the Court is Carrier's motion for summary judgment. Also before the Court is Plaintiff's cross motion for partial summary judgment; Plaintiff moves the Court to find that Carrier is potentially liable for Plaintiff's injuries as a matter of law as a successor corporation to the fan's manufacturer.
For the reasons that follow, I shall deny Carrier's motion for summary judgment and I will grant Plaintiff's motion for partial summary judgment.
I. FACTUAL ALLEGATIONS AND BACKGROUND
Plaintiff alleges that on February 9, 1993, while he was cleaning the walls of a Philadelphia fire station in the course of his employment as a firefighter, Plaintiff's left arm inadvertently made contact with an unguarded exhaust fan, thereby causing severe injury to his arm.
The following facts are uncontested. The fan in question was manufactured by an entity known as ILG Industries, Inc. some time between June 1968 and January 1972. ILG Industries, Inc. was a Delaware corporation incorporated in 1915.
Pursuant to an agreement dated December 27, 1972 which became effective in February 1973, Carrier, a Delaware corporation, acquired ILG Industries, Inc.; Carrier merged its wholly-owned subsidiary, JHG Corp., into ILG Industries, and operated the consolidated entity as a Carrier division bearing the name Ilg Industries. See December 27, 1972 Agreement and Plan of Reorganization, Carrier's Mem. Supp. Mot. Summ. J. Ex. B (hereinafter "the 1972 Agreement"). The merger was accomplished by a stock-for-stock transaction. Each share of Carrier's wholly-owned subsidiary, JHG, was converted into a share of the new common stock of ILG. Id. at P 3.1(a). In exchange, each outstanding share of the old common stock of ILG Industries was converted into four shares of Carrier common stock. Id. at P 3.1(b). The 1972 Agreement contained no provision by which Carrier assumed the liabilities of ILG Industries, Inc.
Carrier continued to manufacture the ILG Industries product line through its Ilg Industries division. Carrier operated the Ilg Industries division until December 1978, when an Illinois Corporation known as ILG Industries, Inc. purchased all of the assets, properties, and operations of the Ilg Industries division from Carrier. See December 28, 1978 Agreement, Carrier's Mem. Supp. Mot. Summ. J. Ex. C (hereinafter "the 1978 Agreement"). Under the terms of the 1978 Agreement, Carrier explicitly retained responsibility for product liability suits only with respect to items manufactured and/or sold by the Carrier Ilg Industries division during the 1973-1978 period. Id. at § 11. After the 1978 sale, Carrier ceased to produce or service the product line it had acquired from the first ILG Industries. The second ILG Industries, Inc., an entity with no connection to Carrier, operated as a distinct and separate corporate entity until it filed for Chapter 7 bankruptcy protection in 1991.
II. STANDARD OF REVIEW
Fed. R. Civ. P. 56(c) provides that summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). An issue is "genuine" only if there is sufficient evidence with which a reasonable jury could find for the non-moving party. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 2510, 91 L. Ed. 2d 202 (1986). Furthermore, bearing in mind that all uncertainties are to be resolved in favor of the nonmoving party, a factual dispute is only "material" if it might affect the outcome of the case. Id. A party seeking summary judgment always bears the initial responsibility of informing the district court of the basis for its motion and identifying those portions of the record that it believes demonstrate the absence of a genuine issue of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S. Ct. 2548, 2552, 91 L. Ed. 2d 265 (1986). Where the non-moving party bears the burden of proof on a particular issue at trial, the movant's initial Celotex burden can be met simply by "pointing out to the district court that there is an absence of evidence to support the non-moving party's case." Id. at 325, 106 S. Ct. at 2554. After the moving party has met its initial burden, summary judgment is appropriate if the non-moving party fails to rebut by making a factual showing "sufficient to establish an element essential to that party's case, and on which that party will bear the burden of proof at trial." Id. at 322, 106 S. Ct. at 2552.
