Conway v. White Trucks, A Div. of White Motor Corp.

• Decision Date: 12 September 1989
• Docket Number: 89-5061,No. 89-5061,No. 89-5024,Nos. 89-5024,89-5024,s. 89-5024
• Citation: 885 F.2d 90
• Parties: Prod.Liab.Rep.(CCH)P 12,256 CONWAY, Neil and Conway, Joan, his wife, and Neil Conway to the Use of Roadway Express, Inc., Appellants in, v. WHITE TRUCKS, A DIVISION OF WHITE MOTOR CORPORATION; Volvo-White Truck Corporation, Successor Corporation to White Trucks, a Division of White Motor Corporation; and National Seating Company and John Doe Corporation, Volvo White Truck Corporation, Appellant in
• Court: U.S. Court of Appeals — Third Circuit

Page 90

885 F.2d 90

Prod.Liab.Rep.(CCH)P 12,256

CONWAY, Neil and Conway, Joan, his wife, and Neil Conway to the Use of Roadway Express, Inc., Appellants in No. 89-5024, v. WHITE TRUCKS, A DIVISION OF WHITE MOTOR CORPORATION Volvo-White Truck Corporation, Successor Corporation to White Trucks, a Division of White Motor Corporation; and National Seating Company and John Doe Corporation, Volvo White Truck Corporation, Appellant in No. 89-5061.

Nos. 89-5024, 89-5061.

United States Court of Appeals Third Circuit.

Argued June 13, 1989.

Decided Sept. 12, 1989.

Rehearing and Rehearing In Banc in

No. 89-5024 Denied Oct. 5, 1989.

As Amended Oct. 10, 1989.

Todd J. O'Malley (argued), Law Offices of Todd J. O'Malley, Scranton, Pa., for Neil and Joan Conway, his wife, appellants and cross-appellees.

P. Daniel Altland, Cleckner and Fearen, Harrisburg, Pa., for Roadway Express, Inc., appellant and cross-appellee.

William C. Foster, Kelly, Harrington, McLaughlin & Foster, Charles W. Craven (argued), Marshall, Dennehey, Warner, Coleman & Goggin, Philadelphia, Pa., for Volvo White Truck Corp. appellee and cross-appellant.

John R. Lenahan, Jr. (argued), Lenahan & Dempsey, P.C., Scranton, Pa., for Nat. Seating Co., appellee.

Before SLOVITER and COWEN, and WEIS, Circuit Judges.

OPINION OF THE COURT

SLOVITER, Circuit Judge.

I.

Appellants, Neil Conway, Joan Conway, and Roadway Express, in its capacity as subrogee of Neil Conway's workmen's compensation claim (collectively referred to as "Conway"), were plaintiffs in a products liability action against appellee Volvo White Truck Corporation (Volvo) and National Seating Company. They appeal the district court's order setting aside a judgment in their favor and granting judgment in favor of Volvo. The legal basis on which plaintiffs sought to recover from Volvo was under the theory, adopted in some states, imposing liability on a successor corporation for injuries caused by products manufactured and sold by its predecessor. This issue is further complicated here because Volvo's predecessor did not dissolve, but has reorganized under Chapter 11 of the Bankruptcy Reform Act. The parties have also briefed the issue of whether the terms of a sale of corporate assets approved as part of a reorganization preclude suits based on claims which arose after the sale.

The district court had jurisdiction under 28 U.S.C. Sec. 1332(a)(1) (1982). We have jurisdiction over this final order of the district court under 28 U.S.C. Sec. 1291 (1982). Our review of the district court's interpretation of the Pennsylvania law is plenary.

II.

The facts of this case are set forth in detail in the two district court opinions addressing the successor liability issue. See Conway v. White Trucks, a Div. of White Motor Corp., 692 F.Supp. 442 (M.D.Pa.1988), vacating, 639 F.Supp. 160 (M.D.Pa.1986). We set forth those facts of particular relevance to this appeal.

White Motor Corporation (White), a major truck manufacturer, filed for reorganization under Chapter 11 of the Bankruptcy Reform Act of 1978 on September 4, 1980. In June 1981, A.B. Volvo, through its subsidiary, Volvo White Truck Corporation (Volvo), agreed to purchase various truck manufacturing facilities from White. After notice and a hearing, the Bankruptcy Court for the Northern District of Ohio approved the sale on August 13, 1981, and Volvo took control of the assets at that time. The final agreement entered into by the parties on June 15, 1983, provided that Volvo North America would indemnify White's product liability for accidents occurring between May 1, 1983 and December 31, 1992, which involved vehicles assembled before September 1, 1981, but that Volvo would not be liable for any other claims. This supplemental agreement was approved by the bankruptcy court on June 29, 1983.

