Court Opinion

ID: 196241
Source: CourtListenerOpinion
Date Created: 2011-02-07 03:01:15+00
Date Added: 2024-06-11T09:06:08.055088
License: Public Domain

United States Court of Appeals
                    For the First Circuit
                                         

No. 95-1181

                        RANDY JORDAN,

                    Plaintiff, Appellant,

                              v.

  HAWKER DAYTON CORPORATION and EAST DAYTON TOOL & DIE CO.,

                    Defendants, Appellees.

                                         

        APPEAL FROM THE UNITED STATES DISTRICT COURT 

                  FOR THE DISTRICT OF MAINE

         [Hon. Morton A. Brody, U.S. District Judge]
                                                               

                                         

                            Before

            Cyr, Boudin, and Lynch, Circuit Judges.
                                                              

                                         

Laurie Ann Miller, with  whom N. Laurence Willey, Jr. and  Ferris,
                                                                              
Dearborn & Willey were on brief, for appellant.
                         
Brent A.  Singer, with whom  David C. King  and Rudman  & Winchell
                                                                              
were on brief, for appellee Hawker Dayton Corporation.

                                         

                       August 10, 1995
                                         

          LYNCH,  Circuit Judge.   Randy  Jordan, an  injured
                      LYNCH,  Circuit Judge.
                                           

worker, appeals,  asking us  to revisit the  law of  Maine on

successor liability so  that he may  reach the Hawker  Dayton

Corporation,  which purchased  the assets  of  a division  of

another company  that had  manufactured  the machinery  which

injured  Jordan's  hand.   Sitting  as a  court  in diversity

jurisdiction under  Erie Railroad  v. Tompkins,  304 U.S.  64
                                                          

(1938), we decline  to do so and affirm the  grant of summary

judgment issued in favor of Hawker  Dayton Corporation by the

district court. 

                            FACTS
                                             

          In  September  1991, the  appellant,  Randy Jordan,

badly injured  his hand at  work while attempting to  unjam a

doweling machine.  Jordan underwent medical and psychological

treatment,  and filed this  products liability action  in the

United States District Court for Maine against "Hawker Dayton

Manufacturing Company."

          The doweling  machine was manufactured  in 1973  by

Hawker  Manufacturing  Company  ("Hawker  Manufacturing"),  a

division of East Dayton Tool & Die Co. ("East Dayton").  East

Dayton  also  manufactured  automobile  components and  other

products.   Around  the time  that the  doweling machine  was

manufactured, Dorothy Darrow,  the sole  shareholder of  East

Dayton, sold  some of her  stock to family friends,  and East

Dayton  redeemed  her   remaining  stock  for  cash   and  an

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installment note.   The  company continued  its manufacturing

operations and even added additional product lines.

          In  August 1973, East Dayton sold to Harmon Darrow,

the  president of Hawker Manufacturing, an option to purchase

the  assets of Hawker Manufacturing at  their net book value.

In  March 1974, Mr.  Darrow formed Hawker  Dayton Corporation

("Hawker Dayton"), conveyed  his option to that  company, and

in   July  1974,  Hawker  Dayton  exercised  the  option  and

purchased the Hawker  Manufacturing assets for  approximately

$150,000.  Hawker  Dayton continued the operations  of Hawker

Manufacturing and  continued to use  the Hawker Manufacturing

trade name.  East Dayton continued to manufacture woodworking

machines (including  doweling machines at  first), automobile

dies and other specialized machinery for about two years.

          In  1976, East Dayton defaulted  on its note to Ms.

Darrow.  It then sold the  rest of its equipment for $925,000

and its real property  for $650,000 to entities not  involved

in this lawsuit, and made  payments out to Ms. Darrow  on the

installment note for the next ten years.

                      PROCEEDINGS BELOW
                                                   

          On  June  14, 1993,  Jordan  filed this  suit.   In

August, the district court issued a scheduling order giving a

deadline   of  September  15,  1993,  for  amendment  of  the

pleadings.   The judge  later amended  the scheduling  order,

extending the deadline for amending pleadings by fifteen days

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and extending the  discovery deadline by two months.   During

discovery, Jordan learned,  inter alia, that East  Dayton was
                                                  

the manufacturer of  the doweling machine.   On February  10,

1994, five  days before discovery  was to be  completed under

the scheduling order,  Jordan moved to correct  the corporate

name  of the  defendant  from  "Hawker  Dayton  Manufacturing

Corporation"  to "Hawker  Dayton  Corporation,"  to add  East

Dayton as a defendant  and to include additional theories  of

liability  against Hawker Dayton.  The district court granted

the motion to correct the corporate name of the defendant and

to add East  Dayton, but denied the motion  to add additional

theories of liability.

