Court Opinion

ID: 9628536
Source: CourtListenerOpinion
Date Created: 2023-08-22 09:23:51.793376+00
Date Added: 2024-06-11T18:07:07.178960
License: Public Domain

*618Pearson, J.
(concurring in part, dissenting in part) — I concur with the majority except with respect to the imposition of strict liability on Stanlabs Pharmaceutical Company because of its status as successor corporation to Stanley Drug Products, Inc. It is my belief that the traditional rule of nonliability for successor corporations should not be abandoned in favor of the product line rule of Ray v. Alad Corp., 19 Cal. 3d 22, 560 P.2d 3, 136 Cal. Rptr. 574 (1977). I realize that the majority's adoption of the Ray rule is consistent with dicta appearing in Meisel v. M & N Modern Hydraulic Press Co., 97 Wn.2d 403, 645 P.2d 689 (1982). In Meisel we noted, in a unanimous opinion, that the Ray rule "may well be salutary, and it would not be inconsistent with this court's prior holdings to adopt it." Meisel, at 408 n.l. However, upon further reflection, I am now convinced that the Ray product line rule is inconsistent with several major policy considerations underlying the imposition of strict liability. These policy considerations are ignored by the majority.
I
Initially, I note that in the 7 years since Ray was decided only two other jurisdictions have adopted the product line rule. See Ramirez v. Amsted Indus., Inc., 86 N.J. 332, 431 A.2d 811 (1981); Dawejko v. Jorgensen Steel Co., 290 Pa. Super. 15, 434 A.2d 106 (1981). The majority of jurisdictions which have addressed the question of whether to impose strict liability on a successor corporation have expressly rejected the Ray approach. See Rhynes v. Branick Mfg. Corp., 629 F.2d 409 (5th Cir. 1980) (applying Texas law); Travis v. Harris Corp., 565 F.2d 443 (7th Cir. 1977) (applying Ohio and Indiana law); Leannais v. Cincinnati, Inc., 565 F.2d 437 (7th Cir. 1977) (applying Wisconsin law); Jones v. Johnson Mach. & Press Co., 211 Neb. 724, 320 N.W.2d 481 (1982); Bernard v. Kee Mfg. Co., 409 So. 2d 1047 (Fla. 1982); Stratton v. Garvey Int'l, Inc., 9 Kan. App. 2d 254, 676 P.2d 1290 (1984); Manh Hung Nguyen v. Johnson Mach. & Press Corp., 104 Ill. App. 3d *6191141, 433 N.E.2d 1104 (1982). These courts chose to apply the traditional corporate law rule which does not impose the liabilities of the selling predecessor upon the buying successor company unless (1) the successor expressly or impliedly assumes the obligations of the predecessor, (2) the transaction is a de facto merger, (3) the successor is a mere continuation of the predecessor, or (4) the transaction is a fraudulent effort to avoid liabilities of the predecessor. This approach is, I think, preferable to that taken by the Ray court and by the majority in this case.
II
The Ray product line exception to the general rule of nonliability states:
[A] party which acquires a manufacturing business and continues the output of its line of products . . . assumes strict tort liability for defects in units of the same product line previously manufactured and distributed by the entity from which the business was acquired.
Ray v. Alad Corp., 19 Cal. 3d at 34. For the reasons stated below, I do not believe that the Ray holding is consistent with the philosophy and purpose behind the law of strict liability.
In Bombardi v. Pochel's Appliance & TV Co., 9 Wn. App. 797, 515 P.2d 540 (1973), the court correctly observed that:
the purpose of [strict] liability is to ensure that the costs of injuries resulting from defective products are borne by the makers of the products who put them in the channels of trade, in this case Admiral Corporation, rather than by the injured persons who ordinarily are powerless to protect themselves.
(Italics mine.) Bombardi, at 806. In order to effectuate this purpose, strict liability is extended to those within the chain of distribution. Seattle-First Nat'l Bank v. Tabert, 86 Wn.2d 145, 148, 542 P.2d 774 (1975). It is precisely those within the chain of distribution that have participated in the creation of the risk by producing or marketing the defective product. "The cornerstone of strict liability rests *620upon the defendant's active participation in placing the allegedly defective product into commerce . . Domine v. Fulton Iron Works, 76 Ill. App. 3d 253, 257, 395 N.E.2d 19 (1979) (rejecting the Ray product line exception).
It is readily apparent that the purpose of strict liability, as stated in Bombardi, is in no way furthered by holding a successor corporation liable for defects in its predecessor’s products merely because the successor manufactures the same type of product as did the predecessor. The successor is outside the original producing and marketing chain. The successor did not make the product, nor did it place the product into the channels of trade. In short, the successor had nothing to do with the creation of the risk presented by the defective product. Moreover, since the successor was never in a position to eliminate the risk, a major purpose of strict liability in modifying the manufacturer's behavior is also lost.
Another major justification for strict liability is that "the seller, by marketing his product for use and consumption, has undertaken and assumed a special responsibility toward any member of the consuming public who may be injured by it . . .". Restatement (Second) of Torts § 402A, comment c, at 349 (1965). When this court adopted the strict liability rule of section 402A in Ulmer v. Ford Motor Co., 75 Wn.2d 522, 452 P.2d 729 (1969), it noted that strict liability was based on a sort of implied warranty which was not subject to various contract rules such as privity. Ulmer, at 529-32. The Ulmer court concluded that "[sjection 402A . . . is in accord with the import of our cases which have been decided upon a theory of breach of implied warranty and we hereby adopt it as the law of this jurisdiction." Ulmer, at 531-32.
This implied warranty rationale does not, however, apply to a corporate successor to the manufacturer of a defective product. The successor has neither invited the use of the product nor represented to the public that the product was safe and suitable for use.
