Allen TIFT and Calvin Tift, Barron County Department of Social Services, Plaintiffs-Appellants-Petitioners, v. FORAGE KING INDUSTRIES, INC., and Auto-Owners Insurance Company, Defendants-Respondents, Vernon L. NEDLUND, and Woodrow W. Wiberg, d/b/a Forage King Industries or Nedlund Welding Works, Defendants.
No. 80-1724
Supreme Court of Wisconsin
Argued January 4, 1982.—Decided July 2, 1982.
322 N.W.2d 14
By the Court.—Decision of the Court of Appeals reversed and cause remanded to the Circuit Court, with directions for further proceedings.
CECI, J., took no part.
For the plaintiffs-petitioners there were briefs by David M. Erspamer and Cwayna, Novitzke, Byrnes, Gust & Williams of Amery, and oral argument by Mr. Erspamer.
HEFFERNAN, J. The question posed in this case is whether a business corporation which acquired substantially all of the assets of a predecessor sole proprietorship but which is substantially the same business organization and manufactures an almost identical product as its predecessor may be liable for injuries caused by a defective product manufactured by the predecessor. The circuit court for Barron county, JAMES C. EATON, Circuit Judge, concluded that the successor corporation could not be liable and granted the motion of the defendants for summary judgment dismissing the plaintiffs’ complaint.
The court of appeals affirmed the trial court judgment, concluding that, because the original manufacturer was a sole proprietor, rather than a corporation, no “corporate” successor liability could exist. It also relied upon the general corporate rule that, where a corporation has purchased the assets of another corporation, the successor corporation does not assume the liabilities of the selling corporation.
The underlying accident occurred on October 4, 1975, when the plaintiff, Calvin Tift, seventeen years of age, was operating a tractor with a chopper box attachment used for cutting and removing silage from a field on his father‘s farm. Calvin was drawn into the chopper box and suffered severe and painful personal injuries. The allegedly defective chopper box which caused the injuries was manufactured in 1961-62 by a sole proprietorship doing business as Forage King Industries.
The record shows that, prior to 1957, Vernon L. Nedland, as sole proprietor, operated a welding works at Prairie Farm, Barron County, Wisconsin. In that year he sold his business to Woodrow W. Wiberg, who continued to operate as a sole proprietor under the name Nedland Forage King. The trial court found that the chopper box which allegedly cause the injuries to Calvin was built by Wiberg‘s sole proprietorship in 1961 or 1962. At the time the chopper box was built, Wiberg was operating under the name of Forage King Industries. In 1968, Wiberg and Nedland formed a partnership and, as the trial judge found, it shortly thereafter “metamorphosed into a corporation.” As originally incorporated, Wiberg and Nedland were the sole shareholders of the corporation known as Forage King Industries, Inc. The corporation moved its place of operations from Prairie Farm to Ridgeland, Wisconsin. It retained the same employees and manufactured identical products, including chopper boxes, retained the same name, Forage King Industries, Inc., and sold to the same dealers as had the sole
The trial court found that there was nothing in the record to show that any of the successive business organizations had expressly or impliedly agreed to assume liabilities of their predecessors.
On January 30, 1978, Calvin Tift and his father commenced an action against Forage King Industries and its insurance company, Auto-Owners Insurance Company. The complaint alleged that Auto-Owners was the insurer of Forage King at the time Calvin was injured. It alleged that the present Forage King Industries, Inc., was a successor to the manufacturer of the chopper box and was, accordingly, responsible for the accident. The complaint purported to state alternative causes of action in negligence and in strict liability.
No facts were disputed on the motion for summary judgment, and accordingly the trial court decided the case as a matter of law and held that there was no liability. It relied upon the rule set forth in Leannais v. Cincinnati, Inc., 565 F.2d 437, 439 (7th Cir. 1977), “... that a corporation which purchases the assets of another corporation does not succeed to the liabilities of the selling corporation.”
The trial court recognized that there are, however, four well-recognized exceptions under which liability may be imposed upon a purchasing corporation:
“(1) when the purchasing corporation expressly or impliedly agreed to assume the selling corporation‘s lia-
The trial court found none of these exceptions applicable and, accordingly, applied the general rule of corporate law that, where one company sells or otherwise transfers all of its assets to another company, the transferee is not liable for the debts and liabilities of the transferor. Fletcher, Cyclopedia Corporations, Vol. 15, sec. 7122, p. 188. The trial court placed heavy emphasis upon the fact that the chopper box in question had been built by a predecessor sole proprietorship and, therefore, the present Forage King Industries, Inc., could not be a successor corporation to the original manufacturer, because the original manufacturer was not a corporation. The Court of Appeals followed the same reasoning in affirming the trial court judgment.
