Stanley Knapp, Jr. v. North American Rockwell Corporation v. Mrs. Smith's Pie Company, Third-Party-Defendant

knowledge stay, fact, sions the bred of such a go question the district to the court’s proximity jurisdiction our case under can be collateral or- doctrine; brought der question bear on the have been considered rejected propriety of immediate review. above. Accordingly, part July 10, presence The such alternative 1974, order of this court which stayed review appellate necessarily routes 7, 1974, the June order of the district judgment affects our whether “the in will be court vacated and the appeal dis- piecemeal convenience and costs of re missed for appealable want of an order danger outweigh view” “the of denying under 28 U.S.C. §

justice by delay.” The benefit of a dis trict views as to appealability court’s se through

cured certification under F.R. 54(b) 1292(b)

Civ.P. or 28 U.S.C. § aspiring representatives lost

be if class appeal,

were allowed to without

certification, adverse class action deter minations under the collateral order doc Jr., Stanley KNAPP, Appellant, loss, together trine. This with the addi appellees placed tional burden appellate piecemeal court whenever ROCKWELL AMERICAN NORTH greatly appeals permitted, outweighs CORPORATION danger some class members may, by proceeding individually, lose

economies of scale associated with class COMPANY, PIE MRS. SMITH’S treatment.15 Third-Party-Defendant.

II. No. 74-1110. opposing In their brief defend Appeals, Court of States United dismiss, plaintiffs ants’ motions Third Circuit. appear request stay this also court 10, Argued Sept. the district court’s June 7 decertification that we order even if we find have no 27, 1974. Dec. Decided jurisdiction appeal. over Plaintiffs’ Appellants’ Reply to Defendants’-Appel (footnote).

lees’ to Dismiss at 4 Motions jurisdiction,

If this lacks cannot

stay proceedings district court. arguments equitable granting (1974), appeal 42 L.Ed.2d 125 we held S.Ct. 15. The Second Circuit has allowed un allowing proceed an action where der the collateral order doctrine that an order appealable denying under 28 order on a basis was certification as a class sounds class 1292(b), at and that orders id. the “death knell” of the action. U.S.C. Eisen v. § (2d Jacquelin, denying be certifi- & action treatment Carlisle 370 F.2d class Cir. 1966), denied, 54(b), id. at 754. As noted cert. able under Rule 386 U.S. S.Ct. Moore, plaintiffs’ doubt where there is L.Ed.2d 598 Professor invoked, provision argument go beyond about herein would far provi- certify by allowing appeal under both knell district court can death doctrine as a order, Fed- See 6 Moore’s collateral in the alternative. even where class sions members’ individually legal at 456. viable [2.-2] eral 54.30 claims would be ac Practice 11 fact, plaintiffs’ argument only tions. case, plaintiffs brought In the applies likely members are where absent class 54(b) Rule under motions both bring even individual actions. 1292(b). The district court’s denials of doctrine, Second Circuit’s knell” “death challenged have not both motions disagreed, Hackett, this court has see Katz, supra plaintiffs. at 752. Cf. supra support plaintiffs’ n. does position. Creskoff, Freedman, J.

Howard Bo- Pa., wsky Lorry, Philadelphia, ro & appellant. Sullivan, Jr.,

William F. Robert M. Britton, Post, Schell, Barton L. Post & P. A., Pa., Philadelphia, appellee. ALDISERT, Before ADAMS RO- SENN, Judges. Circuit THE OPINION OF COURT ADAMS, Judge. Circuit question principal here whether grant summary judgment was error ground injured one on the machine recover from substan- purchased of the manufacturer the assets tially all because of the machine rather than of assets a sale was or consolidation.

