Bazan v. Kux Machine Company

• Decision Date: 14 June 1973
• Docket Number: Civ. A. No. 69-C-267.
• Citation: 358 F. Supp. 1250
• Parties: Hugo Alberto BAZAN, Plaintiff, v. KUX MACHINE COMPANY, a Division of Wickes Corporation, a foreign corporation, Defendant.
• Court: U.S. District Court — Eastern District of Wisconsin

358 F. Supp. 1250

Hugo Alberto BAZAN, Plaintiff, v. KUX MACHINE COMPANY, a Division of Wickes Corporation, a foreign corporation, Defendant.

Civ. A. No. 69-C-267.

United States District Court, E. D. Wisconsin.

June 14, 1973.

James R. Gass, Milwaukee, Wis., for plaintiff.

Richard S. Gibbs, Milwaukee, Wis., for defendant.

MEMORANDUM DECISION AND ORDER

REYNOLDS, Chief Judge.

This is a personal injury case brought against the purchaser of the company, which manufactured the machine that allegedly caused plaintiff's injuries. The machine was sold to plaintiff's employer in 1961, and plaintiff Hugo Alberto Bazan was injured in an industrial accident in 1966. Plaintiff has also sued the actual manufacturer of the machine in an action dealt with by the Wisconsin Supreme Court. Bazan v. Kux Machine Co., 52 Wis.2d 325, 190 N.W.2d 521 (1971). The question is whether the defendant here, which purchased almost all the assets of the manufacturer in 1963, can be held liable for injuries caused by the machine manufactured in 1961. Both parties have moved for summary judgment on this question. Applying Wisconsin law, I grant defendant's motion.

The general rule is that the sale of assets of a company does not make the buyer liable for damages previously caused by the seller, nor relieve the seller from liability. Plaintiff's counsel argues eloquently and, to me, convincingly that as a matter of social policy, the right of a person injured by a defective product to recover from the manufacturing company should not turn on the subsequent history of that company, especially when the company, though under new ownership, is still extant in the eyes of the public and is still enjoying the benefits of its name and its good will. This argument, however, is directed to the wrong forum. My function is to follow the rule which the Wisconsin Supreme Court would probably follow.^*

The Seventh Circuit Court of Appeals recently stated its understanding of the Wisconsin rule:

"* * * The well settled rule of American jurisdictions, including Wisconsin, is that a corporation which purchases the assets of another corporation does not, by reason of succeeding to the ownership of property, assume the obligations of the transferor corporation. Citations omitted. Exceptions to this rule exist where (a) the purchasing corporation expressly or impliedly agrees to assume the liabilities of the seller, (b) the transaction amounts to a consolidation or merger of the two companies, (c) the purchasing corporation is merely a continuation of the selling corporation, or (d) the transaction is entered into fraudulently to escape liability. Citations omitted." Forest Laboratories, Inc. v. Pillsbury Company, 452 F.2d 621, 625 (7th Cir. 1971).

But see Racine Engine & Machinery Co. v. Confectioners' Machinery & Mfg. Co., 234 F. 876 (7th Cir. 1916), and Cotzhausen v. H. W. Johns Mfg. Co., 100 Wis. 473, 76 N.W. 622 (1898), wherein it is held that in Wisconsin the emerging corporation has no liability for the torts of the former even if the transaction was a consolidation.

Yet even under the rule suggested by the Seventh Circuit, plaintiff is not entitled to relief. Of the four exceptions allowed, the only one which might apply here is that created for a transaction which amounts to a consolidation of companies. Whether a transaction is in reality a sale of assets or a consolidation depends to a large extent on the circumstances surrounding each particular case. 19 C.J.S. Corporations § 1604 at 1367 (1940).

In this case some but not all of the assets of the manufacturer, Kux Machine Company (hereinafter "Kux"), were purchased by the Wickes Corporation for a cash price of $550,500. The assets included furniture, fixtures, inventories, equipment, machinery, vehicles, and other tangible personal property. It also included intangibles such as licenses, trademarks, patents, "together with the good will" of Kux and the right to use the name "Kux Machine." Kux also agreed not to compete in the production of certain items.

Wickes did not acquire Kux's cash, accounts receivable, life insurance policies, prepaid insurance, real estate, or the plant and offices of Kux in Chicago. Wickes did not assume any debts, labor union contracts, employment contracts, or liabilities except for a few specified in the contract, and Wickes' sole responsibility under the warranties of Kux was to "repair or replace." Wickes did not retain in any way...