Turning first to the position of both the trial and appellate courts that there cannot be a corporate successor unless the predecessor was a corporation, we conclude that the responsibility of a subsequent business organization, irrespective of the nature of either the predecessor or successor, proprietorship, partnership, or corporation, cannot be facilely dismissed on the basis of the semantics of the rule. There is, of course, some rationality to the position taken by the Circuit Court and the Court of Appeals. As the court of appeals said at 331:
“When a corporation is purchased by a second corporation, the first disappears as a legal entity and, consequently, cannot be sued.”2
“[N]o corporation should be permitted to place into the stream of commerce a defective product and avoid liability through corporate transformations or changes in form only.” At 331.
The court of appeals concluded, however, that this obviously correct principle had no application in the instant case because Wiberg, who had operated as a sole proprietorship when he built the chopper box, remained available as a defendant subject to suit, and therefore necessity did not require that any successor business organizations be defendants.
We have no quarrel with the court of appeals’ decision that Wiberg has not absolved himself from liability and remains a proper defendant, but logic does not lead to the conclusion that, because Wiberg is a proper defendant, his successor business organizations cannot be also. The basic logic of the court of appeals’ position leads rather to the conclusion that successor corporations may be sued, as well as the original proprietorship, which manufactured the chopper box. It seems reasonably clear that the court of appeals, based on the principle it enunciated, would have found liability as a matter of policy, had the predecessor manufacturer been a corporation rather than a proprietorship. We hold as a matter of law that the rule and its exceptions are applicable, irrespective of whether a prior organization was a corporation or a different form of business organization.
It should be emphasized that the corporate rule that exempts a successor company from the liabilities of its Statutes will affect the answerability of a defunct corporation to subsequent lawsuits.
Two of these exceptions, the first and the fourth, are unrelated to the problem at hand, for where there is an express or implied assumption of the selling corporation‘s liabilities—tort, contract, or both—the problem is obviated; and where the transaction is fraudulent, protection is afforded under the law of fraudulent conveyances. The other two “exceptions” are, however, relevant to our discussion of the purposes and policies behind causes of action for tort. These exceptions are not really exceptions at all, for when applicable they swallow up the rule of nonliability.
The second exception is that there is liability when the transaction amounts to a consolidation or merger (de facto or otherwise) of the purchaser and seller corporations. The third “exception” exists when the purchaser corporation is merely a continuation of the seller corporation. When viewed in the context of a tort caused by a defective product, these two “exceptions” merely recite that, where either one is applicable, there is “identity,” because in substance the successor business organization which the plaintiff sues is, despite organizational metamorphosis, the same business organization which manufactured the product which caused his injury.
As Fletcher, supra, points out, the rule and its exceptions were designed initially to protect contract or quasi-contract creditors of a dissolved business organization and, hence, as a general group, all four exceptions are irrelevant to tort except as to the extent that the second and third exceptions are indicia of “identity.” These
They can be viewed also as tests for “privity” with the subsequent organization even if the dealings were only between the original business organization and the ultimate consumer or the party injured.
Exceptions two and three to the corporate rule demonstrate that, when it is the same business organization that one is dealing with, whether it be by consolidation, merger, or continuation, liability may be enforced. These are tests of identity. Suit is possible in these circumstances, because there would be privity with the actual seller or manufacturer, i.e., the exceptions are guidelines to determine under what circumstances the original entity continues to exist, albeit in an altered form.
By applying these rules of corporate law, it is apparent, either by application of exception two or three that the present corporation is the same as the prior organization, i.e., it has substantially the same identity although transformed by merger, consolidation, etc. Hence, an injured party who dealt with the predecessor organization could sue the successor. Where a defendant has retained the same identity, though perhaps not the same name or form of organization, the element of privity is satisfied.
