Schumacher v. Richards Shear Co., Inc.

Decision Date14 June 1983
Citation451 N.E.2d 195,59 N.Y.2d 239,464 N.Y.S.2d 437
Parties, 451 N.E.2d 195 Otto F. SCHUMACHER et al., Appellants, v. RICHARDS SHEAR COMPANY, INC., Appellant, and Logemann Brothers Company, Inc., Respondent.
CourtNew York Court of Appeals Court of Appeals
OPINION OF THE COURT

SIMONS, Judge.

Plaintiff Otto F. Schumacher was blinded in one eye when he was struck by a scrap of flying metal ejected by a model 300-ton shearing machine he was operating at work. He and his wife sue defendant Richards Shear Company, Inc., who manufactured and sold the machine to his employer, and defendant Logemann Brothers Company, Inc., who subsequently purchased substantially all of Richards' assets. They seek to recover compensatory and derivative damages for the injury on theories of strict products liability and negligence. Richards Shear has interposed a cross claim against Logemann. The issue on this appeal is whether defendant Logemann is liable to plaintiff for the tortious conduct of Richards Shear or for its own conduct subsequent to acquiring Richards Shear's assets.

Defendant Logemann maintains that it is not liable in an action in strict products liability as a successor of Richards Shear under the rule of Hartford Acc. & Ind. Co. v. Canron, Inc., 43 N.Y.2d 823, 402 N.Y.S.2d 565, 373 N.E.2d 364 or under extensions of that rule recognized in other jurisdictions (see Ray v. Alad Corp., 19 Cal.3d 22, 136 Cal.Rptr. 574, 560 P.2d 3; Ramirez v. Amsted Inds., 86 N.J. 332, 431 A.2d 811 and see Turner v. Bituminous Cas. Co., 397 Mich. 406, 244 N.W.2d 873 ), and that it cannot be held liable for its own nonfeasance because it had no common-law duty to warn plaintiff of any defect in the machine. It moved for summary judgment dismissing the complaint and the cross claim. Special Term granted the motion and the Appellate Division, 88 A.D.2d 1071, 452 N.Y.S.2d 736, affirmed with two Judges dissenting. The dissenters found factual issues warranting a trial on whether defendant Logemann's failure to warn plaintiff's employer of danger from the machine constituted negligence.

There should be a modification. Defendant Logemann's motion for summary judgment should be granted dismissing the first cause of action in strict products liability and denied insofar as it seeks dismissal of the cause of action alleging a negligent failure to warn. We hold that the rule in Hartford Acc. & Ind. Co. v. Canron, Inc. (supra) applies to personal injury cases and bars recovery from defendant Logemann for any fault of Richards Shear. Moreover, there are no facts alleged which warrant our consideration or application of the "product line" or "continuity of enterprise" theories extending liability to a successor corporation. The court is also unanimous in its recognition that a negligence cause of action for failure to warn may exist on behalf of an employee injured by an unsafe machine against a manufacturing corporation which subsequently acquires all or part of the assets of the manufacturer of the machine. The duty arises because of the relationship between the acquiring corporation and the purchaser of the machinery, plaintiff's employer in this case, and because of the knowledge which the acquiring corporation possesses or has reason to possess concerning the risk of personal injury created by operation of the machine without a safety guard. We disagree only on whether evidence submitted by plaintiff in response to defendant's motion for summary judgment is sufficient to create an issue of fact. A majority of the court believes it is. Accordingly, Logemann's motion for summary judgment should have been denied as to the failure to warn cause of action.

Plaintiff, an employee of Wallace Steel and Supply Company, was injured on April 17, 1978 when he was struck by a piece of metal thrown from a hydraulic shearing machine while he was operating it. The machine was purchased by plaintiff's employer from Richards Shear in January, 1964. It is plaintiff's contention that the machine was defective in design and manufacture because it did not have a guard to deflect metal ejected from the machine, and that Richards Shear and Logemann should have taken measures to correct the existing dangerous condition or have alerted users of it.

Logemann's status as a "successor" arises principally from a "License and Sales Agreement" dated January, 1968 in which Richards Shear granted to Logemann, among other things, the exclusive right to manufacture and sell Richards Shear products, improvements, and inventory, and to use the trade name "Richards". In substance, the transaction was a sale of all assets because thereafter Richards Shear discontinued its business of selling, manufacturing and servicing shears. Currently, it has no liability insurance, employees, or business volume and it has few assets.

