Keselyak v. Reach All, Inc.

• Decision Date: 16 June 1995
• Citation: 443 Pa.Super. 71,660 A.2d 1350
• Parties: , Prod.Liab.Rep. (CCH) P 14,263 David J. KESELYAK and Norma Keselyak, his wife, Appellants, v. REACH ALL, INC. and Wajax, Ltd., Appellees.
• Court: Pennsylvania Superior Court

Page 1350

660 A.2d 1350

443 Pa.Super. 71, Prod.Liab.Rep. (CCH) P 14,263

David J. KESELYAK and Norma Keselyak, his wife, Appellants, v. REACH ALL, INC. and Wajax, Ltd., Appellees.

Superior Court of Pennsylvania.

Argued Jan. 24, 1995.

Filed June 16, 1995.

Bruce J. Phillips, Pittsburgh, for appellants.

Lewis S. Kunkel, Jr., Harrisburg, for Wajax, appellee.

Before ROWLEY, President Judge, and McEWEN and POPOVICH, JJ.

McEWEN, Judge.

This appeal has been taken from the entry of summary judgment in favor of appellees, Reach All Inc. and Wajax, Ltd., who were named as defendants in this products liability suit by appellants, David J. and Norma Keselyak, wherein appellants sought to recover damages for injuries sustained when the auger portion of a Pitman Polecat Digger fell on appellant, David Keselyak, on June 5, 1991. The Polecat Digger, which was owned by appellant's employer, Pennsylvania Electric, had been manufactured by Pitman Manufacturing Co., Inc. ("Pitman") and sold to Pennsylvania Electric by Pitman Manufacturing Company ("PMC") as evidenced by a bill of sale dated February 22, 1986. Appellants instituted the present action on June 2, 1993, naming only Reach All, Inc., and Wajax, Ltd. as defendants.

Appellants alleged in their complaint that Reach All, Inc., a Minnesota corporation which had purchased the Polecat Digger product line in 1989, was liable to appellants under the theory of corporate successor liability as "the successor in interest to the assets and business of Pitman Manufacturing Ltd. by sale from Wajax, Ltd.". Appellants further alleged in their complaint that Wajax, Ltd., a Canadian corporation, was liable for the injuries sustained by appellant by virtue of being "the successor in interest to the assets and business of Pitman Manufacturing Ltd.". Appellants also alleged that the defendants, Reach All, Inc., and/or Wajax, Ltd. manufactured, sold, serviced, and/or maintained the Pitman Polecat Digger which injured appellant.

Appellees filed a joint motion for summary judgment on November 15, 1993, alleging that they were entitled to judgment in their favor as a matter of law as to all claims contained in appellants' complaint since:

the only relationship between Pitman Manufacturing Co., Inc. ("Pitman"), a Canadian corporation, Pitman Manufacturing Company Inc. ("PMC"), a Pennsylvania corporation, and Wajax, Ltd. ("Wajax") was the direct or indirect ownership of stock.

Appellees further alleged in their motion for summary judgment:

that Pitman was, until 1989, engaged in the business of the manufacture and sale of equipment for the utility industry;

that PMC was, until 1989, engaged in the sale of replacement parts for equipment manufactured by Pitman;

that Pitman and PMC, although separate corporate entities, were wholly owned by Wajax, Ltd., a Canadian corporation; and

that Reach All, Inc., a Minnesota corporation, entered into an asset purchase agreement with Pitman, PMC, and Wajax, Ltd., dated December 5, 1989, whereby, in exchange for approximately 2.5 million dollars, the utility manufacturing business, its assets, and the exclusive right to manufacture and sell digger derricks known as "Polecats", was sold to Reach All, Inc.

Appellees requested judgment in their favor, claiming that Reach All could not be liable to appellants since the Polecat Digger which malfunctioned and injured appellant was manufactured and sold prior to Reach All's purchase, in 1989, of the utility manufacturing business.

Appellees also argued that Wajax, Ltd., could not be liable for any damages caused by a digger manufactured by Pitman since, although Pitman was a wholly owned subsidiary of Wajax, the only connection between the two corporations was the ownership of stock. ¹ Appellants, in response to the motion argued that Reach All was subject to liability as a successor corporation under the product line exception and that Wajax was also a proper defendant as a result of the provisions of Section 226 of the Canadian Business Corporations Act.

