Miller v. Nissen Corp.

CATHELL, Judge. Appellants, Warren G. Miller, individually and t/a Atlantic Fitness Products, Faye Miller, individually and t/a Atlantic Fitness Products, (collectively referred to hereinafter as “Atlantic Fitness,”) and Frederick B. Brandt, allege that the Circuit Court for Baltimore City erred in granting Summary Judgment in favor of appellee, Nissen Corporation (referred to hereinafter as “Nissen”) in an action for products liabili ⁴⁵¹ ty. We agree, and for the reasons set out below, we reverse. In January, 1981, appellant Brandt, a plaintiff below, purchased a Model A Tredex Treadmill, manufactured by American Tredex Corporation (“American Tredex”), from Atlantic Fitness.

In July 1981, pursuant to an Asset Purchase Agreement, Nissen bought all the assets of American Tredex, as well as its goodwill and the name, American Tredex. The former American Tredex Corporation assumed the name AT Corporation. In November 1982, appellant Brandt received correspondence and obtained replacement parts for the treadmill from Nissen. In October 1986, appellant Brandt, a surgeon, was injured when he caught one of his fingers in the treadmill’s operating mechanism while performing an adjustment to the treadmill.

Litigation in this matter began on or about September 1, 1988, when Mr. Brandt and his wife, Annette Brandt, filed a complaint in the Circuit Court for Baltimore City against American Tredex, AT Corporation, Nissen and Atlantic Fitness, alleging negligence, strict liability, breach of express and implied warranties of merchantability and fitness, and loss of consortium as a result of the injury. On September 22, 1988, Atlantic Fitness answered the complaint, denying liability and asserting affirmative defenses. On December 2, 1988, Nissen answered, also denying liability and asserting affirmative defenses. In May 1989, Nissen filed a Motion for Summary Judgment, contending that it was not responsible for any injuries involving equipment sold or manufactured by American Tredex prior to the date of the Asset Purchase Agreement, July 31, 1981. 1 On May 23, 1989, Atlantic Fitness filed a cross-claim against Nissen for indemnity and contribution, as well as a Memorandum in Opposition to Nissen’s Motion ⁴⁵² for Summary Judgment, based on the fact that Nissen was liable as a successor in interest to American Tredex as a result of the continuity of enterprise between Nissen and American Tredex.

Plaintiffs below filed an Answer to Nissen’s Motion for Summary Judgment, as well as Mr. Brandt’s Affidavit, stating that on November 30, 1982, Mr. Brandt purchased replacement parts for the treadmill from Nissen. The trial court granted Nissen’s Motion for Summary Judgment on July 26, 1989, and at the request of Atlantic Fitness, the trial judge entered a final order, rendering the matter appealable to this Court under Maryland Rule 2-602(b). The primary issues which all appellants raise include: 1. Whether the trial court erred in granting summary judgment for Nissen because it failed to acknowledge that Maryland recognizes the continuity of enterprise doctrine? 2.

Whether the trial court erred in granting summary judgment since there existed a genuine dispute of material fact? Our reversal of the trial judge’s grant of summary judgment on these grounds eliminates the necessity of addressing additional issues raised by particular appellants. Continuity of Enterprise At the outset, we find it interesting to note that both the appellants and the appellee relied on the same line of cases to support their diametrically opposing claims regarding this issue. There are several possible explanations for this.

We choose to believe that this phenomenon occurred because of an insufficient body of law in Maryland regarding the liability of a successor corporation in an action for products liability. We will endeavor to remedy that situation. Judge Paul V. Niemeyer, writing for the United States District Court for the District of Maryland, in Smith v. Navistar International Transportation Corp., 687 ⁴⁵³ F.Supp. 201 (D.Md.1988), noted the absence of Maryland case law on successor corporation liability, and was called on to forecast what Maryland courts would decide if confronted with that question. Ordinarily, a corporation that acquires the assets of another corporation is not liable for the debts and liabilities of the predecessor corporation.