I. Stanley Jr., Knapp, an employee of Mrs. Smith’s Pie was on Oc- 6, 1969, when, tober in the course of his employment, his hand caught in machine known as a “Packomatic.” The machine designed been and manu- factured Textile Machine Works (TMW) and had sold Mrs. Smith’s Pie Co. in 1966 or 1967. negligence ed from the of TMW in de entered into April On signing manufacturing the machine American Rock with North agreement and that successor, as TMW’s exchanged whereby TMW substan well injuries. is liable for such in Rockwell. for stock tially all its assets joined plaintiff’s employer, Mrs. Smith’s seal, only its retained Co., as a third-party Pie defendant.3 its minute incorporation, articles records, and books and Rockwell moved for summary to cover $500,000. intended in cash judgment in the district 19, court on June with the expenses in connection September 6, 1973, 1973. On the district right, pri- TMW also had transfer.1 motion, granted court ruling that with Rock closing the transaction or to well, merged Rockwell had neither nor consoli by TMW or dispose of land held TMW, dated with that Rockwell was not Among the assets ac subsidiary. its TMW, a continuation of and that Rock was the to use by Rockwell quired well had not assumed TMW’s liability to Machine Works.”2 “Textile name Therefore, Knapp. concluded, court change its name on TMW responsible Rockwell was not for the obli date, the Rock then to distribute closing gations 11, of TMW. On 1973, October and to dis stock to its shareholders well Knapp filed a motion for rehearing and practicable aft soon TMW solve “[a]s by reconsideration court, the district of such distributions.” last er the 26, was denied on November 1973. by accord reached Rockwell and Knapp appealed to this Court on Decem that stipulated also Rockwell TMW 11, ber 1973.4 obligations and specified assume II. TMW, among the but liabili- liabilities “(a) not assumed were: liabilities ties parties Both agree that this case is TMW is insured or other- against which controlled the following principle of indemnified to the extent of such wise law: or indemnification unless insurance general rule is that “a mere sale agrees writing or indemnitor insurer corporate property by one company indemnify to insure and [Rockwell] to another does purchas- not make the insuring extent as it was so the same er liable for the liabilities of the seller indemnifying TMW.” not assumed it.” . . . There place Closing pursuant took to the are, however, exceptions certain to this 29, August agreement on 1968. Plaintiff rule. Liability obligations for of a 6, injuries October his on 1969. sustained selling corporation may imposed on 20, February was dissolved on the purchasing corporation (1) after the bulk of almost 18 months purchaser expressly or impliedly exchanged had its assets for Rock- agrees to assume obligations; (2) well stock. the transaction amounts to a consoli- against Plaintiff Rock- dation or filed this suit selling corpo- March with well in the district court on ration poration; or into the purchasing cor- injuries alleged (3) that his result- 1971. He the purchasing corpora- year per the two statute of limitations on $500,000. Any remaining 1. at the time injury sonal actions Pa.Stat.Ann. [12 § or 31] of the dissolution Textile Machine Cor- requiring the statute that suits poration was to be returned to Rockwell. dissolved be commenced within opinion, In this “Textile Machine Works” years of the date of dissolution Pa. [15 two only “TMW” refer (Supp.1974)]. Stat.Ann. to sell its assets to Rockwell and then to dissolve. appeal, 4. Rockwell moved to dismiss 13, 1972, alleging July appeal after Rockwell had denied that the notice of was not On timely panel have filed. Since another responsibility this Knapp, Knapp appeal in a Penn- Court denied the motion sued TMW to dismiss the inju- February panel may his sylvania recover this state however, barred, either review that decision. suit was That ries. ment, a merger, merely consolidation tion is continuation a continuation all require (4) corporation; corpo selling or the transac- being merged, ration consolidated or fraudulently is entered into con es- TMW, tinued cease to exist. obligations. Rockwell cape for such claims, go did out of existence at the Hobam, Inc., Shane time of the exchange with but (E.D.Pa.1971) (citations omitted) 527 — 528 continued life (decided law). New York Further, months thereafter. Rockwell light language, Knapp of this con argues, TMW until pos dissolution question the transaction tends sessed assets of value, substantial “amounts to consolidation or merger of form of Rockwell stock.6 purchasing into the cor [TMW] or, alternatively, [Rockwell]” is a “continuation” III. Although corporation TMW. the TMW case, a diversity In the federal technically exist continued to until its of law which rule apply the court must approximately 18 dissolution months aft govern if suit brought were a er the the consummation of transaction must, the court of forum state.7 We was, Knapp TMW ar therefore, determine how this case would gues, during period. a shell that mere It by a Pennsylvania be decided court. assets, its had none of former no active operations, required by and was the con jurisdictions All have which considered with Rockwell to dissolve tract itself “as question appear the accepted to have not practicable.” Knapp soon as urges only general the rule a corporation that effect that