If there is business succession, then in effect the plaintiff is suing the “same” business that produced the original product. Under such a state of facts, a novel or unusual problem is not presented. A court merely need determine that the defendant, despite business transformations, is substantially the same as the original manufacturer. This is the application of existing
It should be emphasized, however, that the possible fixing of liability on the subsequent manufacturer of the product line does not necessarily exonerate the prior manufacturer of the defective product. The present organization may well have the right of indemnity. What is important, however, is that the plaintiff may seek recourse against either. Where the burden of payment eventually falls between an existing organization that was a prior manufacturer and a present manufacturing organization that is a continuation of the former ought not be a concern of an injured plaintiff.
Our case, however, is a clear case of “identity.” The present Forage King Industries, Inc., is, for the practical purposes relevant to consumer protection, the continuation of the same entity as that operated as a sole proprietorship by Wiberg.
The present Forage King Industries, Inc., acquired all the assets of Forage King Industries, which was incorporated originally by Wiberg and Nedland in 1968, and that business organization derived its assets by taking over all the assets of the partnership of Wiberg and Nedland, which in turn derived its assets from the sole proprietorship of Wiberg, which actually built the defective forage box in 1961 or 1962. Essentially the same manufacturing operation and the manufacture of the same product, the forage box, was continued through all these organizational transformations. The present corporation is in fact substantially identical to the organization that manufactured the allegedly defective chopper box and is therefore liable. Only the form of business organization has changed.
The defendant also points out that, where, as here, a sole proprietorship has sold out, there is no reason to assume, as a matter of social policy, that that former sole proprietor is unable to answer in damages and that, even under the traditional exceptions, unless the sale is for less than adequate consideration or is fraudulent, it should be assumed that the original proprietors are able to respond to lawfully imposed liabilities and pay damages. This may well be; and, of course, Wiberg has not been dismissed from the suit. As we have pointed out above, Wiberg might well, under the procedural posture of this case, be responsible in indemnity to the present Forage King Industries, Inc.
In effect, then, Forage King Industries, Inc., is arguing that in the instant case there is indeed another and different “deep pocket” from which the plaintiffs might recover. This may be relevant in the event of an attempt of recovery over by the present corporation against the original sole proprietor, but it does not dispel the potential liability of Forage King Industries, Inc., to the plaintiffs. Whether there can be a recovery over by
In the instant case, the record does not reveal whether Wiberg is judgment-proof, as the plaintiffs have asserted. If he indeed is, and we were to adopt the position espoused by the defendant, there could be no meaningful recovery against him.
Basically, however, all that the argument of the defendant tends to prove is that both the predecessor and the successor manufacturers are in a better position to spread the cost and assume the liability than is a helpless plaintiff. The undercurrent of the defendant‘s argument, of course, is that the predecessor organization, Wiberg‘s sole proprietorship, is in fact “morally” responsible and at fault and should therefore be the only entity answerable in damages. However, as we have pointed out, the present Forage King Industries, Inc., is substantially the identical organization that manufactured the defective box and is answerable to an injured plaintiff by the same reasoning that the original manufacturer would be.
We hold that the present Forage King Industries, Inc., is substantially the same business organization that manufactured the allegedly defective implement. We arrive at that conclusion by the application of traditional tests for successor liability. The present organization, although it has undergone a structural metamorphosis remains in substance the identical organization manufacturing the same product. It is liable for the defective product manufactured by the original business organization.
Under the facts of this case, we conclude that Forage King Industries, Inc., the present operating company, is not, as determined by the trial court, as a matter of law
By the Court.—Decision reversed, and cause remanded for trial.
CECI, J., took no part.
DAY, J. (dissenting). I dissent. I agree with that portion of Justice Callow‘s dissent which points out that, even if one accepts the majority‘s theory that the form of the predecessor business organization, be it sole proprietorship, partnership or corporation, is irrelevant to the imposition of successor liability, the record in this case does not support the conclusion that Forage King Industries, Inc. is either a merger, consolidation or continuation of Woodrow W. Wiberg‘s sole proprietorship which manufactured the allegedly defective chopper box. Leannais v. Cincinnati, Inc., 565 F.2d 437, 439 (7th Cir. 1977). For that reason, I would hold that Forage King Industries, Inc., is entitled to summary judgment dismissing it from this action.
