Court Opinion

ID: 6759748
Source: CourtListenerOpinion
Date Created: 2022-07-21 00:30:17.994001+00
Date Added: 2024-06-11T16:02:33.796824
License: Public Domain

Sweeney, J.,
dissenting. The decision of the majority today would condition the tort liability of a successor corporation for the defective products of its predecessor upon the nature of the corporate acquisition as negotiated between the acquired and acquiring entities. The net result of such reasoning is to allow the contracting corporations to effectively foreclose the rights of innocent third parties to receive compensation for injuries occasioned by the introduction of defective products into the marketplace. Consequently, the burdens associated with the product are borne by the individual irrespective of the fact that she was neither privy to the negotiations resulting in the corporate acquisition nor in a position to protect herself from any ensuing harm wrought by the placement of the product in the stream of commerce. Amy rule countenancing such an outcome is indefensible.
The embracement of the “traditional” approach to corporate successor liability by the majority ignores its business law foundations and its total irrelevance to the policy considerations underlying the law of products liability. The four enumerated exceptions to the rule denying successor liability of a corporation for the obligations of its predecessor were developed in the context of corporate, contract and tax law. Recognition of this fact has been manifested even by courts applying an expanded view of the continuity of enterprise exception. See Cyr v. B. Offen & Co., Inc. (C.A. 1, 1974), 501 F. 2d 1145, 1152. Accordingly, in Ramirez v. Amsted Indus., Inc. (1981), 86 N.J. 332, 341, 431 A. 2d 811, 815-816, the New Jersey Supreme Court remarked:
“Courts have come to recognize that the traditional rule of nonliability was developed not in response to the interests of parties to products liability actions, but rather to protect the rights of commercial creditors and dissenting shareholders following corporate acquisitions, as well as to determine successor corporation liability for tax assessments and contractual obligations of the predecessor.”
In contrast to the majority’s blind adherence to a rule of law unrelated and inapplicable to an action for personal injury, adoption of the product line theory would advance the protections afforded innocent third parties for injuries resulting from encounters with' defective products. As stated in Cyr, supra, at 1154, the reasons behind the development of products liability law are:
“(1) the manufacturer is better able to protect itself and bear the costs while the consumer is helpless; (2) it is the manufacturer which has launched the product into the channels of trade; (3) it is the manufacturer which has violated the representation of safety implicit in putting the product into the stream of commerce; and (4) the manufacturer is the instrumentality to look to for improvement of the product’s quality. To this we add the more traditional reason for imposing liability on a corporation for tortious injuries, the negligence of its employees.”
Imposition of successor liability on a corporation for the defective *69products introduced into the stream of commerce by its predecessor, therefore, is not dependent upon doctrines developed in the context of corporate acquisitions. Rather, any rule of successor liability must be predicated upon the public policy considerations which spawned the development of products liability law.
Each of the enumerated policy considerations identified by the Cyr court is served by permitting recovery against a successor corporation. The capacity of the corporation to better bear the costs of the defective product is often referred to as the ability to “spread the risk” of any ensuing injuries among the consumers of the product. Thus, in Cyr, supra, the court concluded:
“The very existence of strict liability for manufacturers implies a basic judgment that the hazards of predicting and insuring for risk from defective products are better borne by the manufacturer than by the consumer. The manufacturer’s successor, carrying over the experience and expertise of the manufacturer, is likewise in a better position than the consumer to gauge the risks and the costs of meeting them.” Id.
See, also, Turner v. Bituminous Cas. Co. (1976), 397 Mich. 406, 425, 244 N.W. 2d 873, 881; Ray v. Alad Corp. (1977), 19 Cal. 3d 22, 31, 136 Cal. Rptr. 574, 579-580, 560 P. 2d 3, 8-9; Ramirez v. Amsted Indus., Inc., supra, at 352, 431 A. 2d at 821.