transaction between purchases which assets a second TMW Rockwell and considered thereby is not liable for the merger.5 a de facto obligations of selling corporation, un asserts, exceptions less there exists one of the Rockwell in defense of the dis- Shane, p. set out in supra grant trict court’s 364.8 summary judg- the extent of tion,” addition, Knapp insurance or that the district indemnifica- In asserts qualification. without further granting There- court the defendant’s motion erred fore, view, in Rockwell’s it is summary judgment clear Rockwell there remains because has not Knapp. assumed the relating to Fur- issue of fact to whether a material thermore, counsel for any liability Rockwell expressly has submitted assumed Rockwell to this Court with his brief an Knapp. agreement affidavit of have to Assistant General Counsel of Rockwell stated aver- and Rockwell between TMW ring policies that no insurance were those liabilities of Rockwell would assume from transferred TMW to Rockwell and no TMW was insured “unless TMW for which company indemnify insurance writing has agrees to or indemnitor the insurer previously Rockwell as indemnify insured TMW. to the same insure and [Rockwell] indemnifying insuring and so extent it was 7. Commissioner of Internal Revenue v. Estate TMW.” On basis the record before the Bosch, 456, 1776, 387 U.S. 87 court, was, S.Ct. 18 according Knapp, there district L.Ed.2d 886 remaining, a of fact since there material issue showing relevant insurer had been no See, g., Pillsbury e. Forest Laboratories v. protect agreed to Rockwell. had not so Co., (7th 1971); 452 F.2d 621 Cir. West Texas Knapp’s Refining 6. As regarding contention & Dev. Co. the as- v. Commissioner of Inter- sumption liabilities, Revenue, (10th 1933); TMW’s nal 68 Rockwell F.2d 77 Cir. Co., claims there was no Bazan F.Supp. material v. Kux issue of fact Mach. 358 1250 relating operative (E.D.Wis.1973); Hobam, Inc., to that issue. The Shane docu- 332 respect F.Supp. (E.D.Pa.1971) assumption (decided ment with to the 526 obligations, contends, law); Joy Co., New Mfg. Rockwell York Kloberdanz v. agreement (D.Colo. April 1968); Copease of sale Mfg. dated but August Photocopy Corp., instrument executed Co. v. Rockwell Cormac 29, 1968, stipulates (S.D.N.Y.1965); which J. F. Anderson Lumber “hereby Myers, agrees pay” assumes and Co. Minn. debts N.W.2d 365 except “(a) (1973); Harris-Seybold McKee v. liabilities N.J.Super. TMW is (L.Div.1970) insured otherwise A.2d 98 indemnified to aff’d with which satisfy assets substantial Shane, the first Under demands of its creditors. rendering purchasing exceptions four of the seller Co.,12 for duties liable in Bazan v. Machine Kux merger a amounting plaintiff in 1966 transaction ais corpora purchased employer In a by his machine or consolidation. corpora other or more in 1961. one Kux Machine Co. absorbs their thereby plaintiff’s lose machine to tions, the sale of the em corporations accident, of two prior Kux ployer “A but identity. will be absorbed one Corporation the bulk contemplates sold to Wickes existence, but go only out of retaining and Kux’s its other by the receivable, will remain.” absorbing prepaid its insurance accounts hand, consolidation, on the real estate. Wickes and corporations combining licenses, tangible personal property, Kux’ “all to lose trademarks, will, patents, good be dissolved deemed entity which new identity in a to use the name “Kux exclusive powers properties, Kux, changing all the over Machine.” takes liabilities, name, as well remained ten existence privileges, 10 Another companies.” dissolving required months before constituent general exceptions contract with Wickes. of the Shane there is arises when nonliability held that was not rule of continuation, newa In a merger, consolidation or continuation. It continuation. as acquire the is formed reasoned that Kux for corporation continued to exist then which period exchange, of an extant a substantial after the sets effect but is in to exist. the transaction was a cash sale ceases “[T]here merely changes its stock, exchange than an of and corporation rather one upon to exist ordinarily ceases management that none of the owners or and form new the of acquired creation the seller interest of 11 its successor.” buyer. Pennsyl- Similarly, prior No cases decided under McKee v. Harris-Seybold problem vania law have addressed Co.13 the court held that there had been However, presently before this Court. no or consolidation between the jurisdictions alleged courts from other purchaser tortfeasor of questions, plaintiff similar its assets. The have considered was the existence vel 1968 paper-cutting have ascertained non machine manu a consolidation or a continua- Seybold factured 1916 Machine whether, 1926, immediate- Seybold tion on basis Co. agreed to sell transaction, ly selling after cor- assets to Harris Automatic Press Co. corpo- poration exchange, continued to exist as agreed give Harris Seybold whether, entity plus rate and trans- cash Harris, common stock in and to action, selling corporation possessed Seybold’s assume certain liabilities. Freeman, 94, supra 36 A.2d at 10. 349 Pa. at per N.J.Super. 480, curiam 118 288 A.2d 585 Fletcher, Applestein, supra; 15 511. Accord (1972); Distributing Comstock v. Great Lakes supra Co., 7040-41. 306, §§ (1972); 209 Kan. 496 P.2d 1308 Co., Schwartz v. McGraw-Edison 14 Cal. Fletcher, supra, Labor- See Forest 7205. 11. 767,

