Semenetz v. Sherling & Walden, Inc.

• Decision Date: 13 June 2006
• Citation: 7 N.Y.3d 194,851 N.E.2d 1170
• Parties: Bridget SEMENETZ, Individually and as Parent and Guardian of Sean Semenetz, an Infant, Appellant, v. SHERLING & WALDEN, INC., et al., Defendants, and Sawmills & Edgers, Inc., Respondent.
• Court: New York Court of Appeals Court of Appeals

851 N.E.2d 1170

7 N.Y.3d 194

Bridget SEMENETZ, Individually and as Parent and Guardian of Sean Semenetz, an Infant, Appellant, v. SHERLING & WALDEN, INC., et al., Defendants, and Sawmills & Edgers, Inc., Respondent.

Court of Appeals of New York.

June 13, 2006.

Powers & Santola, LLP, Albany (Michael J. Hutter of counsel), for appellant.

Goldberg Segalla, LLP, Albany (Jonathan M. Bernstein of counsel), for respondent.

OPINION OF THE COURT

READ, J.

A corporation that purchases another corporation's assets is not liable for the seller's torts, subject to four exceptions outlined in Schumacher v. Richards Shear Co., 59 N.Y.2d 239, 464 N.Y.S.2d 437, 451 N.E.2d 195 [1983]. Plaintiff Bridget Semenetz asks us to revisit Schumacher to endorse a fifth exception—the "product line" exception in cases of strict products liability. For the reasons that follow, we reject the "product line" exception.

I.

In May 1998, defendant S & W Edger Works, Inc., an Alabama corporation, sold a 10,000-pound band sawmill¹ to Semenetz Lumber Mill, Inc., located in Jeffersonville, New York. The sawmill, which cost $45,000, was capable of sawing logs 36 inches in diameter and 20 feet long. On July 26, 1999, Sean Semenetz, an infant, caught his right hand and fingers between a sprocket and chain apparatus in the sawmill, causing partial amputation of several fingers.

On October 5, 2000, Edger Works sold most of its assets, including real property, goodwill, trade names and inventory, to Sawmills & Edgers, Inc., another Alabama corporation, for $300,000. The purchase contract documents expressly stated that "[t]he Buyer [Sawmills] assume[d] none of the Seller's [Edger Works] liabilities except for the receipt of and payment of ordered but undelivered inventory," as listed in an attachment. On October 6, 2000, Edger Works changed its name to Sherling & Walden, Inc. Sherling & Walden paid Edger Works' outstanding corporate debts in the months after the closing.

Sawmills manufactured sawmills at the same plant in Alabama where Edger Works had formerly produced them, and retained at least some of Edger Works' former employees. Its advertising described Sawmills as "formerly S & W Edger Works," stating that it "opened [its] doors for business in 1990," which is the date Edger Works first sold its products in the marketplace. Sawmills has made only two sales in New York, both to Semenetz Lumber at its request and for less than $100.

On April 15, 2002, plaintiff commenced this action for damages on behalf of her infant son, naming Sawmills, Edger Works and Sherling & Walden as codefendants in causes of action alleging strict products liability; negligent design and manufacture; breach of duty to warn; and breach of warranty. She also asserted a cause of action against Semenetz Lumber for failure to maintain safe premises.

In its answer, Sawmills pleaded lack of personal jurisdiction as an affirmative defense; Sawmills subsequently moved for summary judgment dismissing the complaint and all cross claims on this ground. Before deciding the motion, Supreme Court ordered further discovery on the issue of personal jurisdiction, noting that there was, in fact, long-arm jurisdiction over Edger Works, which had sold and shipped the sawmill to Semenetz Lumber in 1998.

