LaFountain v. Webb Industries Corp.

• Decision Date: 05 March 1991
• Docket Number: Civ. A. No. 89-6069.
• Citation: 759 F. Supp. 236
• Parties: Terrence Wayne LaFOUNTAIN v. WEBB INDUSTRIES CORPORATION, and Lloyd H. Knost, Individually, and Lloyd H. Knost, t/a Reed Engineering Company, and Ted Reed, Individually and t/a Reed Engineering Co.
• Court: U.S. District Court — Eastern District of Pennsylvania

759 F. Supp. 236

Terrence Wayne LaFOUNTAIN v. WEBB INDUSTRIES CORPORATION, and Lloyd H. Knost, Individually, and Lloyd H. Knost, t/a Reed Engineering Company, and Ted Reed, Individually and t/a Reed Engineering Co.

Civ. A. No. 89-6069.

United States District Court, E.D. Pennsylvania.

March 5, 1991.

John A. Beranbaum, Galfand, Berger, Lurie & March, Philadelphia, Pa., for plaintiff.

Thomas P. Wagner, Judith A. Schneider, Rawle & Henderson, Philadelphia, Pa., for defendants.

MEMORANDUM OPINION AND ORDER

VANARTSDALEN, Senior District Judge.

Plaintiff, Terrence Wayne LaFountain (LaFountain), was injured on January 11, 1988 while operating a pinch-type roll bender machine at his place of employment. He filed this diversity action on August 18, 1989. The amended complaint contains three counts, alleging negligence, strict liability, and breach of warranty. On March 5, 1990, the claims against defendant Lloyd Knost (Knost) were dismissed for lack of personal jurisdiction. Memorandum Opinion and Order of March 5, 1990. Defendant Webb Industries Corporation (correctly named "The Webb Corporation," and hereinafter referred to as "Webb") has filed a motion for summary judgment. LaFountain has filed a motion to extend the time in which the parties may conduct discovery. For the reasons discussed herein, I will grant the motion for summary judgment and deny the motion to extend discovery.

I. FACTS

The roll bender machine in question, Model 608 Bending Machine Serial No. 649, was designed and manufactured by the Reed Engineering Company of Carthage Missouri (Reed). Amended Complaint at ¶ 6. The machine was sold by Reed to LaFountain's employer, Hauck Manufacturing Company (Hauck), then located in Brooklyn, New York, in 1949. Amended Complaint at ¶ 6; Defendant's Motion, Exhibit B (shop order). In 1964 Hauck moved its plant, including the machine in question, to its present location in Cleona, Pennsylvania. Deposition of Arthur Kapp, Jr. (Kapp Deposition) at 14-15. At the time of the sale, Reed was a partnership operated by Knost and Ted Reed.¹ In 1950, Knost purchased Ted Reed's interest in the partnership. Affidavit of Lloyd H. Knost (Knost Affidavit) at ¶ 2. Knost continued to operate as an individual under the name Reed Engineering Company until 1952, when he organized a Missouri corporation under the same name (Reed Corporation). Id. Knost and his wife were the principal owners of the corporation. Id.

Webb had no part in the design, manufacture, sale or shipment of the roll bender machine at issue. Affidavit of John Bentley (Bentley Affidavit) at 2-3. At the time of the manufacture and sale of the machine, Webb had no relationship with Reed or Reed Corporation. Id. On April 15, 1954, Webb entered into a licensing agreement with Knost, which gave Webb the exclusive right to manufacture certain products formerly manufactured by Reed and Reed Corporation, including roll bender machines of the type involved in this accident, for a period of five years. Defendant's Motion, Exhibit F (1954 Contract). Under the terms of the contract, Webb obtained exclusive rights to patents and patents pending, trademarks, goodwill, designs and drawings, jigs and fixtures and customer records necessary for the manufacture of the products covered by the agreement; however, all prints, designs, jigs, fixtures and related materials transferred to Webb, were to remain the property of Knost. Id. The contract also provided that products manufactured and sold by Webb were to bear a nameplate with the wording "Reed Engineering Division of the Webb Corporation" or "a product of the Reed Engineering Company, built by the Webb Corporation." Id.

On May 10, 1954, Reed Corporation filed Articles of Dissolution with the Missouri Secretary of State, and the company was dissolved in 1955. Exhibits to Plaintiff's Memorandum of Law in Opposition to Defendant's Motion for Summary Judgment (Plaintiff's Memo), Articles of Dissolution; Knost Affidavit at ¶ 6. Following the dissolution of Reed Corporation, Knost continued to do business individually as L.H. Knost Company. Knost Affidavit at ¶ 8. After entering into the 1954 contract with Webb, neither Reed Corporation nor Knost individually, manufactured or sold any pinch-type roll bender machines. Id. at ¶ 5.

