Myers v. Putzmeister, Inc.

• Decision Date: 06 July 1992
• Docket Number: No. 1-91-1986,1-91-1986
• Citation: 173 Ill.Dec. 130,232 Ill.App.3d 419,596 N.E.2d 754
• Parties: , 173 Ill.Dec. 130, Bankr. L. Rep. P 74,933, Prod.Liab.Rep. (CCH) P 13,304 William MYERS, Plaintiff-Appellant, v. PUTZMEISTER, INC., d/b/a Thomsen Equipment, Thomsen Equipment Company, and Unknown Owner or Owners, d/b/a Thomsen Equipment Company, Defendants-Appellees (Original Concrete Pumping Service, Inc., a corporation, Defendant).
• Court: United States Appellate Court of Illinois

Page 754

596 N.E.2d 754

232 Ill.App.3d 419, 173 Ill.Dec. 130,

Bankr. L. Rep. P 74,933,

Prod.Liab.Rep. (CCH) P 13,304

William MYERS, Plaintiff-Appellant, v. PUTZMEISTER, INC., d/b/a Thomsen Equipment, Thomsen

Equipment Company, and Unknown Owner or Owners, d/b/a

Thomsen Equipment Company, Defendants-Appellees (Original

Concrete Pumping Service, Inc., a corporation, Defendant).

No. 1-91-1986.

Appellate Court of Illinois,

First District, First Division.

July 6, 1992.

Alan C. Mendelson, of counsel, Chicago, for plaintiff-appellant.

Katz, Randall & Weinberg, Chicago (Lawrence M. Karlin, of counsel), for defendants-appellees.

Justice MANNING delivered the opinion of the court:

Plaintiff, William Myers, brought this action against Putzmeister to recover damages for injuries he sustained while operating a cement pump which was manufactured by Putzmeister's predecessor. Putzmeister had purchased the assets of the predecessor pursuant to a sales agreement and bankruptcy court order. Plaintiff also sued the owner of the pump, Original Concrete Pumping Service; however, Original is not a part of this appeal. The trial court granted Putzmeister's motion to dismiss the amended complaint, with prejudice, from which this Supreme Court Rule 304(a) (134 Ill.2d R. 304(a)), appeal is taken.

The sole issue presented on review is whether the trial court properly granted Putzmeister's motion to dismiss the complaint where it found that under Illinois law (see, e.g., Hernandez v. Johnson Press Corp. (1979), 70 Ill.App.3d 664, 26 Ill.Dec. 777, 388 N.E.2d 778 and Nguyen v. Johnson Machine & Press Corp. (1982), 104 Ill.App.3d 1141, 60 Ill.Dec. 866, 433 N.E.2d 1104), the defendant asset purchaser does not become liable for the preacquisition torts of the original manufacturer, absent an express or implied assumption of liability. We find that the trial court properly followed the dictates of Illinois law.

The record reveals that plaintiff filed a negligence action against Original Pumping Service in which he sought damages for injuries to his hand sustained on July 24, 1987, while operating a concrete cement pump that was owned by Original. Original filed answers to interrogatories which stated that the pump was manufactured by Thomsen Equipment and that it was purchased from the same on or about May 8, 1981.

Plaintiff then amended his complaint joining Putzmeister, Inc., d/b/a Thomsen Equipment, Thomsen Equipment Company, and unknown owner or owners, d/b/a Thomsen Equipment Company as defendants. In count II of the complaint, plaintiff alleged that Putzmeister, doing business as Thomsen Equipment, designed, manufactured and sold the concrete pump which caused his injuries. He further alleged that the pump was unreasonably dangerous when it left defendant's control in that it had an unguarded nip point in a flapper valve.

Putzmeister filed a special and limited appearance and a motion to dismiss the amended complaint, with prejudice. The motion to dismiss alleged (1) that Thomsen Equipment Company, a California corporation (hereafter "Predecessor"), and not Putzmeister, manufactured, designed and sold the pump to Original; (2) that Putzmeister was not incorporated until June, 1982 in Delaware under the name of Thomsen Equipment Company, (the name was thereafter changed to Putzmeister, Inc.-Thomsen Division, and later to Putzmeister, Inc.); and (3) that Putzmeister acquired the assets of predecessor, which had filed a chapter 11 bankruptcy petition in California, pursuant to an Asset Purchase Agreement and bankruptcy order entered by the Federal court on September 3, 1982. Following the filing of additional pleadings, exhibits, affidavits, court documents, and Secretary of State corporate records, the trial court entertained oral argument on the motion to dismiss.

