Barron v. Kane and Roach, Inc.

• Decision Date: 03 December 1979
• Docket Number: No. 78-93,78-93
• Citation: Barron v. Kane and Roach, Inc., 398 N.E.2d 244, 79 Ill.App.3d 44, 34 Ill.Dec. 569 (Ill. App. 1979)
• Parties: , 34 Ill.Dec. 569 Albert BARRON, Plaintiff, v. KANE AND ROACH, INC., a New York Corporation, Birdsboro Corporation, a Pennsylvania Corporation, Kane and Roach, Inc., a Pennsylvania Corporation, and Four States Machinery Company, an Illinois Corporation, Defendants. FOUR STATES MACHINERY COMPANY, Third-Party Plaintiff-Appellant, v. BIRDSBORO CORPORATION, Third-Party Defendant-Appellee.
• Court: Appellate Court of Illinois

Page 244

398 N.E.2d 244

79 Ill.App.3d 44, 34 Ill.Dec. 569

Albert BARRON, Plaintiff, v. KANE AND ROACH, INC., a New York Corporation, Birdsboro

Corporation, a Pennsylvania Corporation, Kane and Roach,

Inc., a Pennsylvania Corporation, and Four States Machinery

Company, an Illinois Corporation, Defendants.

FOUR STATES MACHINERY COMPANY, Third-Party Plaintiff-Appellant, v. BIRDSBORO CORPORATION, Third-Party Defendant-Appellee.

No. 78-93.

Appellate Court of Illinois, First District, First Division.

Dec. 3, 1979.

Clausen, Miller, Gorman, Caffrey & Witous, P. C., James T. Ferrini and Thomas H. Ryerson, Chicago, for plaintiff.

Lord, Bissell & Brook, William J. White, Hugh C. Griffin and Norman J. Lerum, II, Chicago, for defendants.

McGLOON, Justice:

This appeal arises out of a products liability action filed by plaintiff Albert Barron to recover damages for injuries he sustained as the result of alleged defects in a straightening roll machine. Plaintiff named as defendants in his complaint Kane and Roach of New York, Inc. (Kane and Roach NY), the manufacturer of the machine; Four States Machinery Company (Four States), and agent of Kane and Roach of New York who participated in the sale and distribution of the straightening roll machine; Birdsboro Corporation (Birdsboro), a Pennsylvania corporation that purchased certain assets of Kane and Roach of New York after the allegedly defective straightening roll machine had been sold to plaintiff's employer; and Kane and Roach of Pennsylvania, a Pennsylvania corporation that purchased certain manufacturing processes from Birdsboro. Four States ultimately settled with Barron and filed a third party complaint against Birdsboro for the amount of the settlement. Pursuant to Birdsboro's motion, the trial court entered summary judgment in Birdsboro's favor and from that order Four States now appeals.

On appeal, Four States raises the following contentions: (1) the "product line" approach to successor corporate product liability shows that Four States is entitled to a trial on the merits of its third party complaint; (2) regardless of the theoretical path chosen, the authorities recognize it would be unjust to permit Birdsboro to reap the benefits of the product line and its goodwill while denying the attendant responsibilities; (3) Birdsboro did not disclaim liability for contingent product liability claims in its contract with Kane and Roach NY; (4) the established policies underlying strict liability in tort warrant imposing products liability on successors to the manufacturing process.

We affirm.

According to the documents and depositions before the trial court at the hearing on Birdsboro's motion for summary judgment, Four States was the exclusive distributor and broker in Illinois for Kane and Roach NY in the sense that they could not sell other manufacturer's lines of machinery which competed with Kane and Roach NY. The machine in question was manufactured in 1960 by Kane and Roach NY and sold to Ceco Steel, plaintiff's employer, with Four States acting as broker to consummate the sales. Four States expended considerable effort to consummate the sale and was paid a commission of $2,600 by Kane and Roach NY several weeks after Kane and Roach NY sold certain of its assets to Birdsboro Corporation.

The record further reflects that third party defendant, Birdsboro Corporation, a Pennsylvania corporation, incorporated in 1959, had entered into an agreement dated December 30, 1961 by which Birdsboro purchased certain of Kane and Roach NY assets for $150,000 all of which was paid in cash. The contract specifically identified the assets of Kane and Roach NY which were to be transferred to Birdsboro. Among those assets were the entire product line of Kane and Roach NY out of which the allegedly defective machine was manufactured. The only assets which were not included in the sale were filing and storage cabinets and the old Kane and Roach building.

According to the contract Kane and Roach agreed to effect a change of its corporate name so as to "eliminate the name of Kane and Roach therefrom and to take all steps necessary to make the use of such corporate name immediately available to Birdsboro." Paragraph 7 of the agreement concerned a waiver of liability and specifically provided:

"There shall be no liability or obligation on Birdsboro to K & R or to K & R's stockholders or to others growing out of or arising from the sale by K & R of assets to Birdsboro under the provisions of this agreement and K & R hereby agrees to protect Birdsboro against and save Birdsboro harmless from any and all such liabilities and obligations."

The agreement further provided that Kane and Roach NY receive 2% Of the net sales generated by Birdsboro's Kane and Roach division for a five year period after the sale or $50,000, whichever was greater. In return, Kane and Roach NY agreed not to compete for five years.

According to the deposition of Howard Kane, the president of Kane and Roach NY, after their product line was sold, they ceased all operations. However, since the sale in 1961, Kane and Roach NY has continued to exist as a duly organized corporation under the laws of the state of New York, has paid all Kane and Roach of NY's debts and liabilities, including the commission to Four States for the sale of the machine involved in this occurrence, and continued to engage in "business activities concerning the lease and management" of its plant in New York which it still owns. Most of the money received from the sale was used to pay off debts of Kane and Roach NY. The assets transferred to Birdsboro were held in its newly formed "Kane and Roach Division" which began operations immediately after the transfer. Howard Kane entered into a contract with Birdsboro agreeing to assume the presidency of the Kane and Roach Division that would engage in manufacturing the product line of his old corporation. He further agreed not to work for any competing company in the product line. A new Kane and Roach Division of Birdsboro was formed and Howard Kane assumed the presidency of that division in two years. His new responsibilities were nearly identical with those he had as president of Kane and Roach NY.

None of the officers or directors of Kane and Roach NY became officers or directors in Birdsboro. However, Mr. Kane testified that certain of his personnel in Kane and Roach NY moved with him to the new division in Birdsboro. Among these personnel were the sales manager, chief engineer, operations superintendent, specifications writer, the erector and the machine shop foreman.

Before considering any of Four States' contentions concerning the tort liability of Birdsboro, we must determine whether the law of Illinois or Pennsylvania applies. Four States points to the provision in the contract of sale which provides that such contract is to be construed in accord with the law of Pennsylvania and, therefore, the Pennsylvania law of corporate successor liability should apply. We disagree. The question of successor liability...