          Jordan filed a  motion for summary judgment  on the

issue  of whether  Hawker  Dayton was  liable as  a successor

corporation for  the debts  and liabilities  of East  Dayton.

Hawker  Dayton objected,  and  in  its  response  asked  that

summary  judgment  be  entered in  its  favor  instead.   The

Magistrate Judge recommended that Jordan's motion be  denied,

and the district  court adopted the recommendation.   Neither

ruled  on the  issue of  whether summary  judgment should  be

entered   on  behalf  of   Hawker  Dayton.     Hawker  Dayton

subsequently  moved for  summary judgment,  and the  district

court granted the motion.

          Judgment  by  default  was   entered  against  East

Dayton, after a hearing on damages, for $2,230,088.21.

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          Jordan  appeals the  grant of  summary judgment  in

favor of Hawker Dayton on the issue of successor liability.

                          DISCUSSION
                                                

          Four  years ago, albeit in a different context than

a tort suit, the Supreme Judicial  Court of Maine held, as to

corporate  successor   liability:     "[A]bsent  a   contrary

agreement  by the parties, or an explicit statutory provision

in  derogation  of   the  established  common  law   rule,  a

corporation that purchases the assets  of another corporation

in  a bona fide,  arm's-length transaction is  not liable for
                           

the  debts or  liabilities  of the  transferor  corporation."

Director  of Bureau  of Labor  Standards  v. Diamond  Brands,
                                                                         

Inc., 588 A.2d 734, 736  (Me. 1991).  Diamond Brands involved
                                                                

interpretation  of the  term "employer"  in  a severance  pay

statute.  Conceding  that there is  no contrary agreement  by

the  asset purchase  parties and  no  statutory exception  to

common  law here,  Jordan tries  to avoid the  Diamond Brands
                                                                         

holding by arguing the  opinion does not foreshadow  what the

Maine Court would do in a tort action. 

           There  are two  responses.   First,  the rule,  as

stated above, that  a mere asset purchase will  not give rise

to  successor liability  is  articulated  by Maine's  highest

court as being "the established common law rule."  That alone

defeats  Jordan's  claim, as  he  has argued  that  Maine law

applies.   This common law  rule is reinforced by  the social

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policy judgment made by the Maine legislature, in the statute

at  issue in Diamond Brands.  Maine  there decided that it is
                                       

benefited  by not discouraging  purchases of assets  of Maine

businesses  through  imposition  of  successor  liability  on

purchasing corporations, thus keeping businesses going  which

would otherwise  fail, and  so continuing  to have  employees

benefit  from their continued  employment.   Id. at  737 n.7.
                                                            

Jordan  points  to  no  legal  developments  in  the  law  of

successor liability  in Maine  or in  any other  jurisdiction

since Diamond  Brands to  suggest that  the Supreme  Judicial
                                 

Court would change this law.   See Bernhardt v. Polygraph Co.
                                                                         

of America, 350 U.S. 198,  205 (1956) ("[T]here appears to be
                      

no confusion in the [Maine]  decisions, no developing line of

authorities that casts a shadow over the established ones, no

dicta,  doubts  or  ambiguities in  the  opinions  of [Maine]

judges  on  the  question,  no legislative  development  that

promises  to undermine the  judicial rule.").   Thus, Diamond
                                                                         

Brands is  the law of Maine,  and this Court  must apply that
                  

law.

          Secondly, plaintiff  chose a federal, rather than a

state forum,  presumably cognizant of this  court's statement

that "litigants  who reject a  state forum in order  to bring

suit  in  federal court  under diversity  jurisdiction cannot

expect  that new  trails  will  be blazed."    Ryan v.  Royal
                                                                         

Insurance  Company of America,  916 F.2d  731, 744  (1st Cir.
                                         

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                                          6

1990).   Jordan  did not  file  a motion  that  the issue  be

certified to  the state court.   Here Jordan has  suffered an

injury and East Dayton appears  to no longer have assets with

which to satisfy his claim.  But the complex policy arguments

as  to whether  the common  law should  strive to  assure him

recompense are left  to the state, not the  federal court, to

decide.   Here  Maine has  made that  calculus and  given the

greater weight  to the protection  of jobs through  limits on

successor  liability.   It is  not  the role  of the  federal

courts to "question the policy choices of states whose law we

apply."   Krauss v. Manhattan  Life Insurance Company  of New
                                                                         

York, 643 F.2d 98, 102 (2d Cir. 1981).
                