App.3d Cal.Rptr. (1971); 92 776 Lamb v. 621, (7th Co., Pillsbury 626 452 F.2d atories v. 276, Leroy Corp., (1969); 85 Nev. 454 P.2d 24 Co., Mfg. Joy 1971); 288 Kloberdanz Cir. 317, Peabody Ill.App.2d Buis v. 41 Coal 817, (D.Colo.1968). 821 (1963). 190 N.E.2d 507 Corp., Applestein Board & Carton v. United 9. (E.D.Wis.1973). 358 1250 146, (Ch. N.J.Super. 151 A.2d 1960) per 161 A.2d curiam 33 N.J. aff’d N.J.Super. (L.Div. 264 A.2d 98 Hiznay, (1960). Freeman v. Accord 1970) per curiam, N.J.Super. aff’d Fletcher, (1944); W. 36 A.2d Pa. (1972). 288 A.2d 585 Corpora- of Private Law Cyclopedia of the 7040-41 §§ tions Seybold all the assets of the nature of nothing in Harris seems to be good will including its and exclusive Id.' consolidation.” merger or “Seybold name Machine Co.” use of Supreme The Nevada reached change its name Seybold Leroy the same conclusion in Lamb any manufacturing engage in ac- not There, Corp.14 a contract creditor of Ne to exist un- Seybold continued tivities. Mortgage sought vada Land and Co. year one for different name der a claim the Leroy Corp. enforce his exchange. Prior to the consumma- Leroy were exchanged Shares in 1965 assigned Harris of the transaction for the assets Nevada Land exclu to a new cor- in the contract its interest Leroy sive two items real estate purpose. formed did want and some incidental cash. renamed corporation was later new representing A certificate the stock was The court held that Harris-Seybold Co. delivered to Nevada Land. “Soon after Harris-Seybold liable consummation trans [the] injuries because there plaintiff’s action,” Nevada Land distributed no or consolidation between Leroy shares to its shareholders and dis Seybold corporations. Harris solved, satisfying without Lamb’s claim. ruled, Nor, or Har- the court was Harris The court concluded that the transaction Seybold. ris-Seybold a continuation was not a merger or a consolidation, observing that was not an ex- After this the basis that the consideration was ade alone, securities change quate, Leroy delivered the shares to identity [Sey- stressed “[t]he Nevada Land rather than to its share of its stockholders bold] holders, and that the subsequent dissolu integral part iden- as an separate tion was a transaction. by the eradicated transfer.” tity was not This cluster cases16 illustrates set at 104. The court forth its 264 A.2d significance which the decisions following passage: rationale jurisdictions accord theory and the continued existence func- longer could no corporate entity. adequacy the The manufacturer, yet it could selling the consideration received the a cor- function as operate did corporation given has also been great sale. some time after the poration for deciding in the weight existence corporate as a vendor The sale as contrasted with a or con pur- the entity, not absorbed into was Lamb, supra, tinuation. the court corporation. ab- chasing What was pointed out that consideration was the nature of manufac- was sorbed adequate, selling corporation since engaged previously turing operations purchas received a valuable asset —the entity by Seybold, not stock —which for er’s the remainder Id. itself. corporation exposed the life of the was The analysis court’s was that to the claims of seller’s creditors. “[i]f vendor receives the Similarly, emphasized consider- transfer, McKee, ation opposed supra, corpora the selling situations those where the stockholders tion had received substantial value for directly same, receive the and that cor- and that there was no hint thereby alive, is kept there selling being denuded of Joy Co., Mfg. Kloberdanz v. (1969). 288 817 Nev. 454 P.2d 24 14. 85 (D.Colo.1968); Mfg. Copease Co. v. Cormac precise state- gives Photocopy opinion Corp., no more (S.D.N.Y. 242 15. 993 1965); Myers, of the time. J. F. Anderson Lumber ment Co. v. (1973); Minn. 206 N.W.2d 365 also, Pillsbury 16. See Forest Co., Laboratories v. Schwartz v. McGraw-Edison 14 Cal. Co., (7th 1971); F.2d Cir. West App.3d Cal.Rptr. Texas (1971); v. Buis Refining Peabody & Dev. Co. Commissioner Inter- Ill.App.2d Coal Revenue, (10th 1933); nal F.2d Cir. N.E.2d 507 might possible, prohibition assets which it satisfy engaging claims of its transactions, creditors. The district court normal business Colorado, for the District of Klober character assets TMW controlled. Co.,17 Joy Mfg. danz Although stated that each of “the these factors was emphasis present should be on whether the sale in one or more of the above cases, involving pay present appeal was a bona fide one unique money ment property selling combining all these elements. In addi- corporation whereby tion, it can respond the better-reasoned result would be [in damages] that, in actions like purpose to conclude for the of de- one.” termining tortiously injured parties, the Rockwell-TMW transaction Trucking v. Diamond T. In Jackson as a merger, should be treated thereby purchasing Co.,18 found the cor the court subjecting inju- Rockwell to of the sell be a continuation poration to products ries caused distrib- “purchaser” ing corporation because prior to uted the transaction. in re of the “seller” took all the assets must, course, We apply the rule we only. nominal consideration turn for Pennsylvania appellate believe tribunal Ruedy v. Toledo Factories Similarly, in adopt if the case arose in the state Jayark Productions v. and Hoche Co.19 In resolving courts. issues relating to the Corp.,20the courts concluded that Films recognition of a cause of action in favor mergers were after the the transactions injured party, of an corporations were left without “selling” courts have emphasized public policy satisfy assets to the claims appreciable considerations served imposing liabili creditors. of their ty on the defendant rather than formal or technical requirements.21 IV. above, all decided has The cases discussed Supreme jurisdictions rights other than dis the law of held, context the ar- may suggest agree Pennsylvania, shareholders, if senting Rockwell and TMW bears rangement corporations between two between ment a sale rather than be considered should merger character essential continuation, since TMW did to fol parties or a contracting failure officially procedures ex- terminate statutory low the ex- relief for 18 months parties istence third deprive throughout period pos- By Penn change, and them. available otherwise corporations with which to re- valuable assets two statute, sessed sylvania similar to the one surviving to tort claims spond the merged, However, a number of the obligations advanced. of now the liable becomes indicate the insubstantiali- considerations corporation which ceases to exist.22 TMW, of ty Also, of the continued existence any shareholder of a merging cor corporation’s including brevity of the the poration who is dissatisfied with the life, require- the contractual

