Hernandez v. Enter. Rent-A-Car Co. of San Francisco

• Citation: 37 Cal.App.5th 187,249 Cal.Rptr.3d 467
• Decision Date: 08 July 2019
• Docket Number: A152703
• Court: California Court of Appeals
• Parties: Janine HERNANDEZ, Plaintiff and Appellant, v. ENTERPRISE RENT-A-CAR COMPANY OF SAN FRANCISCO et al., Defendants and Respondents.

37 Cal.App.5th 187

249 Cal.Rptr.3d 467

Janine HERNANDEZ, Plaintiff and Appellant,

v.ENTERPRISE RENT-A-CAR COMPANY OF SAN FRANCISCO et al., Defendants and Respondents.

A152703

Court of Appeal, First District, Division 4, California.

Filed July 8, 2019

Counsel for Appellant: Law Offices of Carcione, Cattermole, Dolinski, Stucky, Markowitz & Carcione, Joseph W. Carcione, Jr., Aaron B. Markowitz and Joshua S. Markowitz for Appellant

Counsel for Respondents: Crowell & Moring, Douglas W. Sullivan and Rebecca M. Suarez ; Yukevich Cavanaugh, James. J. Yukevich and Delmar S. Thomas for Respondents

TUCHER, J.

In 2004, Janine Hernandez was a passenger in a 1992 Oldsmobile Cutlass that was involved in a head-on collision with another car. Hernandez, who was 11 years old at the time, was seriously injured. In 2012, she filed this action against Enterprise Rent-A-Car and its affiliates (Enterprise) to recover damages resulting from the car accident, alleging a single cause of action for strict products liability. In 2017, the trial court granted Enterprise summary judgment. Because Enterprise did not succeed to whatever liability for this accident a different car rental company might have had, we affirm.

FACTUAL AND PROCEDURAL BACKGROUND

Hernandez contends the 1992 Oldsmobile Cutlass involved in her 2004 accident was defective because it was not designed to be crashworthy. Specifically, she alleges that the Oldsmobile did not provide adequate protection to children riding in the back seat when the vehicle was involved in a frontal collision. Hernandez does not here attempt to hold the product manufacturer liable for this alleged defect. Instead, she contends that a rental car company called National Car Rental Systems (NCRS) would have been strictly liable for her damages because NCRS placed the Oldsmobile "into the stream of commerce," and that Enterprise is strictly liable as a successor in interest of NCRS.

Although Hernandez filed this action in 2012, the case was stayed for several years while she litigated an identical legal claim against other alleged affiliates of NCRS in San Joaquin County. Following a defense judgment in the San Joaquin County case, Hernandez amended her pleading in this case, filing her operative second amended complaint on March 17, 2016.

In April 2017, Enterprise moved for summary judgment. The motion was supported by evidence establishing the following facts about the ownership history of the Oldsmobile involved in Hernandez's accident: The car was manufactured by General Motors Corporation. From May 1992 until February 1993, NCRS used the Oldsmobile in its car rental business. On February 26, 1993, NCRS transferred ownership of the Oldsmobile to a married couple (the S. family). The Oldsmobile was transferred to another private party in 2000 and again in February 2004.

The summary judgment evidence also established the following facts about NCRS: In 1995, NCRS sold the assets of its rental car business to NCR Acquisition. NCRS then changed its name to GM National Holding Co. and in 1996 merged with General Motors Corporation. Meanwhile, NCR Acquisition changed its name to National Car Rental Systems (New NCRS). In 2001, New NCRS declared bankruptcy. In 2003, Cerberus Capital Management L.P. purchased the assets of New NCRS pursuant to an "Asset Purchase Agreement" that was approved by the bankruptcy court.

According to Hernandez's complaint, Enterprise is a joint owner of the assets of the NCRS rental car business that were purchased by Cerberus in 2003. Enterprise did not dispute this allegation in its summary judgment motion.

In July 2017, the trial court granted Enterprise summary judgment, finding that Hernandez could not hold Enterprise strictly liable for damages allegedly caused by the defective Oldsmobile for two reasons. First, as a lessor of the vehicle, the original NCRS was strictly liable for a lessee's damages resulting from a product defect, but its exposure to strict liability ended when it sold the Oldsmobile to the S. family as a used car. Second, even if NCRS retained strict liability for the defective Oldsmobile, that liability cannot be traced to Enterprise.

DISCUSSION

Summary judgment may be granted "if all the papers submitted show that there is no triable issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." ( Code Civ. Proc., § 437c, subd. (c) ; Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850, 107 Cal.Rptr.2d 841, 24 P.3d 493 ( Aguilar ).) "We review a trial court's grant of summary judgment de novo. [Citation.] ‘[T]he party moving for summary judgment bears an initial burden of production to make a prima facie showing of the nonexistence of any triable issue of material fact; if he carries his burden of production, he causes a shift, and the opposing party is then subjected to a burden of production of his own to make a prima facie showing of the existence of a triable issue of material fact.’ " ( Casey v. Perini Corp. (2012) 206 Cal.App.4th 1222, 1228, 142 Cal.Rptr.3d 678.)

