Brown v. Kleen Kut Mfg. Co., 57487

• Decision Date: 21 February 1986
• Docket Number: No. 57487,57487
• Citation: 238 Kan. 642,714 P.2d 942
• Parties: , Prod.Liab.Rep. (CCH) P 10,995 Eddie M. BROWN, Jr., Appellant, v. KLEEN KUT MANUFACTURING CO., Toledo Scale Corporation, Reliance Electric and Engineering Co., and Reliance Electric Co., Appellees.
• Court: Kansas Supreme Court

Page 942

714 P.2d 942

238 Kan. 642, Prod.Liab.Rep. (CCH) P 10,995

Eddie M. BROWN, Jr., Appellant, v. KLEEN KUT MANUFACTURING CO., Toledo Scale Corporation Reliance Electric and Engineering Co., and Reliance Electric Co., Appellees.

No. 57487.

Supreme Court of Kansas.

Feb. 21, 1986.

Syllabus by the Court

1. The law of the jurisdiction where a corporation was formed and where its corporate stock and assets were transferred governs the liability of a dissolved predecessor corporation and its successor corporation for injuries arising from use of a product manufactured by the dissolved predecessor corporation. Kansas tort law governs the nature of the cause of action available to the injured party where the injury occurs in Kansas.

2. The Ohio statute concerning litigation by or against a corporation after dissolution extends a corporation's existence after dissolution only for a "reasonable" period of time. Accordingly, an action brought against an Ohio corporation some twenty-two years after that corporation's dissolution was not brought within a reasonable time and was properly dismissed.

3. Generally, where 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.

Jerry M. Ward, of Ward & Berscheidt, Great Bend, argued the cause and was on brief, for appellant.

William H. Seiler, Jr., of Bremyer & Wise, P.A., McPherson, argued the cause and was on brief, for appellee Kleen Kut Mfg. Cy.

Robert D. Ochs, of Ochs & Kelley, P.A., Topeka, argued the cause and Jeffery L. Seibel, of Dreiling, Bieker & Kelley, Hays, was on brief, for appellees Toledo Scale Corp., Reliance Elec. and Engineering Cy., and Reliance Elec. Cy.

HERD, Justice:

This is an action for strict liability in tort for the manufacture and sale of an allegedly defective product. This is an appeal from the district court's grant of summary judgment in favor of the appellees, Toledo Scale Corporation, Reliance Electric and Engineering Company, Reliance Electric Company and Kleen Kut Manufacturing Company, defendants below.

The facts are not in dispute.

The accident giving rise to this action occurred in the summer of 1976. The appellant, who was sixteen years old at the time, was employed as a part-time cook in a restaurant located in Great Bend. On the evening of July 23, 1976, the appellant was directed to grind meat for hamburger. Although this task was not one of his regular duties, he began grinding meat using a meat grinder which bore the decal of Kleen Kut Manufacturing Company, Cleveland, Ohio, Model No. 5132A.

When the appellant attempted to push the meat into the auger, it caught his fingers and pulled his fingers and palm under the auger. His hand was so severely injured it required surgical amputation at the wrist.

Prior to December 15, 1955, Kleen Kut Manufacturing Company (Kleen Kut) operated a factory in Cleveland, Ohio, for the purpose of manufacturing food choppers, including Model No. 5132A meat grinders.

On December 15, 1955, Kleen Kut entered into an agreement with Toledo Scale Corporation (Toledo Scale) whereby Toledo Scale purchased Kleen Kut's assets for $405,650. Included in those assets were inventory, work-in-process, parts, components and raw materials relating to the manufacture and sale of food machines. Toledo Scale also acquired the exclusive right to the name "Kleen Kut" and agreed to enter into a two-year lease of the factory premises owned by Kleen Kut.

Following the sale of assets, Louis Faulb, who was the president of Kleen Kut, was appointed by Toledo Scale as general manager of the Cleveland Manufacturing Division of Toledo Scale, which position he retained for a period of twelve to fifteen months. Additionally, Toledo Scale retained in its employment former employees of Kleen Kut.

Kleen Kut Manufacturing Company was dissolved on November 21, 1956.

Toledo Scale continued to manufacture and sell parts for meat choppers previously manufactured by Kleen Kut and to manufacture and sell, under the name Toledo Scale Corporation, meat choppers and parts formerly manufactured and sold under the name Kleen Kut. Toledo Scale sold replacement parts for the model No. 5132A Kleen Kut meat grinder; however, these parts were universal replacements parts and fit numerous grinder models.

