Court Opinion

ID: 9710473
Source: CourtListenerOpinion
Date Created: 2023-08-26 04:10:23.998601+00
Date Added: 2024-06-11T18:22:57.102021
License: Public Domain

GARIBALDI, J.,
dissenting.
The majority expands the product-line exception to enable a defendant to sue a successor corporation for indemnification, even though the injured plaintiff has already recovered for his injuries. Extending the product-line exception to benefit corporate defendants undermines the policy justification for the product-line exception — making injured plaintiffs whole. Because such an expansion of the productline exception is unwise and unwarranted, I dissent.
I
Plaintiff David Mettinger injured his hand on an unguarded blade of a “Globe Model 500” meat slicer. He then instituted a products liability claim against W.W. Lowensten, Inc., New Globe Parent, Inc., Daphne Horizon Co., Inc., and Mozely Manufacturing Co., Inc. Lowensten filed a third party complaint against Globe Food Equipment Co., asserting that Globe Food was a successor to the manufacturer of the Globe meat slicer product line. The trial court granted summary judgment in favor of Globe Food, concluding that the product-line exception benefitted only plaintiffs. Mettinger’s claim against Lowensten proceeded to trial. A jury awarded Mettinger $350,000. The Appellate Division upheld the award against Mettinger, but reinstated the indemnification claim against Globe Food. The panel remanded for trial on the issue of whether Globe Food sufficiently continued the Globe Slicing product line to justify the imposition of successor liability. Additionally, the court held that if, on remand, Globe Food was *392found to have continued the product line, Globe Food would be bound by the judgment against Lowensten.
II
Traditionally, “[wjhere 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, including those arising out of the latter’s tortious conduct.” Wilson v. Fare Well Corp., 140 N.J.Super. 476, 484, 356 A.2d 458 (Law Div.1976) (quoting McKee v. Harris-Seybold Co., 109 N.J.Super. 555, 264 A.2d 98 (Law Div.1970), aff'd, 118 N.J.Super. 480, 288 A.2d 585 (App.Div.1972)).
In Ramirez v. Amsted Industries, Inc., this Court recognized that the traditional approach to corporate successor liability was “unresponsive to the legitimate interests of the product liability plaintiff,” and did not protect “the innocent injured party.” 86 N.J. 332, 341, 354, 431 A.2d 811 (1981) (citations omitted). The Court, therefore, abandoned the traditional approach and adopted the “product-line exception.” That exception provides:
[W]here one corporation acquires all or substantially all the manufacturing assets of another corporation, even if exclusively for cash, and undertakes essentially the same manufacturing operation as the selling corporation, the purchasing corporation is strictly liable for injuries caused by defects in units of the same product line, even if previously manufactured and distributed by the selling corporation or its predecessors.
[Id. at 358, 431 A.2d 811.]
Further, the Court provided three policy justifications for adopting the product-line exception:
(1) The virtual destruction of the plaintiff’s remedies against the original manufacturer caused by the successor’s acquisition of the business, (2) the successor’s ability to assume the original manufacturer’s risk-spreading role, and (3) the fairness of requiring the successor to assume a responsibility for defective products that was a burden necessarily attached to the original manufacturer’s good will being enjoyed by the successor in the continued operation of the business.
[Id. at 349, 431 A.2d 811 (quoting Ray v. Alad, Corp., 19 Cal.3d 22, 136 Cal.Rptr. 574, 582, 560 P.2d 3, 11 (1977)).]
Though the majority concedes that providing an otherwise remediless plaintiff with a source of compensation was a primary justification for adopting the product-line exception, see ante at *393383, 709 A.2d at 784, the majority fails to recognize that “[t]he central thesis of [the product-line exception] is premised on the elimination by the successor of an effective remedy. That is an essential condition precedent to recovery.” 86 N.J. at 358, 431 A.2d 811 (Schreiber, J., concurring) (emphasis added). Therefore, where, as in the present case, the plaintiff has already recovered for his injuries, the produet-line exception is inapplicable.
Nieves v. Bruno Sherman Corp., 86 N.J. 361, 431 A.2d 826 (1981), decided the same day as Ramirez, supra, 86 N.J. 332, 431 A.2d 811, is consistent with that understanding. In Nieves, supra, the Court extended the product-line exception to enable a plaintiff to recover from an intermediate corporation that acquired the assets of the original manufacturer, continued its product line, but sold those assets to another corporation' before plaintiff was injured. Id. at 368, 431 A.2d 826. Even though the Court extended the product-line exception, the Court continued to view a remediless plaintiff as a prerequisite for invoking the product-line exception. See id. at 371, 431 A.2d 826. Moreover, regarding apportionment of liability after the plaintiff is made whole, the Court explained: ‘While the Ramirez rationale is concerned with imposing strict tort liability for damages caused by defects in units of the product line acquired and continued by successor manufacturers, neither Ramirez nor the injured plaintiff ... is concerned with how the liability will be allocated....” Id. at 372, 431 A.2d 811 (emphasis added).
A.
