Brotherton v. Celotex Corp.

• Decision Date: 15 March 1985
• Citation: 202 N.J.Super. 148,493 A.2d 1337
• Parties: Donald H. BROTHERTON and Nellie Brotherton, his wife, Plaintiffs, v. CELOTEX CORPORATION, Raymark Industries, Inc., Garlock, Owens Illinois, Owens Corning, Eagle Picker, Defendants.
• Court: New Jersey Superior Court

Page 148

202 N.J.Super. 148

493 A.2d 1337

Donald H. BROTHERTON and Nellie Brotherton, his wife, Plaintiffs, v. CELOTEX CORPORATION, Raymark Industries, Inc., Garlock Owens Illinois, Owens Corning, Eagle Picker, Defendants.

Superior Court of New Jersey, Law Division Burlington County.

Decided March 15, 1985.

Richard S. Mannella, Westmont, for plaintiffs Donald and Nellie Brotherton (Ergood & Gavin, Westmont, attorneys).

Louis N. Magazzu, Vineland, for defendant Celotex Corporation (Buonadonna, Benson & Speziali, Vineland, attorneys).

Todd Brandon Eder, Livingston, for defendant Raymark Industries, Inc. (Morgan, Melhuish, Monaghan, Arvidson, Abrutyn & Lisowski, Livingston, attorneys).

Joseph L. Garrubbo, Westfield, for defendant Garlock.

Richard P. O'Leary, Newark, for defendant Owens Illinois (McCarter & English, Newark, attorneys).

Jonathan A. Eron, Livingston, for defendant Owens Corning (Horn, Kaplan, Goldberg, Gorny & Daniels, Atlantic City, attorneys).

Bruce M. Gunn, Westmont, for defendant Eagle Picker (Martin, Crawshaw & Mayfield, Westmont, attorneys).

VAN SCIVER, J.S.C.

This is an asbestos-related personal injury action. Plaintiffs, in addition to compensatory damages, seek to recover punitive damages against various defendants, including the Celotex Corporation. The claim against Celotex is based upon activities by its predecessor corporation to conceal knowledge concerning the health risks posed by exposure to asbestos.

In this motion for partial summary judgment, Celotex seeks a ruling that it cannot be held liable for punitive damages arising out of acts or omissions of its predecessor corporation. Celotex's objections to a punitive damage award are three-fold: (1) It contends that punitive damages are not available against a successor corporation under New Jersey law; (2) It questions the appropriateness of a punitive damage award under the facts of this case; (3) It urges that the imposition of punitive damages in multi-jurisdictional/multi-claimant litigation is both inappropriate and unconstitutional.

After careful consideration of the matter, I reject those arguments submitted by defendant and hold that punitive damages are recoverable against a successor corporation in a multi-jurisdictional products liability action.

The Celotex Corporation is the survivor of two mergers. On April 10, 1970, Philip Carey Corporation merged into Briggs Manufacturing Company. The survivor of that merger changed its name to Panacon Corporation. Panacon continued to operate Philip-Carey as a division which manufactured and sold roofing and insulation materials but which had no separate corporate or legal existence. On April 17, 1972, Celotex purchased seventy-five percent of the stock of Panacon. Panacon Corporation merged into Celotex Corporation on December 29 1972. Celotex continued to operate Philip-Carey in the same form that it existed under Panacon until the end of 1973.

Philip-Carey Corporation started to distribute asbestos insulation products in 1906. This practice continued until Philip-Carey ceased to exist. Celotex Corporation first became involved in the manufacture and sale of asbestos-containing products when it merged with Panacon in 1972, and continued to manufacture asbestos-containing cement until 1977.

Plaintiff in this action was employed from 1939 until 1973 by Public Service Electric and Gas in Burlington, New Jersey, where he allegedly came into contact with materials containing asbestos which were supplied, manufactured or sold by Celotex.

A discussion of the defendant moving party's argument follows:

Availability of Punitive Damages

New Jersey law governs the liability of Celotex for business transacted within this state. Chicago Title & Trust Co. v. Young, 90 N.J.Eq. 27, 34, 105 A. 601 (1919); Baldwin v. Berry Automatic Lubricator Corp., 99 N.J.Eq. 57, 60, 132 A. 308 (1926), mod., 100 N.J.Eq. 362, 134 A. 867 (1926). Pursuant to N.J.S.A. § 14A:10-6(e) a survivor corporation is liable for all the obligations and liabilities of each of the corporations with which it has merged. A survivor corporation is the single corporation that is formed by the parties to a plan of merger and is so designated by that plan. Id. § 14A:10-6(a). The effect of this statute is to impose liability on a successor corporation for any obligation incurred by its predecessor so long as a merger took place.