Adoption of the product line theory also serves to advance the second policy foundation of products liability law. While it is undoubtedly true that the successor corporation was not the entity which “launched the product into the channels of trade,” it is clearly the beneficiary of the product’s status in the marketplace. With the benefits established by the product also come the burdens associated with that portion of the product line which is defective. This burden-benefit dichotomy was eloquently articulated by the Cyr court at 1154 which noted: “* * * [I]t is true that the successor, by definition, was not the legal entity which launched the product on the stream of commerce or made implied representation as to its safety. But in the most real sense it is profiting from exploiting all of the accumulated good will which the products have earned, both in its outward representations of continuity and in its internal adherence to the same line of equipment.” (Emphasis added.) Similarly, the Michigan Supreme Court stated in Turner v. Bituminous Cas. Co., supra, at 426, 244 N.W. 2d at 882: “Justice would be offended if a corporation which holds itself out as a particular company for the purpose of sales, would not be estopped from denying that it is that company for the purpose of determining products liability.” See, also, Ray v. Alad Corp., supra, at 34, 136 Cal. Rptr. at 581-582, 560 P. 2d at 10-11; Ramirez v. Amsted Indus., Inc., supra, at 344-345, 431 A. 2d at 817; Dawejko v. Jorgensen Steel Co. (1981), 290 Pa. Super. 15, 26, 434 A. 2d 106, 111.
The desire of the Cone-Blanchard Machine Co. to capitalize on the good will generated by the Conomatic product line is beyond dispute. The *70majority opinion has acknowledged as much by stating that acquisition of Cone II by Cone-Blanchard was undertaken even though Cone II was “simply a holding corporation, entirely inactive, formed for the sole purpose of holding the Cone name and associated rights.” Despite the fact that acquisition of Cone II was motivated exclusively by a desire to exploit the good will associated with the Cone name, the majority permits Cone-Blanchard to disclaim such association when defective goods comprising a portion of the product line result in injuries to third parties. Thus, the majority has propounded a curious rule of liability which vests the benefits associated with a product line in the successor manufacturer and saddles the victim with its burdens.
Irrespective of the accumulated good will obtained through purchase of its predecessor, the acquiring corporation profits also from the expertise possessed by the acquired entity relative to the manufactured product. This, in part, explains the inclination of the purchasing corporation to obtain a going concern with an established management structure and an experienced labor force rather than attempting to create a comparable business ab initio. It is from this expertise that the public expects improved products in terms of safety. Thus, it was recognized in Turner v. Bituminous Cas. Co., supra, at 424, 244 N.W. 2d at 881, that “ ‘the hazards of predicting and insuring for risk from defective products are better borne by the manufacturer than the consumer.’ * * *” The court therefore concluded: “This is a significant rationale for imposing strict liability for a defective product in the first place, i.e., the manufacturer has superior ability to bear the cost of injuries and is the only one who can improve the product’s quality. ” (Emphasis added.) Id. at fn. 6. See, also, Cyr v. B. Offen & Co., Inc., supra, at 1154; Ray v. Alad Corp., supra, at 30, 136 Cal. Rptr. at 579, 560 P. 2d at 8.
Consequently, the policy reasons behind imposing liability on the entity responsible for the quality of a particular product are served by adoption of the product line theory. The successor corporation, as the repository of the expertise possessed by the original manufacturer, is in the best position to improve the quality of the product. In this sense, it is as capable of meeting this obligation as the original company if that company had remained in operation and producing the same line of products. A corporate takeover does not alter this underlying fact.
The majority opinion, in reviewing prior case law, has noted that, for recovery to be obtained under the traditional continuation of enterprise exception, the predecessor corporation must have been “dissolved or liquidated soon after the transfer of assets.” This observation illustrates the futility of applying a rule developed in a corporate law context to situations involving products liability. Tied as they were to the traditional corporate analysis of successor liability, even those courts applying the “mere continuation” doctrine nevertheless attempted to draw an analogy between those businesses continuing the corporate enterprise {i.e., through *71the purchase of the assets of the predecessor corporation, exception 3), and those into which the prior business was merged (exception 2). Thus, there was an emphasis placed on the extinguishment of the prior enterprise either through merger, de facto merger (assets-for-stock), or continuation of the enterprise (assets-for-cash). See the language of Turner, supra, at 427, 244 N.W. 2d at 883.