continued merger plan may obtain a valuation of that TMW be dissolved as soon ment his shares.23 17. 288 (D.Colo.1968). (1968), and Salvador v. Atlantic Steel Boiler (1974). Although Pa., 319 A.2d 903 the (L.Div. 18. 241 A.2d 471 N.J.Super. issues presented Kassab and Salvador 1968). turned on the doctrine of which is privity, (1939). 19. 61 Ohio App. 22 N.E.2d 293 reasoning the present here, utilized Supreme Court those (S.D.N.Y.1966). cases dealt with the 20. economic of the reality relationship between reaction 21. probable indication Some manufacturers allegedly users of the to the issue Court Supreme Pennsylvania products. gleaned be may perhaps this case posed 22. (1967). 15 Pa.Stat.Ann. § in Kassab discussion that Court’s 246 A.2d 848 (1967). Pa. Pa.Stat.Ann. § 1908 Soya, Central purposes provisions of the cor Corp.,24 In Farris v. Glen Alden a law said to be sought of Glen Alden shareholder to en applicable.25 meeting a join of Glen Alden sharehold dissenting sharehold The rationale approve “reorganization called to a ers stated, rights, the Court is allow ers’ to agreement” with List Industries. Plain membership treat to shareholders meeting enjoined tiff asked that original as terminated management because had failed to in combining form purpose another, original its nature.” “lose[s] meeting the approval of a agreement, Alden The List-Glen merger and the shareholders had a held, fundamentally altered Court right merger to dissent from the relationship Alden and between Glen a valuation obtain of their stock. Man shareholders, provi and therefore agement responded that the shareholders dissenting relating to shareholders’ sions rights no had valuation because rights apply.26 transaction did not conform statu tory procedures merger and therefore present Farris, case, like involves was not a a but sale of assets to a transaction which resembles rights which valuation apply. did not possess but does not all the formal char Pursuant to the plan of reorganization, acteristics one. It appropriate seems acquire Alden Glen was to all the assets to infer from Farris in deciding except List small amount of cash whether treat such an arrangement payment

