Dawejko v. Jorgensen Steel Co.

• Citation: 290 Pa.Super. 15,434 A.2d 106
• Parties: Edmund DAWEJKO and Roseann Dawejko v. JORGENSEN STEEL COMPANY, Fred Hill & Son Company, Dresser Industries, Inc., American Chain and Cable Company, Inc., a/k/a ACCO, and Mansaver Industries, Inc., a Division of ACCO. Appeal of AMERICAN CHAIN AND CABLE COMPANY, INC., a/k/a ACCO, and Mansaver Industries, Inc., a Division of ACCO.
• Decision Date: 14 August 1981
• Court: Superior Court of Pennsylvania

434 A.2d 106

290 Pa.Super. 15

Edmund DAWEJKO and Roseann Dawejko v. JORGENSEN STEEL COMPANY, Fred Hill & Son Company, Dresser

Industries, Inc., American Chain and Cable Company, Inc., a/k/a ACCO, and Mansaver Industries, Inc., a Division of ACCO. Appeal of AMERICAN CHAIN AND CABLE COMPANY, INC., a/k/a ACCO, and Mansaver Industries, Inc., a Division of ACCO.

Superior Court of Pennsylvania.

August 14, 1981

Argued Dec. 2, 1980.

Charles W. Craven, Philadelphia, for appellants.

Robert M. Ross, Philadelphia, for appellees.

Before SPAETH, BROSKY and HOFFMAN, JJ.

SPAETH Judge:

Appellee Edmund Dawejko was injured on August 2, 1972, when he was struck by sheets of steel that were accidentally dropped from a lifting machine called a "Mansaver." The "Mansaver" was manufactured by Mansaver Industries, Inc., of New Haven Connecticut, in 1957 and was sold, through a broker, to Hotpack Corporation, appellee's employer. In 1964 Mansaver Industries, Inc., sold its assets to American Chain and Cable Company, also known as ACCO, and subsequently ceased operations. ACCO formed a subdivision called Mansaver Industries, Inc., a Division of ACCO. The issue we must decide is whether appellees may recover against ACCO on principles of strict tort liability. We hold that they may recover.

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The general rule is that when one company sells or transfers all of its assets to a successor company, the successor does not acquire the liabilities of the transferor corporation merely because of its succession to the transferor's assets. Husak v. Berkel Incorporated, 234 Pa.Super. 452, 341 A.2d 174 (1975). See also Knapp v. North American Rockwell Corp., 506 F.2d 361 (3d Cir. 1974) cert. denied North American Rockwell Corp. v. Knapp, 421 U.S. 965, 95 S.Ct. 1955, 44 L.Ed.2d 452 (1975). However, there are several exceptions to this general rule:

In order to find that this general rule is not applicable and that the transferee does acquire such liability, one of the following must be shown: (1) the purchaser expressly or impliedly agrees to assume such obligation; (2) the transaction amounts to a consolidation or merger; (3) the purchasing corporation is merely a continuation of the selling corporation; or (4) the transaction is fraudulently entered into to escape liability. See Granthum v. Textile Machine Works, 230 Pa.Super. 199, 326 A.2d 449 (1974). A fifth circumstance, sometimes included as an exception to the general rule, is where the transfer was without adequate consideration and provisions were not made for creditors of the transferor. See Lopata v. Bemis Co., Inc., 383 F.Supp. 342 (E.D.Pa.1974); McKee v. Harris-Seybold Co., Division of Harris-Intertype Corp., 109 N.J.Super. 555, 264 A.2d 98 (1970); 19 Am.Jur.2d Corporations § 1546 (1965); 15 W. Fletcher, Cyclopedia of Corporations § 7122 (Perm. ed. 1973).

Husak v. Berkel Incorporated, supra at 456-57, 341 A.2d at 176-77.

See also Caberera v. Hayes-Albion Corp., C.A. No. 80-3108 (E.D.Pa. Feb. 10, 1981); Woody v. Combustion Engineering, Inc., 463 F.Supp. 817, 820 (E.D.Tenn.1978).

Sometimes in cases of strict tort liability the general rule seems to lead to an unjust result. consequently, a tendency has developed either to expand one of the recognized exceptions to the rule or to add a new exception, so that the successor corporation will be strictly liable for a defective product manufactured by the predecessor corporation.

