Appeal from the Order of the Superior Court entered September 2, 2008 at No. 905 WDA 2007, affirming the Judgment of the Court of Common Pleas of Allegheny County entered April 23, 2007 at No. GD- 05-7191.
The opinion of the court was delivered by: Mr. Justice SAYLOR*fn1
CASTILLE, C.J., SAYLOR, EAKIN, BAER, TODD, MCCAFFERY, GREENSPAN, JJ.
ARGUED: September 15, 2009
Mr. Justice Saylor files an Opinion, expressing the rationale for affirming the order of the Superior Court with respect to the "product-line exception issues" presented in the appeal, in which the Court is unanimous as to Parts I and II.A, and in which Mr. Chief Justice Castille and Messrs. Justice Eakin, Baer, and McCaffery join as to Part II.B. Part III of the Opinion, in which Mr. Chief Justice Castille and Mr. Justice Eakin join, sets forth a rationale in support of reversing the order of the Superior Court concerning the "physical injury issue" presented in the appeal.
Mr. Justice Baer files an opinion joining in the rationale for affirming the order of the Superior Court with respect to the "product-line exception issues," and setting forth a rationale for vacating and remanding with respect to the "physical injury issue." Mr. Justice McCaffery joins this opinion and Madame Justice Todd joins this opinion in part.
Madame Justice Todd files an opinion joining part of the rationale for affirming the order of the Superior Court with respect to the "product-line exception issues," and joining in the rationale stated by Mr. Justice Baer for vacating and remanding with respect to the "physical injury issue."
OPINION AND OPINION IN SUPPORT OF REVERSAL
This civil litigation arises out of an accidental, in-transit deployment of a fire-engine hose, which caused the death of one child, severe injuries to another, and emotional distress on the part of family-member witnesses.
Appeal was allowed to consider: 1) whether this Court should adopt the product-line exception to the general rule of successor non-liability in strict products liability actions, and, if so, on what terms; and 2) whether, in strict liability proceedings, a plaintiff must prove a physical injury as a threshold to recovery. For the reasons that follow, we affirm the Superior Court's order as to the first issue, albeit on different grounds. With respect to the second question, the Superior Court's order will be affirmed by operation of law, since the Court is equally divided on that point.
I. Factual and Procedural Background
In 1994, the Coraopolis Volunteer Fire Department ("CVFD") invited bids for the manufacture of a large-scale fire engine, or pumper, per CVFD-selected specifications. These included three cross-lay compartments spanning the width of the truck, designed to house and carry fire hoses pre-connected to an on-board water supply. The successful bidder was the Boardman Company, a division of TBC Fabrication, Inc. ("Boardman"), which manufactured and delivered the fire engine. CVFD separately acquired the necessary hoses, and the pumper was commissioned for use throughout the next decade.
In 1995, soon after CVFD acquired the Boardman fire engine, TBC liquidated based on the assertion that it was insolvent. Management of Sinor Manufacturing, Inc. ("Sinor") was interested in manufacturing and marketing ambulances and rescue vehicles, and apparently it was believed that name recognition associated with Boardman's fire-engine business would facilitate such an enterprise. Thus, Sinor purchased the Boardman name from TBC for use in relation with emergency vehicles. The purchase included engineering drawings for Boardman fire engines; additionally, Sinor bought certain inventory and equipment from TBC at an auction. Other facilities and assets of TBC -- including manufacturing and sale facilities which were used in producing fire engines; assets and facilities associated with TBC's other principal line of business in custom steel fabrication; and the Boardman name relative to this latter line of products -- were acquired by Boardman, Inc. ("BI"). Apparently BI was a sister company to TBC.*fn2 Finally, TBC sold proprietary rights associated with telescoping aerial platforms used in fire suppression to Aerial Innovations, Inc., an unrelated company.
In 1998, Sinor's ownership interests were restructured, with a majority interest being acquired by Freightliner LLC, and Sinor was combined with a Freightliner division and renamed Freightliner Specialty Vehicles, Inc. ("Appellant").