reserved for expenses in con courts would nection with the transaction. In ex purposes consider which would be change, Glen Alden was to assume by imposing liability served on Rockwell List’s liabilities and to issue stock to List the tortious conduct TMW.27 that List would distribute to its stock holders. List was then present case, Knapp dissolve In the is confront Glen Alden to change melancholy prospect name being ed with List Alden. day from his court28 barred unless subject is held suit. And expressed the view in Far- quite significantly, Knapp if ris complexities because of the years injured more than two after reorganizations, modern TMW, Knapp dissolution would never longer it is no helpful to consider an any opportunity have had at recover individual the abstract law, since under law dis solely reference to the various subject to suit solved is elements therein determine whether years date of only two dissolut “merger” Instead, or a “sale”. ion.29 properly determine the nature of a Denying Knapp to sue Rock- transaction, we must refer well because of the barren continuation only provisions to all of TMW the exchange with Rock- agreement, but also conse- well would allow a formality to defeat quences of the transaction and to the Although the facts of the case are 24. 393 Pa. A.2d admittedly step beyond Farris, those in in at 25. 143 A.2d 28. legislative by of the view intent deduced Pennsylvania dissenting in field courts also, Troupiansky Henry 26. See Disston & rights, might shareholders’ it be contended Sons, (E.D.Pa.1957); Marks Pennsylvania Supreme that Court would (E.D.Pa. v. Autocar legislature permit that find intended to 1954); Works, Bloch v. Baldwin Locomotive liability judice. tort in cases like the one sub (C.P.Del.Co. 1950). 75 Pa.D. C. 24 & Knapp might 28. be able to recover a limited Alden, in In Glen Court stated dictum by way compensation amount of a workmen’s exchange sale, even if the that were a anoth- However, nothing claim. in the record here provision statutory give dissenting would er any light possibility. sheds on such rights. A.2d valuation at (Supp.1974). 31. 29. Pa.Stat.Ann. resolving, In where the burden of a recovery. Although Knapp’s TMW tech imposed, Pennsylvania loss should be nically independent existed as an corpo Supreme Court has considered which of ration, parties had no substance. The it parties spread the two better able to contemplated that TMW would clearly Ayala Philadelphia the loss. Board part its existence as a of the terminate Education,32 a student who had been had, exchange in transaction. injured shredding during machine stock, disposed Rockwell of all the assets upholstery an class sued the Board of held,30 originally it exclusive of cash Court, Education. in abolishing the necessary to consummate the transac immunity doctrine suits any active tion. It could not undertake government, local observed operations. permitted Nor was TMW position Board was in a better than the agreement to divest itself of injury, student to have avoided the stock, might the Rockwell so that it be city that “The is a far better loss-distrib effective investment come an vehicle for uting agency than the innocent and in significantly, Most shareholders.31 jured Court, quoting victim.”33 The with by the contract required Illinois, Supreme Court of decried the practica soon as “as to dissolve Rockwell injustice imposing upon an ble.” injuries, party the entire burden of his hand, distributing responsibili Rockwell rather than the other On TMW, exclusive of cer- ty throughout community “where the assets Rockwell did not hardship upon estate could be borne without real tain all of want, practically and assumed individual.”34 Further, re- Rockwell liabilities. TMW’s courts have also not efforts,” its “best TMW use quired importance per ed the insurance trans- consummation prior forming loss-spreading function. or- TMW’s business action, preserve Pados, Falco v. the Court concluded that make intact ganization public interest mandated abolition of existing TMW’s of- to Rockwell available immunity from for a parental and to maintain employees, ficers injury parent’s negligent to his child be relationship with its customers TMW’s cause, presence wide-spread lia exchange, After suppliers. bility coverage, insurance the doctrine of busi- TMW’s former continued Rockwell unjustly immunity confined the parental operations. ness injured party the loss to the burden of philosophy If we are to follow “In a time almost universal alone. questions courts insurance, unexpected right to seek recov- injured party’s an needlessly hardship or ruin is inflicted analysis resolved ery are to be immunity doctrine.” than rather policy considerations public allegations Interpreting all the application of for- procrustean by a mere Knapp, as we light most favorable malities, must, considering wheth- we summary judg a motion for must on exchange was a er the TMW-Rockwell ment, Knapp nor Rockwell was neither policy impli- public evaluate prevent the occur- position ever of that determination. cations shareholders, controlling rather provided that The contract 30. TMW. than from of, dispose have the “TMW” shall closing, held prior estate interests real (1973). A.2d 877 453 Pa. subsidiary. By the terms TMW or its contract, dispose of these if TMW failed quoting from 32 Am. Trial A.2d at 33. 305 closing, be trans- prior assets L.J. to Rockwell. ferred 881, quoting Molitor v. Kane A.2d at 34. 305 nature of the of the true indication Community It is an No. 18 Ill.2d Unit Dist. land that, although delivered Rockwell transaction 163 N.E.2d 89 agree- TMW, reorganization to its stock (1971), 35. 444 Pa. 282 A.2d 351 at 355. intent required investment letters of ment though the was transaction structured inasmuch as neither injury, rence assets, a sale of should be As it “treated defective device. manufactured however, merger” purpose imposing a of for parties, two these between liability. Although tort I spread concur able to is better Rockwell by majority, result reached I wish to Prior to the ex loss. burden upon Rockwell, clarify the which I pro basis would im- TMW had change with pose liability. would have indem cured insurance been held liable had it TMW nified begin Our examination Rockwell injuries. could for his Knapp Pennsylvania Corporation Business sustaining itself protected have provides Law of two by securing from TMW the loss brunt of corporations. or more 15 P.S. 801 et § TMW’s insurance. assignment an seq. purposes One of the of the statuto- in the record that There is no indication ry merger provisions protect is to dis- placed would have assignment such an senting by according them or TMW since either Rockwell burden on shares have redeemed purchased the insur already had at full market value. the insurance was protection, ance purpose Another See P.S. is to § continuing TMW after of no benefit protect persons having claims liability was terminated to suit nonsurviving corporation. See 15 P.S. Rockwell has ad statute. either explanation, no its brief duced Section provides that, in part why argument, it or at oral assignment to take the contract record, insurance. Rockwell debts not prepaid duties, of TMW’s and lia- permitted im bilities each of said therefore should not constituent cor- porations upon the loss a user shall pose weight thenceforth attach product surviving said allegedly by de . . . corpora- of an defective laying the dissolution of TMW. formal contrary controlling In the absence of acquisition Rockwell’s courts, we decisions accomplished by merger judiciary state conclude by purchase rather than sec- appears to be adopt the rule of law tion 803 subjected would have more consistent with better reasoned and for tort claims against TMW. forth in recent Penn policy the social set present In the day complex corpo- sylvania cases.36 rate reorganizations and acquisitions, intrinsic nature judgment transaction of the district cannot court will merely be ascertained from the

