Kloberdanz v. Joy Manufacturing Company

• Decision Date: 10 September 1968
• Docket Number: Civ. A. No. 66-C-540.
• Citation: 288 F. Supp. 817
• Parties: Joseph P. KLOBERDANZ, and Employers Insurance of Wausau, a Wisconsin corporation, Plaintiffs, v. JOY MANUFACTURING COMPANY, a Pennsylvania corporation, and Web-Wilson Oil Tools, Inc., a corporation, Defendants.
• Court: U.S. District Court — District of Colorado

288 F. Supp. 817

Joseph P. KLOBERDANZ, and Employers Insurance of Wausau, a Wisconsin corporation, Plaintiffs, v. JOY MANUFACTURING COMPANY, a Pennsylvania corporation, and Web-Wilson Oil Tools, Inc., a corporation, Defendants.

Civ. A. No. 66-C-540.

United States District Court D. Colorado.

September 10, 1968.

Robert W. Hansen, Denver, Colo., for plaintiffs.

Zarlengo, Mott & Carlin, John C. Mott, Denver, Colo., for defendant, Joy Mfg. Co.

MEMORANDUM OPINION AND ORDER

WILLIAM E. DOYLE, District Judge.

This is a diversity action arising out of an accident that occurred at an oil drilling rig near Kimball, Nebraska on February 6, 1964. The plaintiff, a workman, seeks damages for personal injury on a products liability theory. The product in question was manufactured in 1953 or before. The complaint has named as defendants Web-Wilson, Inc., the manufacturer of the allegedly defective part, and Joy Manufacturing Company, the alleged successor in interest to Web-Wilson. Web-Wilson has been dissolved. Its motion to dismiss the original and twice amended complaints as to it has been granted for lack of personal jurisdiction. Thus the only parties presently before this Court are Kloberdanz the plaintiff and Joy the defendant. The case is now before the Court on Joy's motion for summary judgment of dismissal of the third amended complaint. Briefs and depositions have been filed by both parties and the matter now stands submitted.

The essential facts are these: Web-Wilson, a California corporation, manufactured and sold through independent dealer outlets an item of heavy machinery for oil drilling operations called a "hydra-hook." An integral part of this piece of equipment is called the "top bail." The plaintiff alleges that on February 6, 1964 the top bail of a hydrahook owned and used by Kloberdanz's employer, Don Rounds Drilling Company, broke. This caused the hydra-hook itself to fall to the ground and injure Kloberdanz. Kloberdanz also alleges that the hydra-hook was defective as a result of negligent manufacture by Web-Wilson.

Plaintiff's employer, Don Rounds, testified by deposition that he bought the hydra-hook and the top bail in 1953 or 1954 from American Pipe and Supply Company of Casper, Wyoming, and that both items had been in the possession and continuous use of his company from that time to the day of the accident in question. Don Rounds also testified that his company had had no dealings whatever with Joy Manufacturing Company in connection with either the hook or the top bail. In fact, he said that his company had had no dealings whatever with Web-Wilson. The top bail alleged to be defective was manufactured by Web-Wilson prior to 1953 and there is neither a claim nor evidence that Joy had anything to do with the manufacture, sale or distribution of the hook or top bail.

Plaintiff seeks to compel Joy to respond because of it being the successor to Web-Wilson. By an agreement dated February 8, 1960, Joy Manufacturing Company acquired certain properties and assumed certain liabilities of Web-Wilson, Inc. This agreement is presently before this Court and the part here pertinent states that

"WHEREAS, Joy desires to acquire certain assets of Web Wilson, hereinafter designated, subject to certain liabilities, hereinafter designated, and Web Wilson desires to dispose of said assets subject to such liabilities on the terms hereinafter set forth;

NOW, THEREFORE, in consideration of the terms, covenants and conditions hereinafter set forth, the parties hereto mutually agree as follows:

1. On the date of closing, hereinafter set forth, Web Wilson will assign and transfer to Joy by appropriate instruments of assignment and transfer all of the property and assets of Web Wilson of whatsoever nature, kind and description and wheresoever situate, including the right to use the name `Web Wilson Oil Tools, Inc.', Web Wilson or any part or combination thereof as a division or subsidiary of Joy or as a trade name or trademark, escept the following:

(a) Land,

(b) Buildings and Improvements

(c) Automobiles,

(d) Deposit for redemption of Web Wilson Stock per agreement dated February 14, 1958,

(e) Accounts Receivable, Tractor Division,

(f) Sales Agents' contracts and employment contracts,

(g) License agreements with Mannesmann-Trauzl dated August 1, 1959, and FIP dated June 1, 1956.

2. On the date of closing, Joy shall

(a) Pay to Web Wilson the sum of $1,019,637 cash; but Joy will be reimbursed at the closing for any reduction after December 31, 1959, in liabilities to be retained by Web Wilson.

