Smith v. Navistar Intern. Transp. Corp.

• Decision Date: 24 May 1988
• Docket Number: Civ. No. PN-86-1799.
• Citation: 737 F. Supp. 1446
• Parties: Reuben SMITH, et al. v. NAVISTAR INTERNATIONAL TRANSPORTATION CORP., et al.
• Court: U.S. District Court — District of Maryland

737 F. Supp. 1446

Reuben SMITH, et al. v. NAVISTAR INTERNATIONAL TRANSPORTATION CORP., et al.^*

Civ. No. PN-86-1799.

United States District Court, D. Maryland.

May 24, 1988.

Bertram M. Goldstein, Baltimore, Md., for plaintiffs.

Edward S. Digges, Michael T. Wharton, James T. Wharton, and D. Lee Rutland, Annapolis, Md., for defendant Navistar Intern. Transp. Corp.

George M. Church, and Philip B. Barnes, Towson, Md., for defendants Bostrom Seating, Inc., UOP, Inc., and Allied Signal, Inc.

MEMORANDUM

NIEMEYER, District Judge.

Plaintiff Reuben Smith, Jr. claims that on March 10, 1983, at 10:30 in the evening, while driving a 1978 International Harvester brand truck, he "was confronted with a large road elevation" on Interstate 695 around Baltimore. Unable to avoid this area, he "hit the bump" with the result that he was bounced and hit the ceiling of the cab. He claims that the pneumatic seat on which he was seated was defective in that excessive air pressure "leaked into the seat" through a valve which incorrectly regulated the air pressure, thereby causing the seat to "throw the driver into the cab's ceiling on rough road surfaces."

Somewhat more than three years after the incident, on May 2, 1986, plaintiff and his wife filed suit in the state court against Navistar International Transportation Corporation (Navistar),¹ the manufacturer of the truck, and Bostrom Seating, Inc., the purported manufacturer and supplier of the seat in question.² They sued for negligence in the design, manufacture and sale of the seat and for strict liability in tort. By virtue of diversity jurisdiction, the action was removed to this Court. The defendants Navistar and Bostrom Seating have filed crossclaims against each other.

The seat at issue was a Bostrom "Levelair" model which shortly after the incident was removed from the truck by Reuben Smith's employer, who was the lessee of the truck. Thereafter, the seat was lost or destroyed and its whereabouts are currently unknown.

Bostrom Seating, Inc. has filed a motion for summary judgment as to both the claim of the plaintiffs and the crossclaim of Navistar, alleging that it did not come into being until almost two years after the incident and that it was not responsible for any tort liability that arose before it was incorporated. It was incorporated in January, 1985 and shortly thereafter acquired the assets of the Bostrom division of UOP, Inc. (UOP), the actual manufacturer of the seat in question. UOP is the wholly-owned subsidiary of Allied-Signal, Inc.³

In the face of the pending summary judgment motion of Bostrom Seating, Inc., the plaintiffs amended their complaint to name UOP and its parent, Allied-Signal, Inc. The amended complaint was filed on November 22, 1987, over four years after the incident, and concededly well beyond the applicable statute of limitations.⁴ UOP and Allied-Signal predictably moved to dismiss the amended complaint as untimely. The plaintiffs responded to this motion relying on Rule 15(c), F.R.Civ.P., which specifies when an amendment relates back.

For the reasons that are given hereafter, both the motion for summary judgment of Bostrom Seating, Inc. and the motions to dismiss of UOP and Allied-Signal will be granted.

I Successor Corporation Liability

The parties agree that the seat in question was designed, built and supplied to Navistar by UOP some time in or before 1978. If negligence entered into the design or manufacturer of the seat, the tort feasor was UOP. UOP was a viable corporation at the time the injuries were sustained by the plaintiffs and it continues to remain so today.

Plaintiffs did not initially sue UOP. Rather, they sued a Delaware corporation, Bostrom Seating, Inc., which was created in 1985 to purchase the assets of UOP's seating manufacturing operations, known as the Bostrom Division of UOP. Since there is a substantial question whether plaintiffs' later filed amended action against UOP will survive the challenge under the statute of limitations, the plaintiffs urge this Court to hold Bostrom Seating, Inc. responsible for the alleged tortious conduct of UOP under a doctrine that Bostrom Seating, Inc. impliedly assumed responsibility because it purchased in essence the entire Bostrom Division of UOP, and Bostrom Seating, Inc. is, therefore, nothing more than a continuation of the business of Bostrom Seating Division. Plaintiffs rely on Polius v. Clark Equipment Co., 608 F.Supp. 1541 (D. St. Croix, V.I.1985) and similarly decided cases.

