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Class v. American Roller Die Corp.

June 12, 1996

RAMON CLASS, PLAINTIFF,
v.
AMERICAN ROLLER DIE CORP., T/A ARDCORE, AN OHIO CORPORATION; LEE WILSON ENGINEERING COMPANY, INC., AN OHIO CORPORATION; B&K MACHINERY INTERNATIONAL LIMITED, A FOREIGN CORPORATION; P&F INDUSTRIES, A FOREIGN CORPORATION; COMPANY(S) 4-6, DESIGNERS AND/OR MANUFACTURERS OF PRESSES; MECHANICAL STEEL TUBING CORP.; COMPANY(S) 8-10, DISTRIBUTORS OF PRESSES MANUFACTURED BY AMERICAN ROLLER DIE CORP., T/A ARDCORE, LEE WILSON ENGINEERING COMPANY, INC., B&K MACHINERY INTERNATIONAL LIMITED, AND P&F INDUSTRIES AND COMPANY(S) 4-6; BILL KNATH MACHINERY COMPANY; COMPANY(S) 11-13, MAINTENANCE COMPANIES OF STRUT MILL CUT-OFF PRESSES; SUTTER MANUFACTURING TOOL & DIE CO., DIVISION OF MJM TOOLING CORP., MANUFACTURER OF DIES TO BE USED IN CONJUNCTION WITH THE STRUT MILL CUT-OFF PRESS MANUFACTURED AND DESIGNED BY AMERICAN ROLLER DIE CORP., T/A ARDCORE, LEE WILSON ENGINEERING COMPANY, INC., B&K MACHINERY INTERNATIONAL LIMITED, P&F INDUSTRIES AND COMPANY(S) 4-6; BC COMPANY(S), MANUFACTURERS OF VARIOUS COMPONENT PARTS TO THE STRUT MILL CUT-OFF PRESS MANUFACTURED AND DESIGNED BY AMERICAN ROLLER DIE CORP., T/A ARDCORE, LEE WILSON ENGINEERING COMPANY, INC., B&K MACHINERY INTERNATIONAL LIMITED, P&F INDUSTRIES AND COMPANY(S) 4-6, XYZ COMPANY(S), DISTRIBUTORS OF VARIOUS COMPONENT PARTS AND/OR NECESSARY PARTS TO STRUT MILL CUT-OFF PRESSES; HAYDON CORPORATION, DEFENDANTS.



Miniman, J.s.c.

The opinion of the court was delivered by: Miniman

MINIMAN, J.S.C.

The parties to this action entered into an agreement with Plaintiff Ramon Class (Class) pursuant to which three defendants paid Class a total of $875,000. Pursuant to that agreement, defendants remaining in this action when plaintiff's claims were settled retained their right to a judicial determination of their liability as alleged seriatim successors to the original manufacturer whose product injured plaintiff, as well as their rights and obligations inter sese under various asset purchase agreements and otherwise. Because the facts relevant to liability are undisputed, defendants seek a determination of these issues prior to the presentation of any evidence relating to damages for breach of any asset purchase agreement. The court finds that based on their status seriatim product-line successors have a right inter sese to common law indemnification, pursuant to which the burden of responding in damages to an injured consumer is to be borne equally.

On November 10, 1988, Class was injured while working at Haydon Corporation (Haydon) on a punch press manufactured in 1954, by American Roller Die Corporation (Ardcor). Ardcor no longer existed at the time of plaintiff's accident, having sold all of its assets of every kind and description to defendant Lee Wilson Engineering Company, Inc. (Wilson) on April 1, 1963, except for certain listed assets not relevant here. Ardcor went out of business shortly thereafter. Wilson agreed to pay $684,814.64 for the transferred assets - $247,999 for machinery, equipment, airplane, furniture, fixtures and other depreciable property; $411,814.68 for inventory; $15,000 for patents; and $10,000 for good will, trademarks, trade names, brands, labels, copyrights and the exclusive right to use the Ardcor name. The purchase price was paid in part pursuant to § 3.1 by the assumption of all trade accounts payable and other obligations, including salaries, wages, commissions, bonuses and vacation or holiday pay, all as specifically shown on Exhibit A to the Purchase Agreement, and the balance in cash pursuant to § 3.2. In addition, Wilson agreed in § 4 to assume certain other obligations, including performance of all Ardcor contractual obligations not rendered prior to April 1, 1963.

Ardcor and Wilson addressed risk spreading and cost avoidance in the Purchase Agreement. In § 3.1 they provided:

It is expressly agreed that all liabilities not specifically referred to in this Section 3.1 or in Section 4 shall not be assumed by Wilson but shall be paid by Ardcor. Ardcor agrees to indemnify Wilson and save it harmless from any and all claims asserted against Wilson or any of the assets purchased hereunder by reason of any such liabilities to be paid by Ardcor ....

