Tucker v. Paxson Mach. Co., 80-1381

Citation645 F.2d 620
Decision Date08 April 1981
Docket NumberNo. 80-1381,80-1381
PartiesClarence TUCKER, Jr. and Jean Tucker, Appellants, v. PAXSON MACHINE COMPANY, Appellee, William Thropp & Sons Company, Division of J.M.L. Trading Corporation.
CourtUnited States Courts of Appeals. United States Court of Appeals (8th Circuit)

Chopin & Kennedy, P. C., by Elizabeth C. Kennedy, St. Louis, Mo., for appellants-plaintiffs Clarence Tucker, Jr., et al.

Gray & Ritter, Charles E. Gray, Kevin M. Cushing, St. Louis, Mo., for appellee-defendant.

Before BRIGHT, STEPHENSON, and McMILLIAN, Circuit Judges.

BRIGHT, Circuit Judge.

Clarence and Jean Tucker (Tucker) brought this products liability action against the Paxson Machine Company (Paxson), an alleged corporate successor of William R. Thropp & Sons Company (Thropp), to recover damages for injuries allegedly caused by a defective rubber calendar machine manufactured by Thropp. 1 The district court 2 dismissed the action on Paxson's motion for summary judgment. Tucker v. Paxson Machine Co., 489 F.Supp. 391 (E.D.Mo.1980). Tucker now appeals from the adverse judgment, contending that the traditional rule regarding liability of successor corporations should not shield Paxson from liability for injuries caused by a defective product manufactured by its predecessor, Thropp. Appellant claims the trial court erred

1) in refusing to adopt the "product line" theory of strict liability;

2) in finding that Paxson is not a continuation of its predecessor; and

3) in refusing to find that Paxson had an independent duty to warn Tucker's employer of the potentially dangerous condition of the Thropp machine.

We reject these contentions and, therefore, affirm the district court's judgment.

I. Background.

William R. Thropp & Sons Company was established in 1888 to design and manufacture milling equipment for the rubber industry. In 1952, Morey Machinery Company (Morey) purchased substantially all of Thropp's assets. Prior to its purchase of Thropp, Morey also had acquired the J. M. Lehmann Company, Inc. (Lehmann). Morey subsequently sold the plant, equipment, machines, and tools of Thropp at a public auction, but retained Thropp's name, patents, copyrights, drawings, trademarks, and specifications for use by Lehmann in the manufacturing and selling of machines.

In 1961, Lehmann ceased the business of manufacturing and transferred to Mullins Manufacturing Corporation (Mullins) its inventory, machinery, work in process, drawings, patents, trademarks, jigs, fixtures, and the right to use the Lehmann and Thropp trade names. Mullins thereafter operated a Lehmann/Thropp Division and manufactured machines under the Lehmann and Thropp trade names. Lehmann changed its name to the J.M.L. Trading Corporation (JML) and presently limits its active business to a real estate holding company in New York. On November 30, 1973, Mullins filed a petition for an arrangement in bankruptcy.

On January 7, 1974, Paxson Machine Company acquired certain assets of the Lehmann/Thropp Division from Mullins' receiver in bankruptcy. The assets transferred to Paxson included the trade name, copyrights, patents, license agreement, customer lists, products, drawings, jigs, fixtures, customer and stock orders, and finished parts of the Lehmann/Thropp Division. The terms of the purchase agreement provided that the receiver and Mullins "shall indemnify and hold harmless Paxson against * * * product liability claims" arising from goods manufactured by the Lehmann/Thropp Division. Under the purchase agreement, sixty-to-eighty percent of Lehmann/Thropp's employees continued their work as employees of Paxson, including manufacturing and shop workers, supervisory and office staff, engineers, and sales personnel. None of the shareholders, executives, or managing personnel of Mullins or its Lehmann/Thropp Division, however, acquired any interest in Paxson. At the time of Paxson's motion for summary judgment, Mullins was still being operated by a receiver.

After it acquired the Lehmann/Thropp Division assets, Paxson began to manufacture and sell various kinds of mills and calendars, such as "Lehmann/Thropp" ink mills, "Lehmann/Thropp" soap and chocolate mills, "Lehmann/Thropp" laboratory mills, and "Thropp 2 roll mills." Although Paxson asserts that it never has manufactured rubber calendar machines, Tucker contends that Paxson manufactures substantially the same machine as caused his injury and that Paxson relies on the good will of its predecessor, Thropp, in its advertising. 3

In 1918, the William R. Thropp & Sons Company manufactured and sold a rubber calendar machine to the Cupples Company Manufacturers of St. Louis, Missouri (Cupples). Fifty-eight years later, on or about March 22, 1976, the moving cylinders of the 1918 machine crushed the hand of Clarence Tucker, who worked for Cupples. Tucker thereafter filed the present action in district court, alleging strict liability, negligence, and breach of warranty. The district court, in granting Paxson's motion for summary judgment, held that under Missouri law 4 Paxson had not assumed the liability for defective products manufactured and sold by Thropp.