In 2004 -- ten years after CVFD's purchase of the Boardman fire engine and nine years after its manufacturer's liquidation -- CVFD dispatched its Boardman pumper in response to an emergency call. While en route, unbeknownst to the operators, a 200- foot, pre-connected fire hose fell from one of the cross-lay compartments, unraveled, and lodged under the tire of a parked car. After it broke free with accumulated force, the hose or nozzle struck two ten-year-old bystanders, Erin Schmidt and Joeylynne Jeffress, causing severe injuries to both. Erin died the next day. The accident was witnessed by: Erin's mother, Joyce Schmidt;*fn3 Erin's sister, Lindsay Schmidt; and Joeylynne's sister, Lauren Jeffress.
Subsequently, Appellees, the Schmidt and Jeffress families, commenced civil actions in the court of common pleas, naming as defendants: CVFD; TBC and its Boardman division; BI; and Appellant (denominated in the complaint both as Sinor and Freightliner Specialty Vehicles, Inc.). Redress was sought for the wrongful death of Erin Schmidt, the injuries sustained by Joeylynne Jeffress, and the emotional distress suffered by Joyce and Lindsay Schmidt and Lauren Jeffress. Despite the prevailing general rule of law that the purchaser in an asset sale does not acquire the seller's tort liabilities, Appellees asserted that BI was liable as a mere continuation of TBC. Appellees grounded their claims against Appellant on the theory that it perpetuated the relevant Boardman product line, thus triggering the "product-line exception" to the rule against successor liability, as reflected in prevailing Superior Court precedent. See, e.g., Dawejko v. Jorgensen Steel Co., 290 Pa. Super. 15, 434 A.2d 106 (1981) (adopting the product-line exception); Hill v. Trailmobile, Inc., 412 Pa. Super. 320, 603 A.2d 602 (1992) (elaborating on the exception). Although the complaint asserted claims sounding in both negligence and strict liability against Appellant, Appellees subsequently opted to proceed solely in strict liability.
At the pretrial stage, the Schmidt and Jeffress actions were consolidated. Appellant unsuccessfully sought to preclude plaintiffs Joyce and Lindsay Schmidt and Lauren Jeffress from pursuing recovery for emotional distress damages on the ground that such damages are not recoverable in a strict products liability action. CVFD settled with Appellees, tendering the maximum damages recoverable under the law consistent with governmental immunity. Nevertheless, trial proceeded against CVFD on Appellant's cross-claim for indemnity and contribution. Appellees also discontinued their claims against TBC.
Just before trial, Appellees settled with BI and withdrew their opposition to BI's summary judgment motion, which the trial court granted. Further, on Appellees' motion, Appellant was precluded at trial from adducing evidence concerning BI's retention of TBC management personnel and acquisition of various of its assets, facilities, and business operations in the 1995 liquidation.
At trial, the jury was tasked with resolving three principal liability issues: 1) was there a product defect in the Boardman fire truck; 2) could Appellant be held liable under the product-line exception to the general rule of successor non-liability; and 3) was CVFD negligent. Appellees asserted that the Boardman fire engine was defective, because it lacked a retaining device to secure fire hoses in the cross-lay compartments. Expert testimony was offered in support of this proposition. To advance the product-line exception, Appellees adopted the theme that, under Pennsylvania law, "you take the good with the bad." N.T., Sept. 5, 2006, at 110; see also id. at 112-13, 129, 132, 138. In this regard, they relied substantially on Sinor's sales advertising, which misleadingly portrayed Sinor as a continuation of Boardman, for example, as by possessing the latter's 65 years' experience in the manufacture of emergency vehicles. Further, Appellees highlighted that Sinor claimed in its product literature to make fire suppression vehicles and, in fact, had manufactured "woods trucks" with fire suppression capability. Appellees also offered proof that Sinor acquired the engineering drawings for full-scale fire trucks from TBC in connection with its limited purchase of the Boardman name, and of its auction purchase of some of TBC's material assets. To support the emotional-distress claims, Appellees adduced substantial evidence of the mental anguish and post-traumatic stress suffered by Joyce and Lindsay Schmidt and Lauren Jeffress.
Appellant, for its part, adduced expert testimony to the effect that a hose retaining device was unnecessary and would interfere with the fire engine's utility by impeding ready access. In disputing the applicability of the product-line exception to the rule against successor liability, Appellant's counsel read to the jury admissions from Appellees that:
Neither [Freightliner Specialty Vehicles, Inc.] nor [Sinor] had any role in the design, manufacture, assembly, distribution or sale of the subject fire truck[.]
