Shannon v. Samuel Langston Company

Decision Date31 May 1974
Docket NumberNo. C.A. 242.,C.A. 242.
Citation379 F. Supp. 797
PartiesDonald SHANNON and Carol Shannon, Plaintiffs, v. SAMUEL LANGSTON COMPANY, aka Langston Company, a Division of Harris Intertype Corporation, Defendant.
CourtU.S. District Court — Western District of Michigan

John L. Schwendener, Kalamazoo, Mich., for plaintiffs.

Grant J. Gruel, Grand Rapids, Mich., for defendant.

OPINION AND ORDER

FOX, Chief District Judge.

This case is presently before the court on the plaintiffs' motion for partial summary judgment. The parties have entered into extensive stipulations of fact and have jointly submitted many documentary exhibits with their proposed Final Pre-Trial Order. This order is based upon the stipulations, exhibits, and depositions on file.

The plaintiffs are Donald and Carol Shannon. On June 14, 1967, Donald Shannon, as an employee of the Packaging Corporation of America at its Portage, Michigan, plant, was injured by a cardboard printer-slotter which had been designed and manufactured by Samuel M. Langston Company, a New Jersey corporation, about 1952. Mr. Shannon lost his left arm while working the Langston machine.

The parties have agreed that the plaintiffs would be entitled to damages in the amount of $45,000 from the Samuel M. Langston Company if that company were still in existence. However, that company was dissolved according to New Jersey law after all its operating assets had been purchased by Harris Intertype Corporation, a Delaware corporation. The sole issue remaining in this case is whether Harris Intertype is legally liable to pay the stipulated monetary damages incurred by the plaintiffs as a result of Donald Shannon's injury on the Samuel M. Langston Company printer-slotter.

The issue of whether Harris Intertype is liable for personal injuries caused by machines manufactured by Samuel M. Langston Company before 1966 has previously been decided by Circuit Judge Albert J. Engel sitting as District Judge by designation in a case very similar to that now before the court, Fairfield v. Samuel M. Langston Company, a division of Harris Intertype, No. K-56-71 C.A. (March 12, 1974). Judge Engel ruled that the acquisition of the assets of Samuel M. Langston Company by Harris Intertype, was a consolidation or merger of the two corporations, or, alternatively, that the purchasing corporation was merely a continuation of the old corporation. On these grounds, Harris Intertype was held to be liable as a matter of law.

Although Judge Engel's ruling is entitled to great precedential weight, it is not technically dispositive of the present motion. The parties have put the question of the liability of Harris Intertype at issue once again, and the court has re-examined the matter.

The Samuel M. Langston Company of Camden, New Jersey, was organized in 1901 under the laws of New Jersey, and was engaged in the manufacture and sale of machinery used by manufacturers of corrugated paper boxes and by paper mills.

Several companies in existence before 1957 became known as Harris Intertype Corporation in that year with their headquarters in Cleveland, Ohio.

On May 26, 1966, the Harris Intertype Corporation entered into a contract with the Samuel M. Langston Company entitled "Purchase Agreement between Harris Intertype Corporation and Samuel M. Langston Company." That Agreement was modified on June 2, 1966. (The modified agreement will hereafter be referred to as the "Purchase Agreement.")

After the Purchase Agreement was signed, Harris Intertype formed a new corporation known as The Langston Company on or about June 26, 1966. On August 9, 1966, the purchase of the Samuel M. Langston Company was closed and consummated, with The Langston Company taking over operations in accordance with the agreements and closing memoranda.

Essentially, Harris Intertype acquired all the assets of the Samuel M. Langston Company, including the Langston name. Harris Intertype paid for the assets exclusively with its own stock.

In accordance with the Purchase Agreement, the old Samuel M. Langston Company changed its name to the SML Corporation so as to avoid any confusion between the old company and the new operating subsidiary of Harris Intertype, The Langston Company. The price of the assets was paid in due time and the Samuel M. Langston Company voluntarily dissolved, distributing the Harris Intertype Corporation stock to its shareholders for the purpose of liquidation.

