Kradel v Piper Industries

• Decision Date: 27 November 2001
• Docket Number: 01-00338
• Citation: 60 S.W.3d 744
• Parties: HARRY T. KRADEL, et al. v. PIPER INDUSTRIES, INC., et al
• Court: Tennessee Supreme Court

HARRY T. KRADEL, et al. v PIPER INDUSTRIES, INC., et al.

No. M2001-00338-SC-R23-CQ

October 3, 2001 Session

IN THE SUPREME COURT OF TENNESSEE AT NASHVILLE

Filed November 27, 2001

Rule 23 Certified Questions of Law United States Court of Appeals for the Third Circuit, Nos. 99-4069, 00-3146

Pursuant to Tennessee Supreme Court Rule 23, this Court accepted certification of five questions of law from the United States Court of Appeals for the Third Circuit concerning Tennessee's law of corporations. For the reasons given herein, we answer that the corporate statutes in effect before January 1, 1988, apply to determine the rights and remedies available against a corporation dissolved before that date and that section 48-1-1013(a) (repealed) applies to limit Piper's liability for post-dissolution claims. We further answer that Piper Industries, Inc. did comply with the dissolution statutes in effect before January 1, 1988, which require provisions to ensure the final distribution of corporate assets, but which do not require a corporation to establish a reserve fund for contingent claims arising more than two years after the dissolution. Finally, we answer that while the trust fund doctrine has been previously applied in Tennessee to solvent corporations, its application in this case is necessarily limited by Tennessee Code Annotated section 48-1-1013(a) (repealed).

Tenn. Sup. Ct. R. 23 Certified Questions of Law

William M. Barker, J., delivered the opinion of the court, in which Frank F. Drowota, III, C.J., and E. Riley Anderson, Adolpho A. Birch, Jr., and Janice M. Holder, JJ., joined.

Matthew L. Kurzweg, Pittsburgh, Pennsylvania, and Donald Capparella, Nashville, Tennessee, for the petitioners, Harry T. Kradel and Marilene Kradel.

Arnd N. von Waldow and Wayne W. Ringeisen, Pittsburgh, Pennsylvania, and Brian Keith Jackson, Nashville, Tennessee, for the respondent, Kent Reynolds, as escrow agent on behalf of the former shareholders of Piper Industries, Inc.

OPINION

FACTUAL BACKGROUND

This case arises out of a products liability action brought by Mr. Harry T. Kradel ("petitioner")¹ against several defendants, including Piper Industries, Inc. ("Piper"), a Tennessee corporation that filed Articles of Dissolution in 1986. Following the petitioner's appeal from a grant of summary judgment in favor of the defendants, the United States Court of Appeals for the Third Circuit certified five questions to this Court concerning the application of Tennessee's law of corporations. The relevant facts from which this case arose are summarized in the Certification Order:

1.Harry T. Kradel ("Kradel"), appellant in this action and the party we designate the movant in the certification pursuant to [Tennessee Supreme Court Rule] 23.3(E), sustained serious injuries to his right leg in September 1994 while operating a 1970 model Fox forage harvester with [a] multi-row corn head attachment on his farm in western Pennsylvania.

2.The Fox line of farm equipment was manufactured in 1970 by the Koehring Company ("Koehring"), a Wisconsin corporation. Koehring sold the Fox line of farm equipment to Piper in February 1981. In that transaction, Piper acquired, as an on-going business, all real estate, fixed assets, inventory, sales orders, contracts, trademarks, patents, and other intangible intellectual property of Koehring's farm division. Piper also assumed, pursuant to the agreement, the products liability claims of Koehring for claims arising out of occurrences after the closing date for certain farm division products already sold by Koehring, including the specific product at issue.

3. In 1986, Piper sold certain assets of the Fox line of farm equipment to Hiniker Company ("Hiniker"), a Minnesota corporation, in an agreement that expressly provided for no adoption of liabilities by Hiniker.

4.After its sale to Hiniker, Piper filed a Statement of Intent to Dissolve with the Tennessee Secretary of State ("the Secretary of State") on September 12, 1986. It then filed Articles of Dissolution with the Secretary of State on December 31, 1986. A Certificate of Dissolution was issued by the Secretary of State that same day. In their written consent, Piper's shareholders resolved that Piper's officers would establish a reserve to meet known liabilities, liquidating expenses, estimated, unascertained or contingent liabilities and contingent expenses, if they deemed such a reserve desirable. Piper did not establish a reserve for future, contingent or prospective liabilities because the shareholders did not deem such a reserve desirable. Piper, however, made provisions to satisfy its known or existing claims, debts or liabilities and judgments in any pending suit.

