LaFountain v. Webb Industries Corp.

• Citation: 951 F.2d 544
• Decision Date: 11 December 1991
• Docket Number: No. 91-1305,91-1305
• Parties: Prod.Liab.Rep. (CCH) P 13,012 Terence Wayne LaFOUNTAIN, Appellant, v. WEBB INDUSTRIES CORPORATION and Lloyd H. Knost, individually and trading as Reed Engineering Company; Ted Reed, individually and trading as Reed Engineering Company.
• Court: United States Courts of Appeals. United States Court of Appeals (3rd Circuit)

Page 544

951 F.2d 544

Prod.Liab.Rep. (CCH) P 13,012

Terence Wayne LaFOUNTAIN, Appellant, v. WEBB INDUSTRIES CORPORATION and Lloyd H. Knost, individually and trading as Reed Engineering Company; Ted

Reed, individually and trading as Reed

Engineering Company.

No. 91-1305.

United States Court of Appeals, Third Circuit.

Argued Oct. 15, 1991.

Decided Dec. 11, 1991.

Joseph Lurie (argued), John A. Beranbaum, Galfand, Berger, Lurie & March, Philadelphia, Pa., for appellant Terence W. LaFountain.

Thomas P. Wagner (argued), Judith A. Schneider, Rawle & Henderson, Philadelphia, Pa., for appellee Webb Industries Corp.

Before SLOVITER, Chief Judge, COWEN and WEIS, Circuit Judges.

OPINION OF THE COURT

WEIS, Circuit Judge.

In this diversity action, we assume that Pennsylvania would adopt the product line exception to successor responsibility in product liability cases but conclude that the availability of a remedy against the original manufacturer makes the exception inapplicable. We also conclude that, in the absence of a commercial relationship, the successor corporation does not owe a duty to warn a customer of the predecessor. Accordingly, we will affirm the district court's grant of summary judgment to the defendant. 759 F.Supp. 236.

Plaintiff was injured while operating a roll bending machine at his place of employment on January 11, 1988. He brought suit against Webb Industries, Corp.; Lloyd Knost, individually, and trading as Reed Engineering Company; and Ted Reed, individually and trading as Reed Engineering Company. The complaint alleges negligence, strict liability, and breach of warranty.

The machine, designed and manufactured by the Reed Engineering Company of Carthage, Missouri, was sold in 1949 to the plaintiff's employer, Hauck Manufacturing Company, then located in Brooklyn, New York. In 1964, Hauck moved its plant and the machine to Pennsylvania.

At the time of the sale, Reed Engineering was a partnership operated by Knost and Reed. In 1950, Knost purchased Reed's interest in the company and operated In 1954, Knost granted Webb Industries, Corp. the exclusive right to manufacture, use, and sell products formerly made by Reed Engineering, including roll bending machines. As part of the licensing arrangement, Webb received the right to patents, designs, drawings, patterns, goodwill, fixtures, and customer records. Knost agreed to discontinue manufacture of the products covered by the contract. Webb sold the products under the name of "Reed Equipment Division of Webb Corporation" and on at least one occasion advertised itself as selling "Reed" products, but did not specifically mention roll bending machines.

it as a sole proprietorship, retaining the original name.

In 1959, Knost sold to Webb the "Reed product line" which was the subject of the 1954 licensing agreement. Webb continues to manufacture products covered by the contract, including the same model roll bending machine designed by Reed Engineering. Knost continued in other business lines until he retired in 1966. He presently lives in Missouri and apparently is in very poor health.

Webb supplies replacement parts for roll bending machines. In 1973 and in 1980, it sold Hauck an "off the shelf" part described as a floating bronze bushing, at costs of $69.85 and $178.63, respectively. Hauck has in its files a manual entitled "Installation and Operating Instructions for Webb ... Bending Rolls and Slip Roll Formers." Additionally, it possesses two parts lists for the roll bending machine, under the names of "Reed Equipment Division of the Webb Corporation" and "The Webb Corporation," respectively. Webb, however, never mailed any printed matter to Hauck and it is not known how this material came to be in its files.

In 1970, Webb redesigned the roll bending machine to incorporate certain safety features as standard equipment. In 1974 and 1976, Webb sent letters to its customers recommending that safety features be added to the product and enclosed a warning sign to be attached to the machines. These letters and signs were not sent to customers who bought machines from Reed Engineering before 1954, although Webb had been given records of those who had purchased between 1948 and 1954.

