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LACY v. CARRIER CORP.

June 19, 1996

HAROLD LACY
v.
CARRIER CORPORATION d/b/a ILG INDUSTRIES and ILG INDUSTRIES, INC.



The opinion of the court was delivered by: PADOVA

 Padova, J.

 June 19, 1996

 In this product liability suit, Plaintiff Harold Lacy seeks to hold Defendant Carrier Corp. (hereinafter "Carrier") liable under a theory of "successor liability" for injuries he sustained when he came into contact with an exhaust fan manufactured by a firm that was later acquired by Carrier. Plaintiff asserts causes of action in negligence, strict liability, and breach of warranty. Presently before 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. *fn1"

 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.

 III. DISCUSSION

 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). *fn2" 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. *fn3" 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. *fn4" 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 ...


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