Gonzalez v. Progressive Tool & Die Co.

• Decision Date: 09 August 1978
• Docket Number: No. 77 C 892.,77 C 892.
• Citation: 455 F. Supp. 363
• Parties: Luz Selenia GONZALEZ, 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

455 F. Supp. 363

Luz Selenia GONZALEZ, 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.

August 9, 1978.

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

Bowditch & Dewey, Worcester, Mass. (Charles Donelan, George B. Sanders, Jr., Worcester, Mass., of counsel), for defendants.

MEMORANDUM AND ORDER

NICKERSON, District Judge.

Plaintiff, a New York resident, brought this diversity action on April 27, 1977, alleging injury in the course of her employment on September 19, 1974, while operating a vertical injection molding machine known as the "Mercury VMM I" owned by her employer and manufactured by defendant Progressive Tool & Die Co. ("Progressive"), a corporation formerly existing under the laws of Massachusetts.

The complaint's first claim alleges that Progressive negligently designed, manufactured, assembled and tested the machine and negligently failed to provide warnings of its inherent dangers. The other defendants are alleged to be "liable for Progressive's debts" as "transferees" of its assets.

The second claim alleges that Progressive warranted to any potential user of the machine that it was free from defects and safe for use, whereas it was defective and unsafe.

The third claim alleges that defendants are liable under the so-called "Doctrine of Strict Liability".

The fourth claim alleges that when plaintiff's employer purchased the machine all the defendants and their predecessors warranted that it was designed, manufactured, assembled, installed, tested and inspected in a proper and safe manner, that it was free of defects and safe, that it would not break under normal use, and that it was equipped with appropriate safety devices, whereas it was not safe and free of defects.

Defendant Arvid S. Johnson, Jr., ("Johnson") answered, denying the critical allegations and setting forth affirmative defenses of contributory negligence, assumption of risk, and laches.

The attorneys for Johnson then moved on behalf of defendants Johnson, Progressive Johnson Liquidating Co., Inc. ("Johnson Liquidating"), Vimm Corporation ("Vimm I"), and Vimm Liquidating Corp. ("Vimm Liquidating"), under Rule 12(b) (6) of the Federal Rules of Civil Procedure ("FRCP") to dismiss the complaint for failure to state a claim. Matters outside the pleadings were presented, and, in accordance with FRCP 12(c), the motion is considered as one for summary judgment and is disposed of pursuant to FRCP 56.

The following facts have been established beyond dispute, except where otherwise noted.

Progressive and Johnson Liquidating

Progressive was organized under Massachusetts law on December 24, 1928. Its name was changed to Johnson Liquidating on May 1, 1967, and most of its assets were sold to Amtel, Inc., a Rhode Island corporation. However, fourteen partially assembled vertical injection molding machines known as "Mercury VMM 2" machines were sold to Vimm I. Johnson Liquidating was dissolved on February 3, 1971 by order of the Supreme Judicial Court of Massachusetts, and its assets were distributed to its shareholders, including Johnson.

Massachusetts law governs the question of the capacity of a Massachusetts corporation to be sued in this court. FRCP 17(b). Massachusetts General Laws Ch. 156B § 102 provides that a dissolved corporation will continue to exist for a period of three years following dissolution

"for the purpose of prosecuting and defending suits by or against it and of enabling it gradually to settle and close its affairs, to dispose of and convey its property and to make distribution to its stockholders of any assets remaining after the payment of its debts and obligations."

Unless suit is brought against such a dissolved corporation within three years of dissolution the Massachusetts statute deprives the corporation of capacity to be sued. Cf. Boston Towboat Co. v. Medford Nat. Bank, 228 Mass. 484, 117 N.E. 928 (Suffolk 1917). This suit was not filed in time, and the complaint is dismissed as to Progressive and Johnson Liquidating.

Vimm I and Vimm Liquidating

Vimm I was organized under Massachusetts law on January 31, 1966, and in 1967 or thereafter purchased the fourteen molding machines from Johnson Liquidating. The parties do not agree as to the nature of the operations of Vimm I subsequent to the purchase. Plaintiff asserts that Vimm I continued the business operations of the vertical injection molding machine department of Progressive, employing three persons formerly employed by Progressive, and having as its directors, officers and shareholders the same individuals who were the directors, officers and shareholders of Progressive. Defendants assert that after purchasing the machines from Progressive, Vimm I merely contracted out the completion of the assembly of the machines and thereafter sold them to various buyers. In any case in April of 1971 Vimm I sold all of its remaining assets including its name to a Theodore Athanas, who carried on the business in another corporation under the same name, referred to hereafter as Vimm II. Vimm II has only recently been served and is not before the court on the present motion.

