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Winsor v. Glasswerks PHX2/4/2003
tinuity of Enterprise Exceptions.
Winsor asks us to adopt the product line exception, the continuity of enterprise exception, or both. Both exceptions have similar underpinnings.
The product line exception was first established in Ray. 560 P.2d at 3. It provides for successor liability even if the successor was not involved in the manufacture or distribution of the product but purchases "substantially all the manufacturing assets" and "undertakes essentially the same manufacturing operation as the selling corporation[.]" Ramirez v. Amsted Indus., Inc., 431 A.2d 811, 825 (N.J. 1981); see also Ray, 560 P.2d at 11.
In Ray, the court concluded that under the traditional rules of successor liability, the plaintiff in that case would not be able to recover because none of the recognized exceptions applied. 560 P.2d at 7. Ray held that the following considerations supported its rule of expanded liability:
(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 rule, 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 goodwill being enjoyed by the successor in the continued operation of the business. Id. at 8-9; see also Garcia v. Coe Mfg. Co., 933 P.2d 243, 248-50 (N.M. 1997) (adopting the product line exception); Dawejko v. Jorgensen Steel Co., 434 A.2d 106, 110 (Pa. Super. 1981)(same); Martin v. Abbott Labs., 689 P.2d 368, 388 (Wash. 1984)(same).
The focus of the continuity of enterprise exception is to expand the traditional "mere continuation" exception that is part of the general rule. The traditional "mere continuation" exception applies "only when there is a common identity of officers, directors and stock between the selling and purchasing corporations, and only one corporation after the transfer." Dawejko, 434 A.2d at 108. Courts recognizing the continuity of enterprise exception, however, impose successor liability when:
(1) There was basic continuity of the enterprise of the seller corporation, including . . . a retention of key personnel, assets, general business operations, and even the [product] name.
(2) The seller corporation ceased ordinary business operations, liquidated, and dissolved soon after distribution of a consideration received from the buying corporation.
(3) The purchasing corporation assumed those liabilities and obligations of the seller ordinarily necessary for the continuation of the normal business operations in the seller corporation.
(4) The purchasing corporation held itself out to the world as the effective continuation of the seller corporation. Turner v. Bituminous Cas., Co., 244 N.W.2d 873, 883-84 (Mich. 1976); Savage Arms Inc. v. Western Auto Supply Co., 18 P.3d 49, 54-58 (Alaska 2001) (adopting continuity of enterprise exception and rejecting competing considerations from the majority rule).
The underlying policy considerations behind both exceptions are (1) the predecessor is no longer available and the successor is "in a better position than the consumer" to absorb the costs of the injury from the product, (2) the successor has benefitted from the "good will" of the predecessor by continuing to market the same product, and (3) the underlying fairness in requiring a successor corporation to be responsible for the predecessor's products when it continues to manufacture the same product. E.g., Cyr v. B. Offen & Co., 501 F.2d
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