The matter is presently before the Court on Nicolet, Inc.’s (“Nicolet”) motion for partial summary judgment against all plaintiffs, on the grounds that it cannot be held liable as the successor-in-interest to Keasbey & Mattison Company (“K & M”). The following facts are not in dispute:
In April of 1962, Nicolet, a Delaware corporation, learned that K & M was dissolving and that its parent company, Turner & Newall, Ltd., was disposing of its assets. The assets consisted of the Asbestos Cement Pipe Division, purchased by Certain-Teed Products Corporation (“Cer
Under the terms of the agreement of sale, Nicolet purchased the land, buildings, fixtures, machinery, equipment, raw materials and supplies, work in progress and finished goods inventories, and variohs records and files relating to K & M’s Industrial Products Division. In addition, Nico-let received the patents, trademarks, trade names and the good will related to the trademarks and trade names connected with this Division, subject to the rights of others created prior to the agreement. Thus, while Nicolet received the right to use the name “Keasbey & Mattison Company,” a similar right was granted to Certain-Teed. Finally, all of the insurance coverage in effect on behalf оf K & M was transferred to Certain-Teed, and not to Ni-colet.
Consideration for the sale consisted of cash, delivery of a note and mortgage and the assignment of a mortgage of premises previously owned by Nicolet. No shares of stock in Nicolet were involved, nor did any officers or directors of K & M go to Nico-let. Nicolet did hire approximately 25% of K & M’s former employees.
The agreement of sale also provided that Nicolet would not assume any obligations or liabilitiеs of K & M, except as set forth in the agreement. Paragraph 11 of the agreement affirmed K & M’s intention to cease to do business and to dissolve. Paragraph 13 provided that the agreement would be governed by Pennsylvania law.
The first question becomes does the law of Delaware (the place of the tort) or the law of Pennsylvania (the plaсe of the contract) apply to this case in deciding the issue of successor liability. If the issue of successor liability is viewed as one of tort law, Delaware courts have ruled that the law of the place of the tort applies.
See Sellon v. General Motors Corp.,
D.Del.,
Other courts have already considered the Nicolet — K & M successor liability issue. There is however no unanimity in the opinions. While many of the courts have treated the issue as a contractual one and applied Pennsylvania law,
see, e.g., Wells v. Raymark Industries,
M.D.Fla., No. 84-11-Civ-J-14, Black, J. (March 13, 1985);
In re Nicolet, Inc.,
D.Mass., Mass. Asbestos Litigation, M.M.L. No. 1 & 2, Zobel, J. (April 15, 1985);
Standal v. Armstrong Cork Co.,
Minn.App.,
The argument for the application of tort law is that the issue of successor liability is one of tort liability, that is whether Nicolet is liable for the tortious acts of K & M. I am satisfied, however, that while questions of negligence and what constitutes tortious conduct are properly decided by Delaware law, the focus of the successor liability issuе is more properly on the legal effect of the 1962 contractual transaction between Nicolet and K & M. Under Delaware choice-of-law rules, therefore, I am satisfied that the legal effect of the transaction should be considered by applying Pennsylvania law. See Walsh v. Newark Day Nursery Assoc., Del.Super., C.A. No. 82C-MR-127, Bifferato, J. (Jan. 28, 1985) (while Delaware law applies as to negligence issues, legal effect of transaction between parties will be determined by the law of the state with the most significant relationship to the transaction). I now then turn to that Pennsylvania analysis.
When one corporation sells or transfers its assets to another, the general rule of law in Pennsylvania is that the purchaser does not becomе liable for the obligations of the seller merely as a result of the sale.
Knapp v. North American Rockwell Corp.,
3d Cir.,
Express or Implied Agreement
The sale agreement provided that K & M would “indemnify and hold harmless Buyer against any loss or damages (including any court costs or lawyers’ fees) which may be suffered by Buyer as the result of the assertion against Buyer ... of any legal obligations or liabilities of Seller (othеr than legal obligations and liabilities expressly assumed by Buyer pursuant to the provisions hereof) existing on the Date of Closing.” No such “express assumption” of K & M’s liability for its sales of asbestos products by its Industrial Products Division is evidenced in the agreement. Further plaintiffs do not draw my attention to any clause in the contract that would give rise to an implied assumption оf liabilities.
