Cinocca v. Baxter Laboratories, Inc., 73-238-C.

• Decision Date: 15 January 1975
• Docket Number: No. 73-238-C.,73-238-C.
• Citation: 400 F. Supp. 527
• Parties: Jennie CINOCCA, Individually and as Administratrix of the Estate of Edward F. Cinocca, Deceased, Plaintiff, v. BAXTER LABORATORIES, INC., a Delaware Corporation, et al., Defendants.
• Court: U.S. District Court — Eastern District of Oklahoma

400 F. Supp. 527

Jennie CINOCCA, Individually and as Administratrix of the Estate of Edward F. Cinocca, Deceased, Plaintiff, v. BAXTER LABORATORIES, INC., a Delaware Corporation, et al., Defendants.

No. 73-238-C.

United States District Court, E. D. Oklahoma, Civil Division.

January 15, 1975.

COPYRIGHT MATERIAL OMITTED

Eddie Harper, McAlester, Okl., for plaintiff.

John R. Woodard, III, Tulsa, Okl., Roger A. Keller, Morton Grove, Ill., Wm. S. Hall, Tulsa, Okl., for defendants.

ORDER

DAUGHERTY, Chief Judge.

Plaintiff alleges that she is the widow of and the Administratrix of the Estate of Edward F. Cinocca, deceased. Edward F. Cinocca allegedly died on December 8, 1971 as a result of the failure of a Mitral Heart Valve Prosthesis which had been implanted in his body in 1968. Said Prosthesis was allegedly manufactured and sold by Surgitool, Inc. (Surgitool). All or substantially all of Surgitool's assets were allegedly acquired by Travenol Laboratories, Inc. (Travenol) in June of 1970.

Travenol has filed herein a Motion for Summary Judgment pursuant to Rule 56, Federal Rules of Civil Procedure. For purposes of the Motion Travenol admits that the above-stated alleged facts are essentially correct. Travenol has attached to its Motion a copy of the Agreement whereby it acquired substantially all of Surgitool's assets. It is Travenol's position that the Agreement shows that Travenol only agreed to assume certain enumerated debts and liabilities of Surgitool; that Plaintiff's claim is not among them and that it has not otherwise become liable for any torts of Surgitool by reason of its purchase of the assets and business of Surgitool.

The Motion is opposed by Plaintiff. Plaintiff contends that the Agreement whereby Travenol acquired Surgitool's assets was a merger or a de facto merger and that Travenol as the surviving corporation is liable for the debts and liabilities of Surgitool. Plaintiff also contends that Travenol both expressly and impliedly assumed the tort liability of Surgitool through the Agreement.

A Motion for Summary Judgment should be granted only if the pleadings and any depositions, answers to interrogatories, admissions and affidavits on file show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Rule 56(c), Federal Rules of Civil Procedure. For purposes of Motion for Summary Judgment the Court may consider any materials which would be admissible at trial. 10 Federal Practice & Procedure, Wright & Miller, Civil Section 2721. As a general rule, documents which are submitted in support of a Motion for Summary Judgment must be authenticated by an affidavit. However, uncertified documents may be considered by the Court if not challenged. 10 Federal Practice & Procedure, Wright & Miller, Civil, Section 2722. The materials submitted by Travenol in support of its Motion are not verified by affidavit. However, as Plaintiff has not objected to this defect and treats the Agreement as the true and correct contract for acquisition of substantially all assets as entered into by Travenol and Surgitool the Court will consider the Agreement for purposes of this Motion. Upon consideration of Travenol's Motion, the Court finds and concludes that the same should be overruled. There exists herein both material issues of fact and complexities in applying the applicable law to the alleged facts which make the development of the underlying facts hereof desirable prior to the application of the relevant rules of law. See 10 Federal Practice & Procedure, Wright & Miller, Civil, Section 2732.

Each of Plaintiff's contentions will be discussed in turn, the issue of merger or de facto merger first.

Travenol's contention that a corporation which acquires all or substantially all of another corporation's assets is not necessarily liable for the other corporation's torts is well taken. It is the general rule that when one corporation sells or otherwise transfers all of its assets to another corporation, the latter is not liable for the debts or liabilities of the transferor. However, there are four well recognized exceptions to this general rule. There are exceptions where: (1) the purchaser expressly or impliedly agrees to assume such debts; (2) where the transaction amounts to a consolidation or merger; (3) where the purchasing corporation is merely a continuation of the selling corporation; and (4) where the transaction is entered into fraudulently to escape such liabilities or debts. West Texas Refining & D. Co. v. Commissioner of Int. Rev., 68 F.2d 77 (Tenth Cir. 1933); Kloberdanz v. Joy Manufacturing Company, 288 F. Supp. 817 (D.Colo.1968); Fletcher Cyclopedia Corporations, Perm.Ed., 7122.

In construing the Agreement, it cannot be said that as a matter of law it does not amount to a merger. A merger is defined as the absorption of one corporation by another, which retains its name and corporate identity with the added capital, franchises and powers of the merged corporation. It is the uniting of two corporations by the transfer of property to one of them, which continues in existence, the other being merged therein. Fletcher Cyclopedia Corporations, Perm.Ed., 7041. The surviving corporation assumes the liabilities, both ex contractu and ex delicto, of the merged corporation. 19 CJS Corporations 1630(a). Whether an agreement provides for a simple sale of assets or a merger is determined by the substance of the agreement and not by the title put on it by the parties. This determination is primarily a matter of contract interpretation. Fletcher Cyclopedia Corporations, Perm.Ed., 7044; 19 AmJur 2d Corporations, 1493.

The Agreement under consideration appears to have been designed primarily to take advantage of the tax free exchange of stock for assets which is allowed by 26 U.S.C. § 368(a)(1)(C).¹ It is stated in the first paragraph of the Agreement to be the desire of the parties that Travenol acquire substantially all of the assets of Surgitool solely in exchange for shares of Baxter common stock (Travenol is a wholly-owned subsidiary of Baxter). The clear gist of the Agreement is that Travenol would acquire all assets of and all incidents of the business of Surgitool and carry that business on. The Agreement calls for the distribution of the shares of Baxter stock received by Surgitool to the shareholders of Surgitool and the dissolution of Surgitool. It is expressed to be the intent of the parties that the Agreement constitutes a "Plan of Reorganization" as that term is defined in § 354(a) of the Internal Revenue Code, and the exchange of stock for assets therein agreed upon constitute a "reorganization" as that term is defined in § 368(a)(1)(C) of the Code. It is further stated to be a condition precedent to the obligations of Surgitool that there be no change in the Internal Revenue Code, published regulations, rulings, or case law which would adversely...