WILLIAM G. CALLOW, J. (dissenting). The majority has, in a decision barren of citation or precedent, and contrary to the law it purports to apply, held a successor corporation responsible for the preceding, totally independent action of a three-transaction removed (Wiberg-Nedland partnership; Forage King Industries, Inc.; Forage King Industries, Inc./Tester Corporation) sole proprietor. It purports to do so by proclaiming that “it is irrelevant that the predecessor business organization was a sole proprietorship.” Incorrectly applying well-established intercorporate principles, the majority concludes that the present corporation “is substantially the same business organization that manufactured the al-
The majority correctly states that “‘a corporation which purchases the assets of another corporation does not succeed to the liabilities of the selling corporation.‘” Supra, at 75 (emphasis added). Forest Laboratories, Inc. v. Pillsbury Company, 452 F.2d 621, 625 (7th Cir. 1971); Armour-Dial, Inc. v. Alkar Engineering Corp., 469 F. Supp. 1198, 1201 (E.D. Wis. 1979); Bazan v. Kux Machine Company, 358 F. Supp. 1250, 1251 (E.D. Wis. 1973); 15 W. Fletcher, Cyclopedia of The Law of Private Corporations, sec. 7122 (rev. perm. ed. 1973); Note, Expanding the Products Liability of Successor Corporations, 27 Hastings L.J. 1305, 1310-11 (1976). This general rule of nonliability “accords with the fundamental principle of justice and fairness, under which the law imposes responsibility for one‘s own act and not for the totally independent acts of others.” Leannais v. Cincinnati, Inc., 565 F.2d 437, 439 (7th Cir. 1977) (emphasis added).
As the majority has correctly noted, there are four narrowly viewed1 yet recognized exceptions to the gen-
The majority accepts the trial court‘s conclusion that exception one, the express or implied assumption of liability, and exception four, the fraudulent conveyance, “are unrelated to the problem at hand.” Supra, at 78. The majority, however, believes that exception two, merger or consolidation, and exception three, continuation, are applicable because they “merely recite that ... there is ‘identity.‘” Supra, at 78. The majority fails to identify any distinction between the concepts of merger, consolidation, continuation, or those concepts it recognizes in its catchall category, “etc.”
The majority‘s first conclusion is that the intercorporate rule of nonliability and its exceptions are applicable to any business entity irrespective of its nature because liability should not “be facilely dismissed on the basis of the semantics of the rule.” Supra, at 76. I would note that the trial judge entered summary judgment in favor of Vernon Nedland holding: “[w]here a partnership is organized to take over a business, neither the firm nor its members are liable for a tort committed before its organization by the person who formerly conducted such business.‘” See 60 Am. Jur. 2d Partnership sec. 163 (1972). The plaintiff apparently acknowledges this as he no longer pursues recovery against Nedland. The majority refused to treat this issue and summarily states liability will attach regardless of the form of the business entity.
The court of appeals concluded that the instant case did not fall within the policy ambit for imposing intercorporate liability, namely, “no corporation should be permitted to place into the stream of commerce a defective product and avoid liability through corporate transformations or changes in form only.” Tift v. Forage King Industries, Inc., 102 Wis. 2d 327, 331, 306 N.W. 2d 289 (Ct. App. 1981). The significant identity distinction is that in the case, as here where we are dealing with a sole proprietor, the responsible party is capable of being sued; the sole proprietor cannot place a defective product in the stream of commerce and avoid liability through incorporation. The majority indefensibly opines that “[w]hat is important, however, is that the plaintiff may seek recourse against either [Wiberg or Forage King Industries/Tester Corporation].” Supra, at 80. In the present case, imposition of liability on Forage King Industries/Tester Corporation in this million dollar lawsuit actually results in a “windfall” to the plaintiff who has been given a remote additional party to sue. This does not accord with the fundamental principles of jus-
Although I believe the intercorporate rule is inapplicable to the present case, I will address the majority‘s second and erroneous conclusion that the corporate exceptions for de facto merger and/or continuation impose liability.
According to case law, subject to specific conditions, if a purchase of assets amounts to a merger,2 or if it accomplishes a mere continuation of the seller, the purchasing corporation assumes—by operation of law—the liabilities of the seller. E.g., Knapp v. North American Rockwell Corp., 506 F.2d 361, 364 (3d Cir. 1974), cert. denied, 421 U.S. 965 (1975); Forest Laboratories Inc. v. Pillsbury Co., 452 F.2d at 625; Shannon v. Samuel Langston Company, 379 F. Supp. 797, 800-01, (W.D. Mich. 1974).
