Pelc v. Bendix Mach. Tool Corp.

• Citation: 111 Mich.App. 343,314 N.W.2d 614
• Decision Date: 26 January 1982
• Docket Number: Docket No. 51815
• Parties: Carol Ann PELC, Individually And As Administratrix Of The Estate of Gary P. Pelc, Deceased And As Next Friend Of Jeffrey P. Pelc, Minor, Plaintiff- Appellant, and Sentry Insurance Company, A Wisconsin Corporation, Intervening Plaintiff, v. BENDIX MACHINE TOOL CORPORATION, A Michigan Corporation, d/b/a Colonial Broach and Machine Company, Defendant-Appellee.
• Court: Court of Appeal of Michigan (US)

Page 614

314 N.W.2d 614

111 Mich.App. 343

Carol Ann PELC, Individually And As Administratrix Of The

Estate of Gary P. Pelc, Deceased And As Next

Friend Of Jeffrey P. Pelc, Minor,

Plaintiff- Appellant,

and

Sentry Insurance Company, A Wisconsin Corporation, Intervening Plaintiff, v. BENDIX MACHINE TOOL CORPORATION, A Michigan Corporation, d/b/a Colonial Broach and Machine Company,

Defendant-Appellee.

Docket No. 51815.

Court of Appeals of Michigan.

Submitted March 10, 1981.

Decided Nov. 16, 1981.

Released for Publication Jan. 26, 1982.

Bushnell, Gage, Doctoroff, Reizen & Byington, by Larry S. Baker, Southfield, for plaintiff-appellant.

Garan, Lucow, Miller, Seward, Cooper & Becker, P. C., and Gromek, Bendure & Thomas, Detroit (James G. Gross, Detroit, of counsel), for defendant-appellee.

Before V. J. BRENNAN, P. J., and KELLY and RILEY, JJ.

V. J. BRENNAN, Presiding Judge.

Plaintiff, Carol Ann Pelc, individually and as administratrix of the estate of Gary P. Pelc, deceased, and as next friend of Jeffrey P. Pelc, appeals as of right from a grant of summary judgment in favor of defendant, Bendix Machine Tool Corporation.

This products liability case involves principles of successor corporate liability as impacted by an intervening bankruptcy. Essential to our resolution of the legal issues is the factual determination of whether the manner, quantity and quality of the acquisition by Bendix Machine Tool Corporation (Bendix) of the assets of Colonial Broach and Machine Company (Old Colonial) is sufficient to establish a prima facie case of successor liability so as to render Bendix potentially liable for the products liability claim against its predecessor. Hence, we set forth the factual context in considerable detail.

In October, 1977, Gary Pelc was injured while operating a broaching machine in the course of his employment with Massey-Ferguson. The broaching machine involved was manufactured in 1943 by Old Colonial, which had been liquidated in bankruptcy in 1974. Plaintiff filed her products liability action against Bendix as a successor corporation to Old Colonial, seeking to recover on theories of negligence, breach of implied warranty and failure to warn.

However, prior to the accident the following chronology of events had taken place.

The manufacturer of the machine, Old Colonial, had manufactured the machine in 1943. However, as of 1963, it ceased servicing the machine when it sent parts and service manuals to another company which was rebuilding the machine. On December 19, 1973, Old Colonial filed a petition for voluntary arrangement under Chapter XI of the old bankruptcy act and its business operations were continued by the receiver for a short period. However, Old Colonial was soon forced into straight bankruptcy and a liquidation of assets soon began. At this point in time, all but a few of the 150-200 persons employed by Old Colonial were laid off. The retained employees stayed on to assist the receiver in the liquidation of assets. When it became publicly known that Old Colonial's assets were to be sold, a number of prospective purchasers expressed interest. Michigan Special Machine (Michigan Special) was one of those which expressed interest and eventually participated as a purchaser. Michigan Special was a subsidiary of Bendix and was merged into Bendix on October 1, 1977.

The bankruptcy court liquidated Old Colonial's assets by five major categories.