The Langston Company was a wholly-owned subsidiary of Harris Intertype, and remained so until June 30, 1968, when it was statutorily merged with the Harris Intertype Corporation. Since that date the operations which had been The Langston Company became the operations of The Langston Division of Harris Intertype Corporation. At all times pertinent to this suit, The Langston Company and The Langston Division have been under the complete control of Harris Intertype Corporation. If The Langston Company or The Langston Division is liable, Harris Intertype is liable as a matter of law. Fairfield, Opinion and Order, at 5.

It is important to the issue before the court that the organization and operations of the old Samuel M. Langston Company were continued substantially unchanged after the company was taken over by The Langston Company, Harris Intertype's wholly owned subsidiary, in 1966. Apart from the addition of a policy-making level of management in the form of a new Chairman of the Board, the operating management remained substantially the same, and substantially all the Samuel M. Langston Company employees became employees of The Langston Company. The corporate headquarters remained the same. The cash in the bank accounts of the Samuel M. Langston Company were transferred into the newly established account of The Langston Company, and these authorized banks were instructed that the checks of the Samuel M. Langston Company issued before August 9, 1966 were to be paid from the accounts of The Langston Company.

At the time of the closing on August 9, 1966, the sales records and engineering records for the Samuel M. Langston Company printer-slotter on which Mr. Shannon was injured were part of the records of the Samuel M. Langston Company.

A.

The old Samuel M. Langston Company was a New Jersey corporation with its principal place of business in that state. Although Harris Intertype is a Delaware corporation with its headquarters in Ohio, and although the purchase agreements in this case were signed in Ohio, the locus of the manufacturing operations before and after 1966 was New Jersey. The Langston Company, Harris Intertype's subsidiary, was a New Jersey corporation, and the transfer of Samuel M. Langston Company assets to The Langston Company took place in New Jersey. Thus, the court finds that New Jersey corporation law applies.

B.

The Superior Court of New Jersey recently summarized the law of that state:

It is the general rule that where 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, except where: (1) the purchaser expressly or impliedly agrees to assume such debts; (2) the transaction amounts to a consolidation or merger of the seller and purchaser; (3) the purchasing corporation is merely a continuation of the selling corporation, or (4) the transaction is entered into fraudulently in order to escape liability for such debts. Jackson v. Diamond T. Trucking Co., 100 N.J.Super. 186, 241 A.2d 471 (Law Div.1968); Andres v. Morgan, 62 Ohio St. 236, 56 N.E. 875 (Sup.Ct.1900); Ruedy v. Toledo Factories Co., 61 Ohio App. 21, 22 N.E.2d 293 (App.Ct. 1939); Kloberdanz v. Joy Mfg. Co., 288 F.Supp. 817 (D.Colo.1968); 19 Am.Jur.2d, § 1546, at 922. A fifth exception, sometimes incorporated as an element of one of the above exceptions, is the absence of adequate consideration for the sale or transfer. 19 Am.Jur.2d § 1551, at 927; 7 Fletcher, Cyclopedia of Corporations, § 4751 (1919 ed.).

McKee v. Harris-Seybold Co., Div. of Harris-Intertype Corp., 109 N.J.Super. 555, 264 A.2d 98, 101-102 (L.Div.1970), aff'd. 118 N.J.Super. 480, 288 A.2d 585 (App.Div.1972).

The specific issue is whether the acquisition of the Samuel M. Langston Company by Harris Intertype falls into one of the stated exceptions to the general rule which would insulate the latter from liability in this case.

C.

A purchaser of corporate assets will be liable for the debts and liabilities of the transferor when the transaction amounts to a consolidation or merger of the seller and purchaser.

If the transaction here in question is anything other than an ordinary purchase of assets, it is a merger between Harris Intertype and the Samuel M. Langston Company. A merger contemplates the absorption of the acquired corporation's operations by the acquirer, and the practically contemporaneous dissolution of the acquired corporation as a legal entity. McKee, supra, 264 A.2d at 103.

In McKee, the court, reviewing many cases from New Jersey and other jurisdictions, stated the characteristics of a de facto merger, as distinguished from an ordinary purchase and sale of assets. These can be summarized as follows:

(1) There is a continuation of the enterprise of the seller corporation, so that there is a continuity of management, personnel, physical location, assets, and general business operations.

(2) There is a continuity of shareholders which results from the purchasing...

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