It is the absence of the necessary specific conditions which frustrate the majority‘s conclusion in the instant case. I would point out that there are two minimum con-
“A sale of assets for stock transfers an ownership interest in the purchaser to the selling corporation. When the seller dissolves and distributes the purchaser‘s stock to the seller‘s shareholders, those shareholders are left as owners of the purchaser. For all practical purposes, a merger has occurred because the property of the dissolved corporation is held by another corporate entity which is, in part, owned by those who were once shareholders of the seller. When, on the other hand, the sale is for the purchaser‘s cash, only property is transferred to the purchaser, and the selling corporation‘s shareholders are left with no interest in the buyer. In this situation, neither a merger nor a continuation has occurred.”
Expanding The Products Liability of Successor Corporations, 27 Hastings L.J. at 1319 (footnotes omitted); 1 Frumer and Friedman, supra at sec. 5.06[2] [b] (“The major consideration necessary for a traditional de facto merger is transfer of assets for stock.“) (emphasis in
I think it significant that the trial court made the following findings regarding continued ownership under exceptions two and three to the traditional intercorporate rule concerning the nonliability of Forage King Industries/Tester Corporation:
“TWO: In the facts of this case, a merger involving the actual obsorption [sic] of a corporation into another with the former losing its existence as a separate corporate entity is not here present. Forage King has not lost its corporate entity; moreover, there is no showing that Mr. Wiberg, when he sold out to Tester, obtained either Forage King Industry stock or Tester stock. He sold the corporate assets; the assets were accepted and management of Forage King was transferred apparently to representatives of the Tester Corporation.
“THREE: “‘when the purchaser corporation is merely a continuation of the seller corporation.“’ As indicated on the Affidavits and pleadings in this case, there is no common identity of officers, directors and stockholders in the selling and purchasing corporations. Mr. Wiberg is out; the new directors are in.”
Plaintiff himself asserts in his brief: “Mr. Wiberg is not in any way presently associated with Forage King
The majority appears to have given a superficial analysis to the continuation exception related to Wiberg‘s sole proprietorship and Forage King Industries/Tester Corporation. The majority articulates the following indicia of continuity, or as it terms it, identity: “Essentially the same manufacturing operation and the manufacture of the same product ... was continued,” Supra, at 80, “Forage King Industries, Inc., is, for the practical purposes relevant to consumer protection, the continuation of the same entity as that operated as a sole proprietorship by Wiberg.” Id.; “Forage King Industries, Inc., remained at the same location and continued to manufacture substantially the same products, including chopper boxes.” Supra, at 75.3 Close examination of the majority opinion reveals the sole indicia of continuity under which the majority has imposed liability is that Forage King Industries/Tester Corporation “continued” essentially the same manufacturing operation and manufactured the same product. I would emphasize that “[t]he gravamen of the traditional ‘mere continuation’ exception is the continuation of the corporate entity rather than continuation of the business operation.” 1 Frumer and Friedman, supra at sec. 5.06[2] [c] (emphasis in original). See Travis v. Harris Corp., 565 F.2d at 447 (where there is no identity of stock, stockholders or directors, there was no continuation); Lopata v. Bemis
The majority declines to accept the products liability approach to successor liability advanced to this court by the plaintiff. The majority declares its intent to follow the standards of the seventh circuit decision adopted in Leannais where that court, applying Wisconsin law, denied liability under the circumstances such as we have here. I cannot understand how the majority can apply the Leannais traditional intercorporate approach and then reach an opposite conclusion and impose liability on Forage King Industries/Tester Corporation. Perhaps the majority‘s unarticulated sympathy with the rationale underlying the strict liability approaches which focus on the continuation of the manufacturing process has been reflected in an expanded continuation theory of its own making.
I address the two new theories of recovery, “product line” and “expanded continuation,” initiated by the California and Michigan courts to declare that I would refuse to recognize a strict liability approach to the issue of successor corporation liability for defective products placed in the stream of commerce by a predecessor corporation.
that the manufacturer is responsible for placing a defective product in the stream of commerce. The cornerstone of strict liability rests upon the defendant‘s active participation in placing the allegedly defective product into commerce. Domine v. Fulton Iron Works, 76 Ill. App. 3d 253, 257, 395 N.E.2d 19, 23 (1979). This is clearly not the case with a successor corporation.