          Jordan  argues  that  the  Supreme  Judicial  Court

recently adopted a "majority rule" in another aspect  of tort

law  and so  will adopt  the  majority rule  as to  successor

liability.     Jordan  relies  on  Oceanside  at  Pine  Point
                                                                         

Condominium Owners Association v. Peachtree Doors,  Inc., 659
                                                                    

A.2d 267, 270 (Me. 1995), which held that a plaintiff did not

state a  claim in  tort for a  defective product's  damage to

itself,  thus  having  Maine  join that  rule  adopted  by  a

majority  of jurisdictions.   Even were  we incorrect  in our

understanding  that the law  of Maine on  successor liability

has been determined  by its highest authority,  this argument

would  not assist Jordan.   The Peachtree Doors decision does
                                                           

not  expand plaintiffs' remedies, but reflects a rejection of

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such an  expansion.   More tellingly, even  if Maine  were to

adopt a  "majority rule"  as to  successor liability,  Jordan

would still  not prevail.   Assuming the majority rule  to be

that a corporation which purchases assets from another is not

liable in tort  for the actions of the  transferor unless one

of  four exceptions  is met,  see,  e.g., 1  American Law  of
                                                                         

Products  Liability   7:1  at  10-11  (3d  ed.  1990),  those
                               

exceptions avail  Jordan naught.   See  also  Ohio Bureau  of
                                                                         

Workers' Compensation v. Widenmeyer Electric  Co., 593 N.E.2d
                                                             

468,  470 (Ohio 1991); Ramirez v. Amsted Industries, Inc., 86
                                                                     

N.J. 332, 340, 431  A.2d 811, 815 (1981); Ray v.  Alad Corp.,
                                                                        

19  Cal.3d  22, 28,  560  P.2d 3,  7  (1977).   There  was no

agreement by Hawker Dayton, express or implied, to assume the

liabilities of East Dayton Tool  and Die Co., and Jordan does

not claim  that the  asset sale was  fraudulent, not  made in

good  faith, or made without sufficient consideration.  There

was  no  de facto  merger  nor  a  mere continuation  of  the

predecessor  here  where  the  transferor  corporation,  East

Dayton,  neither  dissolved nor  liquidated  after the  asset

sale.   See,  e.g.,  1 American  Law  of Products  Liability,
                                                                        

supra,      7:10,   7:12,  7:14  &   7:15  (both  merger   or
                 

consolidation and  mere continuation exceptions  require that

there be only one corporation at the end of the transaction).

Indeed East Dayton sold less than 10% of its assets to Hawker

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                                          8

Dayton, continued to  do business thereafter and paid  out on

an installment note for twelve years after the asset sale.

          Jordan's argument ultimately  is that the  "product

line"  doctrine of  successor  liability should  be  adopted.

Under the product line doctrine, a corporation that purchases

all  or   substantially  all   of  the   assets  of   another

corporation, continues the manufacturing operations and sells

the  same product  line may  be strictly liable  for injuries

caused  by defective  products in  that line.   See,  e.g., 1
                                                                      

American Law of Products Liability,  supra,   7:25 at 42; see
                                                                         

also Ray, 19 Cal.3d 22, 560 P.2d 3; Ramirez, 86 N.J. 332, 431
                                                       

A.2d 811 (1981); Dawejko v. Jorgensen Steel Company, 290  Pa.
                                                               

Super.   15,  434   A.2d  106   (1981);   Martin  v.   Abbott
                                                                         

Laboratories, 102  Wash.2d 581, 689  P.2d 368 (1984).   It is
                        

far from clear the product line doctrine would assist Jordan.

See, e.g.,  Ray, 19 Cal.3d at 31; 560  P.2d at 9; Ramirez, 86
                                                                     

N.J.  at 358,  431 A.2d  at 825  (the product  line exception

requires  that the  asset  purchase destroy  the  plaintiff's

remedy,  for example, because all of the assets are purchased

or because the purchase agreement requires the predecessor to

liquidate).  This  doctrine is at most a  minority rule which

has plainly not been adopted by Maine.

          Finally, Jordan  makes a  procedural argument  that

the  court was precluded  from entering summary  judgment for

Hawker Dayton because  it failed to do so  when Hawker Dayton

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                                          9

had  countered his  motion in  part  by saying  that it,  not

Jordan,  was  entitled  to  entry of  judgment.    The  court

originally  denied  Jordan's  motion and  took  no  action on

Hawker  Dayton's counter request.   When Hawker  Dayton later

filed a formal motion for  summary judgment in its favor, the

court granted it, saying it  had not considered the merits of

Hawker  Dayton's  request  when it  denied  Jordan's  motion.

There was no error in this procedure and would have been none

even  if  the court  had considered  the counter  request the

first time around.   See Burns v. Massachusetts  Institute of
                                                                         

Technology, 394 F.2d 416, 418 (1st Cir. 1968).  Nor was there
                      

an abuse of  discretion in denying  Jordan's motion to  amend

his complaint filed more than  four months after the deadline

set  in the  scheduling  order  and only  a  few days  before

discovery was to be completed.

          The decision of the district court granting summary

judgment to Hawker Dayton is affirmed.

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