In Ramirez, supra, the Court rested its adoption of the product-line exception on social and economic policy grounds. The Court recognized that adopting the product-line exception may prevent small manufacturers from transferring ownership of their business assets for a fair price. 86 N.J. at 353, 431 A.2d 811. However, the Court held that such “concerns, genuine as they may be, cannot be permitted to overshadow the basic social policy, now so well-entrenched in our jurisprudence, that favors imposition of the *394costs of injuries from defective products on the manufacturing enterprise and consuming public rather than on the innocent injured party.” Id. at 354, 431 A.2d 811.
The Court also rested the adoption of the product-line exception on economic policy, concluding that, even though successor liability would result in lowering the purchase price of a corporation’s assets,
a reduction of the sale price by an amount calculated to compensate the successor corporation for the potential liability it has assumed is a more, not less, accurate measure of the true worth of the business.
... In time, the risk-spreading and cost avoidance measures ... should become a normal part of business planning in connection with the corporate acquisition of assets of a manufacturing enterprise.
[Id at 354-55, 431 A.2d 811.]
Those justifications for adopting the product-line exception, however, have been decried as “unfair and socially wasteful.” Restatement (Third) of Torts § 12 comment b (1997) (hereinafter “Restatement”). Moreover, the product-line exception has been criticized for “impeding the free alienability of corporate assets” for no compelling reason, “thereby discouraging shareholder investment of capital and increasing social cost.” Restatement, supra, § 12 comment b. Similarly, it has been recognized that
[t]he imposition of successor liability on a company that has merely purchased the assets of a predecessor for cash and does not otherwise fall within the [traditional] exceptions would encourage the dissolution of a financially troubled corporation by piecemeal sale of assets rather than as a going concern. The end result would be the needless destruction of an ongoing business enterprise with no net advantage to anyone.
[Restatement, supra, § 12 reporters’ note (citing Polius v. Clark Equip. Co., 802 F.2d 75 (3d Cir.1986)).]
See also Bernard v. Kee Mfg. Co., Inc., 409 So.2d 1047, 1049 (Fla.1982) (‘We choose not to join this vanguard of courts, due in part to the threat of economic annihilation that small businesses would face under such a rule of expanded liability.”); A. Schiff, Products Liability and Successor Corporations: Protecting the Product User and the Small Manufacturer Through Increased Availability of Products Liability Insurance, 13 U.C. Davis L.Rev. 1000, 1003 (1980) (noting that most small companies are *395unable to obtain insurance coverage for liabilities from injuries caused by a predecessor’s products).
It is, therefore, not surprising that the overwhelming majority of states that have considered the product-line exception have rejected it. See, e.g., Page v. Gulf Oil Co., 812 F.2d 249, 250 (5th Cir.1987) (applying Louisiana law); Reed v. Armstrong Cork Co., 577 F.Supp. 246, 247-48 (E.D.Ark.1983) (applying Arkansas law); LeSane v. Hillenbrand Indus., Inc., 791 F.Supp. 871, 873-74 (D.D.C.1992) (applying the law of the District of Columbia); Johnston v. Amsted Indus., 830 P.2d 1141, 1147 (Colo.Ct.App.1992); Bernard, supra, 409 So.2d at 1049-50; Bullington v. Union Tool Corp., 254 Ga. 283, 328 S.E.2d 726, 728 (1985); Myers v. Putzmeister, Inc., 232 Ill.App.3d 419, 173 Ill.Dec. 130, 134, 596 N.E.2d 754, 758, appeal denied, 146 Ill.2d 632, 176 Ill.Dec. 804, 602 N.E.2d 458 (1992); DeLapp v. Xtraman, Inc., 417 N.W.2d 219, 222 (Iowa 1987); Stratton v. Garvey Int'l Inc., 9 Kan.App.2d 254, 676 P.2d 1290, 1297-98 (1984); Guzman v. MRM/Elgin, 409 Mass. 563, 567 N.E.2d 929, 933 (1991); Pelc v. Bendix Mach. Tool Corp., 111 Mich.App. 343, 314 N.W.2d 614, 620 (1981); Niccum v. Hydra Tool Corp., 438 N.W.2d 96, 100 (Minn.1989); Young v. Fulton Iron Works Co., 709 S.W.2d 927, 940 (Mo.Ct.App.1986); Jones v. Johnson Mach. & Press Co., 211 Neb. 724, 320 N.W.2d 481, 484 (1982); Simoneau v. South Bend Lathe, Inc., 130 N.H. 466, 543 A.2d 407 (1988); Downtowner, Inc. v. Acrometal Products, Inc., 347 N.W.2d 118, 125 (N.D.1984); Flaugher v. Cone Automatic Mach., Co., 30 Ohio St.3d 60, 507 N.E.2d 331, 338 (1987); Goucher v. Parmac, Inc., 694 P.2d 953, 954 (Okla.Ct.App.1984); Hamaker v. KenwelJackson Mach. Inc., 387 N.W.2d 515, 521 (S.D.1986); Griggs v. Capitol Machine Works, Inc., 690 S.W.2d 287, 294 (Tex.Ct.App.), writ denied, 701 S.W.2d 238 (Tex.1985); Ostrowski v. Hydra-Tool Corp., 144 Vt. 305, 479 A.2d 126, 127 (1984); Harris v. T.I., Inc., 243 Va. 63, 413 S.E.2d 605, 609 (1992); Fish v. Amsted Indus., Inc., 126 Wis.2d 293, 376 N.W.2d 820, 829 (1985); accord Nissen Corp. v. Miller, 323 Md. 613, 594 A.2d 564, 570 (1991) (applying the traditional rule of successor liability and noting that the product-line exception has been rejected by many jurisdictions as *396“too far-reaching and radical”). Those courts have all recognized that, for both economic and social reasons, the product-line exception is unjustifiable.