Consolidation or Merger
A consolidation occurs when two corporations combine to form a new corporation.
Savini v. Kent Machine Works, Inc.,
E.D.Pa.,
A merger occurs when the seller is absorbed into the purchaser.
Savini,
Continuation
“The primary elements of ‘continuation’ include the common identity of the officers, directors, or stockholders in the predeces
Plaintiffs argue that a continuation did occur since Nicolet continued the business of the Industrial Products Division. The court in Jacobs, however, speaks in terms of a continuation of the selling corporation as an entire entity and not of a mere part of — that is, a division of — that corporatiоn. I am satisfied, therefore, that Nicolet is not a continuation of K & M.
Fraud
Plaintiffs do not argue that the transaction was entered into fraudulently. Nicolet is not liable under this exception either.
Product Line
Pennsylvania law recognizes one additional exception to the general rule. This is known as the “product line” exception. The rule, as set forth in
Dawejko v. Jorgensen Steel Co.,
Pa.Super., 290 Pa.Super.,
[W]here one corporation acquires all or substantially all the manufacturing assets of another corporation, even if exclusively for cash, and undertakes essentially the same manufacturing operation as the selling corporation, the purchasing corporation is strictly liable for injuries caused by defects in units of the same product line, even if previously manufactured and distributed by the selling corporation or its predecessor.
Dawejko,
The product line exception was first articulated by the California Supreme Court in the case of
Ray v. Alad Corp.,
Ca.Supr.,
(1) the virtual destruction of the plaintiffs 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) the fairness of requiring the successor to assume a responsibility for defective products that was a burden necessarily attached to the original manufacturer’s good will being enjoyed by the successor in the continued operation of the business.
Ray v. Alad Corp.,
Ca.Supr.,
The
Dawejko
court chose to phrase the product line exception in general terms, so that in a particular case the court could consider whether it is in the interest of justice to impose liability on the successor corporation.
Dawejko,
The various courts which have considered the Nicolet-K & M transaction under the Pennsylvania product line exception have not agreed as to the result. Some have held that Nicolet is not a successor to
Having examined and anаlyzed the facts of the transaction in light of the considerations articulated by the Dawejko court, I am satisfied that this Court should join those which have ruled Nicolet not liable as a successor to K & M.
A fundamental prerequisite to the application of the product line exception is the determination of “whether all or substantially all of the assets of the predecessor corporation were acquired by the successor, thereby vitiating plaintiff’s remedies against the predecessor as the responsible and viable tortfeasor.” Pizio v. Johns-Manville Corp., Pa.C.C.P., C.A. No. 2676, Takiff, J. (Feb. 9, 1983) at 4-5. While it is true as plaintiffs suggest that Nicolet did obtain substantially all of the assets of the Industrial Products Division, the assets in question clearly did not comprise all оr substantially all of the assets of K & M. I am satisfied that the prerequisite is, therefore, not met.