(b) Assume and become liable for those liabilities and obligations of Web Wilson listed on Exhibit J attached hereto as the same shall exist immediately prior to the closing. Joy shall execute and deliver to Web Wilson at the closing such instrument or instruments as may reasonably be deemed necessary or advisable by counsel for Web Wilson to signify the assumption of such liabilities and obligations." (Emphasis added.) Pp. 1-2.

"Schedule J

Liabilities and Obligations of Web Wilson to be Assumed by Joy

A. Balance sheet liabilities of the class designated on Exhibit A attached to that certain agreement dated February 8, 1960, as follows:

(1) Accounts Payable Trade

(2) Contracts Payable—Equipment

(3) Payroll Taxes Deducted

(4) Payroll Taxes Accrued

(5) Accrued Wages & Compensation

(6) Accrued Insurance & Interest

(7) Employee Trust

B. The following other liabilities and obligations:

(1) Outstanding purchase orders for Web Wilson products.

(2) Outstanding obligations for supplies and components to be used in the manufacture of Web Wilson products.

(3) Sublease of Houston Sales Company dated October 1, 1959, covering warehouse space in Houston, Texas, at monthly rental of $175 per month."

William Albert Wilson, president of Web-Wilson at the time of the sale, stated in his deposition that although Web-Wilson ceased manufacturing and selling oil field equipment after the sale, it did continue to function as a corporation by leasing its buildings and investing the one million dollars it received from the sale. Mr. Wilson also stated that Web-Wilson, Inc., was dissolved and liquidated as a corporation under the laws of the State of California in December, 1960, and that it ceased to exist as a corporation after that date. Mr. Wilson further testified by deposition that Web-Wilson and Joy were strangers and neither himself nor any of his officers ever acquired any interest in Joy. James P. Packer, Secretary of Joy, stated in his answer to the plaintiff's interrogatories that his company has never used the name, "Web-Wilson Oil Tools, Inc.," and has only used the name "Web-Wilson" as a trademark on 13 tools since February 8, 1960, the date of the sale.

The chronological order of the pertinent occurrences in this case are:

(1) Prior to 1953—Hydra-hook and top bail in question was manufactured by Web-Wilson, Inc.

(2) 1953 or 1954—Hydra-hook and top bail in question was purchased by Kloberdanz's employer, Don Rounds Drilling Company.

(3) Feb. 8, 1960—Date of agreement whereby Joy purchased certain assets of Web-Wilson.

(4) December, 1960—Dissolution of Web-Wilson.

(5) Feb. 6, 1964—Accident in question occurred.

It is clear from the foregoing agreement and from the other undisputed facts that Joy did not agree to assume liability for Web-Wilson's torts. The only basis for Kloberdanz's products liability claim against Joy Manufacturing Company arises from Joy's acquisition of certain assets and its assumption of certain liabilities of Web-Wilson. Kloberdanz asserts that Joy by its purchase of the bulk of Web-Wilson's assets and the assumption of certain of its liabilities thereby assumed by operation of law liability for torts committed by Web-Wilson prior to the date of the purchase; that even if there was neither a strict merger nor consolidation, there was a de facto merger or consolidation which had this legal consequence.

The question then is whether Joy involuntarily and as a matter of law assumed the alleged tort liability of Web-Wilson.

Since this is of course a diversity case, the choice of law is governed by Colorado's conflict of laws rules. Klaxon Co. v. Stentor Electric Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). The Colorado courts have followed the principle that the law of the place where a contract is made governs its nature, validity and interpretation.¹ Since the agreement of February 8, 1960 was made and was also to be performed in California it follows that California law governs.

Under the law of California and most other jurisdictions, where one company sells or otherwise transfers all its assets to another company the latter is not liable for the debts and liabilities of the transferor, except where: (1) the purchaser expressly or impliedly agrees to assume such debts; (2) the transaction amounts to a consolidation or merger of the seller and purchaser; (3) the purchasing corporation is merely a continuation of the selling corporation; or (4) the transaction is entered into fraudulently in order to escape liability for such debts. Pierce v. Riverside Mortgage Securities Co., 25 Cal.App.2d 248, 77 P.2d 226 (1938); Colorado Springs Rapid Transit Ry. Co. v. Albrecht, 22 Colo.App. 201, 123 P. 957 (1912); American Hospital & Life Ins. Co. v. Kunkel, 71 N.M. 164, 376 P.2d 956 (1962); 15 W. Fletcher, Cyclopedia of the Law of Private Corporations § 7122 (1961 Rev. Vol.).

Although the general rule speaks of a transfer of all a corporation's assets, the emphasis should be on whether the sale was a bona fide one involving the payment of money or property to the selling corporation whereby it can respond in actions like the present one.² The transfer of assets in this case was made for a good and valuable consideration (cash in excess of one million dollars) and there...