. . . [Sinor] did not purchase any work in progress of TBC. . . . [Sinor] did not purchase, own, lease, operate, use, or take possession of any TBC plant or facility[.]
N.T., Sept. 12, 2006, at 1082. Appellant also developed that it had ceased production of emergency vehicles in 2001 to concentrate on a niche market in specialized recreational trucks.
Additionally, Appellant stressed the substantial differences between pumper fire engines and the smaller rescue vehicles that Sinor had manufactured, which did not serve a fire suppression function. In response to the contention that the woods trucks were in the same product line as Boardman fire engines, Appellant demonstrated that the two trucks Sinor manufactured were based on a Ford pickup truck platform, equipped with a removable skid unit equipped with a bladder designed to hold a modest amount of water. Appellant did not deny the emotional distress suffered by family-member witnesses to the accident but sought to mitigate the damages. Further, Appellant set out its case of negligence against CVFD, asserting that the accident could not have happened had the hoses been packed into the cross-lay compartment properly.
At the trial's close, the court charged the jurors that a product manufacturer is a guarantor of product safety and was responsible for "all harm" caused by a product defect, including injury to "a user, consumer, or bystander." N.T., Sept. 14, 2006, at 1255-56.
Further, in its instructions, the trial court couched the product-line exception to the rule against successor liability as follows:
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 the defects in units of the same product line, even if previously manufactured and distributed by the selling corporation or its predecessor.
Several other factors also used in determining whether a successor corporation has undertaken the same product line include:
One, whether the corporation advertised itself as an ongoing enterprise; two, whether the corporation acquired the predecessor's [sic] corporation's goodwill; three, whether the corporation maintained the same name, clients, and product; four, whether the corporation deliberately exploited the original manufacturer's established reputation; five, the virtual destruction of plaintiff's remedies against the original manufacturer caused by the successor's acquisition of the business; and, six, the successor's ability to assume the original manufacturer's risk-spreading role and the fairness of requiring the successor to assume responsibility for defective products that were a burden attached to the original manufacturer's goodwill being enjoyed by the successor in the continued operation of the business.
N.T., Sept. 14, 2006, at 1259-60. Additionally, the court, as follows, authorized the jurors to find that Appellant was TBC's successor by its own admission:
Plaintiffs further contend that the defendant has made an admission that they are the successor company. Under Pennsylvania rules of evidence, an out-of-court statement by a party to a lawsuit may be a [sic] used against the party at trial. The plaintiffs contend that the defendant admitted they were the same company as the original manufacturer, and the successor to the original manufacturer when they produced advertisements and marketing material that told the public that they were the same company.
On the emotional distress claims, the trial court instructed the jurors along the following lines, as exemplified by the charge pertaining to Joyce Schmidt:
According to Pennsylvania law, a plaintiff may recover for infliction of emotional distress due to the traumatic impact of viewing a close relative suffer injury as the result of tortuous [sic] conduct. The tortfeaser [sic] inflicts upon this bystander an injury separate and apart from the injury to the victim. It is your duty to consider the mental pain, anguish, suffering, and distress, if any, which Joyce Schmidt has endured since the injury to her daughter and which she may endure in the future.
The jury returned a verdict in favor of Appellees, finding Appellant and the CVFD each fifty percent liable for the wrongful death of Erin Schmidt, the injuries sustained by Joeylynne Jeffress, and the emotional distress endured by Joyce Schmidt, Lindsay Schmidt, and Lauren Jeffress. Appellant sought post-trial relief, arguing, among other things, that: they were entitled to judgment notwithstanding the verdict ("JNOV"), as Appellees did not establish the threshold requirements to invoke the product-line exception; the trial court erred in charging the jury on the product-line exception; and the trial court erred by refusing to mold the verdict to exclude emotional distress damages awarded to family-member witnesses. The trial court denied relief, and Appellant appealed to the Superior Court.