The Twelfth Appellate District and the trial court have relied on this vain attempt at symmetry for the proposition that dissolution of the prior corporation is a condition precedent for the imposition of liability on the successor — even in a products liability context. The trial court reasoned that the basis for this requirement is that the predecessor is “unavailable as a litigant.” While the inability to sue the earlier corporation due to its dissolution may be a compelling argument in terms of justice for allowing an injured plaintiff to recover against the successor corporation, it is not the basis of the “continuation” exception. Rather, the requirement is merely a means to illustrate that, from a corporate sense, a cash-for-assets transaction that results in the ultimate dissolution of the predecessor corporation is the functional equivalent of a merger or defacto merger — the total absorption of the prior entity into its successor. Inasmuch as both exceptions arose in a corporate law context, they have no relevance to the policy underpinnings of products liability law.
Moreover, the discussion in the opinion of the trial court relative to the holding in Ramirez, supra, is not a correct statement of the product line doctrine. The court remarked: “In Alad and in Ramirez v. Amsted Indus., Inc., 86 N.J. 332, 431 A. 2d 811 (1981), a later case explicating the ‘product line’ doctrine, the predecessor corporation, as a- result of its liquidation or dissolution prior to the injury, was unavailable as a litigant.” The clear implication of this language is that, in jurisdictions applying the “product line” theory, the predecessor corporation must become defunct. This is not so. In Nieves v. Bruno Sherman Corp. (1981), 86 N.J. 361, 431 A. 2d 826, a companion case to Ramirez, supra, the court encountered the identical corporate succession as presented to the Michigan court in Turner v. Bituminous Cas. Co., supra. The Nieves court at 364-365, 431 A. 2d at 828, concluded that Bruno-Sherman, the current successor corporation, was liable for injuries resulting from a defective product placed in the marketplace by the original manufacturer even though an intermediate successor corporation (Harris Intertype, Inc.) continued to exist. Similarly, Cone-Blanchard and Cone II should be liable for injuries occasioned by the product line acquired from Pneumo even though Pneumo continues to exist.
While it is unnecessary to speculate regarding what, if any, liability would be imposed upon Pneumo had not the action against it been time-barred, it is interesting to note that, for purposes of the Cone product line, Pneumo is defunct. Pneumo no longer produces the types of products involved in the present litigation, no longer benefits from the good will *72generated by the product, and no longer possesses the expertise necessary to improve the quality of the product.
Despite the compelling public policy arguments justifying adherence to the product line theory, the majority insists that adoption of the principles embodied therein requires legislative action. I wish to remind the majority that the instant matter is a case of first impression and that both the “traditional” theory of successor liability and the product line approach are common-law concepts. I, therefore, take issue with the semantical argument advanced in the majority opinion that adoption of the theory it rejects requires legislative action while the theory it adopts does not.
In further support of its rejection of the product line theory, the majority cites “the potentially devastating burden on business transfers” that its adoption would supposedly occasion. However, the rule of law embraced by the majority assures that such burdens will be borne instead by citizens of this state who suffer injuries inflicted by defective products. These individuals are the “unwary” for whose well-being this court should be concerned. Instead, the decisional law announced today enables a business enterprise to benefit from its access to the Ohio market but insulates it from any resulting liabilities. Such an inequitable allocation of burdens and benefits is both unjust and inexcusable.
The injustice resulting from today’s holding is further compounded by the rule announced relative to the duty of a manufacturer to warn workers and consumers of the defective condition of its products. In the case at bar, the majority has affirmed the determination of the trial court granting Cone II’s and Cone-Blanchard’s motions for summary judgment on this issue. The plaintiffs-appellants maintain that Cone-Blanchard had notice of the defect due to reports of similar accidents involving similar machines. Notice of the defective condition of these machines was conveyed to the Cone-Blanchard management at the latest, on March 16,1979 — the date a summons and complaint was received in a lawsuit filed against the company arising out of an accident occurring in Fort Worth, Texas.
The extent to which Cone-Blanchard was aware or should have been aware of the defects in the machine appears to involve factual questions best resolved by a jury. Moreover, the degree to which past experience with the operation of the machine would alert management to potential defects, the adequacy of the notice and the extent to which there was sufficient time to act upon such notice are examples of issues which require jury consideration. Consequently, it is my opinion that the trial court erred in granting the motions of Cone II and Cone-Blanchard for summary judgment.
For the foregoing reasons, I respectfully dissent from the holding of the majority. I would reverse and remand the matter for trial on the merits.