Roll v. Tracor, Inc.
| Decision Date | 03 April 2001 |
| Docket Number | No. CV-S-98-1472-LRL.,CV-S-98-1472-LRL. |
| Citation | 140 F.Supp.2d 1073 |
| Parties | Eric M. ROLL, Plaintiff, v. TRACOR, INC., et al., Defendants. |
| Court | U.S. District Court — District of Nevada |
Gary Logan, Las Vegas, NV, for Plaintiff.
Ron A. Sprague, Gendry & Sprague, P.C., San Antonio, TX, for Defendants.
This case arises out of an accident that occurred on November 16, 1994 at Nellis Air Force Base in Nevada. At the time of the accident, plaintiff Eric Roll, who was a munitions technician on active duty with the United States Air Force, was assigned to "build up" several thousand MJU-7/B Countermeasure Flares.1 Roll was seriously burned when approximately 75 flares ignited accidently in the shop where he was working.
On November 7, 1996, Roll filed this action in the United States District Court for the Western District of New York. Thereafter, pursuant to 28 U.S.C. § 1404(a), the case was transferred to the District of Nevada for the convenience of the parties. Roll alleges theories of strict liability, negligence and breach of warranty in the design, manufacture and/or marketing of the MJU-7/B Countermeasure Flares against defendants Tracor, Inc., Tracor Aerospace, Inc., Tracor Flight Systems, Inc., and Tracor Applied Sciences, Inc. Jurisdiction is founded on diversity of citizenship. In his Complaint, Roll alleges that he was working in the State of Nevada when the accident occurred, but was a permanent resident of the State of New York, both at the time of the accident and when the complaint was filed. He alleges further that with the exception of defendant Tracor Applied Sciences, the principal offices of the Tracor defendants are in Austin, Texas. Tracor Applied Sciences, according to the complaint, maintains its principal offices in Rockville, Maryland. Hence, for the purposes of diversity jurisdiction, Roll is a New York domiciliary; defendants Tracor, Tracor Aerospace, and Tracor Flight Systems are Texas domiciliaries; and defendant Tracor Applied Sciences is a Maryland domiciliary.
The matter now before the court is defendants' Second Motion for Summary Judgment (# 15). Relying on the general rule in a products liability case that a corporation which acquires the assets of another corporation does not become liable for the torts of the other corporation unless it expressly agrees to do so, Mudgett v. Paxson Machine Co., 709 S.W.2d 755 (Tex.App.1986), defendants contend that because they did not come into existence until 1991—three years after the flares in question were manufactured and distributed —they cannot be held liable for Roll's injuries. Roll counters that defendants' liability can be based on one of two exceptions to the general rule of non-liability of successor corporations for the torts of predecessor corporations: (1) the "mere continuation" exception or (2) the "product line" exception. The "mere continuation" exception is grounded on considerations of business continuity, e.g., whether divesting and acquiring corporations handled identical products, whether their respective operations were conducted at the same physical premises, and whether the acquiring corporation retained the employees of the divesting corporation. Ed Peters Jewelry Co. v. C & J Jewelry Co., 124 F.3d 252, 272 (1st Cir.1997). The "product line" exception permits strict liability to be imposed on a successor corporation that acquires a manufacturing business and continues manufacturing the same line of products. Ray v. Alad Corp., 19 Cal.3d 22, 136 Cal. Rptr. 574, 560 P.2d 3 (1977).
The defendants were created as corporate entities in 1991. Defendant Tracor was incorporated in Delaware in 1991 and was qualified to do business in Texas on December 18, 1991. Defendants Tracor Aerospace, Tracor Flight Systems, and Tracor Applied Sciences were subsidiaries of Defendant Tracor, and were all incorporated in December 1991.
Long prior to the incorporation of defendant Tracor there was another Texas corporation called Tracor, Inc. That corporation came into existence in 1955 as Associate Consultants and Engineers, Inc. It changed its name to Texas Research Associates Corporation in 1956 and again to Tracor, Inc. in 1962. On June 1, 1973, a Delaware corporation called Tracor Delaware Corporation was formed. On June 20, 1973, Tracor Delaware Corporation merged with Tracor, Inc. The surviving corporation was a Delaware corporation, which then changed its name to Tracor, Inc. on July 13, 1973. Tracor, Inc. existed until 1991 when it filed for bankruptcy, changed its name to O.T.C. Tracor, and was dissolved.