After the closing Wilson continued the production of the Ardcor product line. In October 1968, Wilson sold its Ardcor and Seco Divisions to defendant P&F Industries, Inc. (P&F). *fn1 Pursuant to the October 1968 purchase agreement, P&F acquired the remaining assets of the Ardcor and Seco Divisions of Wilson, including inventory and tube mills located at the Ardcor plant, jigs, fixtures, patterns, engineering drawings, bills of material and files related to the Ardcor and Seco product lines, patents and patent applications relating thereto, and the Ardcor and Seco trade names. The purchase price was $412,500 payable by certified check. Wilson agreed not to compete with the Ardcor or Seco product lines for a period of five years.

The parties to this agreement, too, addressed risk spreading and cost allocation, providing in § 12 as follows:

It is understood and agreed that the total purchase price to be paid by [P&F] hereunder is the amount stated in Section 2 hereof, and that [P&F] assumes no liability or obligation whatsoever of Seller including service and warranty obligations with respect to products of the Ardcor and Seco Product Lines heretofore sold by [Wilson] or B&K Machinery International Limited.

Thus, Wilson clearly and unequivocally agreed that all liabilities and obligations of Wilson remained with it and were not assumed by P&F, including the contractual obligations of Ardcor which Wilson assumed on April 1, 1963, as well as those Wilson and B&K incurred thereafter. In addition, Wilson in § 6 agreed to indemnify and hold P&F harmless from any damage or loss, including reasonable attorneys fees, which P&F sustained as a result of any breach of any covenant contained in the October 1968 agreement.

After the transfer of the Ardcor and Seco assets from Wilson to P&F, Wilson continued to service previously-sold Ardcor and Seco products and to manufacture other product lines. Wilson remained in business when Class was injured in 1988, at which time it had a one million dollar indemnity policy covering product defects. Furthermore, Wilson was extant when a lawsuit was begun in 1990 by Haydon in its own name as employer to recover, inter alia, the worker's compensation benefits paid to Class *fn2 and was also extant when this lawsuit was begun. It remained extant until 1994, when it dissolved, having stopped manufacturing in 1993.

P&F never operated the Ardcor and Seco businesses, merely warehousing the Ardcor assets until they were resold fourteen months later. On January 14, 1970, P&F sold everything it purchased from Wilson to American Roll Tooling, Inc. (American), including the Ardcor product line. The assets sold were described as all inventory relating to the Ardcor roll form business, including two small open-seam tube mills (but excluding two electric-welded tube mills and welders), drawings and engineering files, the names of Ardor and American Roller Die Corporation, the good will pertaining thereto, and designated patents and patent applications, as well as the assets relating to the Seco product line. The purchase price was $115,000. P&F agreed not to use the names Ardcor or American Roller Die Corporation, and agreed to cooperate with American in securing the telephone numbers for the original manufacturer. No liabilities were assumed. The agreement was silent with respect to allocation of risk except in § 9E which required American to secure "an insurance certificate complying with the provisions under Paragraph 11 of Exhibit B-1 which shall contain a provision, if obtainable, naming P&F as anadditional insured. *fn3" American has operated the Ardcor business from its acquisition to the time of the settlement of plaintiff's claim, employing at least one Ardcor worker who was employed by Wilson but not by P&F. It was manufacturing the Ardcor product line on the date of the accident in which Class was injured and at the time the Haydon and Class lawsuits were filed.

To resolve the failure-to-warn claims of Class, American paid Class $125,000 - an amount which is not subject to reallocation under this opinion. In addition, Wilson, P&F, and American stipulated damages from product defects at $750,000 and agreed to pay those damages equally to satisfy the strict product liability claims pending this court's determination of each defendant's liability to Class and inter sese. These damages were sufficient to satisfy the workers' compensation lien and to provide Class with additional compensation. This court must now determine whether each of the defendants was liable to Class as a successor corporation or otherwise, whether the right of Class to recover damages from any defendant was limited in any way, and what contractual, common law or statutory rights the successors have here inter sese to reallocation of the stipulated damages for the strict product liability claims.

Traditional Successor Liability Rule

The leading New Jersey case discussing the traditional rule governing successor liability is 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). In that case, the court identified four commonly found exceptions to the general rule that a transferee of assets is not liable for the debts and liabilities of the transferor. Those exceptions are (a) an express or implied assumption of liabilities, (b) a consolidation or merger of two corporations, (c) the mere continuation of the seller in the form of the purchaser, or (d) the transfer of the assets to avoid liability for the seller's debts. 109 N.J. Super. at 561. In addition, the McKee court acknowledged a fifth exception where there was an absence of adequate consideration for the sale or transfer of assets. Ibid.