Carrier argues that Plaintiff has no viable cause of action against Carrier because the fan in question was manufactured by ILG Industries, Inc. prior to Carrier's acquisition, and Carrier sold the Ilg Industries division to another company in 1978, which then operated as an independent corporation for some 15 years before Plaintiff was injured. Plaintiff rebuts that when Carrier acquired the assets of ILG Industries, Inc. in 1973 and continued to produce the same product line, Carrier became strictly liable for injuries caused by defects in units of the same product line produced prior to the acquisition. Plaintiff further contends that Carrier's liability persists despite its sale of the Ilg Industries division in 1978 and the subsequent bankruptcy filing of the second ILG Industries, Inc.
In Pennsylvania, "ordinarily when one company sells or transfers all its assets to another company, the latter is not liable for the debts and liabilities of the transferor simply by virtue of its succession to the transferor's property." Husak v. Berkel, Inc., 234 Pa. Super. 452, 341 A.2d 174, 176 (Pa. Super. Ct. 1975). Six exceptions exist to the general rule of non-liability for successor corporations. Hill v. Trailmobile, Inc., 412 Pa. Super. 320, 603 A.2d 602, 605-606 (Pa. Super. Ct. 1992).
Plaintiff argues that the evidence supports a finding that Defendant Carrier is potentially liable to Plaintiff under two of the exceptions -- the "product line" and "de facto merger" exceptions.
Carrier contends that under the holding in Morales v. Crompton & Knowles Corp., 888 F. Supp. 682 (E.D. Pa. 1995), it cannot be held liable under either theory because it is an "intermediate successor," i.e., it acquired the manufacturer of the exhaust fan after the allegedly defective product was made and sold off the operations before Plaintiff was allegedly injured. Plaintiff rebuts that Morales is distinguishable from the instant case and therefore not controlling. Carrier further argues that even if Morales is not controlling, the evidence does not establish the applicability of either the product line or de facto merger exceptions and, therefore, it is not liable to Plaintiff.
A. Applicability of Morales and Nieves
Carrier asserts that the facts in Morales are similar to those in the instant case and argues that Morales ' holding provides that neither the product line nor de facto merger exceptions are applicable to hold Carrier liable to Plaintiff. In Morales, the court was confronted with the same issue presented here:
whether any of the successor liability exceptions upon which plaintiff relies are applicable to an intermediate successor, i.e., a corporation which acquired another business subsequent to the alleged conduct upon which plaintiffs' claims are based and completely divested itself of said business prior to the accident in which plaintiff was allegedly injured.
888 F. Supp. at 686 (emphases added).
Morales appears to be a one-of-a-kind case in Pennsylvania successor liability jurisprudence.
In Morales, the plaintiff-wife was allegedly injured in 1992 while operating a wrapping machine originally manufactured in 1959. Id. at 684. In 1960, the defendant/intermediate successor acquired the original manufacturer which made the allegedly defective machine, dissolved the corporation as an independent entity, began operating it as a wholly-owned subsidiary, and continued to produce the same line of packaging machinery. Id. In 1976, the defendant sold the packaging machinery business to another company, and ceased to engage in that line of business. Id. The acquiring company was subsequently sold to a second company, which, in turn, sold the assets to a third company which was manufacturing automatic packaging equipment at the time of suit. Id.
Similarly, in the instant case, the original ILG Industries, Inc. manufactured the fan which allegedly injured Plaintiff prior to its merger with Carrier. After operating the Ilg Industries division for approximately five years, Carrier sold off the division in 1978 to another company known as ILG Industries, Inc. The second ILG Industries then operated as an independent corporation for several years before Plaintiff was allegedly injured.
Plaintiffs in Morales argued that the intermediate successor was liable to them under the de facto merger, continuation, and product line exceptions to the general rule of non-liability of successor corporations. Id. at 685. Similarly, in the instant case, Plaintiff argues that the 1972 Agreement demonstrates that Carrier is liable under the merger and product line exceptions.
