The principal issue decided in this opinion is whether, as a matter of law, the purchaser of the assets of a defunct manufacturer is immune from liability to a plaintiff injured by defective equipment made by that manufacturer, as that liability is articulated in Ramirez v. Amsted Industries, Inc., 86 N.J. 332, 431 A.2d 811 (1981), merely because the purchase occurred in a liquidation proceeding under Chapter 7 of the Bankruptcy Code, 11 U.S.C. § 701 et seq.
It is undisputed for purposes of this decision that on July 1, 1987, plaintiff Antonio Goncalves was injured while working in the wire spool storage area of the American Metal Molding
Company's plant in Edison, New Jersey. The spooler machine whose defects caused the injuries was manufactured in 1979 by defendant Wire Technology and Machinery Company, trading as Cook Machinery ("Cook").
On May 30, 1983, well before Mr. Goncalves's injuries, Cook had filed a petition for bankruptcy in the United States Bankruptcy Court for the District of New Jersey. Promptly thereafter, in July 1983, Cook's original bankruptcy proceeding, which had been brought under Chapter 11 of the Bankruptcy Code, 11 U.S.C. § 1101 et seq, was converted to a proceeding under Chapter 7 of the U.S. Bankruptcy Code, 11 U.S.C. 701, et seq. Chapter 7 is entitled "Liquidation". On October 6, 1983, as part of the Chapter 7 liquidation, the Bankruptcy Court entered an Order allowing the sale of various assets of Cook to the defendant Entwistle Company ("Entwistle") for $443,000.00.
Plaintiffs have moved for summary judgment, alleging that Entwistle is the successor to Cook's relevant product line and should be held to answer financially for injuries caused by the defective product made by Cook. Entwistle has cross-moved for summary judgment, asserting that it is not liable as a successor to Cook because, among other things, it did not cause the destruction of Cook's business.
The New Jersey Supreme Court in Ramirez v. Amsted Industries, Inc., 86 N.J. 332, 431 A.2d 811 (1981), and Nieves v. Bruno Sherman Corp., 86 N.J. 361, 431 A.2d 826 (1981), changed the prior law that had limited to narrow, traditional grounds, as set forth in cases such as McKee v. Harris-Seybold Co., 109 N.J. Super. 555, 264 A.2d 98 (Law Div.1970), aff'd. 118 N.J. Super. 480, 288 A.2d 585 (App.Div.1972) (see, Ramirez, 86 N.J. at 340, 431 A.2d 811), the liability of a purchaser of a product line for injuries caused by defects in products manufactured by its predecessor. Quoting from the law as developed by the California Supreme Court in Ray v. Alad Corp., 19 Cal. 3d 22, 31, 560 P. 2d 3, 9, 136 Cal.Rptr. 574, 580 (1977), our
Supreme Court in Ramirez, 86 N.J. at 349, 431 A.2d 811, noted the following "three-fold justification for . . . imposition of potential liability upon a successor corporation that acquires the assets and continues the manufacturing operation of the predecessor," namely,
"(1) The virtual destruction of the plaintiff's 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 ...