There were also previously existing companies called Tracor Aerospace, Inc. and Tracor Applied Sciences, Inc. Both were formed as wholly owned subsidiaries of Tracor, Inc. in 1983. Tracor Aerospace, Inc. was incorporated in Texas as Tracor Aerospace Austin, Inc., and changed its name to Tracor Aerospace, Inc. in 1986. Tracor Applied Sciences Divisions, Inc. was incorporated in Texas as Tracor Applied Sciences Divisions, Inc. and changed its name to Tracor Applied Sciences, Inc. on May 12, 1983. The previous entity known as Flight Systems, Inc. was a California corporation which qualified to do business in Texas in 1977. It changed its name to Tracor Flight Systems, Inc. in 1990. It is undisputed that Tracor Aerospace, Inc. manufactured the subject flares in 1988.
On February 15, 1991, Tracor, Inc., Tracor Aerospace, Inc., Tracor Applied Sciences, Inc. and Tracor Flight Systems, Inc. all filed for bankruptcy protection under Chapter 11 in the Western District of Texas. Joint Plans of Reorganization were approved by the Bankruptcy Court on December 6, 1991. The Plans provided that all of the debtors' executory contracts and unexpired leases with various agencies of the United States were assumed and, upon the effective date of the Plans, each of the government contracts assumed by Tracor, Inc., Tracor Applied Sciences, Inc., Tracor Aerospace, Inc., and Tracor Flight Systems, Inc. were to be assigned, without modification, to TDH Defense or such other members of the TDH Defense Group as designated by TDH Defense. TDH Defense and TDH Defense Group were newly formed entities described in the Plans.
In carrying out the Plans, Tracor, Inc. Tracor Aerospace, Inc., Tracor Applied Sciences, Inc. and Tracor Flight Systems, Inc. changed their names to O.T.C. Tracor Inc., O.T.C. Tracor Aerospace, Inc., O.T.C. Tracor Applied Sciences, Inc. and O.T.C. Tracor Flight Systems, Inc., respectively. All of the assets of these corporations were transferred to the TDH Defense Group. O.T.C. Tracor, Inc. and O.T.C. Tracor Flight Systems, Inc. withdrew from doing business in Texas on December 30, 1991. That same day, O.T.C. Tracor Aerospace, Inc. and O.T.C. Tracor Applied Sciences, Inc. were dissolved. In turn, Tracor, Tracor Aerospace, Tracor Flight Systems, and Tracor Applied Sciences were formed to redistribute the assets of the TDH Defense Group. These are the entities that are currently defendants in this case.
As noted above, in 1988, pursuant to its contract with the government, O.T.C. Tracor Aerospace, Inc., which at the time was called Tracor Aerospace, Inc., manufactured the MJU-7/B Countermeasure Flares involved in this mishap. That contract was fulfilled and completed prior to the bankruptcy filing in 1991. Hence, the contract was not executory and was not purchased or assumed by the TDH Defense Group or passed along to any of the defendants when they were created.
It is uncontroverted that Tracor, Tracor Applied Sciences, and Tracor Flight Systems, past or present, have never designed, manufactured or sold countermeasure flares. The corporation that acquired the manufacturing assets of O.T.C. Tracor Aerospace, Inc., including the Arkansas plant in which the subject flares were made, was defendant Tracor Aerospace. It is also uncontroverted that when defendant Tracor Aerospace acquired the manufacturing assets of O.T.C. Tracor Aerospace, Inc., it continued to manufacture and distribute MJU-7/B Countermeasure Flares without interruption, in the same plant and with the same employees, supervisors, officers and corporate directors that had been employed by or served the former Tracor Aerospace, Inc.
Preliminarily, the court observes that Roll's claims against the three defendants whose predecessors never designed, manufactured or distributed the MJU-7/B Countermeasure Flares are unsupportable as a matter of law. It is undisputed that defendants Tracor Applied Sciences and Tracor Flight Systems, which are subsidiaries of Tracor, had no involvement with the manufacture or distribution of the flares at issue. As for the parent corporation, defendant Tracor,
[i]t is a general principle of corporate law deeply "ingrained in our economic and legal systems" that a parent corporation (so-called because of control through ownership of another corporation's stock) is not liable for the acts of its subsidiaries.... [T]here is an equally fundamental principle of corporate law, applicable to the parent-subsidiary relationship as well as generally, that the corporate veil may be pierced and the shareholder held liable for the corporation's conduct when, inter alia, the corporate form would otherwise be misused to accomplish certain wrongful purposes, most notably fraud, on the shareholder's behalf.
United States v. Bestfoods, 524 U.S. 51, 61-62, 118 S.Ct. 1876, 141 L.Ed.2d 43 (1998). The record contains no evidence suggesting that Tracor has any involvement in the affairs of Tracor Aerospace other than merely exercising the type of control that derives from stock ownership, e.g., electing directors and making by-laws. Such involvement is clearly insufficient to create liability on the part of the parent corporation for the torts of its subsidiary. See also Manchester Equipment Co., Inc. v. American Way, 60 F.Supp.2d 3 (E.D.N.Y.1999); Ministry of Defense of the...
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