Exceptions to the general principle have developed to impose liability on the successor corporation when: (1) there is an expressed or implied assumption of liability; (2) the transaction amounts to a consolidation or merger; (3) the purchasing corporation is a mere continuation of the selling corporation; or (4) the transaction is entered into fraudulently to escape liability for debts. Knapp v. North American Rockwell Corporation, 506 F.2d 361 (3rd Cir.1974); Hanlon v. Johns-Manville Sales Corporation, 599 F.Supp. 376 (N.D.Iowa 1984). Although the Maryland courts have not had occasion to address this issue, we have no reason to doubt that the general exceptions noted above would not [sic] be accepted as they are in most jurisdictions, and we therefore conclude that this is the law of Maryland unless and until the Court of Appeals suggests otherwise. Navistar, 687 F.Supp. at 204 (citations omitted, emphasis added).

The inclusion of the word “not,” in the italicized portion of the quote from Judge Niemeyer, is an obvious misprint. When the opinion is read in its entirety, it is clear that Judge Niemeyer intended it to mean that Maryland law conforms to that of the majority of other jurisdictions in adopting the four exceptions to the general principle that successor corporations are not liable for the debts and liabilities of a predecessor corporation. The opinion forecasts specifically that Maryland would not adopt the minority position that attaches tort liability to ⁴⁵⁴ the transfer of a product line, as do California and New Jersey. 2 “The theory suggested by these cases is that the burdens of product liability flow with the benefits. We are not prepared to say that Maryland will adopt this exception ....” Navistar, 687 F.Supp. at 204.

Judge Niemeyer continues by detailing two other cases, Polius v. Clark Equipment Co., 608 F.Supp. 1541 (D.St. Croix, V.I., 1985) rev’d 802 F.2d 75 (3d Cir.1986) (Mansmann, J. dissenting) and Cyr v. B. Offen & Co., Inc., 501 F.2d 1145 (1st Cir.1974), where the continuation of enterprise doctrine was at issue. 3 He concludes by granting summary judgment for the successor corporation, not because the continuation of enterprise doctrine does not apply in Maryland, but because of its inapplicability to that particular case. The predecessor corporation, having sold off only a small percentage of its operations was still available to be sued. In this regard, Judge Niemeyer writes: The underlying policy for imposing product liability on a successor corporation, in the absence of an expressed assumption of liability, under this doctrine of continuity ⁴⁵⁵ of enterprise is the demonstration that the successor corporation has taken the place of the predecessor corporation and therefore is presumed to have assumed the liability. In each of the cases cited, the predecessor corporation dissolved, went out of business or was no longer available to be sued.

In the present case, UOP [the predecessor corporation] sold off only a portion of its business representing approximately five percent of its total operations. UOP continued as a viable corporation and was available to be sued throughout the applicable period. The circumstances presented here do not fall within the guidelines established by Polius and, more importantly, within the underlying policy that the successor corporation has merely stepped into the shoes of the predecessor corporation and therefore is assumed to take on liability. Navistar, 687 F.Supp. at 206 (emphasis added).

The trial judge in the case at hand, however, apparently took out of context that sentence in Judge Niemeyer’s opinion containing the misprint, and interpreted it to mean exactly the opposite of what the author intended. The trial judge’s written ruling on Nissen’s Motion for Summary Judgment stated: Although he explored these exceptions [to the general principle of successor corporations’ nonliability] in detail in Navistar, Judge Niemeyer pointed out that “[although the Maryland Courts have not had occasion to address this issue, we have no reason to doubt that the general exceptions ... would not be accepted as they are in most jurisdictions” and concluded that the general principle of non-liability is “the law in Maryland unless and until the Court of Appeals suggests otherwise.” Navistar at 20% Thus, it is apparent that the “substantial continuation” exception advocated by the parties in this case must fail. Nissen can only be liable for the debts and obligations of American Tredex to the extent provided in the Articles of Transfer. Corps.

Section 3-115(c). The Articles of Transfer in this case exclude Nissen ⁴⁵⁶ from liability for any negligence of American Tredex and, consequently, Nissen is not liable to the Plaintiffs for any negligent acts of its predecessor. This Court declines to enlarge the law by accepting the parties’ “substantial continuation” argument____ [emphasis in original] The trial judge in the case at bar misinterpreted the import of Judge Niemeyer’s holding and, as a result, applied incorrect law to the facts of the case in determining whether to grant summary judgment. We believe Judge Niemeyer’s forecast of Maryland law to be correct.

We hold that liability for dangerous or defective products will be imposed on a successor corporation when one of the four exceptions to the general rule of