Opinion ID: 1979914
Heading Depth: 1
Heading Rank: 5

Heading: Product Line Liability

Text: The general rule of corporate nonliability was developed to protect a bona fide purchaser from the unassumed debt liability of its predecessor. L. Frumer & M. Friedman, 1 Products Liability § 5.06 (1983). However, the traditional approach has recently been attacked by a minority of jurisdictions within the context of products liability actions. See: Downtowner, Inc., 347 N.W.2d at 121. Advocates of the minority view justify the abandonment of traditional corporate analysis based on its unresponsiveness to the products liability plaintiff who seeks to place the risk of defective products on the marketing enterprise which manufactured and sold them. See: Jones, 320 N.W.2d at 484. Hamaker argues that Kenwel-Jackson is liable for her injuries under the product line theory which was created by the California Supreme Court in Ray v. Alad Corp., 19 Cal.3d 22, 136 Cal.Rptr. 574, 560 P.2d 3 (1977), and is applicable only to tort liability for a defective product. In Ray, the plaintiff sued Alad Corporation for injuries allegedly caused by a defective ladder which was manufactured by Alad's predecessor in 1952. Alad purchased the assets of its predecessor in 1968, and retained the same plant, employees, equipment, trade name, customers, and sales force. However, the purchase agreement was silent as to whether Alad would assume responsibility for any potentially defective ladders manufactured prior to the transfer of assets in 1968. Failing to find a basis for liability under the traditional exceptions referenced above, the court relied on public policy considerations to impose strict tort liability upon Alad, to insure that the costs of injuries ... are borne by the manufacturers that put such products on the market rather than the injured persons who are powerless to protect themselves. Id. 136 Cal.Rptr. at 579, 560 P.2d at 8, quoting from Greenman v. Yuba Power Products, Inc., 59 Cal.2d 57, 63, 27 Cal.Rptr. 697, 701, 377 P.2d 897, 901 (1963). The New Jersey Supreme Court reached a similar conclusion in Ramirez v. Amsted Industries, Inc., 86 N.J. 332, 431 A.2d 811 (1981). In Jones, supra, the court rejected the holdings in the Ray, Ramirez, and Turner cases and noted that they provided no persuasive justification for a departure from the traditional rule of corporate nonliability. Jones, 320 N.W.2d at 484. Accord: Downtowner, Inc., 347 N.W.2d at 118; Leannais, 565 F.2d at 441. Furthermore, the Jones opinion found that the public policy considerations which underlie the imposition of strict liability do not necessarily apply equally to successor corporations. The court stated: [T]he corporate assets purchaser, as a successor of the manufacturer of a defective product, cannot be said to have created the risk of a product manufactured by its predecessor, and, except in a very remote way, does not realize the profit for the sale of a predecessor's product. Jones, 320 N.W.2d at 484. Here, Kenwel-Jackson did not acquire the patent for the model 3072 notcher when it purchased the assets of Kenwel. Moreover, Kenwel-Jackson never participated in the design, manufacture, distribution, or chain of sale of the model 3072 notcher. It is true that Kenwel-Jackson continued to manufacture the model 3072A, and subsequently, models 3072B and 3072C until the cessation of its business in 1984. However, Kenwel had already modified the model 3072 notcher by several design changes which resulted in the model 3072A, whose patent was sold to Kenwel-Jackson. Therefore, we find under the facts of this case that Kenwel-Jackson neither invited use of its predecessor's model 3072 notcher, nor represented to the public at large, and Hamaker in particular, that the notcher was safe and suitable for use. See: Jones, 320 N.W.2d at 484. We are further persuaded by the reasoning of the North Dakota Supreme Court in Downtowner, Inc., supra . The purchaser of an allegedly defective heating unit brought a products liability action against Acrometal as the corporate successor to the manufacturer of the unit. Id. 347 N.W.2d 118. Finding no basis for liability under the exceptions to the traditional rule, and remaining unconvinced by the minority viewpoints, the court held that Acrometal was not liable to the purchaser on a products liability theory for merely continuing its predecessor's product line. Id. at 124-125. [] The Downtowner, Inc., court reasoned that North Dakota's adoption of the rule of strict liability in tort precluded it from holding the successor corporation strictly liable for damage to the plaintiff's property where Acrometal neither manufactured the allegedly defective product, nor placed it in the stream of commerce. Id. at 123. The court stated in part: Were we to impose liability on Acrometal in this circumstance it would be liability without duty; thereby removing strict liability from the realm of tort. This we refuse to do. If Acrometal is to be held liable, it must be because Weather-Rite's potential liabilities were assumed with the purchase of assets. Such a finding would require a significant change in corporate law. We would have to hold that the policies of strict liability justify a finding that, though a corporation has dissolved, potential liability should not dissolve with it and that a purchaser of the assets of the dissolved corporation should assume that liability. Id. South Dakota adopted the rule of strict liability in tort as expressed in § 402A, 2 Restatement of Torts 2d, in Engberg v. Ford Motor Co., 87 S.D. 196, 205 N.W.2d 104 (1973) and stated that § 402A is designed to protect the public and insure that damages resulting from defective products are borne by those who market the product. Id. 87 S.D. at 205, 205 N.W.2d at 109. Here, Kenwel-Jackson never marketed the model 3072 notcher. Accordingly, we agree with the analysis set forth in Downtowner, Inc., and similarly find that were we to impose liability upon Kenwel-Jackson under the present facts, it would be liability without duty which cannot be reconciled with our adoption of the rule of strict liability in tort. See: Engberg, supra . Therefore, we hold that Kenwel-Jackson is not liable for Hamaker's injuries under any of the exceptions to the general rule of successor corporate nonliability, nor under the product line theory applicable to strict liability in tort. Accordingly, summary judgment is affirmed.