The opinion of the court was delivered by: BY THE COURT; J. WILLIAM DITTER, JR.
In September, 1990, Curt Bogart's arm was severed by a pasta-making machine in the course of his employment. Bogart sued the manufacturers and distributors of the machine. One of the defendants, Phase II Pasta Machines, Inc., the alleged successor to the company which sold the machine to Bogart's employer in 1985, has moved for summary judgment on the ground that 1) it is not the successor corporation to the original seller-corporation, and 2) even if it is, none of the exceptions to the successor non-liability rule applies.
I disagree with both of Phase II's arguments and will deny its motion for summary judgment.
None of the parties contends Phase II actually sold the machine in 1985. It is undisputed that machine was imported and sold to Bogart's employer by Pasta-Mat, Inc., and that Phase II was not incorporated until January 11, 1990.
Nonetheless, Phase II can be liable to Bogart for damages if Phase II is the successor corporation to Pasta-Mat and is subject to at least one of the exceptions to the rule of successor non-liability.
I. Phase II is a Successor Corporation to Pasta-Mat
Under Pennsylvania law,
a newly-formed corporation is a "successor corporation" to a company whose assets it acquires, either in whole or in part. Phase II argues it cannot be Pasta-Mat's successor corporation because Pasta-Mat had no assets to transfer (its office building was rented, it kept no inventory, it had no service contracts) -- and therefore Phase II cannot have "acquired" Pasta-Mat's assets. I find, however, that while Pasta-Mat may not have had any tangible assets, it had significant intangible assets all of which it transferred to Phase II. Phase II therefore qualifies Pasta-Mat's successor.
Pasta-Mat started importing and distributing Italian pasta-making machines in 1957. Gary Valenti and Attilio Giovannini owned the company and hired Michael S. Wilson, Valenti's son-in-law, to help run it. In 1980, Wilson acquired a one-third interest in Pasta-Mat from Valenti and Giovannini. Gradually, Valenti and Giovannini ceded control of daily operations to Wilson. When the two older partners decided to retire, Wilson took the opportunity to re-incorporate the company under the name "Phase II Pasta Machines." Wilson explained he had always disliked the name "Pasta-Mat," and it had been regularly confused with similarly named competitors. See Deposition of Michael S. Wilson ("Deposition") at 22-23. Valenti and Giovannini stayed on as registered shareholders of Phase II. Pasta-Mat was formally dissolved on May 31, 1990.
All of Pasta-Mat's assets were transferred to Phase II. Wilson continued to run the daily operations of the new company. Valenti still served as the lifeline to manufacturers in Italy.
Giovannini stayed on to consult and train Phase II employees. (Deposition at 55.) Phase II also stayed in the same location, a building owned by SOA Realty -- whose principals are also Wilson, Valenti, and Giovannini. (Deposition at 39.) Phase II had Pasta-Mat's phone calls forwarded to its own line so it could keep Pasta-Mat's customers and retain repair contracts. (Deposition at 74.) Phase II kept the customer list Wilson had compiled at Pasta-Mat. (Deposition at 37.) Since these were all the assets Pasta-Mat had, I conclude Phase II did "acquire" Pasta-Mat's assets and is therefore its successor corporation.
II. Phase II Inherits Pasta-Mat's Liabilities under the Continuation and Product Line Exceptions
The general rule under Pennsylvania common law is that successor corporations acquire assets but not liabilities. See Philadelphia Elec. Co. v. Hercules, Inc., 762 F.2d 303, 308 (3d Cir.), cert. denied, 474 U.S. 980, 106 S. Ct. 384, 88 L. Ed. 2d 337 (1985). In Dawejko v. Jorgensen Steel Co., 290 Pa. Super. 15, 434 A.2d 106 (Pa. Super. 1981), the Pennsylvania Superior Court enumerated the five widely-made exceptions to the non-liability rule and articulated a sixth, the product line exception. See Dawejko, 434 A.2d at 107-11.
I find Phase II falls within both the "continuation" and product line exceptions to this rule and must be held to have assumed Pasta-Mat's liabilities.
Traditionally, the business continuation exception applies only when there is a common identity of officers, directors, and stock between the selling and purchasing corporations, and only one corporation after the transfer. Dawejko, 434 A.2d at 108. However, a "continuation" has also been defined more broadly, with the emphasis being shifted from ...