Plaintiffs also maintain that since K & M expressed its intention to dissolve at the time of the sale, Nicolet’s purchase of the Division resulted in the virtual destruction of the plaintiffs’ remedies against K & M. While the sale agreement did express K & M’s intention to dissolve, it was not a necessary requirement of the sale. In point of fact, K & M did not dissolve until five years after the sale. While the plaintiffs suggest that the continued existence of K & M may be considered as a sham, noting that in
Knapp v. North American Rockwell Corp.,
3d Cir.,
The question then is, presuming for purposes of this motion that plaintiffs’ remedies against K & M have been destroyed, whether Nicolеt is responsible for that destruction. Taking into consideration the continued existence of K & M for five years after Nicolet’s purchase, and considering that Nicolet purchased only a small portion of K & M’s assets, the major portion of the assets having been purchased by Certain-Teed, I conclude that Nicolet is not responsible for any destruction of the plaintiffs’ remedies. In so holding, I am aware of the case of
Amader v. Pittsburgh Corning Corp.,
E.D.Pa.,
The next question becomes did Nicolet assume K & M’s risk-spreading role? While Nicolet did obtain substantial property of the Industrial Products Division and K & M’s customer list, it did not obtain any of K & M’s insurance coverage, all such coverage having apparently been transferred to Certain-Teed. This of course did not prevent Nicolet from obtaining its own coverage, or passing the cost of such insurance on to its customers. Since Nicolet was a manufacturer, it was possible for it to assume a manufacturer’s risk-spreading role. To this limited extent, then, Nicolet does fulfill one requirement of the product line exception. I do not, however, place much weight on this factor.
The final question focuses on the fairness of requiring Nicolet to assume K & M’s liabilities as a burden attached to the enjoyment of K & M’s good will in the continued operation of the business of the Industrial Products Division. In this regard, I consider whether Nicolet acquired the use of K & M’s name and goоd will, and whether it advertised itself as K & M’s on-going corporation. While Nicolet did acquire the right to use the K & M name, and hence its good will, this right was not exclusive, since a similar right had been granted to Certain-Teed. Further, while Nicolet did market its products with the legend “Keasbey & Mattison Company, Division of Nicolet Industries, Inc.” evidence suggests that Nicolet’s marketing staff informed the customers that they had bought this Division from K & M. Indeed, the evidence suggests that Nicolet wanted the K & M customers to become familiar with Nicolet. Nicolet maintains, therefore, that it did not attempt to pass itself off as the same enterprise as K & M. The plaintiffs attempt to rebut this by introducing the testimony of Gregory Stagliano, President of Delaware Insulation which occasionally made small purchases from K & M. Stagli-аno testified that he didn’t realize that Ni-colet had purchased K & M. Even viewing the facts in the light most favorable to the plaintiffs, given the undisputed fact that Nicolet’s name was on the invoices, that it referred to its acquisition as a division of Nicolet, and that the sales staff represented themselves as Nicolet to regular customers, I am satisfied that the merе fact that Stagliano, a minor customer at best, was confused is an insufficient basis for a reasonable jury to conclude that Nicolet attempted to pass itself off as K & M or as an on-going corporation.
See Cropper v. Rego Distribution Center, Inc.,
D.Del.,
I am satisfied that Nicolet is not liable under Pennsylvania’s product line exception. While it may be that Nicolet fits some of the criteria established by Pennsylvania courts, it does not satisfy a sufficient number of them to justify the imposition of liability on Nicolet in contravention to the established general rule that when one company sells or transfers its assets to another, the purchaser dоes not acquire the liabilities of the seller merely because of the sale.
Plaintiffs finally suggest that Nico-let is independently liable for its failure to warn K & M’s customers about the dangers of asbestos. The basis of plaintiffs’ argument is premised on the holding in
Shane v. Hobam, Inc.,
E.D.Pa.,
The focus of the
Shane
standard is clearly on the actions of Nicolet, namely whether its failure to warn was a tortious activity. Under the conflict of laws analysis
Even if the Court applied the Pennsylvania Shane standard I am satisfied that Nicolet would not bе liable. In this regard plaintiffs note that, as part of the sale agreement, Nicolet agreed to accept certain leases, contracts and agreements from K & M, including a service agreement. This service agreement, however, did not involve K & M’s thermal insulation. Nicolet was not therefore under any contractual duty to service the аsbestos insulation already sold. Thus, the factual situation here is different from that in Shane, which dealt with defective machinery that the successor corporation had agreed to service. Since Nicolet does not even satisfy the first Shane requirement of having taken on “certain positive responsibilities” with regard to the product, I need not even reach the last two requirements.
Having stated the above, Nicolet’s motion for partial summary judgment on the issue of successor liability is, therefore, HEREBY GRANTED.
IT IS SO ORDERED.