Vimm I changed its name to Vimm Liquidating on June 7, 1971. A plan of dissolution was adopted on April 12, 1971, but the corporation was never dissolved and is presently amenable to suit. As there were no assets left after the payment of its debts, there was no distribution to its sole remaining shareholder, Johnson.

Presumably there are no assets in Vimm I and Vimm Liquidating to satisfy any judgment plaintiff may obtain. Nonetheless plaintiff's complaint seeks to hold them as successor corporations to Progressive upon whose dissolution they allegedly succeeded to the tort and warranty liabilities. Although the question of the liability of a "successor corporation" for personal injuries caused by its predecessor's products has been litigated in a number of jurisdictions Ray v. Alad Corp., 19 Cal.3d 22, 136 Cal. Rptr. 574, 560 P.2d 3 (1977); Leannais v. Cincinnati, Inc., 565 F.2d 437 (7th Cir. 1977) (applying Wisconsin law); Turner v. Bituminous Casualty Co., 397 Mich. 406, 244 N.W.2d 873 (1976); Cyr v. B. Offen & Co., Inc., 501 F.2d 1145 (1st Cir. 1974) (applying New Hampshire law); see cases collected in "Annotation, Products Liability: Liability of Successor Corporation for Injury or Damage Caused by Product Issued by Predecessor", 66 A.L.R.3d 824, this court has found no Massachusetts or New York decisions precisely in point.

Because plaintiff apparently will urge the same theory of liability against Vimm II, not yet before the court, as is claimed against Vimm I and Vimm Liquidating, the court will not decide whether Vimm I and Vimm Liquidating may be held as successors until the facts are fully developed and the issues briefed by all interested parties.

Johnson

Plaintiff argues that Johnson is liable for her injuries because (1) the nature of his relationship with Progressive justifies "piercing the corporate veil" to reach his personal assets; (2) he was a successor to Progressive's business; and (3) he was a stockholder and a distributee of the assets remaining to Progressive after dissolution.

There is no basis, under the law of New York or Massachusetts, for "piercing the corporate veil" of Progressive to reach Johnson's personal assets. Where corporate assets are insufficient to pay corporate debts courts have on occasion permitted a creditor to reach the assets of shareholders, despite the generally limited nature of their liability, upon a showing that the shareholders have so dealt with the corporate assets as to work a fraud or an injustice upon creditors. In Berger v. Columbia Broad-casting System, Inc., 453 F.2d 991 (8th Cir. 1972), cert. denied 409 U.S. 848, 93 S.Ct. 54, 34 L.Ed.2d 89 (1972), the court reviewed the New York case law defining the scope and the limitations of the doctrine and noted that a creditor must show that the shareholders controlled the corporation so completely that the corporation could not fairly be said to have any separate identity and that the control was used to perpetrate a fraud or an "unjust act in contravention of plaintiff's legal rights." Id., at 995, quoting from Lowendahl v. Baltimore & O. R. R., 247 App.Div. 144, 287 N.Y.S. 62, 76, (1st Dept.) aff'd 272 N.Y. 360, 6 N.E.2d 56 (1936). See also My Bread Baking v. Cumberland Farms, Inc., 353 Mass. 614, 233 N.E.2d 748 (Bristol 1968); 1 Fletcher, Cyclopedia Corporations § 41 et seq. (1974 ed.).

Plaintiff has presented no evidence to indicate that before dissolution Progressive's assets were insufficient to satisfy creditors' claims. Nor has plaintiff shown that Johnson so controlled the assets of Progressive as to work a fraud upon her or any other creditor. She argues that Progressive paid excessive salaries to Johnson, who was the Vice President and a director, and to Johnson's father ("Johnson, Sr."), the President and a director. Johnson received $20,000 per year in salary prior to 1966 and $18,000 per year thereafter; Johnson, Sr. received $35,000 per year prior to 1966 and $20,000 per year thereafter. To show that corporate assets have been siphoned off to the detriment of creditors more is necessary than a recitation of the salaries paid to corporate officers. Some showing is required that in light of the corporation's financial status the salaries paid were so excessive as fraudulently to deplete the assets available to creditors.¹ No such evidence has been submitted by plaintiff.

Plaintiff has presented no facts to support her theory that Johnson is liable as a successor. He states that he received no assets of Progressive upon the dissolution other than those received by him in his capacity as a shareholder. He did not...