5.Piper's shareholders entered into an agreement on October 31, 1986, by which the company's assets were to be distributed. Assets (including accounts receivable, real property, and promissory notes issued by Hiniker for future payments on its asset purchase) were transferred to an escrow agent to be held and distributed for the benefit of Piper's shareholders. [Kent] Reynolds is currently that escrow agent and he was permitted to intervene in the District Court to assert the defenses of Piper's former shareholders. Hiniker made periodic payments to the escrow agent in fulfillment of its obligations under the Piper-Hiniker agreement, which the escrow agent then distributed to Piper's former shareholders. In both 1990 and 1992, disagreements regarding Hiniker's obligations under the agreement resulted in settlement agreements between Hiniker and Paul P. Piper, acting as trustee for the former shareholders of Piper. Pursuant to these settlements, Hiniker continues to hold $1 million dollars of the asset purchase price that will be distributed to Piper's shareholders upon the conclusion of this litigation. Piper has not held property as a corporate entity or conducted business after December 31, 1986.

6.Kradel filed a products liability action against Piper and other defendants in the Court of Common Pleas for Butler County, Pennsylvania in 1996. Shortly thereafter the case was removed to the United States District Court for the Western District of Pennsylvania. In an Order dated November 15, 1999, the District Court granted Piper's motion for summary judgment. Its opinion . . . held that Piper had lawfully dissolved under the laws of Tennessee in effect in 1986 and as such, under common law principles, could not be sued for tort claims accruing after its dissolution. The Court further held that Piper had no responsibility under the law of Tennessee to provide for unforeseen liabilities, such as Kradel's, and by transferring the right to receive payments to its shareholders, Piper complied with the terms of Tennessee's corporate dissolution statute in effect in 1986. In a footnote, the District Court rejected the argument that Tennessee's "trust fund" doctrine could apply to permit Kradel's recovery of the undistributed assets of Piper's shareholders.

The petitioner then appealed the grant of summary judgment to the United States Court of Appeals for the Third Circuit, and on February 6, 2001, that honorable court certified five questions of law to this Court:

1.What law governs the making of claims arising in 1994 against a corporation which filed Articles of Dissolution in 1986: the law of 1986 or those revisions to the law effective January 1, 1988, Tennessee Code Annotated sections 48-24-101, et seq.? More specifically, do the saving provisions of section 48-27-103(a)(2), which state that the repeal of the pre-1988 law does not affect liabilities incurred under the statute before its repeal, support the contention that a liability incurred after the law's effective date is governed by the 1988 revision?

2.If the pre-1988 law applied, do the provisions of Tennessee Code Annotated section 48-1-1013(a) (repealed) apply to liabilities incurred after Piper filed Articles of Dissolution, and, if not, does the common law of Tennessee bar such actions?

3.Did Piper comply with Tennessee Code Annotated section 48-1-1007 (repealed)? If not, does the manner in which Piper failed to comply invalidate an otherwise lawful dissolution and permit a cause of action accruing eight years after the dissolution was filed?

4.Do the pre-1988 Tennessee dissolution statutes require provision for unforeseen future liabilities or that the process of asset distribution be final?

5.Could Kradel's claims proceed under the "trust fund" doctrine, in the absence of corporate insolvency, if other remedies are unavailable to Kradel for the claims against Piper?

We accepted the certification of these questions, and for the reasons given below, we answer that the corporate statutes in effect before January 1, 1988, apply to determine the rights and remedies available against a corporation dissolved before that date and that section 48-1-1013(a) (repealed) applies to limit Piper's liability for post-dissolution claims. We further answer that Piper did comply with the dissolution statutes in effect before January 1, 1988, which require provisions to ensure the final distribution of corporate assets, but which do not require a corporation to establish a reserve fund for contingent claims arising more than two years after the dissolution. Finally, we answer that while the trust fund doctrine has been previously applied in Tennessee to solvent corporations, its application in this case is necessarily limited by Tennessee Code Annotated section 48-1-1013(a) (repealed).

QUESTION I: THE LAW GOVERNING THE PETITIONER'S CLAIMS

The first question certified by the United States Court of Appeals concerns the law applicable to determine the propriety of Piper's dissolution and the scope of the petitioner's remedies available against a dissolved corporation. The petitioner maintains that the Tennessee corporate statutes in effect at the time of his 1994 injury govern his claim and remedy against Piper, but the...