Successor Liability and the Long-Lived Product

The machine that injured Redmond had been purchased in refurbushed condition by his employer in 2010. This pipe-cutting machine had been owned by an unknown number of previous owners in its 50-plus years of existence. Following Redmond's accident, which involved his thumb being pulled into the machine and severed, UPSCO upgraded one of the machine's safety features, changing a metal guard to a Plexiglas guard.

Redmond sued, among others, the final owner of the Landis assets, Kennametal, and the latter moved for summary judgment, claiming it was not the successor of the Landis Machine Co. that manufactured the pipe cutter that injured Redmond.

Successor Liability in New York

The first question for the court was whether Kennametal — the purchaser of the Landis division's assets from TDY Indus. LLC —€ was liable for the alleged torts of the pipe cutter's original manufacturer 56 years earlier. The court pointed out that under New York law, “[i]t is the general rule that a corporation which acquires the assets of another is not liable for the torts of its predecessor.” Schumacher v. Richards Shear Co., 59 N.Y.2d 239 (1983). However, in Schumacher, New York's highest court, the Court of Appeals, also held that “[a] corporation may be held liable for the torts of its predecessor if (1) it expressly or impliedly assumed the predecessor's tort liability, (2) there was a consolidation or merger of seller and purchaser, (3) the purchasing corporation was a mere continuation of the selling corporation, or (4) the transaction is entered into fraudulently to escape such obligations.” Redmond asserted that the second and third exceptions applied in this case.

A De-Facto Merger?

To show that the second Schumacher exception is met, a plaintiff must offer evidence that the first company and its successor either formally merged or consolidated, or that they entered into a “de-facto” merger. As the last owner of the pipe-making machine assets, TDY Indus. LLC, and Kennametal did not formally merge, Redmond's contention was that the companies had engaged in a de-facto merger.

According to In re N.Y. City Asbestos Litig., 15 A.D.3d 254, 256, (1st Dep't 2005), a de-facto merger may be established by a showing of: “(1) continuity of ownership; (2) cessation of ordinary business operations and the dissolution of the selling corporation as soon as possible after the transaction; (3) the buyer's assumption of the liabilities ordinarily necessary for the uninterrupted continuation of the seller's business; and (4) continuity of management, personnel, physical location, assets and general business operation.” All four N.Y. City Asbestos Litig. factors need not be present, but the first — continuity of ownership —€ is almost a must, according to Cargo Partner AG v. Albatrans, Inc., 352 F.3d 41, 47 (2d Cir. 2003).

Here, the plaintiff conceded that he could not show that the owners of direct-manufacturer Landis Machine Co. were the same owners as those of Kennametal, but he aruged that, on summary judgment, an inference that they were must be drawn in his favor, as the defendants were the moving parties on the summary judgment motion. The court disagreed, pointing out that continuity of ownership was something the plaintiff was going to have to prove if he wanted to hold Kennametal liable; to do that, he needed to proffer some evidence. Only after he did that could the court move on to viewing the evidence in the light most favorable to the non-moving plaintiff.

According to Gummo v. Vill. of Depew, N.Y., 75 F.3d 98, 107 (2d Cir. 1996), the moving party (the defendants here) may show entitlement to summary judgment by pointing to the non-moving party's lack of evidence to prove an essential element of his claim. Once that is accomplished, the burden shifts to the non-movant (Redmond) to come forward with admissible evidence sufficient to raise a genuine issue of fact if he wants to avoid summary judgment. CILP Assocs., L.P. v. PriceWaterhouse Coopers LLP, 735 F.3d 114, 123 (2d Cir. 2013). Because Redmond failed to produce evidence that there was a continuity of ownership between Landis Machine Co. and Kennametal, he failed to show the first element of a de-facto merger under N.Y. City Asbestos Litig.

