Chemical Design, Inc. v. American Standard, Inc.

Decision Date09 February 1993
Docket NumberNo. 61544,O-F,61544
Citation847 S.W.2d 488
PartiesProd.Liab.Rep. (CCH) P 13,561 CHEMICAL DESIGN, INC., Appellant, v. AMERICAN STANDARD, INC., & Cust-ab, Inc., Respondents.
CourtMissouri Court of Appeals

Joan M. Tanner, St. Louis, for appellant.

Jon Moyers, Kenneth Heineman, Brenda Baum, Jonathan Andres, Bruce Ryder, St. Louis, for respondents.

CARL R. GAERTNER, Presiding Judge.

Plaintiff, Chemical Design, Inc., appeals from the entry of summary judgment in favor of defendant American Standard, Inc., and Cust-O-Fab, Inc., in plaintiff's action seeking contribution or indemnity for the settlement of a suit for personal injury filed against plaintiff by one Victor Rodriguez. We affirm.

The facts material to the granting of summary judgment are not in dispute. In 1974, American Standard designed and manufactured a gas condenser for plaintiff which plaintiff incorporated into a hydrogen recovery system installed at a Monsanto Chemical Company plant. American Standard furnished plaintiff with plans and specifications for the gas condenser. In 1979, Monsanto requested that Cust-O-Fab manufacture a replacement gas condenser according to the 1974 American Standard plans. In 1981, this gas condenser exploded causing injuries to Victor Rodriguez, a Monsanto employee. Rodriguez sued plaintiff in the United States District Court for the Eastern District of Missouri. The litigation was settled upon plaintiff's payment of $1,350,000 to Rodriguez. Plaintiff then instituted this action seeking indemnity or contribution from American Standard and from Cust-O-Fab.

American Standard moved for summary judgment on the grounds that it had no relationship to the gas condenser installed in 1979 which allegedly caused the injury and that it owed no duty to anyone insofar as that gas condenser was concerned. The trial court granted that motion on January 22, 1992.

Cust-O-Fab moved for summary judgment on the grounds that the alleged defective gas compressor was manufactured by a predecessor corporation. Affidavits, depositions and documents filed in support of and opposition to this motion disclose that defendant Cust-O-Fab is the second Oklahoma corporation to bear that name. The first, referred to here as Cust-O-Fab I, was incorporated February 23, 1973, and engaged in the business of manufacture and sale of heat exchangers such as the gas compressor manufactured and sold to Monsanto in 1979. In December, 1986, the shareholders and directors of Cust-O-Fab I ceased doing business and sold the assets of the corporation to Cust-O-Fab II, an Oklahoma corporation incorporated January 2, 1987 by two former employees of Cust-O-Fab I. The new corporation immediately notified the customers and employees of Cust-O-Fab I of the change in ownership, opened new bank accounts, obtained a new Federal Employer Identification Number, made changes in employee benefits and profit sharing plans, but otherwise continued the business of Cust-O-Fab I at the same location. The officers of Cust-O-Fab I entered into an agreement with Cust-O-Fab II to serve as consultants and advisors for a period of ten years. Additionally, Cust-O-Fab I, its directors and shareholders, agreed to hold Cust-O-Fab II harmless from any liabilities including liability arising from the manufacture and sale of products. The two corporations did not have any common shareholders, directors, or officers at any time.

None of these facts are contested. Rather the dispute in this case concerns differing opinions regarding the legal effect of these facts upon the respective rights of the parties. Accordingly, summary judgment is appropriate. Roberts Fertilizer, Inc. v. Steinmeier, 748 S.W.3d 883, 887 (Mo.App.1988).

I. American Standard

The basis for the trial court's granting of American Standard's motion was the absence of any duty owed by that defendant to plaintiff or to Victor Rodriguez arising from the manufacture of the gas condenser which caused the injury. The elements of actionable negligence are the existence of a duty, a breach of that duty, and injury resulting from that breach. Scheibel v. Hillis, 531 S.W.2d 285, 288 (Mo. banc 1976); Rogger v. Voyles, 797 S.W.2d 844, 846 (Mo.App.1990). A defendant's duty is measured by the scope of foreseeable, unreasonable risks. Heacox v. Robbin's Educational Tours, 829 S.W.2d 600, 602 (Mo.App.1992). Foreseeability is established when a defendant is shown to have actual or constructive knowledge that there is some probability of injury such that an ordinary person would take precautions to avoid it. Pierce v. Platte-City Electric Co-op., 769 S.W.2d 769, 776 (Mo.banc 1989). "No duty is owed to persons outside 'the orbit of the danger as disclosed to the eye of reasonable vigilance.' " Krause v. U.S. Truck Co., Inc., 787 S.W.2d 708, 710 (Mo. banc 1990) (quoting from Palsgraf v. Long Island Railroad Co., 248 N.Y. 339, 162 N.E. 99, 100, 59 A.L.R. 1253 (1928)).