(1) Eagle Tool Division: This division of Old Colonial, located in Iron Mountain, Michigan, was sold for $250,000 to a group of investors from Iron Mountain;

(2) Accounts Receivable: The trustee collected $650,000 on Old Colonial's outstanding accounts receivable;

(3) Machinery and Equipment: By public auction, the trustee sold Old Colonial's equipment and machinery for $1,569,000. Bendix, via its subsidiary, Michigan Special, made limited purchases of $15,000 at this sale;

(4) Sale of Work in Process and Inventory: Various Old Colonial customers purchased Old Colonial's stock of inventory and work in process for $579,650. In order to consummate transactions with certain purchasers, the trustee in bankruptcy arranged with the landlord of the Warren plant, previously occupied by Old Colonial, to allow assembly of certain of these machines on the premises. At least three of Old Colonial's former customers independently contracted with Michigan Special for it to complete assembly of their machines on Old Colonial's former premises at the Warren plant. Michigan Special charged these customers on a per diem plus material basis and, in turn, paid Old Colonial's trustee for use of the premises. Michigan Special started assembly of these machines in January, 1974, and completed assembly in October, 1974. During this time interval, Michigan Special hired two of Old Colonial's ex-foremen but laid them off before completing the assembly of the machines. Also, during this time Michigan Special hired Mr. Unger, Old Colonial's chief engineer, who had been assisting the receiver in the liquidation of Old Colonial's assets;

(5) Drawings, Plans, Patents and Trademarks: In a letter of agreement, dated March 19, 1974, Michigan Special agreed to purchase from the bankruptcy estate all technical information and proprietary rights necessary to manufacture and market Old Colonial products. After the bankruptcy court's order approving the sale of these designated assets for $205,000, Michigan Special purchased all patents, trademarks and copyrights relating to Old Colonial products, technical information (including specifications, operating and maintenance manuals, technical reports, patterns, parts lists, material lists, all documentation and business records relating to Old Colonial products customer lists, vendor lists, etc.), rack cutters and hobs for mechanical drives, file cabinets with drawings in engineering, all sales catalogs, brochures and other sales literature relating to Old Colonial products, and the exclusive right to use the name Colonial Broach and Machine Company. The agreement of sales between the bankruptcy estate and Michigan Special evinces an intent by the parties that these assets be sold free and clear of liens, claims and encumbrances. ¹

In total, the bankruptcy trustee recovered $3,059,457.76 for the sale of Old Colonial's assets. Of this total, Michigan Special paid $220,000, approximately 8% of the total amount recovered.

Thereafter, beginning in July, 1974, Michigan Special began producing its broach machines under the "Colonial" name. Later, these broach machines were identified as being produced by "Bendix-Colonial". In connection with the sales of machines, Michigan Special (and later Bendix) used the informational brochures that had been printed by Old Colonial. This literature of Old Colonial was given to defendant's customers and was also included in packets of materials given to purchasers of new machines. In 1978, defendant printed and distributed a sales brochure which identified itself as having been in the business of manufacturing broaching machines for the last 60 years. ²

As late as 1977 defendant listed the then defunct "Colonial Broach and Machine Company" in area telephone books without any indication of Bendix ownership.

Presently, defendant services the broaching machines it manufactures and, for a fee, it services and rebuilds those manufactured by Old Colonial; defendant does not service any other broach machines. Defendant produces service parts for Bendix-Colonial machines and for Old Colonial machines; defendant does not produce such parts for other broach machines. The record is undisputed that defendant has never had any actual dealings with the broaching machine which injured the decedent. It has never inspected, serviced or rebuilt the machine.

Finally, there was only one managerial employee of the Old Colonial company to be hired by Michigan Special, and he is now manager of the Colonial Group of Bendix. Between the time of Old Colonial's bankruptcy and commencement of this action, defendant has hired at least eight employees of Old Colonial, six of whom are still with defendant. However, no seniority rights or other benefits from their previous employment followed any of these employees.

On May 8, 1980, the trial court granted defendant's motion for summary judgment on the basis that the bankruptcy severed any successor liability ³ on behalf of the purchasing corporation.

The basic issue of this case is whether the doctrine of successor corporate liability as delineated in Turner v. Bituminous Casualty Co., 397 Mich. 406, 244 N.W.2d 873 (1976), and its progeny is applicable to the factual context presented, that is: Should Bendix be held liable to plaintiff for injuries sustained from Old Colonial's allegedly negligently designed machine several years after Bendix's subsidiary Michigan Special purchased approximately eight (8) percent of Old Colonial's assets from a federal trustee in bankruptcy but the assets so purchased enabled Bendix to carry on the product line manufacturing of Old Colonial? In this particular factual context, we affirm the circuit court's finding of no liability.

Generally, under traditional corporate analysis, the sale or transfer of all its assets by one corporation to another does not bring with it liability for the liquidated or unliquidated debts, claims or liabilities of the selling corporation. The law on point and limited exceptions have been summarized as follows:

"The general rule is that, as in the instant case,

" '(I)f one corporation purchases the assets of another and pays a fair consideration therefor, no liability for the debts of the selling corporation exists in the absence of fraud or agreement to assume the debts.

" 'There are certain instances, however, in which the purchaser or transferee may become liable for the obligations of the transferor corporation. The transferee may be held liable for the debts of the transferor...