It would seem from the Ardcor/Wilson contract that Wilson expressly and impliedly assumed certain obligations of Ardcor. When Wilson entered into the asset purchase agreement with Ardcor, it specifically agreed in § 4 that it would perform all Ardcor contractual obligations not rendered prior to April 1, 1963. Arguably, the obligation to respond to claims for breaches of warranty respecting goods sold prior to April 1, 1963, was a contractual obligation of Ardcor under the warranties implied by the Uniform Commercial Code into contracts for the sale of goods. Thus, Wilson in § 4 of the Ardcor/Wilson agreement may have intended to assume and perform all of Ardcor's warranty obligations which were not rendered prior to April 1, 1963.

The parties to a contract are presumed to have drafted the contract in accordance with the law extant at the time of the making of the contract. Silverstein v. Keane, 19 N.J. 1, 13, 115 A.2d 1 (1955). It is proper to determine the unexpressed implications of what is written in the contract by reference to such law. Deerhurst Estates v. Meadow Homes, Inc., 64 N.J. Super. 134, 152, 165 A.2d 543 (App. Div. 1960), certif. den., 34 N.J. 66 (1961). At the time the Ardcor/Wilson agreement was executed, manufacturers, even in the absence of privity, were held liable in New Jersey to injured consumers under the U.C.C. warranties of fitness and merchantability implied into contracts for the sale of goods. Henningsen v. Bloomfield Motors, Inc., 32 N.J. 358, 379, 384, 161 A.2d 69 (1960). Responding in damages to Class, a consumer injured on and after April 1, 1963, for a breach of warranty causing injury may properly be considered an "Ardcor contractual obligation not rendered prior to April 1, 1963," and thus within the terms of the Ardcor/Wilson agreement and the contemplation of the parties. As a consequence, liability for defects in products may very well have been an obligation of Ardcor expressly assumed by Wilson in the purchase agreement.

Absent such an express assumption of Ardcor liabilities by Wilson, Class would be without a remedy under the McKee analysis of successor liability. P&F did not expressly or impliedly assume any obligations of Wilson or Ardcor. While Wilson was manufacturing the Ardcor products, the New Jersey Supreme Court characterized product liability as "hybrid, having its commencement in contract and its termination in tort." Santor v. A&M Karagheusian Inc., 44 N.J. 52, 64, 207 A.2d 305 (1965) (holding that the concepts underlying product liability "bespeak a sui generis cause of action"). Thus, at the time the Wilson/P&F contract was executed, product liability was still, to some extent, rooted in contract warranties. The parties to that contract expressly agreed that P&F "assumed no liability or obligation whatsoever" of Wilson, including service and warranty obligations with respect to Ardcor products sold by Wilson or B&K. *fn4 Thus, under the assumption-of-liabilities exception to the traditional successor liability rule, P&F would not be liable to Class. In addition, American would not be liable to Class under the same exception because no liabilities were expressly or impliedly assumed by American in the P&F/American agreement. *fn5 We need not, however, decide whether Wilson is liable under the McKee rule, because such analysis has been abandoned in New Jersey in products liability cases, which are governed by the theory of product-line successor liability.

The Development of Product-Line Successor Liability

The concept of product-line successor liability was first developed in Ray v. Alad Corp., 19 Cal. 3d 22, 560 P.2d 3, 136 Cal. Rptr. 574 (Cal. 1977). In that case plaintiff Ray was injured when he fell from a defective ladder manufactured by Alad Corporation (Alad I). Prior to plaintiff's accident Alad I sold its stock in trade, fixtures, equipment, trade name, inventory and good will to Lighting Maintenance Corporation (Lighting), agreed to dissolve, and agreed to assist Lighting in forming a new corporation under the name of Alad Corporation. Liabilities, except for work in progress and material ordered but not delivered, were not assumed by Lighting. Lighting thereupon formed Stern Ladder Company, which changed its name to Alad Corporation (Alad II) and exchanged all of its outstanding stock for the Alad I assets held by Lighting.

The California Supreme Court discussed the four traditional exceptions to the general rule that a purchaser does not assume the seller's liabilities. Ray, supra, 560 P.2d at 5. Because strict product liability promotes the policy of protecting otherwise defenseless victims of manufacturing defects by spreading the cost of compensating them throughout society, the Court determined that liability should instead be imposed upon a showing of:

(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 rule [sic], 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.

[ 560 P.2d at 8-9.]

Because the manufacturing assets of Alad I had been acquired by Lighting for the benefit of Alad II and the remaining Alad I assets had already been distributed to its stockholders before plaintiff was injured, the Court found the first criterion satisfied. This was so because plaintiff would face "formidable and probably insuperable obstacles" in attempting to collect a judgment from former stockholders and directors, especially where products liability insurance, generally written on an ...


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