Gonzales v. Progressive Tool & Die, Co.

• Decision Date: 02 January 1979
• Docket Number: No. 77 C 892.,77 C 892.
• Citation: 463 F. Supp. 117
• Parties: Luz Selenia GONZALES, Plaintiff, v. PROGRESSIVE TOOL & DIE, CO., Johnson Liquidating Co., Inc., Vimm Corporation, Arvid S. Johnson, Jr. and Vimm Liquidating Corporation, Defendants.
• Court: U.S. District Court — Eastern District of New York

463 F. Supp. 117

Luz Selenia GONZALES, Plaintiff, v. PROGRESSIVE TOOL & DIE, CO., Johnson Liquidating Co., Inc., Vimm Corporation, Arvid S. Johnson, Jr. and Vimm Liquidating Corporation, Defendants.

No. 77 C 892.

United States District Court, E. D. New York.

January 2, 1979.

Katz, Shandell, Katz & Erasmous, New York City (Emily Diamond, New York City, of counsel), for plaintiff.

Bowditch & Dewey, Worcester, Mass. (George B. Sanders, Jr., Worcester, Mass., of counsel), for defendant Arvid S. Johnson, Jr.

MEMORANDUM AND ORDER

NICKERSON, District Judge.

In this diversity action the court's earlier memorandum and order of August 9, 1978, 455 F.Supp. 363 (E.D.N.Y.1978), dismissed on motion plaintiff's claims as to two corporate defendants but declined, on the record presented, to grant defendant Arvid S. Johnson, Jr. ("Johnson") summary judgment. Familiarity with the previous memorandum and order is assumed. Johnson has again moved for summary judgment dismissing the complaint as to him.

The facts may be briefly recapitulated. Plaintiff, a New York resident, sued for asserted injuries sustained on September 19, 1974 while she was operating a molding machine manufactured by Progressive Tool and Die Co. ("Progressive"), a Massachusetts corporation. Progressive, organized in 1928, changed its name to Johnson Liquidating Co., Inc. in 1967 and sold most of its tangible assets to other corporations. On February 3, 1971, by order of the Supreme Judicial Court of Massachusetts, the corporation was liquidated and its remaining assets distributed to its shareholders. Johnson received a liquidating dividend consisting of notes payable to Progressive with a face amount of $71,608.08.

Plaintiff sought to hold Johnson liable on several theories: (1) that his relationship with Progressive justified "piercing the corporate veil" to reach his assets, (2) that he was a "successor" to Progressive's business, and (3) that as a stockholder he received a distribution of Progressive's assets on dissolution. The court rejected the first two and declined to rule on the third, the so-called "trust fund" theory of shareholder liability.

Under Massachusetts law a dissolved corporation continues in existence for three years to prosecute or defend suits, settle its affairs, dispose of its property, and make distribution to stockholders "of any assets remaining after the payment of its debts and obligations." Mass.Gen.Laws Ann., Ch. 156B § 102. Thus a dissolved corporation cannot be sued after the expiry of the three year period. Since plaintiff's injury did not occur until after that period she could not sue the corporation and sought to hold Johnson personally liable.

In declining to decide the difficult question of whether Massachusetts law would permit suit against Johnson to the extent he had received corporate assets on liquidation this court reasoned that, even assuming a Massachusetts court would entertain such a suit, plaintiff was at least required to show that the corporations which acquired Progressive's tangible assets did not assume Progressive's liabilities by agreement or operation of law. It would be unfair to allow suit against Johnson if the price paid Progressive by the purchasers was diminished by the unliquidated value of contingent claims such as that asserted by plaintiff. The court therefore denied the motion pending a fuller development of the record.

It now appears that there is no proof that the successors assumed contingent products liability claims against Progressive. Indeed, the parties to the transfers appear not to have considered the matter. This is hardly surprising since the Massachusetts courts have only recently held that a claim for personal injuries inflicted by defective products accrues at the time of injury. Cannon v. Sears, Roebuck & Co., 374 N.E.2d 582 (Sup.Jud.Ct.Mass.1978). This court must therefore face the question of whether, under Massachusetts law, plaintiff may pursue the assets distributed by Progressive to Johnson on the theory that he held them in trust for claimants such as plaintiff.

There is no need to repeat in detail the conflicting considerations set forth in the court's prior memorandum. As far as judicial authority is concerned, to accord plaintiff a claim against Johnson's distribution of the corporate assets would go farther than any case of which the court is aware. Bowen v. Fairfield, 260 Mass. 38, 157 N.E. 39 (Suffolk 1927), cited by defendant, was, as this court previously noted, decided on a procedural point. Moreover, by its reference to Whiting v. Malden & Melrose Railroad, 202 Mass. 298, 304, 88 N.E. 907 (1909), the opinion in the Bowen case evidently meant merely to restate the familiar principle that the acquisition by a person or corporation of the assets of another corporation is not in itself sufficient to charge the new holder with the debts of the old.

The reported cases imposing liability on assets distributed in liquidation to a stockholder on the theory he holds them in trust for claimants against the corporation have all concerned stockholders who had, or should have had, notice of the claims at the time of the distribution. See Wallach, Products Liability: A Remedy in Search of a...