Webb entered into a second contract with Knost on February 10, 1959. Under the terms of the second contract, Webb purchased the manufacturing rights to the products which were the subject of the 1954 licensing agreement, along with the goodwill and all jigs, fixtures, patterns, designs, drawings, trademarks, patents and patents pending necessary for manufacture of the Reed product line. Defendant's Motion, Exhibit G (1959 Contract). In consideration for the sale, Webb agreed to pay Knost a certain percentage of its gross sales price on all orders received from April 1, 1959 to and including December 31, 1973. Id. Webb has continued to manufacture products covered by the 1959 Contract to the present date. Deposition of Robert Howard (Howard deposition) at 14-15.

II. DISCUSSION

A. Standard for Summary Judgment

Under Federal Rule of Civil Procedure 56, summary judgment should be entered if "there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law." Fed.R. Civ.P. 56(c). "The inquiry performed is the threshold inquiry of determining whether there is the need for a trial — whether in other words, there are any genuine factual issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986). A dispute concerning a material fact is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Id. at 248, 106 S.Ct. at 2510. In ruling on a motion for summary judgment, the court must consider the evidence in the light most favorable to the non-moving party, Baker v. Lukens Steel Co., 793 F.2d 509, 511 (3d Cir.1986); however, the non-moving party must present some "affirmative evidence in order to defeat a properly supported motion for summary judgment." Anderson, 477 U.S. at 251, 106 S.Ct. at 2511.

B. Successor Liability

LaFountain contends that Webb is strictly liable for his injuries as a corporate successor to Reed, the company that designed and manufactured the allegedly unsafe machine. As this is a diversity case, the law of the forum state, Pennsylvania, controls. Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). The general rule under Pennsylvania law is that "`when one company sells or transfers all its assets to another, the successor company does not embrace the liabilities of the predecessor simply because it succeeded to the predecessor's assets.'" Philadelphia Electric Co. v. Hercules, Inc., 762 F.2d 303, 308 (3d Cir.), cert denied, 474 U.S. 980, 106 S.Ct. 384, 88 L.Ed.2d 337 (1985) (quoting McClinton v. Rockford Punch Press & Manufacturing Company, 549 F.Supp. 835, 837 (E.D.Pa. 1982). Exceptions to the general rule exist where "(1) the purchaser expressly or impliedly agrees to assume such obligation; (2) the transaction amounts to a consolidation or merger; (3) the purchasing corporation is merely a continuation of the selling corporation; or (4) the transaction is fraudulently entered into to escape liability." Conway v. White Trucks, A Div. of White Motor Corp., 885 F.2d 90, 93 (3d Cir.1989) (quoting Husak v. Berkel, Inc., 234 Pa.Super. 452, 456, 341 A.2d 174, 176 (1975)). Some decisions have also stated that an exception exists where "the transfer was made without adequate consideration and provisions were not made for creditors of the transferor." Philadelphia Electric Co. at 309.

Plaintiff does not contend that the relationship between Webb and Reed falls within one of these exceptions, but rather that Webb is liable as a successor under the so-called "product line doctrine." In Dawejko v. Jorgensen Steel Co., 290 Pa. Super. 15, 434 A.2d 106 (1981) the Pennsylvania Superior Court opined that "in cases of strict liability the general rule of non-liability for successor corporations seems to lead to an unjust result" and it therefore followed the lead of the California and New Jersey courts in adopting the product line exception to the general rule.

The product line exception has been adopted by a minority of jurisdictions.² The doctrine is based on "the social policies underlying strict products liability," Ramirez, supra, 86 N.J. at 358, 431 A.2d at 825; namely, the "protecting of the otherwise defenseless victims of manufacturing defects and the spreading throughout society of the cost of compensating them." Ray, supra, 19 Cal.3d at 30-31, 136 Cal. Rptr. at 579, 560 P.2d at 8-9 (quoting Price v. Shell Oil Co., 2 Cal.3d 245, 251, 85 Cal.Rptr. 178, 181, 466 P.2d 722, 725 (1970)). Under the exception, in certain circumstances, a successor corporation that continues to manufacture a predecessor's product line will be held liable for injuries resulting from the predecessor's defective products.

The Dawejko court specifically adopted the New Jersey Supreme Court's formulation of the exception which states:

where 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.

Dawejko, 290 Pa.Super. at 23, 434 A.2d at 110 (quoting Ramirez, supra, 86 N.J. at 358, 431 A.2d at 825). In adopting the exception, the court also stated:

it is better not to phrase the new exception too tightly. Given its philosophical origin, it should be phrased in

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