Ordinarily, a corporation that acquires the assets of another corporation is not liable for the debts and liabilities of the predecessor corporation. Exceptions to the general principle have developed to impose liability on the successor corporation when: (1) there is an expressed or implied assumption of liability; (2) the transaction amounts to a consolidation or merger; (3) the purchasing corporation is a mere continuation of the selling corporation; or (4) the transaction is entered into fraudulently to escape liability for debts. Knapp v. North American Rockwell Corporation, 506 F.2d 361 (3rd Cir.1974); Hanlon v. Johns-Manville Sales Corporation, 599 F.Supp. 376 (N.D.Iowa 1984).

Although the Maryland courts have not had occasion to address this issue, we have no reason to doubt that the general exceptions noted above would be accepted as they are in most jurisdictions, and we therefore conclude that this is the law of Maryland unless and until the Court of Appeals suggests otherwise. See Dawejko v. Jorgensen Steel Co., 290 Pa.Super. 15, 434 A.2d 106 (1981); Mozingo v. Correct Manufacturing Corp., 752 F.2d 168 (5th Cir.1985); Shannon v. Samuel Langston Co., 379 F.Supp. 797 (W.D.Mich.1974); Bonee v. L & M Construction Co., 518 F.Supp. 375 (M.D.Tenn.1981).

Some of the exceptions are expressly codified by statute in Maryland. Section 3-115(c) of the Corporations and Associations Article, Maryland Annotated Code, provides that upon the transfer of all or substantially all assets, "the successor is liable for all the debts and obligations of the transferror to the extent provided in the Articles of Transfer." Section 3-114(e), Corporations and Associations Article, Maryland Annotated Code, provides that following a consolidation or merger "the successor is liable for all debts and obligations of each nonsurviving corporation." These two statutes are very similar to the first two exceptions to the traditional rule recited above. Additionally, the Maryland Uniform Fraudulent Conveyance Act, § 15-201 et seq., Commercial Law Article, Maryland Annotated Code, protects the rights of creditors of a corporation which transfers its assets with an intent to defraud or without fair consideration in a manner similar to the fourth exception noted above.

Absent agreement by the successor corporation, its conduct must manifest an intent to assume the tort liability of its predecessor, or the equities must be sufficiently strong to impose that liability on the successor corporation. In the absence of an implied assumption of liability or the imposition of such liability under an overriding equity, the tort liability of a predecessor corporation will not be transferred to its successor. When the facts show that the successor corporation is a substantial continuation of the selling corporation, courts have imposed liability to third parties on the successor corporation even if to do so is contrary to the expressed intention of the parties to the agreement of transfer. See Cyr v. B. Offen & Co., Inc., 501 F.2d 1145 (1st Cir.1974).

A small minority of jurisdictions has attached tort liability to the transfer of a product line. Ray v. Alad Corp., 19 Cal.3d 22, 136 Cal.Rptr. 574, 560 P.2d 3 (1977); Ramirez v. Amsted Industries, Inc., 86 N.J. 332, 431 A.2d 811 (1981). In each of those cases the predecessor corporation ceased to exist and the successor corporation continued the product line of the predecessor corporation. The theory suggested by these cases is that the burdens of product liability flow with the benefits. We are not prepared to say that Maryland will adopt this exception and plaintiffs have not urged us to do so.

When UOP sold its Bostrom Division to the newly formed Delaware corporation, Bostrom Seating, Inc., the agreement between the parties provided that UOP would retain liability for damages incurred before January 26, 1985, and that Bostrom Seating, Inc. would assume liability for damages sustained after that date, even if the product had been manufactured before that date. Paragraph 3 of the agreement made between the parties specifies the scope of assumption of liability and the scope of exclusion.

Bostrom Seating, Inc. ... shall assume as of the closing date January 26, 1985 ... any and all liabilities, losses and damages arising out of or resulting from ... any accident or occurrence occurring subsequent to the closing date resulting in personal injury, sickness, death, property damage, property destruction or loss of use of property arising out of or resulting from the operation of the business purchased hereunder....

A subsequent portion of paragraph 3 of the agreement provides the obverse:

Bostrom Seating, Inc. shall not assume or be deemed to have assumed any liability or obligation arising out of or resulting from ... any accident or occurrence occurring prior to the closing date January 26, 1985 resulting in personal injury, sickness, death, property damage, property destructions or loss of use of property arising out of or resulting from the operation of the business of Bostrom U.S. Division including, without limitation, the performance of any contract or the ownership, operation or use of any product designed, manufactured, installed or marketed by UOP for any period prior to the closing date.

The Court concludes that Bostrom Seating, Inc. did not expressly assume liability for the torts alleged by the plaintiffs in this case.

The plaintiffs urge that, while...