II. Issues.
A. The Corporate Rule of Nonliability.

Under the traditional principles of corporate law, the nature of the transaction determines whether a corporate transferee assumes the liabilities of its transferor. If the parties effect the transfer of a corporate enterprise through a merger, consolidation, or sale of stock, the transferee assumes its predecessor's liabilities, including product liability claims. If the transferee purchases the assets of the transferor for cash, however, the transferee generally does not assume the transferor's liabilities. This general rule, 5 and its well-recognized exceptions, have long been a part of Missouri law:

(W)here one corporation sells or otherwise transfers all of its assets to another corporation, the latter is not liable for the debts and liabilities of the transferor, except: (1) where the purchaser expressly or impliedly agrees to assume such debts; (2) where the transaction amounts to a consolidation or merger of the corporation; (3) where the purchasing corporation is merely a continuation of the selling corporation; or (4) where the transaction is entered into fraudulently in order to escape liability for such debts. (Brockman v. O'Neill, 565 S.W.2d 796, 798 (Mo.Ct.App.1978) (citing Ingram v. Prairie Block Coal Co., 319 Mo. 644, 5 S.W.2d 413, 416 (1928) and Sweeney v. Heap O'Brien Mining Co., 194 Mo.App. 140, 186 S.W. 739, 741 (1916)).)

The district court cited and applied this general rule in dismissing Tucker's action against Paxson. 6

The traditional rule of corporate nonliability developed as a response to the need to protect bonafide purchasers from unassumed liability. L. Frumer & M. Friedman, 1 Products Liability § 5.06 (1980). To offset the potentially harsh impact of the rule, however, the law also developed methods to protect the rights of corporate creditors after dissolution. 7 Nevertheless, these methods would not protect persons like Tucker who sustain injuries from a machine manufactured by a company that long ago had sold its assets and dissolved its business. Although the law of strict liability might provide a basis for recovery against the original manufacturer, 8 the injured person generally cannot recover damages from the purchaser of the manufacturer's assets.

B. The Extension of Liability to Successor Corporations. 9

Convinced that the general rule of nonliability of successor corporations should not be applied to frustrate the policies of strict liability, a number of courts have deviated from its strict application in the products liability context. Three approaches have emerged in the effort to "develop a reasonable rule for products liability cases which arise subsequent to corporation transfers(.)" Turner v. Bituminous Casualty Co., 397 Mich. 406, 244 N.W.2d 873, 878 (1976).

Several courts have rejected the traditional rule by adopting a new "product line" theory in products liability cases. Ray v. Alad Corp., 19 Cal.3d 22, 136 Cal.Rptr. 574, 560 P.2d 3 (1977). Accord, Ramirez v. Amsted Industries, Inc., 171 N.J.Super. 261, 408 A.2d 818 (App.Div.1979), cert. granted, 82 N.J. 298, 412 A.2d 804 (1980). Others have expanded the traditional merger and continuation exceptions to allow recovery against purchasers of corporate assets. See, e. g., Knapp v. North American Rockwell Corp., 506 F.2d 361 (3d Cir. 1974) (expanding the merger exception) (Pennsylvania law), cert. denied, 421 U.S. 965, 95 S.Ct. 1955, 44 L.Ed.2d 452 (1975); Cyr v. B. Offen & Co., Inc., 501 F.2d 1145 (1st Cir. 1974) (expanding the mere continuation exception) (New Hampshire law); Turner v. Bituminous Casualty Co., supra (expanding both the merger and continuation exceptions) (successor may be liable if totality of transaction demonstrates basic continuity of the enterprise). Still other courts have imposed liability on acquiring corporations for their own negligence in failing to warn of dangers in their transferor's products. Shane v. Hobam, Inc., 332 F.Supp. 526 (E.D.Pa.1971).

In this diversity case, we must determine whether Missouri would depart from the traditional rule and hold Paxson liable for its predecessor's torts on either a product line or a continuation theory. We must also determine whether Paxson could be held liable for failure to warn Tucker's employer of the alleged defects in the Thropp machine.

C. Product Line.

Tucker primarily contends that Missouri would impose liability on Paxson under the product line rule first announced in Ray v. Alad Corp., supra. In Ray, the successor corporation, Alad II, acquired the assets of Alad I one year before Ray was injured on an allegedly defective ladder manufactured by Alad I. Alad I's factory and sales personnel continued in the employ of Alad II, which manufactured the same line of ladders under the "Alad" name and solicited Alad...

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