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MORALES v. CROMPTON & KNOWLES CORP.

April 24, 1995

LUZ and LUIS MORALES, Plaintiffs
v.
CROMPTON & KNOWLES CORPORATION, Defendant



The opinion of the court was delivered by: E. MAC TROUTMAN

 The above-captioned action is a diversity case arising from an injury to the right index finger allegedly sustained by plaintiff Luz Morales in 1992 while operating a wrapping machine at her place of employment, the Warner-Lambert pharmaceuticals plant in Lititz, Lancaster County, Pennsylvania. To seek redress for the personal injuries suffered by Luz Morales as a result of the allegedly defective condition of the wrapping machine, plaintiffs have asserted claims sounding in negligence, strict liability and breach of warranty, as well as a claim for loss of consortium on behalf of Luis Morales.

 The wrapping machine on which plaintiff was allegedly injured was manufactured and sold to Warner Lambert's predecessor by F.B. Redington Co. in 1959. In 1960, defendant Crompton & Knowles acquired Redington, dissolved the corporation as an independent entity and began operating Redington as a wholly-owned subsidiary which continued to manufacture Redington packaging machinery. In addition, defendant, through its Redington subsidiary, continued to sell spare parts and provide repair services to former Redington customers, as well as to new clients.

 In 1976, Crompton & Knowles sold its packaging machinery business to a new entity, Redington, Inc., and has not since then manufactured, sold or serviced packaging machinery. Redington, Inc. was subsequently sold to Emhart Packaging which, in turn, sold the assets of the company to Acma of Richmond, VA, a company which apparently continues to manufacture automatic packaging machinery. (See, Defendant Crompton & Knowles Corporation's Motion for Summary Judgment, Doc. #14, Exh. AC).

 Presently before the Court are plaintiff's motion for partial summary judgment and defendant's motion for summary judgment, both based upon the issue of successor liability. Plaintiffs contend that, although defendant had not yet acquired Redington at the time the wrapping machine in question was manufactured and sold, and although defendant sold the packaging machinery business prior to the accident here involved, Crompton & Knowles may nevertheless be held liable for plaintiffs' injuries as the successor to F.B Redington, the acknowledged manufacturer of the product. Defendant correctly notes that liability for the torts of a predecessor entity is not ordinarily imposed upon a corporation which acquires the assets and business of another company, but acknowledges that there are several exceptions to the general rule. See, Dawejko v. Jorgensen Steel Co., 290 Pa. Super. 15, 434 A.2d 106 (Pa. Super. 1981). In Dawejko, the Superior Court enumerated and described the traditional exceptions to imposition of tort liability upon a transferee corporation and adopted a new exception to the general rule of no liability for successor corporations, known as the product line exception, which is specifically applicable to strict liability claims. In adopting the product line exception, the Pennsylvania Superior Court followed the decision of the New Jersey Supreme Court in Ramirez v. Amsted Industries, Inc., 86 N.J. 332, 431 A.2d 811 (N.J. 1981), which was based upon the same public policy considerations underlying the law of strict liability in general.

 In Conway v. White Trucks, 885 F.2d 90 (3rd Cir. 1989), the Court of Appeals predicted that the Pennsylvania Supreme Court would agree with the Superior Court and adopt the Dawejko formulation of the product line exception to successor non-liability in the context of strict liability claims, provided that there was no possibility of a remedy against the predecessor corporation. Consequently, we are bound to apply the product line exception, if appropriate, in this case.

 Although the parties to this action disagree with respect to whether any of the successor liability principles may be used to impose liability upon the defendant under the circumstances of this case, they appear to agree that three such exceptions to the general rule of no liability, i.e., merger, continuation and the product line exception, are potentially applicable.

 In considering the earlier and more traditional exceptions, the inquiry focuses primarily on the formalities involved in combining two corporations and the resulting corporate form. To determine, e.g., whether successor liability may be imposed on the basis of a merger, we look to whether one corporation absorbed another, which was then dissolved, leaving the acquiring corporation as the only remaining and viable entity. Knapp v. North American Rockwell Corp., 506 F.2d 361 (3rd Cir. 1974).

 A continuation also requires the dissolution of the original corporation but, in effect, results in that corporation pursuing the same business under a new form. "In a continuation, a new corporation is formed to acquire the assets of an extant corporation, which then ceases to exist." Knapp, at 365. To determine whether one corporation is a continuation of another, we examine certain traditional indicia, i.e., whether there is "a common identity of officers, directors and stock between the selling and purchasing corporations, and only one corporation after the transfer." Dawejko at 108.

 On the other hand, the product line exception focuses on corporate activity rather than corporate form. Dawejko ; Conway. In Ramirez, the product line exception was formulated as follows:

 
Where, one corporation acquires all or substantially all of 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.

 431 A.2d at 825.

 As noted, plaintiff contends that the merger, continuation and product line exceptions all support imposition of liability upon defendant in this action, arguing, first, that Crompton & Knowles acquired Redington by means of a stock for stock transfer, thereby rendering the transaction a de facto merger of the two corporations and supporting application of the merger exception.

 Plaintiff further argues that after Redington was purchased by Crompton & Knowles, it operated essentially unchanged, supplying the same products and services with the same personnel as before the acquisition. Thus, plaintiff contends that such circumstances support the conclusion that the entry of Crompton & Knowles into the ...


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