A merger between Celotex and Panacon is established by the facts in this case. On December 29, 1972, Articles of Merger were filed with the Secretary of State for the State of Ohio. According to its terms, Celotex Corporation was to be the survivor of a merger between itself and the Panacon Corporation. This document complied in all respects with the requirements for merger set forth in relevant Ohio statutes. Ohio Rev.Code Ann. §§ 1701.79-1701.82 (1978). ¹ By executing these Articles of Merger, Celotex became statutorily bound to absorb all the liabilities of Panacon, including any potential claims for punitive damages.

Articles of Merger were viewed similarly by the United States District Court in Tretter v. Rapid American Corp., 514 F.Supp. 1344 (E.D.Miss.1981). In Tretter, a worker allegedly injured by exposure to asbestos filed suit against Rapid American Corporation, the successor of Philip Carey Manufacturing Corporation, (Old Carey). Rapid American assigned all the assets and liabilities it acquired from Old Carey to a newly-formed subsidiary, New Carey. Relying on the common law rule that a transferee assumes its predecessor's liabilities when a merger occurs, the court held that Rapid American assumed liability for compensatory damages when it merged with Old Carey. Id. at 1346-1347. The court considered the merger agreement as evidence that a merger had taken place. Id. at 1346.

The New Jersey Supreme Court's decision in State Dept. of Environmental Protection v. Ventron Corp., 94 N.J. 473, 468 A.2d 150 (1983), also illustrates this principle. The Court held the successor corporation, Ventron, liable for the environmental torts of its predecessor, Wood Ridge, because the two companies had merged, Id. at 503, 468 A.2d 150. Ventron is distinguishable from the instant case in that the merger was evidenced by Ventron's cash purchase of all the stock in Wood Ridge rather than by Articles of Merger. Nevertheless, the Court still found that evidence of merger imposed liability on the surviving corporation under N.J.S.A. § 14A:10-6(c). Ibid.

Defendant urges this court to follow the lead of the court in In re Related Asbestos Cases, 566 F.Supp. 818 (N.D.Cal.1983), which denied plaintiff's claim for punitive damages in an asbestos action. Defendant's argument is premised upon the fact that the California District Court reached its result by distinguishing Ray v. Alad, 19 Cal.3d 22, 560 P.2d 3, 136 Cal.Rptr. 574 (1977), the seminal California case extending liability for compensatory damages to successor corporations in strict liability actions. Since Alad was adopted by the New Jersey Supreme Court in Ramirez v. Amsted Industries, Inc., 86 N.J. 332, 431 A.2d 811 (1981), defendant argues that Asbestos is controlling on the issue of punitive damages. I disagree.

In Asbestos, the record contained no Articles of Merger. Absent proof that a merger took place, the California rule analogous to N.J.S.A. § 14A:10-6 could not be invoked and the court was forced to evaluate alternative theories of liability. Asbestos, supra, 566 F.Supp. at 821. This the court did by examining whether or not the rule of Ray v. Alad could be extended to punitive damages. Id. at 821-823. The court concluded that the justifications underlying successor liability for compensatory damages articulated in Ray v. Alad were incompatible with the goals of punitive damages and refused to expand the scope of the Alad rule. Id. at 823.

The policy discussion contained in Asbestos is inapplicable to the instant case. Unlike Asbestos, there is unequivocal proof here that a merger occurred between Panacon and Celotex. Since proof of merger is sufficient to establish liability under N.J.S.A. 14A:10-6, it is unnecessary to determine whether the policy bases supporting successor liability for compensatory damages apply with equal force to punitive damages. Consequently, I decline to follow the lead of the California District Court in its Asbestos decision. I must, therefore, conclude that by statute, as well as by common law authority, a successor becomes liable for all obligations of its predecessor when the two corporations merge. ²

Appropriateness of Punitive Damages

The circumstances under which punitive damages should be recoverable against a successor corporation were discussed by the court in Martin v. Johns-Manville Corp., 322 Pa.Super. 348, 469 A.2d 655 (1983), appeal pending (April 2, 1984). Martin also was an asbestos action involving the same corporate defendants named in this suit. The court determined that punitive damages were not appropriate in all situations where compensatory damages were awarded against a successor corporation. Id. at 666. Since punishment and deterrence are the primary goals accomplished by a punitive damage award, the court saw no value in holding the successor liable for the misconduct of the predecessor's shareholders, officers, directors and management who escaped unharmed. Ibid. To avoid this result, the court adopted the "continuation theory" for determining a successor's liability for punitive damages. Id. at 667. The continuation theory permits an award of punitive damages if the plaintiff can show "such a degree of identity of the successor with the predecessor as to justify the conclusion that those responsible for the reckless conduct of the predecessor will be punished, and the successor will be deterred from similar conduct." Ibid. The court did not delineate what constituted a sufficient degree of identity but suggested that it be resolved on a case-by-case basis. Ibi...