Supreme Court denied Sawmills' motion for summary judgment. The court first turned to our decision in Schumacher to support the proposition that "while, in general, a corporation which acquires the assets of another is not liable for the torts of the predecessor corporation, there [are] exceptions to the rule." These exceptions arise where a successor corporation "expressly or impliedly assume[s][its] predecessor's tort liability"; or "there [is] a consolidation or merger of seller and purchaser"; or "the purchasing corporation [is] a mere continuation of the selling corporation"; or "the transaction is entered into fraudulently to escape such obligations" (Schumacher, 59 N.Y.2d at 245, 464 N.Y.S.2d 437, 451 N.E.2d 195). The court determined that Sawmills did not fit within any of the four Schumacher exceptions, but that this did not end its inquiry in light of the Appellate Division's decision in Hart v. Bruno Mach. Corp., 250 A.D.2d 58, 679 N.Y.S.2d 740 [3d Dept.1998].

Supreme Court read Hart as expanding Schumacher to encompass two additional exceptions in cases alleging strict products liability—the "product line" exception, which the Appellate Division expressly espoused in Hart, and the "continuing enterprise" exception, which Supreme Court concluded that the Appellate Division had impliedly adopted in Hart. The court held that "under both . . . exceptions, [Sawmills] is a successor to [Edger Works] and is subject to [] long-arm jurisdiction here." Sawmills appealed.

The Appellate Division first determined that "there can be no jurisdiction here based on the `corporate presence doctrine' or New York's long-arm statute" (21 A.D.3d 1138, 1139, 801 N.Y.S.2d 78 [3d Dept.2005] [citations omitted]). The "corporate presence" doctrine was not satisfied because Sawmills was a nondomiciliary corporation and was not doing business in New York. New York's long-arm statute did not reach Sawmills because it came into existence after the infant's accident, and therefore did not engage in any tortious conduct causing his injuries. Similarly, assuming Sawmills had a duty to warn, the duty did not arise until after Sawmills acquired Edger Works' assets, which took place after the infant's accident. Nor was there any evidence that Sawmills derived substantial revenue from interstate commerce.

Next, the Appellate Division acknowledged that Hart had adopted the "product line" exception, which the First Department later rejected in City of New York v. Pfizer & Co., 260 A.D.2d 174, 688 N.Y.S.2d 23 [1st Dept.1999], and which we had "not yet embraced" (21 A.D.3d at 1140, 801 N.Y.S.2d 78). The Court did not determine whether Sawmills fit within the "product line" exception, however, because

"[t]he `product line' and `continuing enterprise' exceptions to the successor liability rule deal with the concept of tort liability, not jurisdiction. When and if either exception is found applicable, the corporate successor would be subject to liability for the torts of its predecessor in any forum having in personam jurisdiction over the successor, but the exceptions do not and cannot confer such jurisdiction over the successor in the first instance. While we recognize that in certain circumstances a successor corporation may inherit its predecessor's jurisdictional status, the facts of the subject case do not fit within such a scenario" (id. at 1140-1141, 801 N.Y.S.2d 78 [internal quotation marks and citations omitted]).

Accordingly, the Appellate Division reversed so much of Supreme Court's order as denied Sawmills' motion for summary judgment, granted the motion and dismissed the complaint against Sawmills. We granted plaintiff permission to appeal² and now affirm, but on a different ground altogether.

II.

The "product line" exception to the general rule against successor liability originated with the California Supreme Court's decision in Ray v. Alad Corp., 19 Cal.3d 22, 136 Cal.Rptr. 574, 560 P.2d 3 [1977]. In Ray, the court imposed liability on the successor corporation for an injury sustained by a plaintiff who fell off a ladder manufactured by its predecessor. The court concluded that successor liability was proper because "a party which acquires a manufacturing business and continues the output of its line of products under the circumstances here presented assumes strict tort liability for defects in units of the same product line previously manufactured and distributed by the entity from which the business was acquired" (19 Cal.3d at 34, 136 Cal.Rptr. 574, 560 P.2d at 11).

The court articulated three rationales for the "product line" exception:

"(1) the virtual destruction of the plaintiff's remedies against the original manufacturer caused by the successor's acquisition of the business, (2) the successor's ability to assume the original manufacturer's risk-spreading role, and (3)...