In February, 1968, approximately four years after plaintiff's employer purchased the machine from Richards Shear, Logemann contacted plaintiff's employer, Wallace Steel, and notified it of the acquisition of the Richards Shear product line along with the inventories and blueprints for new shears. In July, 1968, a former Richards Shear serviceman was sent by Logemann to service and check Wallace Steel's machine. Thereafter, in April, 1976, Logemann again contacted Wallace Steel and solicited business with respect to the shear machine, made assurances concerning service, and notified Wallace Steel of its acquisition of another former Richards Shear serviceman. Logemann also supplied Wallace Steel with replacement parts for the machine.

It is the general rule that a corporation which acquires the assets of another is not liable for the torts of its predecessor (19 C.J.S., Corporations, § 1380; 15 Fletcher's Cyclopedia Corporations § 7122). There are exceptions and we stated those generally recognized in Hartford Acc. & Ind. Co. v. Canron, Inc. 43 N.Y.2d 823, 825, 402 N.Y.S.2d 565, 373 N.E.2d 364, supra. A corporation may be held liable for the torts of its predecessor if (1) it expressly or impliedly assumed the predecessor's tort liability, (2) there was a consolidation or merger of seller and purchaser, (3) the purchasing corporation was a mere continuation of the selling corporation, or (4) the transaction is entered into fraudulently to escape such obligations. Nothing in the record suggests liability under any of these theories. The only arguable basis upon which plaintiffs can predicate a finding of successor liability is to characterize Logemann as a "mere continuation" of Richards Shear Company. The exception refers to corporate reorganization, however, where only one corporation survives the transaction; the predecessor corporation must be extinguished (see McKee v. Harris-Seybold Co., 109 N.J.Super. 555, 264 A.2d 98; Ladjevardian v. Laidlaw-Coggeshall, Inc., 431 F.Supp. 834, 839). The cases cited by plaintiff do not hold otherwise (Cyr v. Offen & Co., 1 Cir., 501 F.2d 1145; Turner v. Bituminous Cas. Co., 397 Mich. 406, 244 N.W.2d 873, supra). Since Richards Shear survived the instant purchase agreement as a distinct, albeit meager, entity, the Appellate Division properly concluded that Logemann cannot be considered a mere continuation of Richards Shear.

Plaintiffs also contend that liability may be imposed on defendant Logemann for strict products liability based upon recent decisions in other jurisdictions which have extended successor liability. The courts that have addressed the issue impose strict products liability on a successor corporation, based upon a balancing approach, where there has been a basic "continuity of the enterprise" of the seller corporation (Turner v. Bituminous Cas. Co., 397 Mich. 406, 244 N.W.2d 873, supra), an expansion of the traditional merger or consolidation exceptions, or where the successor corporation continues to produce the predecessor's product in the same plant (Ray v. Alad Corp., 19 Cal.3d 22, 136 Cal.Rptr. 574, 560 P.2d 3, supra ). We do not adopt the rule of either case but note that both are factually distinguishable in any event. Applying the test adopted by the Michigan Supreme Court in Turner to the instant facts, plaintiffs would have no claim against defendant Logemann as a matter of law because the factors manifesting continuity of corporate responsibility, such as continuity of management, key personnel, and physical location are not present in this case. Logemann did not purchase the manufacturing plant or equipment of Richards Shear and except for the hiring of two servicemen, no employees of Richards Shear became employees of Logemann. A stronger claim may be based upon the "product line" theory developed by the California Supreme Court in Ray v. Alad Corp. (supra). In Ray, the court, noting its rule on successor liability (which is the same as New York's), stated that where none of the four exceptions for imposing liability were present, it would consider the policies underlying strict tort liability for defective products to determine whether an exception to the general rules insulating the defendant therein from liability were warranted. These policies included the availability of remedies for the injured plaintiff as well as the fairness of requiring the successor to assume a responsibility for defective products. However, the Ray case presented unique facts which are clearly distinguishable from the present case and the California court's policy decision was obviously influenced by them. Those circumstances, the dissolution of the prior corporation shortly after the purchase of its equipment and the use by the successor corporation of essentially the same factory, name and office personnel after the transactions to produce the same product, are not present in this case.

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