In re Related Asbestos Cases

• Decision Date: 30 June 1983
• Docket Number: No. C-79-3588 RFP.,C-79-3588 RFP.
• Citation: 566 F. Supp. 818
• Court: U.S. District Court — Northern District of California
• Parties: In re RELATED ASBESTOS CASES

566 F. Supp. 818

In re RELATED ASBESTOS CASES

No. C-79-3588 RFP.

United States District Court, N.D. California.

June 30, 1983.

John Gigounas, Law Offices of John Gigounas, San Francisco, Cal., Kenneth Carlson, Law Offices of Kenneth Carlson, Oakland, Cal., for plaintiffs.

John Dickerson, Phillip S. Berry, Berry & Berry, Oakland, Cal., for defendant Celotex Corp.

MEMORANDUM AND ORDER

PECKHAM, Chief Judge.

In these asbestos-related personal injury cases, plaintiffs seek recovery of punitive damages against various defendants, including the Celotex Corporation, the moving party herein. The alleged punitive damage liability of Celotex is premised upon the activities of a predecessor corporation. Celotex, in this motion for partial summary judgment, seeks a ruling from this court that there exists no genuine issue of material fact concerning such purported liability. In support of its motion, Celotex advances two basic arguments. First, it asserts that, under California law, punitive damages can be imposed upon a successor corporation only if said successor is so similar to its predecessor as to be indistinguishable. Second, it urges that the imposition of punitive damages in industry-wide mass tort litigation is both contrary to law and unconstitutional.

I. FACTUAL BACKGROUND

The Phillip Carey Manufacturing Company ("Old Carey") was incorporated in Ohio in 1888. Through a public offer for tenders in February of 1966, and through subsequent open market purchases, Glen Alden Corporation acquired approximately 28% of the outstanding shares of Old Carey.

On December 1, 1966, a new corporation was formed in Ohio. It was named P.C. Company, Inc., but to resolve a conflict of name, its Articles of Incorporation were amended to change the name to XPCU Corporation on April 14, 1967. Subsequently, the name of the corporation was changed as of June 1, 1967, to the Phillip Carey Manufacturing Company ("New Carey").

On June 1, 1967, Old Carey was merged into Glen Alden in a transaction by which the other shareholders of Old Carey received a Preferred Stock of Glen Alden. Immediately after the merger, Old Carey transferred all its assets subject to liabilities to Glen Alden, and Glen Alden transferred to New Carey all the assets of Old Carey, subject to its liabilities, in exchange for all the outstanding shares of capital stock of New Carey. Thus, New Carey became a wholly owned subsidiary of Glen Alden.

On January 23, 1968, The Phillip Carey Manufacturing Company changed its name to Phillip Carey Corporation. On April 9, 1970, Phillip Carey Corporation was merged into Briggs Manufacturing Company. On the same date, Briggs, the surviving company, changed its name to Panacon Corporation. Panacon Corporation succeeded to all the assets and liabilities of Phillip Carey Corporation, which ceased to have corporate existence. After April 9, 1970, Panacon continued to operate "Phillip Carey" and/or "Phillip Carey Company" as a division which manufactured and sold roofing and insulation materials but which had no separate corporate or legal existence.

On April 17, 1972, Celotex Corporation purchased all the Panacon Corporation stock held by the Glen Alden Corporation, approximately 75%, for cash. The Glen Alden Corporation did not acquire any shares of Celotex stock as a result of that transaction; nor did Glen Alden acquire any share of the stock of Jim Walter Corporation, Celotex's parent corporation, as a result of that transaction.

Subsequently, Celotex offered to buy all remaining outstanding shares of Panacon Corporation from their respective owners for $6.00 per share. As a result of these transactions, Celotex bought all shares of the Panacon Corporation for cash, and no stockholders of the former Panacon Corporation became stockholders in Celotex or in any of Celotex's parent or subsidiary corporations. Celotex succeeded to all the assets and liabilities of Panacon, which ceased to have corporate existence.

Celotex, after June 30, 1972, continued to operate "Phillip Carey" as a division which manufactured and sold roofing and insulation materials but had no separate corporate or legal existence. This practice ceased at the end of 1973.