Claims based on accidents occurring before May 1, 1983 were to be handled through a trust fund created as part of White's plan of reorganization and where appropriate, by White's insurers and codefendants. On August 1, 1983 the bankruptcy court entered an order fixing August 30, 1983 as the bar date for filing proofs of claim against White with the bankruptcy court. Notice of the bar date was provided to known claimants through direct mail and to others by publication in national newspapers such as the Wall Street Journal and the New York Times. Appellant Neil Conway asserts, and there is no evidence to the contrary, that he did not have any notice of White's bankruptcy, the sale agreement, or the bar date prior to the time for filing proofs of claim had elapsed. He learned of the White bankruptcy and its probable effect on his claim against White in March or April of 1984.

Conway was injured during the course of his employment in March 1982 when the truck he was driving hit a pothole, causing the driver's seat to lurch forward. His knee struck the dashboard of the truck, and he suffered a serious injury which resulted in his inability to work for five months. Within one month of the accident, appellant was diagnosed as having sustained "traumatic, injury related, chondromalacia patella," Supp. App. at 535, and underwent a program of therapy. When the condition of his knee deteriorated, appellant underwent surgery in November 1983.

Appellant and his wife brought suit in federal court in March 1984 against White, Volvo, National Seating Company, the manufacturer of the seat, and John Doe Corporation. Conway's employer, Roadway Express, also participated in the litigation as a plaintiff, seeking to recover the amount of workmen's compensation it paid to Conway on account of his injury. ¹ The complaint alleged a variety of strict liability, negligence, and breach of warranty theories against the various defendants, the gist of which was that the cab and/or seat were defectively designed.

White filed a motion for summary judgment on the ground that Conway had not filed a proof of claim in the bankruptcy proceeding prior to the bar date. Conway filed no objection, and White was dismissed from the case. Volvo sought summary judgment on the ground that it could not be liable as a successor corporation for claims involving products manufactured by White, and that Conway's claim was precluded by its agreement, approved by the bankruptcy court, which provided that Volvo was not assuming liability for accidents occuring before May 1, 1983. The district court denied summary judgment. After a non-jury trial on the issue of successor liability, the court determined that under the "product line" exception to the general rule of nonliability for successors adopted by the Pennsylvania Superior Court, Volvo could be liable to appellant for defective design by White. 639 F.Supp. at 164 (M.D.Pa.1986).

Plaintiff proceeded to trial against Volvo on his theory that the White truck was defectively designed and against National on a design defect theory related to the seat. The jury found Volvo liable for appellant's injury and exonerated National, awarding appellant $1,230,532 in damages.

Volvo filed a variety of post-trial motions urging the district court to reconsider its earlier ruling that Volvo was liable for successor liability and also asserting a variety of trial errors which it claimed warranted a new trial. The district court thereafter amended its earlier ruling and determined that because a fund had been established in White's bankruptcy for payment of product liability claims arising prior to May 1, 1983, imposition of successor liability on Volvo was inappropriate because Conway had had a remedy against White, the original manufacturer of the truck. It directed a verdict for Volvo, and set aside its earlier judgment and the jury verdict.

Conway appeals the grant of the directed verdict as based on an erroneous application of Pennsylvania law and as based on an erroneous finding as to his notice of the ability to proceed against White in the bankruptcy. Volvo filed a protective cross-appeal alleging error in the denial of its new trial motions, and National also filed a brief asking this court to rule that, if a new trial is warranted, it be against Volvo alone.

III.

We first address the district court's legal conclusion with respect to the applicability under Pennsylvania law of the "product line" exception to the general rule of successor nonliability.

It is a "well-settled rule of corporate law [that] where one company sells or transfers all of its assets to another, the second entity does not become liable for the debts and liabilities, including torts, of the transferor." Polius v. Clark Equipment Co., 802 F.2d 75, 77 (3d Cir.1986) (citing 15 W. Fletcher, Cyclopedia of the Law of Private Corporations, Sec. 7122 (Perm.Ed.1983)). A 1975 Pennsylvania Superior Court decision referred to a number of exceptions to this general rule where "(1) the purchaser expressly or impliedly agrees to assume such obligation; (2) the transaction amounts to a consolidation or merger; (3) the purchasing corporation is merely a continuation of the selling corporation; or (4) the transaction is fraudulently entered into to escape liability." Husak v. Berkel, Inc., 234 Pa.Super. 452, 456, 341 A.2d 174, 176 (1975). We note that none of the cases cited in Husak as supporting these exceptions emanated from the Pennsylvania Supreme Court.

In Dawejko v. Jorgensen Steel Co., 290 Pa.Super. 15, 18-19, 434 A.2d 106, 107-08 (1981), the Pennsylvania Superior Court was faced with the question whether the general rule of successor nonliability should be extended beyond these more established exceptions. It noted that a number of jurisdictions had expanded the continuation exception by shifting the emphasis from corporate formalities "to an inquiry regarding the nature of the business operations," Dawejko, 290 Pa.Super. at 19, 434 A.2d at 108 (citing Cyr v. B. Offen & Co., 501 F.2d 1145 (1st Cir.1974) (New Hampshire law would recognize an expanded continuation exception)); Turner v....