The learned Judge John M. Cascio, in granting the motion for summary judgment as to defendant Reach All, a Minnesota corporation, concluded that Reach All was not subject to suit as a successor corporation due to the continued existence of Pitman, the Canadian corporation which manufactured the Polecat Digger at issue in 1986 and which was not dissolved, pursuant to the Canadian Business Corporations Act, until December 15, 1992 as well as by the continued existence of PMC, the Pennsylvania corporation which had sold replacement parts for equipment manufactured by Pitman, and which may have sold the Polecat Digger at issue to Pennsylvania Electric. ²

The trial court granted summary judgment in favor of Wajax based upon the provisions of the Canadian Business Corporations Act which the court found required that suit be instituted against Pitman on or before December 15, 1994, the second anniversary date of the dissolution of Pitman, in order to reach any assets distributed from Pitman to Wajax. Although appellants argue that the Canadian Business Corporations Act permits a direct action on an unliquidated claim against any individual or entity which has received assets pursuant to the dissolution, we are not persuaded that the trial court committed an error of law in rejecting this argument.

Our scope of review, in ruling upon a motion for summary judgment, is plenary. Rule 1035(b) provides that summary judgment "shall be rendered if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law". Rule 1035(d) provides that "when a motion for summary judgment is made and supported as provided in this rule, an adverse party may not rest upon the mere allegations or denials of his pleading, but his response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial".

"The moving party has the burden of proving the nonexistence of any genuine issue of material fact." Thompson Coal Co. v. Pike Coal Co., 488 Pa. 198, 202-204, 412 A.2d 466, 468-469 (1979). "The record must be viewed in the light most favorable to the nonmoving party, and all doubts as to the existence of a genuine issue of material fact must be resolved against the moving party." Marks v. Tasman, 527 Pa. 132, 135, 589 A.2d 205, 206 (1991). Accord: Commonwealth, Dept. of Environmental Resources v. Bryner, 149 Pa.Cmwlth. 59, 62-64, 613 A.2d 43, 45 (1992).

The product line theory is an exception to the general rule that "when one company sells or transfers all of its assets to a successor company, the successor does not acquire the liabilities of the transferor corporation merely because of its succession to the transferor's assets." Dawejko v. Jorgensen Steel Co., 290 Pa.Super. 15, 18, 434 A.2d 106, 107 (1981). Accord Hickman v. Thomas C. Thompson Co., 592 F.Supp. 1282, 1283-84 (D.Colo.1984) (discussing Colorado law): Ramirez v. Amsted Industries, Inc., 86 N.J. 332, 340, 431 A.2d 811, 815 (1981). It was developed by the California Supreme Court in Ray v. Alad Corp., 19 Cal.3d 22, 560 P.2d 3, 136 Cal.Rptr. 574 (1977), and has been adopted by the courts of New Jersey and Pennsylvania. See Ramirez, 86 N.J. at 358, 431 A.2d at 824-25; Dawejko, 290 Pa.Super. at 23-26, 434 A.2d at 110-11; see also Hickman, 592 F.Supp. at 1284-86 (predicting that Colorado would adopt the product line exception).

The product line exception provides that:

[W]here one corporation acquires all or substantially all the manufacturing assets of another corporation, even if exclusively for cash, and undertakes essentially the same manufacturing operation as the selling corporation, the purchasing corporation is strictly liable for injuries caused by defects in units of the same product line, even if previously manufactured and distributed by the selling corporation or its predecessor.

Ramirez, 86 N.J. at 358, 431 A.2d at 825; see also Hickman, 592 F.Supp. at 1284 (citing Ramirez formulation); Dawejko, 290 Pa.Super. at 23-26, 434 A.2d at 110-11 (citing and adopting same). Its purpose is to serve the social policies underlying strict products liability. E.g., Ramirez, 86 N.J. at 358, 431 A.2d at 825; Dawejko, 290 Pa.Super. at 26, 434 A.2d at 111. In accordance with this purpose, the California Supreme Court in Ray articulated three circumstances justifying the imposition of liability on a successor corporation under the product line exception:

(1) the virtual destruction of the plaintiff's remedies against the original manufacturer caused by the successor's acquisition of the business, (2) the successor's ability to assume the original manufacturer's risk-spreading role, and (3) the fairness of requiring 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 the business.

19 Cal.3d at 31, 560 P.2d at 8-9, 136 Cal.Rptr. at 579-80. The New Jersey and Pennsylvania courts have held that the existence of these three circumstances is an important, see Ramirez, 86 N.J. at 349-53, 431 A.2d at 820-22, although not necessarily the requisite or exclusive consideration, see Dawejko, 290 Pa.Super. at 26, 434 A.2d at 111, in determining whether the product line exception applies.

Shorb v. Airco, Inc., 644 F.Supp. 923, 927-928 (E.D.Pa.1986) (footnote omitted).

Appellant does not dispute that, following the transfer of those assets of Pitman and PMC involved in the utility manufacturing line, including the right to manufacture and sell diggers known as "Polecats", Pitman and PMC remained viable, insured entities, Pitman being dissolved, pursuant to Canadian law, on December 15, 1992, and PMC remaining a viable corporation...