The majority, by adopting the Ray product line excep*621tion, ignores the major policy considerations underlying strict liability discussed above. While it is no doubt true that the traditional corporate law rule of nonliability of successors was not formulated with the particular circumstances of a products liability claimant in mind, that rule and its exceptions are nevertheless quite consistent with the justifications for strict liability discussed above. The traditional rule and its exceptions ensure (1) that strict liability is not imposed where the successor had nothing to do with creating the risk presented by a defective product, and (2) that strict liability is imposed where the successor is, in effect, the same entity as the predecessor who produced or marketed the defective product. Thus, liability is placed upon those who are responsible for placing defective products in the flow of commerce and inviting the public to use those products. Such a result is entirely consistent with the philosophy behind strict liability.
Ill
I turn now to examine the points of justification offered in support of the Ray rule.
The first justification offered by the courts which have adopted Ray is that the plaintiff has lost his remedy against the dissolved predecessor and can only sue the successor; there is no one else to look to. It seems to me, however, that this is merely a statement of the problem rather than a justification for any particular solution to the problem. Moreover, RCW 7.72.040(2) (a) and (b) allow a plaintiff to bring an action against the seller of an allegedly defective product if the manufacturer is unavailable. Thus, a products liability plaintiff is rarely left without a remedy.
The second justification offered in support of the Ray approach is that the successor corporation is better able to gauge the risks of liability, insure against those risks, and spread the cost among the consuming public, than is the injured plaintiff. Simply stated, the successor should be liable because it can afford it.
I fear that this rationale is illusory. I question whether *622the successor may, realistically, be able to obtain open-ended products liability insurance to cover accidents resulting from defects in the predecessor's product. Recent studies indicate that many manufacturers, especially smaller companies, have great difficulty obtaining products liability insurance even for their own products, and find it impossible to cover the cost by raising prices because they have to compete with larger manufacturers who can keep the price down. Schwartz, The Federal Government and the Product Liability Problem: From Task-Force Investigation to Decisions by the Administration, 47 U. Cin. L. Rev. 573 (1978); Schiff, Products Liability and Successor Corporations: Protecting the Product User and the Small Manufacturer Through Increased Availability of Products Liability Insurance, 13 U.C.D. L. Rev. 1000 (1980). As one commentator concluded:
Most small corporations are unable to secure policies covering liability for injuries caused by the predecessor's products. When such insurance is available, the cost is often prohibitive.
Schiff, 13 U.C.D. L. Rev. at 1003. A primary reason that the cost of such insurance is prohibitive is that small manufacturers are often unable to pass that cost on to the consuming public through increased prices.
[T]heir ability to pass on the costs are limited. They are limited by the pricing performance of their major competitors. Generally what happens, and there are some exceptions, particularly various specialty-type products, is that the major corporations . . . will set the parameters of the price. The small firm cannot leave those parameters without coming into some serious problems.
Select Committee on Small Business, Impact of Product Liability on Small Business, S. Rep. No. 629, 95th Cong., 2d Sess. 167, 168-69 (1978). As I see it, the inability of small corporations to obtain insurance for successor liability, coupled with the inability of those corporations to spread the cost of such insurance if they can obtain it, undermines the rationale and legitimacy of the second *623justification offered in support of the Ray product line approach.
The final justification offered for the Ray rule is that, because the successor enjoys the goodwill of the predecessor, the successor should bear the corresponding burden of liability for the predecessor's products which created that goodwill. The problem with this benefit/burden rationale is that the benefit, in terms of goodwill stemming from an established trade name or product, has been considered and negotiated during the acquisition of the predecessor corporation. The successor, then, has already paid once for its predecessor's goodwill. To require the successor to assume liability for its predecessor's defective products on the basis of acquired goodwill would be, in effect, requiring the successor to pay twice for that goodwill. This hardly seems equitable, especially when one considers that it is the predecessor, and not the successor, which has benefited most directly from this intangible goodwill. The predecessor has received the profits from the sale of the product which created the goodwill, in addition to receiving the profit from the sale as an asset of the goodwill itself. It is true that the successor does benefit in a remote way from the goodwill purchased from the predecessor. However, the revelation of past production failures injures that goodwill and deprives the successor of the benefit it has purchased. Thus, the successor has lost the benefit of its bargain. Imposing strict liability upon a successor corporation because that corporation is supposedly enjoying the benefits of its predecessor's goodwill is illogical where those benefits no longer remain. Yet that is what the majority does by adopting the product line exception to the general rule of successor nonliability.
There are other troublesome aspects to the concept of goodwill as a benefit justifying strict successor liability. How is goodwill to be measured, and how much is needed to justify liability? Some companies are sold because they have a bad reputation, and the successor believes it can reverse the public's attitude toward the product. Would an absence of goodwill preclude successor liability? Finally, *624even if it were fair to impose liability on a successor corporation because it benefits from its predecessor's goodwill, and even if that goodwill could be evaluated, then should not the successor's liability be limited to the value of the goodwill from which it supposedly benefits?
In sum, I find no justification for such a basic departure from traditional concepts of corporate and tort law as that taken by the majority. The justifications offered by the handful of courts which have adopted the product line rule are not persuasive. The public policy considerations which motivate imposition of strict liability on those who create risk and obtain profit by placing defective products on the market do not apply to successor corporations. The successor corporation had no part in the creation of the risk presented by its predecessor's products and, except in a very remote way, does not profit from the sale of those products. The successor has neither invited the public to use its predecessor's products nor represented to the public that those products are safe and suitable for use.
I would affirm the trial court's grant of summary judgment to Stanlabs Pharmaceutical Company.
Utter and Dimmick, JJ., concur with Pearson, J.
Reconsideration denied January 3, 1985.