With respect to the merger and continuation exceptions, the Morales court predicted that under Pennsylvania law "such bases for successor liability are abrogated when the successor corporation sells the previously acquired business prior to the occurrence of an injury arising out of such business." Id. at 686. The court found that before the accident occurred no "vestige" of the manufacturer remained within the defendant's corporate structure, and once the defendant sold off the previously-acquired manufacturer, the defendant ceased to be in the business of producing or servicing the machinery that injured Plaintiff. Id. Because the defendant was not at the time of the accident nor at the time of suit the viable entity that was the product of a merger with or a continuation of the original manufacturer, the Morales court declined to impose liability under either exception. Id.
Morales also predicted that Pennsylvania would not apply the product line exception to the intermediate successor in that case. Id. at 688. Morales reasoned that holding liable an entity that no longer manufactures the product line undermines the rationale of the exception, i.e., that the entity still receiving benefits from the product line is in the best position to perform the risk-spreading function underlying the principle of strict liability. Id. at 686. Morales held that the product line exception "demands that the primary inquiry be directed toward whether it is fair to impose liability on a particular defendant under the circumstances of a specific case." Id. at 687 (citing Dawejko v. Jorgensen Steel Co., 290 Pa. Super. 15, 434 A.2d 106, 111 (Pa. Super. Ct. 1981)).
The Morales court specifically found that the defendant no longer manufactured packaging machinery, did not manufacture packaging machinery either when the wrapping machine in question was made or when the plaintiff was actually injured, and discontinued that line of business when it sold the operations to a successor. Id. For these reasons, the court concluded that it would be unfair to apply the product line exception to the defendant/intermediate successor. Id. at 688.
Plaintiff argues that there is one critical difference between the facts in Morales and the instant case. In Morales, at the time of suit there existed a later viable successor to the defendant/intermediate successor. Id. at 684. By contrast, in the instant case, the second ILG Industries filed for Chapter 7 bankruptcy protection two years prior to Plaintiff's alleged accident; therefore, there is currently no viable successor entity to the Carrier Ilg Industries division. Plaintiff argues that because of this factual distinction, Morales is not controlling in the instant case.
Although Carrier represented in its moving papers that the second ILG Industries dissolved in 1991, see Carrier's Mem. Supp. Mot. Summ. J. at pp. 4, 8, at oral argument held on June 17, 1996, the parties disputed whether there in fact exists a viable successor entity. Carrier contended at oral argument that ILG Industries, Inc. of Illinois may very well be a viable entity despite the fact that it is under bankruptcy protection; moreover, even if Plaintiff may not be able to collect on a judgment against that entity, this is a distinct issue from the question of viability. Plaintiff rebutted at argument that Chapter 7 provides for dissolution of the entity and does not contemplate its reemergence. With the Court's permission, after oral argument Plaintiff supplied the Court with documentation that ILG Industries, Inc. is in a Chapter 7 bankruptcy proceeding pending in the U.S. Bankruptcy Court in the Northern District of Illinois. Plaintiff also provided correspondence from counsel of the bankruptcy trustee, confirming that another entity had a perfected first security interest on ILG Industries' assets and there were no assets available to unsecured creditors. By order of the Bankruptcy Court in Illinois, Plaintiff was allowed to proceed with its claims against ILG Industries to the extent of ILG Industries' insurance coverage. Additional correspondence with the trustee's counsel, however, indicated that ILG Industries closed its operations in 1991 when it filed for bankruptcy and the trustee was unaware of any insurance coverage for the period in question; another letter from an insurance company confirmed that it was not the carrier at the time of Plaintiff's alleged accident, and that the company was unable to determine if ILG Industries had any liability coverage at the time of accident.
I need not resolve the issue of the second ILG Industries' "viability" and thus whether Morales is factually distinguishable, however, because I am unwilling to follow the prediction in Morales that the Pennsylvania Supreme Court would hold that an intermediate successor can not be held liable under the merger, continuation, and product line exceptions. My conclusion is based on the following analysis.
I first begin with an examination of Dawejko v. Jorgensen Steel Co., 290 Pa. Super. 15, 434 A.2d 106, 110 (Pa. Super. Ct. 1981), the first Pennsylvania Superior Court case to adopt the product line exception as Pennsylvania law. The product line exception provides that when
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.