As the seventh circuit in Leannais concluded There is an essential difference between the fixing of responsibility upon manufacturers or sellers for their own acts and transferring that responsibility to a purchasing corporation innocent of and having no control over those acts. The latter may be good policy or bad, but it is not the policy set forth in Dippel. 565 F.2d at 441 n. 8 (emphasis added).
The general rationale in other jurisdictions behind extending the strict liability of a manufacturer for a defective product to a successor corporation is threefold. It is argued that a successor corporation should be held liable because: (1) It can protect itself by purchasing insurance and can pass on the cost of the insurance to the consumer; (2) It has the knowledge of possible hazards of the product manufactured by a predecessor and has the ability and incentive to improve the product and control the risk; and (3) It benefits from the goodwill
Examination of the first rationale for the imposition of liability on successor corporations, the successor‘s protection through the purchase of insurance, reflecting its cost in increased produce prices, reveals that it is illusory. I question whether the successor purchasing corporations may, realistically, be able to obtain open-ended products liability policies to cover them for any accident occasioned by a predecessor‘s defective product which was produced and distributed in the stream of commerce prior to the acquisition.
Presently, 90 percent of the nation‘s manufacturing enterprises are comprised of small manufacturing corporations.6 Statistics reveal that 21.6 percent of those businesses seeking products liability insurance could not obtain it.7 As one recent commentator concluded: Most
Even if the bulk of the manufacturing industry could obtain products liability insurance to cover the cost of
[T]heir ability to pass on the costs are limited. They are limited by the pricing performance of their major competitors. Generally what happens, and there are some exceptions, particularly various specialty-type products, is that the major corporations, major businesses in the country will set the parameters of the price. The small firm cannot leave those parameters without coming into some serious problems.9
Larger corporations, because frequently they are more diversified, are more able to spread product liability costs and to discontinue higher-cost product lines. The modestly sized one or two product manufacturer has little or no flexibility. Spiraling inflation, coupled with the competitive nature of industry, prohibits the passing on of increased costs through product prices. Small corporations must accept either decreased profitability or business termination. The loss of jobs and production resulting from the latter is clearly unacceptable.10
The second basis for the imposition of a strict liability approach is equally indefensible. According to this rationale, the successor corporation has the knowledge necessary to improve the product and the imposition of liability acts as an incentive to ensure the product‘s improvement. First, improvement of a product line has no
This rationale also appears to presuppose that a successor corporation knows where the predecessor‘s products have gone and can notify the product owners of the need to correct any defects. I contend that in most cases a successor corporation has no means of recalling and modifying the predecessor‘s product to ensure that the product meets current standards. As exemplified by the instant case, the product may have been manufactured twenty years ago. Yet, it is contended that the successor must face products liability claims flowing from the old products. I believe this imposes an unreasonable burden on a successor corporation. The acquiring corporation would be playing Russian roulette because it had no control over the quality of manufacture of the product put in commerce before the acquisition. Such a conclusion certainly puts a damper on the sale of manufacturing businesses, for no purchase price could reasonably anticipate the costs to a purchaser incident to liability claims for products manufactured prior to the acquisition.
The third rationale has been mentioned in recent cases in the handful of jurisdictions imposing new theories of liability on successor corporations; namely, the fact that the successor corporation enjoys the goodwill of the predecessor corporation should impose upon it the corresponding burden of liability for defective products the predecessor has placed in the stream of commerce. The benefit/burden rationale is initially somewhat semantically persuasive, even though I have read no strict lia-
Equally troublesome with this goodwill concept as a benefit is how to evaluate it. The majority of cases have not enlightened us as to what goodwill is, or how much goodwill will be considered justification for imposing the burden of liability. Are trade name, retention of customer lists, or a specialty product going to constitute goodwill? Some companies are sold because they do not have a good reputation, and the successor corporation believes it can reverse the public attitude toward the product. It is not unusual for an unsuccessful product line to be made successful by a successor owner with good marketing techniques. If the specific product involved had not, under a concept of goodwill, been successful on the market, would this change the analysis of liability?
Two new theories of liability have evolved to reflect the aforementioned policy considerations to impose strict liability on a successor corporation where traditional principles have provided immunity. The theories are termed expanded continuation and product line, and they have been separately adopted by a mere handful of jurisdictions.