In its opinion under Rule of Appellate Procedure 1925, the trial court initially indicated that Appellant's statement of matters complained of on appeal was prolix; thus, it believed it was authorized to apply a rebuttable presumption that none of the issues had merit. See Schmidt v. Coraopolis Volunteer Fire Dep't, No. GD 05-007191, slip op. at 10 (C.P. Allegheny, July 25, 2007) (citing Kanter v. Epstein, 866 A.2d 394, 401 n.7 (Pa. Super. 2004) (quoting United States v. Hart, 693 F.2d 286, 287 n.1 (3d Cir. 1982)); Estate of Lakatosh, 441 Pa. Super. 133, 136 n.1, 656 A.2d 1378, 1380 n.1 (1995) (same)).*fn4
As to the product-line exception, the court developed that the Superior Court's Dawejko decision recognized both a general rule of successor non-liability and a series of uncontroversial exceptions, including express assumption of liabilities; merger or consolidation; "mere continuation" of the selling corporation; and fraudulent transactions. See Dawejko, 290 Pa. Super. at 18, 434 A.2d at 107. Further, the court explained, Dawejko adopted another exception -- product-line -- based on the following principle derived from the New Jersey Supreme Court's opinion in Ramirez v. Amsted Industries, Inc., 431 A.2d 811 (N.J. 1981):
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.
Dawejko, 290 Pa. Super. at 23, 434 A.2d at 110 (quoting Ramirez, 431 A.2d at 825).
Additionally, the trial court recognized that Dawejko took note of various sets of relevant factors developed in the courts of other jurisdictions, the following ones articulated by the California Supreme Court in Ray v. Alad Corp., 560 P.2d 3 (Cal. 1977):
(1) the virtual destruction of the 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 role, 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.
Ray, 560 P.2d at 9. The court noted, however, that the Dawejko court declined to make any such additional factors mandatory, explaining, instead:
it is better not to phrase the new exception too tightly. Given its philosophical origin, it should be phrased in general terms, so that in any particular case the court may consider whether it is just to impose liability on the successor corporation. The various factors identified in the several cases discussed above will always be pertinent . . .. The exception will more likely realize its reason for being, however, if such details are not made part of its formulation. The formulation of the court in Ramirez v. Amsted Industries, Inc., supra, is well-put, and we adopt it.
Dawejko, 290 Pa. Super. at 26, 434 A.2d at 111.
Based on the above, the trial court indicated that it attempted, in its instructions, to follow Dawejko literally. Nevertheless, the court recognized that, in its decision in Hill, the Superior Court appeared, at least at one passage, to have rendered the Ray factors mandatory. See Hill, 412 Pa. Super. at 328, 603 A.2d at 606 (indicating that Dawejko held that "the product-line exception . . . may only be applied when the [Ray factors] have each been established" (emphasis in original)).*fn5 Even so, in accordance with its decision to adhere to Dawejko, the trial court indicated that it considered the Ray factors advisory only. See Schmidt, No. GD 05-007191, slip op. at 15, 21.
Paradoxically, the trial court proceeded to examine the Ray factors -- and only those factors -- as applied to the present case. In doing so, it found the first requirement met, because there was a virtual destruction of Appellees' remedies against Boardman, since TBC had long ago liquidated. See id. at 16.*fn6 As to the Appellant's ability to assume the original manufacturer's risk-spreading role, the court reasoned:
[Sinor] remained an ongoing manufacturer of emergency vehicles, and as such, continued to make profits and carry liability insurance. This Court found Sinor to be in a position to distribute any potential liability among the public as a cost of doing business.
Id. at 16-17.*fn7 Regarding the factor centered on overall fairness, the trial court emphasized Appellant's advertising misrepresentations and the value it garnered from its tactic. The court concluded with the following comments centered on loss spreading:
What cannot be ignored in this analysis is the Superior Court's "attempt to implement the 'social policies underlying strict product liability' when adopting the product-line exception." That being, to offer an injured and innocent plaintiff an avenue of redress. The present case finds a child killed in an unthinkable accident in the presence of her family, another child severely injured and disfigured and a manufacturer no longer operating in its original configuration, which if it did so would permit Plaintiffs to proceed against a Defendant with assets and/or liability insurance.