therefore be reversed form in case re- which it is manded structured. Courts proceedings further therefore consist- must examine opinion. ent with this substance transaction to ascertain its purpose ROSENN, Judge (concurring). Circuit true intent. The majority that, holds under certain longer no helpful [I]t to consider an circumstances, which ac- individual in the abstract quires substantially all the assets of an- solely by reference to the various corporation may be held liable for elements therein determine whether injuries products caused “merger” is a Instead, “sale”. by the other manufactured determine properly the nature of a acquisition. before the date of In the transaction, we must refer case, that, conclude even only provisions to all disposition need not decide whether 36. Our this issue makes it un- affidavit of the necessary Assistant General Counsel of decide whether there re- us to sub- appeal mitted for the first time after the mained a material of fact as to whether issue was filed, properly po- expressly before this Court. Rockwell had assumed Knapp. particular, we tential agreement, but also to the conse- Corp., supra, v. Glen Alden Farris of quences the transaction and to the A.2d at wheth- Pa. at of purposes provisions of the cor- merger procedures the formal er or applicable. law to poration said be followed, rights appraisal embod- are in section 805 should enforced if a ied Corp., Farris v. Glen Alden 393 Pa. alters “fundamental rela- transaction 143 A.2d corporation among a tionships” and its altering This of “fundamental investors. Supreme has relationships” merger the attribute is of rights to examine had occasion of triggers applicability of sec- dissenting shareholders when a transfer rights. appraisal of operations corpo- of business one If, dissenting protecting sharehold- ration to another is effectuated sale ers', a court should scrutinize than rather utilization the statuto- the presence to ascertain provided ry merger. procedures In merger attributes relevant to certain Corp., supra, Farris v. Glen Alden Glen appraisal rights, the enforcement agreement pur- an entered into to Alden protecting no less tort do chase all of assets of List Industries dissenting Both shareholders claimants. (List) exchange Corporation capi- and tort claimants un- section 805 tal stock of Glen Alden. List was to be 803 are the benefici- section intended der operations dissolved and the of both cor- protective legislation. Although aries of porations were to be carried on Glen should be scrutinized to a transaction Alden, changed whose name was to be to and tort claim- protect both shareholders corpo- Alden. The List directors both ants, search for somewhat a court should were to rations become directors of List merger pur- attributes different enforcing appraisal rights Alden. liability. imposing tort This dif- poses of objecting of an stockholder of Glen Al- attributes in relevant stems from ference that, den, the court stated though even relationships corpora- the distinct corporations combination was ef- legislature whom the persons tion of by a sale of assets fectuated dissenting sought protect. While has literally ap- statute does protection against al- need shareholders ply, eyes “we will not our blind to the rights, tort of their investment teration realities of the transaction.” 393 Pa. at at- protection need claimants 438, 143 A.2d at 31. It concluded that avoid by ongoing businesses tempts proposed, “although the combination con- through opera- transfer summated contract rather than in ac- entity. legal to another tions statutory procedure, cordance with the is that, where I believe a merger protective within the purview substantially the assets of purchases Id. law.” corporation, legislature in- a second It reached this conclusion on the follow- corpora- impose second tended ing basis: cor- acquiring tort liabilities tion’s rationale ... following at if the attrib- least present Corpo- section of the Business present: are utes Law ration ... business, including (1) ongoing combines another so will, is good transferred name and lose its essential nature and alter corporation; acquiring original relationships fundamental corporation whose assets (2) the among of the shareholders themselves distri- is dissolved after shareholder bution to its not wish to his who does continue consideration received membership therein treat his corporation. acquiring membership original corporation case, TMW transferred have the value of as terminated retain- almost all paid shares to him. his disso- liquidation holders and ing only corporate its records and a lim lution. TMW shareholders became amount of ited cash effectuate the just they in Rockwell “Agreement as if transaction.1 The and Plan exchanged Reorganization” specifically directly had their shares provided statutory merger Rockwell under the for the transfer of TMW’s business a “as concern,” procedure. going including good will, See P.S. § right to exclusive use name “Textile foregoing, On basis I am Works,” “permits Machine or li persuaded courts censes to conduct business as [TMW’s] would consider this transaction a agreed on.” now carried TMW also to within the intendment of section 803. change its name and dissolve. In this I This believe would do even regard, “Agreement and Plan of Re though the transaction was structured as organization” provided that, though a and even sale TMW up its fully wound affairs and dissolved Date, Closing TMW shall take [o]n until 18 months the combination. required to change all action its name actually had ceased to function as (“TW”) Company” to “T.W. .... going a concern when the sale was con- practicable As as soon after the last Only corporate summated. shell re- [liquidating its distributions to share- mained, engaged solely process stock], holders of Rockwell TW shall winding up and dissolution. up wind affairs and dissolve. From recognize While I rightful preroga Closing Date, and after TW shall tive of to rearrange its any in engage business or other go or out entirely, business of business except activity required carry practical there is also a and reasonable out Agreement the terms of this and construing basis for merger. this transaction as a complete liquidation and dissolu- we in Were the circumstances provided tion as herein. of this case to absolve a cor addition, this transaction has anoth- acquires a functioning statutory er characteristic of a merger. by purchasing business substantially all given The consideration for TMW’s as- of another many the assets stock, in sets was Rockwell turn injured parties would be unable to main to be distributed to TMW’s share- products tain actions after the on, concern, “Agreement going Reorganiza- carried business as a 1. The and Plan of corporations, provided that, good shares of tion” stock other rights and will to use to the exclusion of convey, transfer, assign TMW shall and de- TMW the name “Textile Machine Works” prop- liver to ... all the [Rockwell] thereto, except, or a name or names similar erty tangible intangible, and and however, following, which shall be re- kind, every description nature and and tained TMW: situated, owned, possessed wherever or corporate seal, (a) TMW’s articles in- Closing held TMW on Date books, corporation, minute stock books and (hereinafter Paragraph 5) referred in- records; and cluding, to, but not limited TMW’s land and $500,000 (b) in cash to cover the costs leaseholds described in Exhibit A-l at- expenses (in and such amounts as hereto, improvements, buildings, tached upon writing by shall NR and machinery, equipment and other fixed as- Closing) TMW at or before the in connec- sets, personal, rights appurte- real constituting tion with the transactions thereto, furniture, fixtures, nant machines, business Reorganization Agree- Plan under this vehicles, inventories, supplies, ment, any payments preferred to TMW process, products, work in semi-finished shareholders who demand cash patents, trademarks, licenses, names, trade shares, and all taxes on the transfer of securities, investments, copyrights, lease- properties of the assets or to NR hereun- interests, options purchase hold real or Any remaining balance of der. such sum personal property, rights contracts, upon paid the dissolution of TMW shall be policies, insurance cash on hand and in to NR at such time. banks, receivable, accounts long two-year light peri- until 15 P.S. See Because the