Hernandez contends that summary judgment of her case must be reversed because there are triable issues regarding (1) NCRS's strict liability for alleged defects in the Oldsmobile, and (2) Enterprise's liability as a successor of NCRS. We question whether Enterprise has established, as a matter of law, that NCRS was not strictly liable for defects in the 1992 Oldsmobile after it sold the vehicle. However, we need not resolve those difficult issues because the summary judgment evidence establishes no triable issue on the second ground upon which summary judgment was granted, regarding Enterprise's liability as a successor of the original NCRS.

Even if NCRS would have been strictly liable for a defect in the 1992 Oldsmobile, Hernandez has to establish that Enterprise acquired successor liability for the alleged defect. Hernandez argues she can make this showing by establishing that (1) New NCRS became strictly liable for the product defect in the Oldsmobile when it acquired the assets of NCRS, and then (2) the Cerberus entities became strictly liable for that defect when they purchased the assets of New NCRS out of bankruptcy. We conclude this successor liability theory fails as a matter of law on both of these points.

I. Successor Liability Principles

Under generally accepted rules, when a corporation purchases the principal assets of another corporation, "the purchaser does not assume the seller's liabilities unless (1) there is an express or implied agreement of assumption, (2) the transaction amounts to a consolidation or merger of the two corporations, (3) the purchasing corporation is a mere continuation of the seller, or (4) the transfer of assets to the purchaser is for the fraudulent purpose of escaping liability for the seller's debts." ( Ray v. Alad Corp. (1977) 19 Cal.3d 22, 28, 136 Cal.Rptr. 574, 560 P.2d 3 ( Alad ).)

In Alad , the Supreme Court carved out an exception to these traditional rules by establishing a three-prong test for plaintiffs in product liability cases to hold a successor to a manufacturer strictly liable for the plaintiff's injuries. ( Alad , supra , 19 Cal.3d at pp. 30–31, 136 Cal.Rptr. 574, 560 P.2d 3.) Under the Alad test, a corporation that purchases the assets of a manufacturing business assumes the seller's liabilities for a defective product when all of the following elements are established: (1) the plaintiff's remedies against the seller are virtually destroyed by the purchaser's acquisition of the business; (2) the purchaser has the ability to assume the seller's risk-spreading role; and (3) it is fair to require the purchaser to assume responsibility for the defective products as a burden necessarily attached to the seller's goodwill, which the purchaser enjoys in the continued operation of the business. ( Ibid. )

Though originally applied to a product manufacturer, the Alad test is now used to determine successor liability for other entities that participated in the production and distribution of a defective product. ( Kaminski v. Western MacArthur Co. (1985) 175 Cal.App.3d 445, 453–454, 220 Cal.Rptr. 895 ( Kaminski ); Phillips v. Cooper Laboratories (1989) 215 Cal.App.3d 1648, 1654, 264 Cal.Rptr. 311 ( Phillips ).) Given the policies underlying strict liability, "[w]hen a distributor or retailer acquires a corporation and takes advantage of its goodwill and other corporate assets and facilities to inject the predecessor's product line into the stream of commerce, it continues ‘the overall producing and marketing enterprise that should bear the cost of injuries resulting from defective products.’ " ( Kaminski at p. 456, 220 Cal.Rptr. 895.) Courts applying this test have emphasized that the successor does not have to cause the destruction of the plaintiff's remedies before it will be held liable, as long as there is a causal connection between the successor's acquisition and the unavailability of the predecessor as a potential defendant. ( Stewart v. Telex Communications, Inc. (1991) 1 Cal.App.4th 190, 198–199, 1 Cal.Rptr.2d 669 ( Stewart ); Kaminski, supra , 175 Cal.App.3d at p. 458, 220 Cal.Rptr. 895.)

II. Analysis of Asset Sale to New NCRS

The summary judgment evidence shows that after NCRS sold its principal assets to New NCRS in 1995, NCRS continued to exist as a legal entity under a different name until it merged with General Motors in 1996. Thus, the asset sale did not destroy or diminish Hernandez's remedies against NCRS. If NCRS was strictly liable for the allegedly defective 1992 Oldsmobile, that liability was assumed by General Motors, not by New NCRS.

Evidence establishing these facts includes documents pertaining to the 1995 sale of the assets of NCRS to New NCRS, which were produced during a demurrer proceeding and are included in Appellant's Appendix.¹ Excerpts from a Form 10-K/A and a Form 8-K that General Motors filed with the Securities and Exchange Commission (SEC) describe a sale of...