Adams v. General Dynamics Corp.

• Decision Date: 15 December 1975
• Docket Number: No. C-72-77-PMH to C-72-89-PMH.,C-72-77-PMH to C-72-89-PMH.
• Citation: 405 F. Supp. 1020
• Parties: Shelly L. ADAMS, etc., et al., Plaintiffs, v. GENERAL DYNAMICS CORPORATION, Defendant. GENERAL DYNAMICS CORPORATION, Third-Party Plaintiff, v. INTERNATIONAL CONTROLS CORP., and Datron Systems, Inc., Third-Party Defendants.
• Court: U.S. District Court — Northern District of California

405 F. Supp. 1020

Shelly L. ADAMS, etc., et al., Plaintiffs, v. GENERAL DYNAMICS CORPORATION, Defendant.

GENERAL DYNAMICS CORPORATION, Third-Party Plaintiff, v. INTERNATIONAL CONTROLS CORP., and Datron Systems, Inc., Third-Party Defendants.

Nos. C-72-77-PMH to C-72-89-PMH.

United States District Court, N. D. California.

December 15, 1975.

Walkup, Downing & Sterns, by Gerald C. Sterns, Paul V. Melodia, and Thomas G. Smith, San Francisco, Cal., for plaintiffs.

Cooper, White & Cooper, by R. Barry Churton and Neil L. Shapiro, San Francisco, Cal., for defendant and third-party plaintiff, General Dynamics Corp.

Sedgwick, Detert, Moran & Arnold, by Robert C. Colwell, San Francisco, Cal., for third-party defendants Intern. Controls Corp. and Datron Systems, Inc.

MEMORANDUM FOR SUMMARY JUDGMENT

PEIRSON M. HALL, District Judge.

On May 4, 1970, a United States military aircraft crashed, killing all but one of the 13 military personnel aboard. Thirteen suits were filed in the California state courts in 1971. The suits were based primarily on strict products liability and/or negligence in the manufacture of the pilot's D.V. window frame. All the suits were timely and properly removed to the United States District Court for the Northern District of California in January, 1972. On May 16, 1972, they were duly and regularly assigned to the undersigned judge, sitting by general assignment in this court under 28 U.S.C. § 294(c).

Upon such assignment, discovery was immediately commenced. It proceeded as rapidly and as comprehensively as possible under the circumstances until meaningful settlement negotiations resulted in settlement and dismissal by the original plaintiffs of all the wrongful death suits, leaving pending only the case filed by Capt. Burk against General Dynamics, No. 72-78, for personal injuries. He was the sole survivor of the crash and claims permanent injury and severe 80 degree body burns.

On July 13, 1973, the Court made an order upon a complaint previously filed, bringing in as third-party defendants International Controls Corp. and Datron Systems, Inc., in which complaint General Dynamics Corporation sought indemnity or contribution from the third-party defendants for the monies it had paid out, and were liable to pay out, on account of said accident, as successors in interest of R. H. Osbrink, Inc., a California corporation, which manufactured the aluminum frame for the D.V. cockpit window in 1953-54 and sold it to General Dynamics, which in turn sold the airplane in which it was installed to the United States.

The aluminum frame is alleged to have been at fault in its construction so as to have broken in flight maneuvers, shattering the glass in the pilot's compartment and causing the plane to crash and kill all the occupants except Captain Burk.

Osbrink was a family-held corporation. In 1964 it sold all of its assets to Electronic Specialty Co. by a written agreement dated March 3, 1964, which called for a closing date of March 31, 1964. The purchase price was to be not less than 35,667 nor more than 39,801 shares of the common stock of Electronic Specialty Co., which was capitalized at three million shares, of which, at that time, 1,541,029 shares were outstanding, before giving effect to the stock issued to Osbrink for the purchase of its assets. An additional consideration was to be that Osbrink would liquidate its business and dissolve the corporation and distribute the Electronic Specialty stock to the shareholders of Osbrink pro rata by March 31, 1964. All of this was accomplished and is not disputed here.

The basis for General Dynamics' complaint for contribution and indemnity against the defendants, International Controls, et al., is: That Osbrink, having negligently or otherwise manufactured a defective product, became liable for putting it into commerce and any injury that might result from such defect; that the sale of Osbrink's assets carried with it the assumption of this then unknown and contingent liability by Electronic Specialty Co.; and that Electronic Specialty merged with International Controls and Datron¹ by a written agreement dated April 22, 1969, and by such merger assumed Osbrink's original contingent liability. It is conceded that Electronic Specialty and International Controls merged and that under such merger International Controls assumed whatever liability Electronic Specialty had.

The key question is whether or not Electronic Specialty assumed the products liability, or any liability. for the manufacture, negligent or otherwise, by Osbrink of the aluminum frame of the D.V. window. This requires an examination of the written agreement between Osbrink and Electronic Specialty.

The latest expression of the general rule, and its exceptions, applicable to the transaction is cited in Ortiz v. South Bend Lathe, 46 Cal.App.3d 842 at 846, 120 Cal.Rptr. 556 at 558, hearing denied by California Supreme Court, May 28, 1975:

"The general rule is where one corporation sells or transfers all of its assets to another corporation, the latter is not liable for the debts and liabilities of the former unless (1) the purchaser expressly or impliedly agrees to such assumption, (2) the transaction amounts to a consolidation or merger of the two corporations, (3) the purchasing corporation is merely a continuation of the selling corporation, or (4) the transaction is entered into fraudulently to escape liability for debts. (Pierce v. Riverside Mtg. Securities Co., 25 Cal.App.2d 248, 77 P.2d 226; 15 Fletcher W., Cyclopedia of the Law of Private Corporations, § 7122; Kloberdanz v. Joy Manufacturing Company, D.C., 288 F.Supp. 817; Schwartz v. McGraw-Edison Co., 14 Cal.App.3d 767, 92 Cal.Rptr. 776.)

In the instant case, the parties concede there was no fraud. In the contract of sale, there was specifically and in great detail set forth the debts which Electronic Specialty assumed from Osbrink, and there was a specific exclusion of "any...