The purchasing corporation held itself out to the world as the effective continuation of the seller corporation. Id. 244 N.W.2d at 883-884. Many of the factors relied upon in Turner exist here. The transfer included most of the assets, the business good will, pending orders for the replacement model 3072A notching machine and the name Kenwel or any derivative thereof. The name was changed simply from Kenwel Machine Company, Inc. to Kenwel-Jackson Machine, Inc. The name Kenwel was used because the name was known as a machinery manufacturer. Kenwel-Jackson Machine, Inc., used the same business premises and the same tools and equipment to manufacture the same products as Kenwel Machine Company, Inc. Kenwel-Jackson started with a work force of only three individuals, all three were previously employed as craftsmen by Kenwel. One later became vice-president in charge of manufacturing of Kenwel-Jackson and stayed in the employ of Kenwel-Jackson until operations ceased in 1984. However, we are not persuaded to follow Turner in this case where none of the owners, officers or stockholders were the same, where Kenwel-Jackson expressly contracted not to assume any of Kenwel's liabilities, where Kenwel-Jackson's business developed in a different direction relative to product line and customers and especially where the notcher in question was neither designed, manufactured nor sold by the successor corporation. We find, therefore, that Kenwel-Jackson's cash purchase of Kenwel's assets does not fall within the merger or continuation exceptions to the general rule. The fact that Hamaker's accident occurred some six years after the sale disposes of any suggestion that Kenwel-Jackson and its predecessor entered into the transaction fraudulently to escape liability. Accordingly, we hold that Kenwel-Jackson is not liable for Hamaker's injuries under any of the exceptions to the general rule in relation to successor corporate purchasers.