On the second N.Y. City Asbestos Litig. factor for showing de-facto merger —€ cessation of ordinary business operations and the dissolution of the selling corporation as soon as possible after the transaction —€ Redmond's only evidence was a one-page website posting, stating that seller TDY Industries went out of business in June 2014. Redmond offered no explanation as to which website carried this posting. The district court turned to Novak v. Tucows, Inc., U.S. Dist. LEXIS 21269 (E.D.N.Y. Mar. 26, 2007), aff'd, 330 Fed. Appx. 204 (2d Cir. 2009), which states: “Where postings from [I]nternet websites are not statements made by declarants testifying at trial and are offered to prove the truth of the matter asserted, such postings generally constitute hearsay under Fed. R. Evid. 801.” The court concluded, therefore, that Redmond's evidence was inadmissible hearsay. As it was the only evidence he produced on this issue, the plaintiff had failed to raise any questions of fact regarding the second aspect of the N.Y. City Asbestos Litig. test.

As to the third and fourth prongs —€ (3) the buyer's assumption of the liabilities ordinarily necessary for the uninterrupted continuation of the seller's business; and (4) continuity of management, personnel, physical location, assets and general business operation —€ again, very little evidence was presented, and most of that was inadmissible hearsay. In Redmond's favor, he could show that Kennametal was operating out of the same location as the original Landis Machine Co., but this the court found less than compelling.

However, even if the plaintiff's evidence of items 3 and 4 of the N.Y. City Asbestos Litig. test had been strong, the court pointed out that in that influential case on the issue, the New York's Appellate Division, First Department, had stated that, in the absence of the first two N.Y. City Asbestos Litig. factors, the de-facto merger exception cannot be said to apply. Thus, the district court concluded, “Considering that there is no evidence in the record establishing the first two factors, and in particular the continuity of ownership factor, Plaintiff has not established the applicability of the de facto merger exception in this case.”

Mere Continuation

To show that the third Schumacher exception is present, a plaintiff must show that the purchasing company is a “mere continuation” of the selling one. The case of Cargo Partner AG v. Albatrans Inc., 207 F. Supp. 2d 86, 95 (S.D.N.Y. 2002), explains that New York's “'mere continuation' exception refers to a continuation of the selling corporation in a different form, and not merely to a continuation of the seller's business.” Further, a “continuation” of the business in this context means that the directors and stockholders of the corporation and is predecessor are the same. Societe Anonyme Dauphitex v. Schoenfelder Corp., No. 07 Civ. 489, 2007 U.S. Dist. LEXIS 81496, 2007 WL 3253592, *5 (S.D.N.Y. Nov. 2, 2007). Here, plaintiff Redmond offered what the district court described as “virtually no evidence in the record” to support a Schumacher-worthy finding of mere continuation: There simply was no proof offered that the directors and shareholders were the same for the two entities, and no showing by Redmond that TDY Industries, LLC continued as Kennametal after the latter's asset purchase. Therefore, Kennametal could not be held liable for any torts committed by Landis Machine Company in manufacturing the pipe cutter that injured Redmond, and Kennametal was entitled to summary judgment of his design defect claim.

And, Just in Case These Rulings Are Overturned …

Even though the district court granted Kennametal's motion for summary judgment on the basis that it was not essentially the same company as Landis Machine or any subsequent owner of Landis Machine's assets, it offered an alternative basis for dismissing Redmond's design defect claim: that the plaintiff had not proven that at the time the pipe-cutting machine was manufactured 56 years previous to the accident, there was a safer feasible alternative design that could have been employed. Yes, Redmond offered an expert opinion purporting to show that a better design could have been used, but that expert based his opinion on the fact that a Plexiglas guard was designed and installed on the pipe-cutting machine after the plaintiff's accident.

The court conceded, “Other district courts applying New York law have also held that 'the existence of a feasible alternative design may be established by pointing to the existence of a post-accident design at the plaintiffs workplace.' Almonte v. Averna Vision & Robotics, Inc., 128 F. Supp. 3d 729, 751 (W.D.N.Y. 2015).” The difference in this case, stated the court, was that the Plexiglas guard was installed 56 years post-production, and evidence of the installation of a safety feature that many years later was not enough to show that it could have feasibly been made that way at the time of manufacture.

Conclusion

Certainly, the long period of time between manufacture and injury in Redmond v. Teledyne complicated the issue for its plaintiff, but in a world where mergers, acquisitions, bankruptcies and name changes are commonplace, product injury plaintiffs can find themselves in a quandary. Who is responsible? Is anyone responsible?

Sometimes, the answer is no.

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Janice G. Inman is Editor-in-Chief of Product Liability Law & Strategy.