Webb did not continue any service contracts of Knost or Reed Engineering and none is mentioned in either the 1954 or 1959 agreements. Webb has not inspected, serviced, or repaired any of Hauck's machines, or even visited its plant. Nor has Webb solicited business from any customers who purchased machinery from Reed Engineering before 1954. Webb does not advertise to the general public and has a one person sales force.

Plaintiff asserted liability against Webb based on the "product line" exception to the general rule of successor non-liability and on an alleged failure to warn.

The district court entered summary judgment in favor of defendant Webb and dismissed the suit against defendant Knost for lack of personal jurisdiction. ¹ The court noted that the Pennsylvania Supreme Court had not yet addressed the "product line" basis for successor liability, but assumed its acceptance arguendo. Despite that postulate, the court concluded that the plaintiff continued to have a remedy against Knost, the original manufacturer. Consequently, the general rule of successor non-liability was applicable.

The court also determined that in the absence of a relationship that imposed certain duties and responsibilities, Webb had no duty to warn Hauck.

The parties and the district court have adopted Pennsylvania law in this litigation. We will do likewise.

I. SUCCESSOR LIABILITY

In general, when one corporation sells or transfers its assets to a second corporation, the successor does not become liable for the debts and liabilities of the In the context of products liability cases, some courts have expanded on the traditional corporate law exceptions to this non-liability rule. The "product line" exception provides that when a corporation buys substantially all of the assets of a corporate manufacturer and thereafter continues essentially the same manufacturing operation it may be strictly liable for defects in products in the same line even though they were in fact made by the predecessor. This exception has received limited acceptance, and the supreme courts of only three states have adopted it, California, Washington, and New Jersey. The Supreme Court of New Hampshire declined to fulfill the prophecy of the Court of Appeals for the First Circuit that the state court would accept policy arguments favoring application of the exception. See Simoneau v. South Bend Lathe, Inc., 130 N.H. 466, 543 A.2d 407, 409 (1988), disavowing the product line exception apparently adopted in Cyr v. B. Offen & Co., 501 F.2d 1145, 1154 (1st Cir.1974).

                predecessor.   There are, however, several well-established exceptions to this rule, none of which are applicable here
                

A Pennsylvania Superior Court decision discussing the product line exception is Dawejko v. Jorgensen Steel Co., 290 Pa.Super. 15, 434 A.2d 106 (1981) where the court decided to adopt the theory as outlined in Ramirez v. Amsted Indus., 86 N.J. 332, 431 A.2d 811 (1981).

In Conway v. White Trucks, Div. of White Motor Corp., 885 F.2d 90 (3d Cir.1989), we reviewed in detail the asserted bases for the product line exception to the general rule of non-liability of a successor corporation. Although the Supreme Court of Pennsylvania had not addressed the issue, for purposes of discussion we assumed that Dawejko represented Pennsylvania law. We predicted, however, that the exception would not apply "where the claimant had a potential remedy against the original manufacturer, but failed to exercise all available means to assert his or her claim.... [A]s a logical matter, the loss of a remedy against the original manufacturer must be a prerequisite to the invocation of the product line exception." Id. at 95. That is because the rationale of the product line exception is that "the virtual destruction of the plaintiff's remedies against the original manufacturer [was] caused by the successor's acquisition." Id. at 97.

Nothing has happened since Conway was decided to indicate any weakening of its holding. In South Bend Lathe, Inc. v. Amsted Indus., 925 F.2d 1043, 1047 (7th Cir.1991), the Court of Appeals for the Seventh Circuit said, "The continuation of the predecessor corporation bars recovery from the successor under the product line rule in every decision we have found that considers the issue."

As we indicated in Polius v. Clark Equip. Co., 802 F.2d 75 (3d Cir.1986), the liability of a successor entity is generally considered in terms of one corporation purchasing the assets of or stock in, or merging with, a predecessor corporation. Here, however, the seller is not a corporation, but an individual who has sold certain assets to a corporation. While that fact does not affect the ultimate outcome in this case, it is a distinction worthy of comment.

In the context of a sale of assets, a successor corporation may sometimes be held liable so as to protect creditors of the predecessor corporation. Corporate law provides such protection because a corporation is an entity created by statute that can be dissolved at any time, thus leaving creditors, including those injured by products of the predecessor, without a cause of action. ²

A sole proprietor, on the other hand, remains liable for his debts and liabilities. ³

For present purposes, we will assume arguendo that the product line exception applies despite the fact that the seller was an individual. The character of the predecessor entity does not change the outcome here because one of the prerequisites of the product line...