Winsor v. Glasswerks Phx, LLC

• Decision Date: 04 February 2003
• Docket Number: No. 1 CA-CV 01-0395.,1 CA-CV 01-0395.
• Citation: 63 P.3d 1040,204 Ariz. 303
• Parties: John Scott WINSOR, Plaintiff-Appellant, v. GLASSWERKS PHX, L.L.C., a California limited liability corporation, Defendant-Appellee.
• Court: Arizona Court of Appeals

63 P.3d 1040

204 Ariz. 303

John Scott WINSOR, Plaintiff-Appellant, v. GLASSWERKS PHX, L.L.C., a California limited liability corporation, Defendant-Appellee.

No. -0395.

Court of Appeals of Arizona, Division 1, Department C.

February 4, 2003.

Shultz & Rollins, LTD. By James E. Marner, Tucson, Attorneys for Plaintiff-Appellant.

Jardine, Baker, Hickman & Houston By Gerald T. Hickman, John Drazkowski, Phoenix, Attorneys for Defendant-Appellee.

OPINION

BARKER, Judge.

¶ 1 We are invited in this case to expand the scope of products liability actions to include successor corporations not involved in placing the product into the stream of commerce. We decline to do so, determining that any such modification of Arizona law is best left to the legislature.

FACTUAL AND PROCEDURAL BACKGROUND

¶ 2 On June 9, 1997, John Scott Winsor ("Winsor") was at a job site installing a pane of glass manufactured by Labrador Glass Specialties, d/b/a, LabGlas, Inc. ("LabGlas"). The pane of glass shattered and Winsor was seriously injured. In 1995, approximately two years prior to Winsor's injury, LabGlas entered into a purchase agreement to the effect that Glasswerks PHX, L.L.C. ("Glasswerks") became the owner (with limited exceptions) of all LabGlas' assets, tangible or intangible.¹ The purchase agreement provided that Glasswerks "will not assume or be responsible for any liabilities or obligations of [LabGlas]" except those debts expressly stated. The agreement also provided that it was to "be governed by and construed in accordance with the laws of the State of California applicable to contracts made."

¶ 3 After his injury, Winsor filed a products liability action against Glasswerks as LabGlas' successor. Glasswerks moved for summary judgment relying on the general rules of successor liability recognized in Arizona. A.R. Teeters & Assocs., Inc. v. Eastman Kodak Co., 172 Ariz. 324, 836 P.2d 1034 (App.1992). The general rule is that a successor corporation is not liable unless certain exceptions are met. For example, a successor is liable if the successor is "a mere continuation or reincarnation of the seller" or if "the transfer of assets to the purchaser is for the fraudulent purpose of escaping liability for the seller's debts." Id. at 329, 836 P.2d at 1039.

¶ 4 Winsor did not argue to the trial court under Teeters, and does not argue here, that Glasswerks is a "mere continuation" or that the purchase agreement was for the "fraudulent purpose of escaping liability" or that some other exception recognized in Arizona applies. Rather, Winsor argued to the trial court that California law applied and that Glasswerks was liable under the product line exception to the general rule as recognized in California. Ray v. Alad Corp., 19 Cal.3d 22, 136 Cal.Rptr. 574, 560 P.2d 3, 11 (Cal.1977).

¶ 5 The trial court determined that Arizona law, rather than California law, applied and granted Glasswerks' motion for summary judgment. Winsor then filed a motion for reconsideration urging the trial court to expand Arizona law to recognize the product line exception first announced in Ray. The trial court denied the motion. Winsor timely appealed. We have jurisdiction pursuant to Arizona Revised Statutes (A.R.S.) sections 12-120.21 (1992) and 12-2101(C)(1994).

DISCUSSION

¶ 6 This court reviews a summary judgment de novo. Great Am. Mortg., Inc. v. Statewide Ins. Co., 189 Ariz. 123, 125, 938 P.2d 1124, 1126 (App.1997). Considering the facts in the light most favorable to the non-moving party, we will affirm if there is no material factual issue and the moving party is entitled to judgment as a matter of law. Estate of Hernandez v. Flavio, 187 Ariz. 506, 509, 930 P.2d 1309, 1312 (1997).

1. Choice of Law.

¶ 7 The first issue we must decide is whether Arizona or California law applies in this products liability action. Winsor argues that the choice of law provision in the purchase agreement between Glasswerks and LabGlas requires that California law apply to his claim. We disagree.

¶ 8 The choice of law provision in this matter applies to the contractual relationship between LabGlas and Glasswerks, not the tort claim brought by Winsor against Glasswerks. The contractual provision provides as follows:

Th[e] Agreement is to be governed by and construed in accordance with the laws of the State of California applicable to contracts made and to be performed wholly within such State, without regard to the conflicts of laws principles thereof.

(Emphasis added.)