B.
Aside from New Jersey, only four other states have adopted the product-line exception: California, New Mexico, Pennsylvania, and Washington. See Ray v. Alad, Corp., supra, 19 Cal.3d 22, 136 Cal.Rptr. 574, 560 P.2d 3 (1977); Garcia v. Coe Mfg. Co., 123 N.M. 34, 933 P.2d 243, 250 (1997); Dawejko v. Jorgensen Steel Co., 290 Pa.Super. 15, 434 A.2d 106, 110 (1981); Martin v. Abbott Labs., 102 Wash.2d 581, 689 P.2d 368, 388 (1984). Of those four states, none have extended the product-line exception to benefit defendants. See 63 Am.Jur.2d Products Liability § 133 (1996) (“The product line theory may not be applied to support a claim for contribution or indemnity made by an initial successor corporation against a subsequent corporation; the purpose of [the] product-line exception is to compensate otherwise remediless tort victims”).
In Hill v. Trailmobile, Inc., 412 Pa.Super. 320, 603 A.2d 602, 607 (1992), the defendant/lessor of a truck trailer sought indemnification from the product line successor to the manufacturer. In affirming a lower court ruling that indemnification could not be sought under the product-line exception, the Pennsylvania Superi- or Court explained:
Original defendant Trailmobile is now asking this court to extend the product-line exception to successor liability to apply for the first time to defendants. This we are unwilling to do. The product-line exception is a remedy which was created to afford relief to plaintiffs, victims of manufacturing defects who, due to the sale or transfer of the manufacturing corporation, otherwise would have no avenue of redress for injuries caused by defective products. Trailmobile’s effort to obtain indemnification from co-defendants through the product-line exception subverts the policy considerations that prompted adoption of the rule.
[Id 603 A.2d at 607 (emphasis added) (citations omitted).]
Similarly, in Shorb v. Airco, Inc., 644 F.Supp. 923, 928 (E.D.Penn.1986), the court refused to permit a successor corporation to use the product-line exception to recover from an interme*397diate successor corporation after the plaintiffs had settled their claim. The court explained that allowing a successor corporation to use the product-line exception to recover from a prior successor corporation was “not contemplated, let alone mandated, by any of the cases on the product-line exception, the purpose of which is to compensate otherwise remedyless [sic] tort victims, not to preempt the role of contract in corporate successorships.” Id. at 929.1
Even if the Court is convinced that the product-line exception should remain as the law of this State, there is no justification for extending that exception to benefit corporate defendants. Once the plaintiff has recovered for his injuries, the policy considerations that prompted the adoption of the rule no longer exist. There is no connection between the public policy considerations in Ramirez — enabling an injured consumer to recover for his injuries — and the present case. Globe Food was not even in existence at the time the injury occurred. It acquired the predecessor corporation’s assets two and one-half years after Mettinger’s accident, one year after his lawsuit had been filed and six months after the statute of limitations for Mettinger to sue Globe Food had expired. Moreover, because Globe Food was not in existence at the time of Mettinger’s accident, it could not have acted to avoid his loss.
Lowensten, on the other hand, could have acted to avoid the risk of harm to plaintiff. Lowensten sold and serviced the defective slicer to Mettinger’s employer and provided the care and operation booklets. Lowensten knew where the slicer was located and, more significantly, at the time it sold the slicer to Mettinger’s employer, it sold the same slicer to other customers, but with an interlock. Moreover, Lowensten could have protected itself by *398insisting on a contractual indemnity provision. However, it did not so do.
Underlying the product-line exception is the concept of fairness. Declining to expand the product-line exception to cover Globe Food does not impose any liability on Lowensten that did not already exist under New Jersey law. As a seller of a defective product, Lowensten is liable to the injured plaintiff. However, making Globe Food pay for an accident it did not cause and could not avoid provides a windfall to Lowensten and creates liability for Globe Food where none had previously existed. Such a result is unfair.
Because I would hold that the product-line exception is not available to benefit corporate defendants, I would not reach the other issues addressed by the Court. I would reverse the judgment of the Appellate Division.
COLEMAN, J., joins in this dissent.
For modification, affirmance and remandment — Chief Justice PORITZ and Justices HANDLER, POLLOCK, O’HERN, and STEIN — 5.
For reversal — Justices GARIBALDI and COLEMAN — 2.

 The court did not decide whether Pennsylvania law or New Jersey law would govern, as it determined that under the laws of both states, the product-line exception was not available. 644 F.Supp. at 927.