The California supreme court in a narrowly tailored decision in Ray v. Alad Corp., 19 Cal. 3d 22, 560 P.2d 3 (1977), adopted a theory of liability termed the product line approach where a party which acquires a manufacturing business and continues the output of its line of products . . . assumes strict tort liability for defects in units of the same product line previously manufactured and distributed by the entity from which the business was acquired.11 This theory undoubtedly evolved to ex-
The Ray court articulated three reasons to justify the imposition of liability: First, the virtual destruction of the plaintiff‘s remedies against the original manufacturer; second, the successor‘s ability to assume the original manufacturer‘s risk-spreading role; and third, the fairness of requiring the successor to assume a responsibility for defective products which flows from the goodwill being enjoyed by the successor corporation. Id. at 31. The Ray court opined that this would preclude any windfall to the predecessor which might otherwise be realized from an absence of successor liability in an enhanced purchase price and the liquidation of the predecessor resulting in its avoidance of liability. Id. at 34.
I have already discussed criteria two and three within this dissent. The Ray court found criterion one most persuasive; namely, that a victim would go uncompensated unless suit could be brought against the successor corporation. Accord Turner, 397 Mich. at 419 ([the plaintiff] has no place to turn for relief except to the second corporation); Ramirez v. Amsted Industries, Inc., 86 N.J. 332, 351, 431 A.2d 811 (1981) (the injured plaintiff obviously cannot look to [the predecessor corporation] for a recovery of the damages); Cf. Leannais v. Cincinnati, Inc., 565 F.2d 437, 443 (7th Cir. 1977) (Fairchild, C.J., concurring in part, dissenting in part) (following Ray rationale would require destruction of plaintiff‘s remedy
I am particularly troubled by Ray and its progeny‘s failure to define product line. The majority in the instant case comments that Forage King Industries/Tester Corporation manufactured the same product, although this was disputed. Is the fact that the successor corporation, as in the present case, manufactures a chopper box sufficient to impose liability—even if it is a different
These questions, among others, reveal that any expanded liability of successor corporations is best addressed by the legislature rather than through piecemeal decisions by the court which may create more confusion than resolution. As we wisely recognized in Holifield v. Setco Industries, Inc., 42 Wis. 2d 750, 758, 168 N.W.2d 177 (1969): Such arguments, pro and con, as to what limitations on bringing to court actions based on products liability and negligent manufacture will best serve the public interest are for the legislature, not the courts, to consider. Id. at 758. As we noted in Holifield, it is the court‘s role to interpret and apply the law as it presently exists—not as the court might want it to be. Id.
As the seventh circuit in Leannais v. Cincinnati, Inc., supra, prudently concluded in refusing to impose any new theory of liability upon a successor corporation:
Courts are ill-equipped, however, to balance equities among future plaintiffs and defendants. Such forays can result in wide-ranging ramifications on society, the contemplation of which is precluded by the exigencies of deciding a particular case presented on a limited record developed by present parties. . . . As the Wisconsin Supreme Court has recognized, such broad public policy issues are best handled by legislatures with their comprehensive machinery for public input and debate. Id. at 441.
See also: Jenkins v. Sabourin, 104 Wis. 2d 309, 323, 311 N.W.2d 600 (1981), where this court judiciously refused
The majority in the instant case seeks not to provide Calvin Tift with a remedy; it seeks to provide him with an additional, deeper pocket to sue. In my opinion, this contravenes the essence of the traditional intercorporate approach as well as the strict liability approaches.
In conclusion, I believe that the majority has abrogated a significant distinction between a corporation and a sole proprietorship, one designed to comport with notions of fundamental fairness and justice. While a corporation may dissolve its legal status, leaving a plaintiff without a remedy, a sole proprietor remains a viable defendant. I believe that the intercorporate rule of nonliability with its four exceptions applies—and was intended to apply—solely to corporations.
Although I would not apply the intercorporate rule to this case because a sole proprietor is involved, I would comment that, assuming it were applicable, the majority has failed to apply the merger and continuation exceptions to nonliability within their proper legal framework. By elasticizing these narrowly construed exceptions and ignoring their very foundation, the majority has thwarted well-established law. Accordingly, I dissent.
