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).
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. Id. at 249-50. A fact is "material" if proof of its existence or non-existence would affect the outcome of the lawsuit under the law applicable to the case. Id. at 248.
The burden of demonstrating the absence of genuine issues of material fact rests with the moving party regardless of which party has the burden of persuasion at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 321-25, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986). All doubts as to the existence of a genuine issue of material fact must be resolved against a moving party, and the entire record must be examined in the light most favorable to the non-moving party. Jones v. John R. Hollingsworth Corp., 996 F.2d 632, 637 (3rd Cir. 1993); Continental Insurance v. Bodie, 682 F.2d 436 (3rd Cir. 1982).
Minwax's motion raises the question of the liability of a company acquiring the assets of another company for the torts of the acquired company. As a general rule, "where one company sells or transfers all of its assets to another, the second entity does not become liable for the debts and liabilities, including torts, of the tranferor." Polius v. Clark Equipment Co., 802 F.2d 75, 77 (3rd Cir. 1986). Exceptions to this general rules of non-liability have been recognized where it is established that "(1) the purchaser expressly or impliedly agrees to assume such obligation; (2) the transaction amounts to a consolidation or merger; (3) the purchasing corporation is merely a continuation of the selling corporation; or (4) the transaction is fraudulently entered into to escape liability." Husak v. Berkel, 234 Pa.Super. 452, 456, 341 A.2d 174, 176 (1975).
Federal Insurance does not contend that Minwax expressly or impliedly agreed to assume liability for damages allegedly caused by Watco-Dennis' products. Nor does Federal Insurance contend that any of the other above-enumerated exceptions to the general rule apply here. Instead, Federal Insurance argues that Minwax should be held liable as a successor corporation under the "product line" exception to the general rule of non-liability adopted by the Pennsylvania Superior Court in Dawejko v. Jorgensen Steel Co., 290 Pa.Super 15, 434 A.2d 106, 110 (1981).
Minwax agrees that the Pennsylvania Superior Court has adopted the following expression of the product line rule:
Where one corporation acquires all or substantially all the manufacturing assets of another corporation, even if exclusively for cash, and undertakes essentially the same manufacturing operation as the selling corporation, the purchasing corporation is strictly liable for injuries caused by defects in units of the same product line, even if previously manufactured and distributed by the selling corporation or its predecessor. Id.
Minwax maintains, however, that the "product line" exception may only be applied when each of the following circumstances has been established:
(1) The virtual destruction of 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, 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. Id. at 22, 434 A.2d at 109.