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FEDERAL INS. CO. v. GLENN D. LIVELSBERGER

September 12, 1994

FEDERAL INSURANCE COMPANY, as subrogee of THOMAS R. and LINDA R. PHEASANT, Plaintiff,
v.
GLENN D. LIVELSBERGER, INC., t/a HERITAGE BUILDERS, INC. and MINWAX COMPANY, INC., Defendants.



The opinion of the court was delivered by: THOMAS I. VANASKIE

 Plaintiff Federal Insurance Company, as subrogee of Thomas R. and Linda R. Pheasant (hereinafter referred to as "Federal Insurance"), has moved for partial summary judgment on the issue of whether defendant Minwax Company, Inc. ("Minwax") "is liable as a successor corporation for all defects in any unit of the product line known as Watco Danish Oil Finish, [irrespective of] whether any individual unit, formula, label, or package of that product line was manufactured and distributed by Watco-Dennis Corporation or Minwax. . . ." (Federal Insurance Motion for Partial Summary Judgment (Dkt. Entry #49) at p.4.) Because there is a genuine dispute as to whether Federal Insurance has a potential remedy against Watco-Dennis Corporation (now known as Denwat Corporation), the predecessor producer of the product in question, Federal Insurance's Motion will be denied.

 BACKGROUND

 Federal Insurance provided homeowners insurance coverage to Thomas R. and Linda R. Pheasant for their home located at 49 Hillcrest Road, Wormleysburg, Pennsylvania. The home was severely damaged in a fire on April 2, 1991. Federal Insurance paid in excess of $ 2 million to the Pheasants for damages caused by the fire.

 Federal Insurance apparently recovered a number of cans from the scene of the fire, including two cans which are alleged to have contained Watco Danish Oil Finish. The cans in question were burned to the extent that batch number or other markings identifying the date of manufacture cannot be discerned. It is thus unclear whether the Watco Danish Oil Finisher that is alleged to be the cause of the fire was produced by Watco-Dennis or by Minwax.

 On March 29, 1993, Federal Insurance brought this subrogation action, naming as defendants Minwax and Glenn D. Livelsberger, Inc., t/a Heritage Builders, which had been engaged in the renovation of the Pheasants' home at the time of the fire. Federal Insurance contends that the fire was caused by the spontaneous combustion of rags soaked with Watco Danish Oil Finish. *fn1"

 Prior to December, 1988, Watco Danish Oil Finish was produced by Watco-Dennis. By agreement dated December 29, 1988, Minwax acquired substantially all of the assets of Watco-Dennis, including the product line known as Watco Danish Oil Finish.

 In acquiring the assets of Watco-Dennis, Minwax agreed to assume only certain liabilities. (See Exhibit "C" to the Federal Insurance Motion (Dkt Entry #58).) Under the terms of the Agreement with Watco-Dennis, a total of $ 1.5 million was placed in an escrow account to serve as security for the obligations of Watco-Dennis and its shareholders under the purchase agreement. (Id.) It appears that these funds remain escrowed. It also appears that the predecessor producer of Watco-Danish Oil Finish has maintained as much as $ 6 million in primary and excess coverage for product liability claims such as those asserted in this matter. Finally, it appears that Watco-Dennis and its shareholders agreed to indemnify Minwax against liability for certain product liability claims.

 It is undisputed that among the assets purchased by Minwax were Watco-Dennis customer lists; chemical formulas for Watco Danish Oil Finish; and a label inventory. It is also undisputed that shortly after the acquisition of the assets of Watco-Dennis, Minwax assumed production of Watco Danish Oil Finish. Labeling on cans of Watco Danish Oil Finish presented substantially the same appearance, whether manufactured by Watco-Dennis or Minwax.

 Watco-Dennis changed its name to Denwat Corporation ("Denwat") shortly after its assets were aquired by Minwax. Denwat was not a "working" corporation, and never manufactured or produced any products. A Certificate of Election to Wind Up and Dissolve Denwat Corporation has been filed. Denwat does not own any physical, tangible or intangible assets, with perhaps the exception of its interests in the escrow account and the products liability insurance policy.

 By Order dated March 25, 1994, Federal Insurance was granted leave to file an Amended Complaint naming as additional defendants Watco-Dennis and Denwat. The Amended Complaint was filed on April 1, 1994. Watco-Dennis and Denwat failed to respond to the Amended Complaint, and Federal Insurance caused default to be entered against Watco-Dennis and Denwat on August 24, 1994. Watco-Dennis and Denwat have moved to set aside the default. (Dkt. Entry #97).

 DISCUSSION

 A.

 Rule 56(c) of the Federal Rules of Civil Procedure provides that summary judgment should be granted when "there is no genuine issue as to any material fact and. . . the moving party is entitled to a judgment as a matter of law." Thus, summary judgment will not lie "if the dispute about a material fact is 'genuine,' that is, if the evidence is such that a reasonable jury could return a verdict for the non-moving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986). There is no issue for trial unless sufficient evidence exists which favors the non-moving party so that a jury may return a verdict for that party. ...


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