¶ 9 Arizona courts will apply the law of the state chosen by the parties to govern their contractual relationship as long as the chosen law has some nexus with the parties or the contract. Nanini v. Nanini, 166 Ariz. 287, 290, 802 P.2d 438, 441 (App. 1990). However, Winsor's claims arise from tort law. "Claims arising in tort are not ordinarily controlled by a contractual choice of law provision. Rather, they are decided according to the law of the forum state." Sutter Home Winery, Inc. v. Vintage Selections, Ltd., 971 F.2d 401, 407 (9th Cir.1992) (internal citation omitted); see also S. Union Co. v. Southwest Gas Co., 165 F.Supp.2d. 1010, 1028 (D.Ariz.2001)

.

¶ 10 The Ninth Circuit has recognized that contractual choice of law provisions may apply to tort claims under certain circumstances: "Whether a [choice of law provision] applies to tort claims depends on whether resolution of the claims relates to interpretation of the contract." Manetti-Farrow, Inc. v. Gucci Am., Inc., 858 F.2d 509, 514 (9th Cir.1988). Here, Winsor's claim is for personal injuries based upon a product liability action. Winsor's tort claim arises independently of the contract between LabGlas and Glasswerks. Conversely, in Manetti-Farrow, the court concluded that the tort claims could "not be adjudicated without analyzing whether the parties were in compliance with the contract." Id. Thus, contrary to Winsor's assertion, the Manetti-Farrow holding does not persuade us that California law applies.

¶ 11 Without an applicable choice of law provision, Arizona courts follow the Restatement (Second) of Conflict of Laws (1971) (Conflict of Laws Restatement) to determine the controlling law. Bates v. Superior Court (Nationwide Ins. Co.), 156 Ariz. 46, 48, 749 P.2d 1367, 1369 (1988). Cases sounding in tort should be resolved under the law of the state having the most significant relationship to both the occurrence and the parties with respect to the particular issue. Conflict of Laws Restatement § 145(1). Factors taken into consideration include: (a) the place where the injury occurred, (b) the place where the conduct causing the injury occurred, (c) the domicile, residence, place of incorporation, and place of business of the parties, and (d) the place where the relationship, if any, between the parties is centered. Conflict of Laws Restatement § 145(2); Bates, 156 Ariz. at 49, 749 P.2d at 1370.

¶ 12 Application of these factors as follows leads us to conclude that Arizona law should apply. Winsor was injured in Arizona. The conduct causing the injury, i.e., the production of allegedly defective glass, occurred in Arizona. Winsor lives in Arizona and Glasswerks does business in Arizona. Although Glasswerks is incorporated in California, the place of business is generally a more important contact than the place of incorporation, and in cases involving personal injury to the plaintiff, the residence of the plaintiff is given greater weight. Conflict of Laws Restatement § 145(2), cmt. e; Bates, 156 Ariz. at 50, 749 P.2d at 1371. As to the factor that requires us to analyze the parties' relationship, the only relationship the parties share is this litigation. Therefore, this factor is not applicable.

¶ 13 Accordingly, applying the factors from the Conflict of Laws Restatement and Bates, we conclude that Arizona has the most significant relationship to both the parties and the occurrence with respect to this products liability action. Arizona law applies.

2. Successor Liability in Products Liability Actions.

A. Teeters, the Restatement, and the Majority Rule.

¶ 14 The general rule of successor liability in Arizona, as contained in Teeters, is that a sale of the principal assets of a corporation does not result in imposition of successor liability unless (stated generally) there is (1) an agreement, (2) a merger or consolidation, (3) a "mere continuation" or (4) fraud. Teeters described the rule and exceptions as follows:

[W]hen a corporation sells or transfers its principal assets to a successor corporation, the latter will not be liable for the debts and liabilities of the former unless[:]

(1) there is an express or implied agreement of assumption,

(2) the transaction amounts to a consolidation or merger of the two corporations,

(3) the purchasing corporation is a mere continuation [or reincarnation] of the seller, or

(4) the transfer of assets to the purchaser is for the fraudulent purpose of escaping liability for the seller's debts.

Teeters, 172 Ariz. at 329, 836 P.2d at 1039 (citations omitted).

¶ 15 Winsor claims that Teeters is neither persuasive nor binding as it did not involve policy considerations unique to products liability. This argument, however, must be tempered with the realization that the rule specifically formulated for successor liability in products liability actions, Restatement (Third) of Torts: Products Liability (1998) (Restatement) § 12, is essentially the same as that announced earlier in Teeters. Restatement § 12 provides:

A successor corporation or other business entity that acquires assets of a predecessor corporation or other business entity is subject to liability for harm to persons or property caused by a defective product sold or otherwise distributed commercially by the predecessor if the acquisition:

(a) is accompanied by an agreement for the successor to assume such liability; or

(b) results from a fraudulent conveyance to escape liability for the debts or liabilities of the...