Traditionally, a case has been held within the "continuation" exception only when there is a common identity of officers, directors and stock between the selling and purchasing corporations, and only one corporation after the transfer. See Jacobs v. Lakewood Aircraft Service, Inc., et al., F.2d (3d Cir., filed April 3, 1981); Lopata v. Bemis Co., 383 F.Supp., 342 (E.D.Pa.1974), vac. and remanded, 517 F.2d 1398 (3d Cir.), judgment reinstated, 406 F.Supp. 521 (E.D.Pa.1975); Kloberdanz v. Joy Manufacturing Co., 288 F.Supp. 817, 821 (D.Colo.1968); Wilson v. Fare Well Corp., 140 N.J.Super. 476, 356 A.2d 458 (L.Div.1976). However, in some recent decisions, a "continuation" has been defined more broadly, the emphasis being shifted from corporate formalities to an inquiry regarding the nature of the business operations.

In Cyr v. B. Offen & Co., Inc., 501 F.2d 1145 (1st Cir. 1974), several employees and a financial backer had purchased the assets of a predecessor corporation after its owner died. According to the court this was a transfer in which "facial and substantive continuity were the essence of the bargain." 501 F.2d at 1152.

The purchase of good will and contract obligations was central to the agreement. Old service obligations were assumed by the purchaser and B. Offen & Co., Inc. (successor) continued to service and renovate old dryers. No notice was given to known customers of B. Offen Company (predecessor) that a new or different business was beginning. B. Offen & Co., Inc. advertised itself as an ongoing enterprise, and even claimed in its advertising that it was a forty year old business. It continued to produce the same kind of product in essentially the same way that Bernard Offen (owner of predecessor) had.

501 F.2d at 1151.

In these circumstances, the Court of Appeals, applying New Hampshire Law, found a continuation and therefore held that the successor corporation was not immune from suit. The court based its decision on the considerations of policy that underlie the rule of strict liability:

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. The successor knows the product, is as able to calculate the risk of defects as the predecessor, is in position to insure therefor and reflect such cost in sale negotiation, and is the only entity capable of improving the quality of the product.

501 F.2d at 1154.

The court said that

it is true that the successor, by definition, was not the legal entity which launched the product on the stream of commerce or made an implied representation as to its safety. But in the most real sense it is profiting from and 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.

501 F.2d at 1154.

In Turner v. Bituminous Casualty Co., 397 Mich. 406, 244 N.W.2d 873 (1976), the successor corporation maintained the same product, name, personnel, property and clients. According to the court, "(C)ontinuity (was) the purpose, continuity (was) the watchword, continuity (was) the fact." Id. at 426, 244 N.W.2d at 882. The court defined "continuity of the enterprise" as existing when there is continuity of the predecessor corporation's enterprise (management, personnel, physical location, assets, etc.), and when, after the transaction, the predecessor corporation ceases its ordinary business operations, while the successor corporation continues those operations. In these circumstances, the court said, liability should extend to the successor corporation. "(J)ustice 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." 397 Mich. at 426, 244 N.W. at 882. For other opinions adopting this concept of "continuity of the enterprise," see Andrews v. John E. Smith's Sons Co., 369 So.2d 781, 785 (Ala.1979), and Korzetz v. Amsted Industries, Inc., 472 F.Supp. 136 (E.D.Mich.1979).

Some of the cases have taken a slightly different tack. Instead of deciding whether a given case fits within the continuation exception to the general rule, they have evolved a new exception, which may be called the product-line exception. See Recent Developments, Products Liability-Liability of Transferee for Defective Products Manufactured by Transferor, 30 Vanderbilt L.R. 238 (1977); Recent Developments, Products Liability-Corporations Asset Sales and Successor Liability, 44 Tenn.L.R. 905 (1977).

In Ray v. Alad Corporation, 19 Cal.3d 22, 136 Cal.Rptr. 574, 560 P.2d 3 (1977), the successor corporation continued to manufacture the predecessor corporation's product line (ladders), using the same equipment and designs, employing the same personnel, and soliciting the predecessor's customers through the same sales representatives, with no outward indication of a change of ownership. The court held that the continuation exception was not available because under California law it was limited to cases in which there was inadequate consideration for the predecessor corporation's assets and no provision for meeting the claims of unsecured creditors, or where one or more persons were officers, directors or stockholders of both corporations. The court was of the opinion, however, that to deny recovery simply because there was no continuation would be unjust:

The purpose of the rule of strict tort liability "is to insure that the costs of injuries resulting from defective products are borne by the manufacturers that put such products on the market rather than by the injured persons who are powerless to protect themselves." (Greenman v. Yuba Power Products, Inc. (1963) 59 Cal.2d 57, 63, 27 Cal.Rptr 697, 701, 377 P.2d 897, 901.) However, the rule "does not rest on the analysis of the financial strength or bargaining power of the parties to the particular action. It rests, rather, on the proposition that '(t)he cost of an injury and the...