Notes
A reading of the facts as set out in the majority opinion reveals that Wiberg‘s sole proprietorship operated at Prairie Farms, Wisconsin. When the Tester Corporation purchased Forage King Industries, Inc., it was located in Ridgeland, Wisconsin. Thus there was no “identity” of location.
Other portions of the Dippel opinion shed further light on this proposition: [T]he strict liability of the seller of a defective product . . . is much more akin to negligence per se. Id. at 461. From the plaintiff‘s point of view the most beneficial aspect of the rule is that it relieves him of proving specific acts of negligence and protects him from the defenses of notice of breach, disclaimer, and lack of privity in the implied warranty concepts of sales and contracts. Id. at 460. [T]he rule of strict liability, which this court now adopts, is not a rule of absolute liability. This is wholly apart from any consideration of such defenses as contributory negligence or assumption of risk. Id. at 463 (emphasis in original) (Currie, C.J. concurring).
In another landmark decision, Escola v. Coca Cola Bottling Co., 24 Cal. 2d 453, 150 P.2d 436 (1944), the California supreme court
The Subcommittee on Consumer Protection and Finance of the 96th Congress concluded: To a large extent, the distinction between unavailability and unaffordability is elusive: If the insurance is obtainable only at a prohibitively high price, then such insurance is tantamount to being unavailable, at least from the vantage point of the prospective insured. Hearings Before the Subcommittee on Consumer Protection and Finance of the Committee on Interstate and Foreign Commerce House of Representatives, 96th Cong., 1st Sess., 13 (1979) (hereinafter cited as Hearings II).
Many small corporations’ insurance cost has increased dramatically even though they have had few, if any, claims settled against them. An example of the dramatic rate increase is revealed through the following testimony of a small manufacturer before the Senate Small Business Committee: My sudden interest in this field has been occasioned by an increase in my insurance premium from $1,200 in 1974-75 to $8,850 in 1976. While that may not sound like much of a horror story, we‘ve recently been advised that our coverage will be cancelled unless we come up with the princely sum of $74,000 for 1977. . . . (We) have never been named in an action nor have we or our insurance company ever paid a claim. Hearings at 170.
The following chart on the cost of product liability insurance for one small business is illustrative of products liability rate increases:
COST OF PRODUCTS LIABILITY
| Underlying Limits Cost | $ Coverage | Umbrella Cost | $ Coverage | Total Cost | |
|---|---|---|---|---|---|
| 1978 | $61,987 | $300,000 | $73,442 | $5,000,000 | $135,429 |
| 1977 | 51,469 | 300,000 | 44,000 | 5,000,000 | 95,469 |
| 1976 | 8,160 | 300,000 | 1,250 | 5,000,000 | 9,410 |
| 1975 | 4,823 | 300,000 | 1,250 | 5,000,000 | 6,043 |
| 1974 | 4,571 | 300,000 | 1,250 | 5,000,000 | 5,821 |
| 1973 | 4,571 | 300,000 | 350 | 1,000,000 | 4,921 |
| 1972 | 4,571 | 300,000 | 350 | 1,000,000 | 4,921 |
| Year to Year % Increase in Premiums | % Increase Since 1972 | |
|---|---|---|
| 1973 | 0% | 0% |
| 1974 | 18% | 18% |
| 1975 | 3% | 23% |
| 1976 | 55% | 91% |
| 1977 | 1,014% | 1,940% |
| 1978 | 42% | 2,752% |
Hearings II at 124 (testimony of Frank W. York, President, Newman Machine Co., Inc.). See also Products Liability and Successor Corporations, supra note 6 at 1024-25.
The Subcommittee on Consumer Protection and Finance of the 96th Congress noted: In sum, our study of the insurance industry indicates it is unable to justify the rates presently being charged many businesses, and in testimony before the Subcommittee, several insurance industry witnesses have admitted embarrassment in their inability to do so; however, while the Subcommittee has been unable to determine whether specific rates charged are excessive, there appears to have been a general panic pricing of product liability insurance. The insurance industry is entirely unable to justify its activities. Hearings II at 21.
In the instant case, Mr. Tift has had his medical expenses paid by the Barron County Department of Social Services, and, arguably, any desire to see the costs of compensation spread out through society has been realized. I would also point out that, although Mr. Tift was hospitalized for approximately two months following his injury, he was discharged with an excellent over-all prognosis and, in fact, was gainfully employed between 42½ and 47½ hours per week in a factory at the time of trial.