Putzmeister alleged that its acquisition of predecessor's cement pump business does not fall within any of the exceptions to the general rule of non-liability of asset purchasers as established in Hernandez. On the other hand, plaintiff countered that Putzmeister's purchase of the predecessor's assets fall within the exceptions, or in the alternative, that Putzmeister is liable because of the "unique circumstances" by which it acquired the assets. The trial court dismissed count II of the complaint, with prejudice and specifically rejected plaintiff's argument that the asset purchase therein was "unique." The court remarked that the purchase of a bankrupt corporation's assets and the continued employment of some of their middle level management personnel and officers by the successor corporation is hardly unique, but something "that happens everyday in Bankruptcy Court."

The generally accepted rule is that a corporation which merges with another corporation takes on the latter corporation's obligations and liabilities while a successor corporation which purchases the business assets of another corporation does not become liable for the debts of the seller in the absence of an express agreement to assume the seller's debts. Illinois has long applied this rule, which is based upon Illinois corporate law rather than strict liability principles, to determine the liability of an asset purchaser in a products claim. Green v. Firestone Tire & Rubber Co. (1984), 122 Ill.App.3d 204, 77 Ill.Dec. 591, 460 N.E.2d 895; Gonzalez v. Rock Wool Engineering & Equipment Co. (1983), 117 Ill.App.3d 435, 72 Ill.Dec. 917, 453 N.E.2d 792; Nguyen, 104 Ill.App.3d 1141, 60 Ill.Dec. 866, 433 N.E.2d 1104. See also State ex rel. Donahue v. Perkins & Will Architects, Inc. (1980), 90 Ill.App.3d 349, 45 Ill.Dec. 696, 413 N.E.2d 29, involving a de facto argument in a nonpersonal injury situation.

However, there are several exceptions to the general rule. As stated in Hernandez the often-quoted exceptions to the rule of non-liability are:

"(1) where there is an express or implied agreement of assumption;

(2) where the transaction amounts to a consolidation or merger of the purchaser or seller corporation;

(3) where the purchaser is merely a continuation of the seller; or

(4) where the transaction is for the fraudulent purpose of escaping liability for the seller's obligations." See Hernandez, 70 Ill.App.3d at 667, 26 Ill.Dec. 777, 388 N.E.2d 778.

The second exception has been interpreted to include a de facto merger. In Donahue, this court held that a purchaser of assets will not be liable under the theory of de facto merger or mere continuation in the absence of continuity of ownership. Donahue, although not a personal injury case, relied upon the criterion necessary to establish the existence of a de facto merger, as first set forth in Hernandez, 70 Ill.App.3d at 667, 26 Ill.Dec. 777, 388 N.E.2d 778, and reiterated in Nguyen. Those elements are stated as follows:

"(1) There is a continuation of the enterprise of the seller corporation, so that there is a continuity of management, personnel, physical location, assets and general business operations.

(2) There is a continuity of shareholders which results from the purchasing corporation paying for the acquired assets with shares of its own stock, this stock ultimately coming to be held by the shareholders of the seller corporation so that they become a constituent part of the purchasing corporation.

(3) The seller corporation ceases its ordinary business operations, liquidates and dissolves as soon as legally and practically possible.

(4) The purchasing corporation assumes those liabilities and obligations of the seller ordinarily necessary for the uninterrupted continuation of normal business operations of the seller corporation."

Here, it does not appear that Putzmeister's purchase of the predecessor's assets come within the exceptions to the general rule of nonliability of asset purchasers. With respect to the first exception, agreement of assumption, it is clear that there was no agreement between the corporations to assume the preacquisition tort liabilities of the seller corporation. Although plaintiff presented evidence that Putzmeister took on some of the obligations of the predecessor prior to the closing date of the sale, we are nevertheless governed by the express provisions of the written document which dictates the agreement between the parties. The Asset Purchase Agreement and the Bankruptcy Order expressly disclaim "charges and claims" which includes, "without limitation * * * product liability claims."

Neither is there sufficient evidence to demonstrate that the transaction was for the purpose of committing a fraud on creditors. This conclusion is logical notwithstanding the disparity between the value of the predecessor's debts and assets.

Similarly, the second and third exceptions, de facto merger and continuation, respectively, do not appear to be present here. As previously stated, all of the elements must be shown to establish a de facto merger. Nguyen determined that the absence of any single element is enough to defeat successor liability. Here, based upon a review of the affidavits of company officials, it seems there was neither continuity of enterprise nor continuity of ownership between the two corporations. No director of predecessor ever was a director of Putzmeister. Putzmeister did not continue the product line of predecessor; rather, the equipment produced by it was of its own design, although it marketed the equipment under the "Thomsen" trade name. No shareholders of predecessor has ever been a shareholder of Putzmeister. Moreover, although some of the elements of merger were present here, including continuity of middle management employees, like the Nguyen case, there can be no successor liability absent a showing of common ownership between the seller and buyer.

Neither is plaintiff's argument persuasive that Putzmeister's purchase of the predecessor's assets is a "mere continuation" as defined in Donahue. While plaintiff cites Donahue for the proposition that a voluntary reorganization...