These circumstances are on-point with the precepts of strict product liability. These circumstances are also on-point with the precepts of the product-line exception to the successor liability rule. These circumstances are also on-point with what the Superior Court contemplated when adopting the product-line exception.
Based on these facts, this Court determined that the Ray factors were present and the issue of successor liability could proceed to a jury.
Schmidt, No. GD 05-007191, slip op. at 18-19 (internal citation omitted).
In terms of its product-line instruction to the jury, the trial court characterized the charge as "a conglomeration of the law." Id. at 20. Further, it accepted Appellees' position that "the product-line exception [is] an equitable remedy and that [the Ray] factors need only be considered and a decision reached based on its fairness rather than the hard-line approach argued by opposing counsel." Id. at 21. The court also deemed claims of error regarding the treatment of the issue of successor liability to have been waived, as: Appellant adopted the position (in response to Appellees' assertion that the trial judge should decide the issue of successor liability) that there were disputed facts appropriate to jury disposition; and Appellant did not object to supplemental jury instructions, although the court asked whether there were objections or exceptions. See id. at 22.*fn8
Concerning the appropriate roles of judge and jury in the decision-making on successor liability matters, the court also offered the following comments:
It is interesting to note that at the beginning of the trial it was defense counsel's position that the issue of "successor liability/product line exception" was for the Court to decide, not the jury. The Plaintiff argued for the jury to do so. The Court agreed with the Plaintiff and so ruled. After the jury was out and it sent a request to hear again the elements of successor liability, counsel for the respective parties changed positions. The Plaintiff's [sic] requested the Court to decide successor liability, but defense counsel wanted the issue to remain with the jury. This Court ruled for defense counsel's position and the matter remained with the jury. The Court was consistent in its rulings on the successor liability issue while counsels were not.
Schmidt, No. GD 05-007191, slip op. at 22-23.
In response to Appellant's challenge to the charge on infliction of emotional distress in a case litigated in strict liability, the trial court borrowed liberally from negligence theory. The court reasoned that, since Sinn v. Burd, 486 Pa. 146, 404 A.2d 672 (1979) -- in which this Court abandoned the traditional rule requiring physical impact in favor of bystander recovery on claims of negligent infliction of emotional distress -- the common thread of every decision recognizing such a claim was the relationship between the bystander and the victim, not the underlying tort. Although acknowledging that support for extension of the theory into the strict liability setting was modest, the trial court found persuasive the decisions in Shepard v. The Superior Court of Alameda County, 142 Cal. Rptr. 612 (Cal. Ct. App. 1977), and Walker v. Clark Equipment Co., 320 N.W.2d 561 (Iowa 1982), as each court had adopted the formulation of the bystander rule as set forth in Dillon v. Legg, 441 P.2d 912 (Cal. 1968), and approved emotional distress claims in strict liability cases. See Schmidt, No. GD 05-007191, slip op. at 25 & n.30. The court stressed that it had observed the requirements that the plaintiff be located close to the accident, the distress result from the plaintiff's contemporaneous sensory observation of the accident, and the plaintiff and the victim be closely related. Id. at 24.
In the ensuing appeal, a divided Superior Court panel affirmed in a published decision. See Schmidt v. Boardman Co., 958 A.2d 498 (Pa. Super. 2008). The majority opened its legal analysis with a discussion of the confusion surrounding the application of the Ray factors in light of the tension between the discussions in Dawejko and Hill. However, the majority highlighted that, despite indicating that the Ray factors are mandatory, Hill also reaffirmed the overall flexibility of the product-line exception as embodied in Dawejko. Thus, the court pronounced, "Hill is compatible with Dawejko and we are consequently bound to apply the decisional law of both cases." Id. at 506.
The majority proceeded to treat the Ray factors as mandatory and the Ramirez definition as merely advisory. See id. at 507.*fn9 It then reviewed the evidence presented at trial, concluding that there was sufficient evidence to establish two of the three Ray factors, and that Appellant failed to carry its burden (on appeal) of demonstrating that the evidence was insufficient as to the Ray risk-spreading factor. See id. at 508-12. Then, taking into account other factors including the Ramirez formulation of the product-line exception, the majority concluded that, "[o]n balance, the jury was provided with sufficient evidence from ...