Toledo Scale merged into Reliance Electric and Engineering Company on October 12, 1967, and Reliance Electric and Engineering Company merged into Reliance Electric Company on February 25, 1969.

Appellant filed the present action on July 17, 1978, against Kleen Kut, Toledo Scale, Reliance Electric and Engineering Company and Reliance Electric Company. On October 8, 1981, the district court granted Kleen Kut's motion to dismiss on the ground that appellant's action could not be maintained against an Ohio corporation on a cause of action filed twenty-two years after the date of dissolution. On October 23, 1984, the court sustained the motion for summary judgment of Toledo Scale, Reliance Electric and Engineering Company and Reliance Electric Company on the ground that these corporations could not be held liable as successor corporations.

Prior to considering the substantive law relating to the corporate liability of both dissolved and successor corporations, we must first examine the conflict of laws question presented by this case.

The specific issue with which we are faced is whether the substantive law of Kansas or Ohio is applicable to the issue of the liability of either a dissolved predecessor corporation or its successor corporation for injuries resulting from a product manufactured by the predecessor. The appellant's injuries were sustained in Kansas. The machine, the use of which resulted in appellant's injuries, was manufactured in Ohio. The appellee corporations are all incorporated in the State of Ohio. Additionally, the transfer of assets from Kleen Kut to Toledo Scale was accomplished pursuant to a contract executed in Ohio.

The appellees argue that under the traditional rule of lex loci delicti, Kansas law is applicable. The appellant, however, argues the governing law is that of the jurisdiction where the transfer of assets between the predecessor and successor corporations took place.

We have traditionally applied the rule of lex loci delicti to choice of law for tort claims. McDaniel v. Sinn, 194 Kan. 625, 400 P.2d 1018 (1965). Under this rule, the law of the state where the tort occurred is applied to the substantive rights of the parties.

We recently reaffirmed this rule in Ling v. Jan's Liquors, 237 Kan. 629, 703 P.2d 731 (1985). There, we held that, where injuries were sustained in Kansas as a result of a negligent act in another state, the liability of the defendant is to be determined by the laws of this state. In so holding, we rejected the "analytical approach" for determining what laws should govern the substantive rights of the parties.

Appellant here does not suggest we reject lex loci delicti and adopt the analytical approach. Rather, appellant contends that, in an action against a dissolved manufacturing corporation and its successor, the law of the jurisdiction where the transfer of corporate stock and assets was made should govern, rather than the law of the place where the injuries occurred. In support of his contention, appellant cites Bonee v. L & M Const. Chemicals, 518 F.Supp. 375 (M.D.Tenn.1981). There, a Tennessee plaintiff brought suit as administrator of the estate of Roy Bonee, who died from injuries he received when an oil drum exploded and severely burned him. The flammable construction sealer which exploded in the drum was manufactured by an Illinois corporation, which later transferred its assets to an Ohio corporation. The court noted that Tennessee follows the lex loci delicti rule and that under that rule the substantive law of the state in which the tort occurred governs. Rather than apply this rule, however, the court characterized the case as presenting a contract question--i.e., what is the legal effect of the sale of the assets of one corporation to another corporation? 518 F.Supp. at 379. Under Tennessee law, the rights to the parties to a contract are governed by the laws of the state in which the contract was entered into. Therefore, the Tennessee court determined that Ohio's substantive law was applicable.

The Bonee court stated:

"Because the basic question in this case is what is the legal effect of the sale of virtually all of the assets of one corporation to another corporation, under Tennessee conflicts rules the substantive law of Ohio applies. Although characterizing the case as contractual for the purpose of this issue and tortious for purposes of determining liability may seem disjointed, see Korzetz v. Amsted Industries, Inc., 472 F.Supp. 136, 138-42 (E.D.Mich 1979), it is the correct approach. One of the purposes of using choice-of-law rules is to ensure the uniform application of substantive law. The rights of a corporation that contracts in Ohio to purchase the assets of another corporation should be the same with respect to assumption of liability for personal injuries regardless of where the personal injury occurs. For example, if the parties had specifically agreed that Dayton would assume liability for all injuries arising out of the use of BCS' products no one would dispute the characterization of the issue presently before the Court as contractual. The characterization should be no different simply because the parties did not expressly address the issue in their agreement." pp....