II. DISCUSSION

A. Constitutionality/Illegality of Punitive Damages

On June 2, 1982, this court issued an order addressing these issues. Therein we held that the questions of the illegality/unconstitutionality vel non of punitive damages in mass product liability litigation were not suitable for pretrial resolution in light of the possibility that the plaintiffs would be unable to establish a prima facie case of liability for punitive damages, rendering the issues moot. Hence, we denied without prejudice the defendants' motion to strike plaintiffs' prayer for punitive damages. This order applied to all related asbestos cases falling within the In Re Related Asbestos rubric, in which the present cases are to be included. This action is therefore controlled by the June 2 order. Neither Celotex nor the plaintiffs offer new legal authority for their respective positions. We therefore adhere to our previous ruling.

B. Successor Liability

Pursuant to California Civil Code § 3294(a), a plaintiff may recover punitive damages where a defendant has been guilty of "oppression, fraud, or malice." The purpose of punitive damages is to punish wrongdoers and to deter the further commission of wrongful acts. Egan v. Mutual of Omaha Insurance Co., 24 Cal.3d 809, 825, 169 Cal.Rptr. 691, 620 P.2d 141 (1979). In light of this purpose, punitive damage liability is not imposed on the basis of vicarious fault; California courts have recognized that punitive damages "will have no deterrent effect if awarded against a party not responsible for the wrong. (4 Witkin, Summary of California Law, 1974, Torts, § 855, p. 3147)." Hartman v. Shell Oil Co., 68 Cal.App.3d 240, 249, 137 Cal.Rptr. 244 (1977).

Punitive damage liability may be imposed upon a successor corporation under three possible theories: 1) under the doctrine of Ray v. Alad Corp., infra; 2) under the principles embodied in Moe v. Transamerica Title Insurance Co., infra; 3) by analogy to section 3294(b), that is, on the basis of the principal's knowledge, authorization or ratification of an agent's malicious act.

1. Ray v. Alad Corp.

California, whose law is applicable in these diversity cases, adheres to the general rule that a corporation which purchases the principal assets of another corporation does not assume the latter'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;

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., 19 Cal.3d 22, 28, 136 Cal.Rptr. 574, 560 P.2d 3 (1977). In Ray v. Alad, the Court found that the successor therein did not fall within any of the four aforementioned exceptions; however, the Court held that the policies underlying strict tort liability for defective products called for a special exception to the general rule. The Court noted that the purpose of the doctrine of strict products liability "is to insure that the costs of injuries be borne by the manufacturers that put such products on the markets rather than by the injured persons who are powerless to protect themselves." Id. at 30, 136 Cal.Rptr. 574, 560 P.2d 3. The doctrine rests upon the proposition that the risk of injury can be insured against by the manufacturer and spread amongst the consuming public as a cost of doing business. In light of these principles, the court concluded that strict liability could justifiably be imposed upon the successor to a manufacturer where 1) the plaintiff's remedies against the original manufacturer are effectively destroyed by the successor's acquisition of the business; 2) the successor is able to assume the original manufacturer's risk-spreading role; and 3) it is fair to require the successor to assume a responsibility for defective products that was a burden necessarily attached to the original manufacturer's good will being enjoyed by the successor in the continued operation of its business. Id. at 31, 136 Cal.Rptr. 574, 560 P.2d 3.

Under the facts of that particular case, the Court determined that the successor manufacturer could be held liable for injuries resulting from its predecessor's products. The plaintiff had been injured while using a defective ladder manufactured by the first Alad Corp. (Alad I). Prior to plaintiff's injury, Alad I had sold its inventory, equipment, trade name and good will to the Lighting Maintenance Corporation, which then took the name "Alad Corporation" (Alad II). Alad I dissolved shortly thereafter. Alad II, as a result of the transaction, acquired Alad I's plant, machinery, offices, and all other assets necessary to continue the manufacture of Alad ladders. Alad II, using essentially the same factory and office personnel, and continued to manufacture the identical model of ladder which had injured the plaintiff. There was little or no indication to the general public that a different entity was manufacturing the line of ladders.

In Rawlings v. D.M. Oliver, 97 Cal.App.3d 890, 159 Cal.Rptr. 119 (1979), the California Court of Appeal broadened Ray v. Alad to impose liability for a defective product upon a successor who merely continued the same general line of business although not the identical product. The Ninth Circuit has commented that

The rationale of Ray v. Alad Corp. and Rawlings is consistent with California's strict liability policy of assigning responsibility for injuries arising from the manufacture of defective products to the enterprise which has received the benefit of doing business in a particular line of products, and which is in the best position to spread the cost of the injury among members

...