od. generally

statute of limitations does not

begin run the defect until discover-

ed, probably an action not be

time-barred. for the imposing liability torts of I realize that acquired par- was not acquiring corporation had no any tortious act and connec-

ty to at the with product was allegedly

time acquiring corpora- manufactured. however, position both be-

tion, is in a acquisition to take

fore protection necessary measures potential products

against

claims. express, majori-

I do nor does opinion concerning the merits of

ty, today permit we tort claim bring Rockwell.

plaintiff judgment would reverse the

I court and remand further

district

proceedings. Edward JOYCE. the Matter of John 74-1543.

No. Appeals,

United States

Fifth Circuit. 9, 1975.

Jan. year each Americans million Safety (May, 1972).] tional and Health con- connected of incidents a result injuries primary Personal are the source of Report of Na- products. [Final sumer burgeoning product number of Safety (June, Product tional Commission entering cases our courts. Lib.Cong. Incidents 1970), 76-600753.] No. Weinstein, Twerski, Piehler, Donaher, & Prod- products account with industrial connected Liability: uct An Interaction of Law and injuries each 7 million additional Technology, Duquesne L.Rev. 425 Occupa- Report on year. President’s [The notes claims, rights, action, permits choses In 1970 the President’s Commission on licenses to conduct its business as now Safety [reported Product that] [s]ome 20 owner of former business Although by dissolved. has been statute corporations amenable years dissolution, for two to suit product manufactured defect corporation may not come dissolved

Case Details

Case Name: Stanley Knapp, Jr. v. North American Rockwell Corporation v. Mrs. Smith's Pie Company, Third-Party-Defendant

Court Name: Court of Appeals for the Third Circuit

Date Published: Dec 27, 1974

Citation: 506 F.2d 361

Docket Number: 74-1110

Court Abbreviation: 3rd Cir.