Weaver v. Nash Intern., Inc.

• Decision Date: 05 May 1983
• Docket Number: Civ. No. 81-61-D-2.
• Citation: 562 F. Supp. 860
• Parties: David WEAVER, Plaintiff, v. NASH INTERNATIONAL, INC., a Delaware corporation, f/k/a L.W. Nash Co., Defendant and Third Party Plaintiff, v. NICHOLS-HOMESHIELD, INC., Third Party Defendant.
• Court: U.S. District Court — Southern District of Iowa

562 F. Supp. 860

David WEAVER, Plaintiff, v. NASH INTERNATIONAL, INC., a Delaware corporation, f/k/a L.W. Nash Co., Defendant and Third Party Plaintiff, v. NICHOLS-HOMESHIELD, INC., Third Party Defendant.

Civ. No. 81-61-D-2.

United States District Court, S.D. Iowa, Davenport Division.

May 5, 1983.

Steven K. Warbasse, Cedar Rapids, Iowa, Ronald May, Davenport, Iowa, for plaintiff.

Charles Brooke, Davenport, Iowa, for defendant and third party plaintiff.

Greg A. Egbers, Davenport, Iowa, for third party defendant.

MEMORANDUM OPINION, RULINGS ON MOTIONS FOR SUMMARY JUDGMENT AND ORDER OF DISMISSAL

VIETOR, District Judge.

The court has before it plaintiff's motion for partial summary judgment and defendant Nash International, Inc.'s motion for summary judgment. The motions raise the issue of whether defendant Nash International, Inc. may be held liable to plaintiff as a successor corporation to the manufacturer of an allegedly defective product under theories of negligence, strict product liability and implied and express warranties.

Pursuant to Fed.R.Civ.P. 56(c), summary judgment may be granted when there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law. There is no genuine issue as to the following material facts.

UNDISPUTED FACTS

On June 25, 1979, plaintiff, while operating an aluminum reduction mill at his place of employment, Nichols-Homeshield, Inc., in Davenport, Iowa, was injured by the mill. The mill had been designed and manufactured in 1964 or 1965 by L.W. Nash Company, an Ohio corporation (hereinafter "Ohio corporation"), and sold to Nichols-Homeshield, Inc., where it was installed in 1965.

The Ohio corporation was formed in 1946. Shareholders included L.W. Nash and his wife, Robert U. Nash and Terry W. Nash, sons of L.W. Nash, Pat Couchenour, daughter of L.W. Nash, and her husband, James. Some shares were owned by other individuals.

On March 29, 1968, the Ohio corporation entered into a detailed written "Agreement for Sale of Assets and Business" with Aluminum Company of North America (Alcoa). Pursuant to the agreement Alcoa caused to be incorporated a Delaware corporation which was also named L.W. Nash Company (hereinafter "Delaware corporation"). Under the terms of the agreement, the Delaware corporation purchased all of the assets and the going business of the Ohio corporation. The agreement provided that liabilities not expressly assumed by the Delaware corporation were the sole responsibility of the Ohio corporation. There was no express assumption by the Delaware corporation of liabilities for negligence or product liability claims that might arise in the future.¹ The agreement expressly provided that the Delaware corporation would "have no liability or responsibility whatever" with respect to continuing warranty obligations on products manufactured and sold by the Ohio corporation on or before March 31, 1968.

Alcoa, which was not a shareholder in the Ohio corporation, has at all times been the sole shareholder of the Delaware corporation. The three "incorporators" of the Delaware corporation had no connection with the Ohio corporation. On April 3, 1968, the incorporators elected a seven member board of directors, none of whom had any connection with the Ohio corporation. The incorporators were among the initial directors. On April 4, 1968, the directors met to select officers and, inter alia, consider the purchase of the assets and business of the Ohio corporation. The directors selected eleven officers, seven of whom held the same positions in the Ohio corporation. The other four officers had no previous connection with the Ohio corporation. The board meeting ended with the three incorporators resigning from the board, and they were immediately replaced by L.W. Nash, T.W. Nash and R.U. Nash, who were officers, directors and shareholders of the Ohio corporation.

Following the purchase, the Delaware corporation engaged in the design and production of special machinery and equipment, which had been the business of the Ohio corporation, in the same plant used by the Ohio corporation (until 1979) and with substantially the same workforce as the Ohio corporation had. In 1979 the Delaware corporation adopted the name Nash International, Inc.

Pursuant to the agreement the name of the Ohio corporation was changed to E.W.N., Inc. The parties to the agreement intended that E.W.N., Inc. would be dissolved in due course. However, a tax claim may have prevented the dissolution. From the record before the court it is not clear if E.W.N., Inc. is still in existence, but under the court's view of the applicable law that fact is not material.

CONTENTIONS OF PARTIES

Plaintiff contends that the Delaware corporation is a successor of — a "mere continuation" of — the Ohio corporation and can therefore be held liable for injuries caused by the mill designed and manufactured by the Ohio corporation. The Delaware corporation (moving defendant Nash International, Inc.) contends that it is not a legally liable successor corporation.

LAW

The jurisdiction of the court is predicated upon diversity of citizenship of the parties. 28 U.S.C. § 1332. Neither party has raised a choice of law issue; both parties have briefed the law of Iowa as well as the law of other jurisdictions. The Iowa Supreme Court has adopted the most significant relationship analysis to determine what law should be applied in tort cases. Fuerste v. Bemis, 156 N.W.2d 831, 833 (Iowa 1968). Under the Iowa choice of law rule the court applies the law of the state with the most significant relationship with the parties and which has the principal interest in the issue in dispute. Berghammer v. Smith, 185 N.W.2d 226, 230 (Iowa 1971). Plaintiff is domiciled in Iowa and he was injured in Iowa at his place of employment. The court concludes that under the Iowa choice of law rule the law of Iowa should be applied.

The general rule is that a corporation that purchases the assets of another corporation will not be held responsible for the liabilities of the selling corporation. 15 W. Fletcher, Cyclopedia of the Law of Private Corporations, §§ 7122, 7123 (rev. perm. ed. 1973 & Supp.). Four exceptions to that rule have long been recognized: (1) where there is an express agreement to assume liability; (2) where there is a consolidation or merger; (3) where the purchasing corporation is a "mere continuation" of the selling corporation; and (4) where the transaction is fraudulent. Nelson v. Pampered Beef-Midwest, Inc., 298 N.W.2d 281, 287 (Iowa 1980), quoting Luedecke v. Des Moines Cabinet Co., 140 Iowa 223, 226, 118 N.W. 456, 457 (1908).

Recently some courts have extended liability to successor corporations that do not come within the traditional exceptions to the no-liability rule. Three approaches have emerged: (1) product line theory; (2) expansion of the traditional merger and continuation exceptions; (3) imposition of liability on the acquiring corporation for negligent failure to warn. See Tucker v. Paxson Machine Co., 645 F.2d 620, 623 (8th Cir.1981), and cases cited therein. Other courts have rejected extending liability under one or more of these approaches, either as a matter of policy or because the...