In 1974, American Standard designed and manufactured a gas condenser for plaintiff which was installed at a Monsanto plant. The plans and specifications for this gas condenser were furnished to plaintiff at that time with the following caveat inscribed upon the face of the drawing:

THIS DOCUMENT CONTAINS MATERIAL AND/OR INFORMATION WHICH IS THE PROPERTY OF AMERICAN STANDARD, INC., (A DELAWARE CORPORATION) AND SUPPLIED ONLY ON CONFIDENTIAL BASIS, NO TRANSMITTAL OR DISCLOSURE SHALL BE MADE TO ANY PERSON, FIRM OR CORPORATION, WITHOUT PRIOR WRITTEN APPROVAL OF AMERICAN STANDARD, INC.

American Standard had neither actual or constructive knowledge that its directive would be violated and that plaintiff or Monsanto would misappropriate its plans and specifications. The duty owed by American Standard to persons who might come in contact with the gas compressor it manufactured could not be extended to others by reason of this misappropriation of its design. "[E]ssential to liability for negligence is a relationship the law recognizes as the basis of a duty of care between the inflictor of the injury and the person injured." Hoover's Dairy, Inc. v. Mid-American Dairymen, 700 S.W.2d 426, 432 (Mo. banc 1985) (quoting from Hyde v. City of Columbia, 637 S.W.2d 251, 257 (Mo.App.1982), cert. denied Tribune Publishing Co. v. Hyde, 459 U.S. 1226, 103 S.Ct. 1233, 75 L.Ed.2d 467 (1983)). Such a relationship exists between the designer and manufacturer of a product and persons who foreseeably will use that product. Thus, by operation of law American Standard undertook to assume exposure to liability for injury caused by use of the gas compressor it designed and manufactured. But no relationship upon which to base a duty exists between American Standard and persons injured by the use of a different product copied by a third party from American Standard's plans and specifications.

Therefore, the disputed issue regarding any possible defect in American Standard's design is not material to the rendition of summary judgment in this case. That its plans and specifications would be misused by others in violation of its printed directive could not be reasonably foreseeable by American Standard. Nor is there any relationship between American Standard and Victor Rodriguez through which a duty may be found to flow. As stated in the Restatement (2d) of Torts, § 281 Comment (c) "if the actor's conduct creates a recognizable risk of harm only to a particular class of persons, the fact that it in fact causes harm to a person of a different class, to whom the actor could not reasonably have anticipated injury, does not make the actor liable to the persons so injured." Plaintiff's first point on appeal is denied.

II. Cust-O-Fab

Plaintiff's second point on appeal is that the trial court erred in granting summary judgment to defendant Cust-O-Fab II. Plaintiff claims there is an issue of material fact as to whether or not Cust-O-Fab II is a mere continuation of Cust-O-Fab I which gives rise to successor liability.

The general rule in Missouri is that when all of the assets of a corporation are sold or transferred the transferee is not liable for the transferor's debts and liabilities. Young v. Fulton Iron Works Co., 709 S.W.2d 927, 938 (Mo.App.1986). The rule is subject to four exceptions: 1) when the purchaser expressly or impliedly agrees to assume the debts and liabilities; 2) when the transaction amounts to a consolidation or merger of the corporation; 3) when the purchasing corporation is merely a continuation of the selling corporation; 4) when the transaction is entered into fraudulently in order to escape liability for the debts and liabilities. Id. at 938; Brockmann v. O'Neill, 565 S.W.2d 796, 798 (Mo.App.1978). The only exception issue here is whether Cust-O-Fab II is a mere continuation of Cust-O-Fab I.

In addressing issues of successor corporation liability for the acts and omissions of a predecessor corporation, different courts have reached different definitions of the phrase "continuation of the selling corporation." One line of authority views the phrase as describing the continuation of the product line of the selling corporation.

"[W]here one corporation acquires all or substantially all of the manufacturing assets of another corporation, even if exclusively for cash, and undertakes essentially the same manufacturing operation of the selling corporation, the purchasing corporation is strictly liable for injuries caused by defects in units of the same line, even if...

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