Opinion
No. CV07-5006110S
October 20, 2008
MEMORANDUM OF DECISION
In this products liability action, one of the defendants, Encore Medical Corp ("Encore"), has moved for summary judgment on the basis that it was not the product seller of the artificial hip at issue, in that it did not manufacture, distribute or sell the artificial hip. Encore maintains that its only "connection" with the artificial hip was that sometime after the artificial hip was implanted, Encore purchased the assets of the first named defendant, Osteoimplant Technology, Inc. ("OTI"), the manufacturer of the artificial hip at issue in the complaint. The plaintiff filed an objection to the Motion for Summary Judgment by memorandum dated July 2, 2008. Encore filed a Reply to Plaintiff's Objection, dated September 25, 2008. Oral argument was presented on October 14, 2008.
This is a products liability action brought pursuant to General Statutes §§ 52-572m et seq. The background of the case, relevant to the court's decision of this motion, is not disputed. The plaintiff underwent a total hip replacement in February 2004. The doctor used an artificial hip joint known as an "OTI Modular Femoral Neck and Cemented Modular Femoral Stem." This joint was a product of OTI. In February 2005, Encore, a competitor of OTI, entered into an asset purchase agreement with OTI to acquire substantially all of the assets of OTI. The Asset Purchase Agreement specifically provided that Encore was purchasing only the assets of OTI, and not the liabilities. The transaction was an arm's length transaction in all respects. Prior to the asset purchase, Encore had no connection with OTI. It did not, prior to February 2005, manufacture, sell or distribute the type of OTI artificial hip at issue. After Encore purchased the assets of OTI in 2005, it pulled all of the inventory of OTI's artificial hip off the market. Two years after his original surgery, in May 2006, the plaintiff alleges he had an acute onset of hip pain, that it was discovered that his OTI artificial hip had shattered and he had to undergo a second hip replacement.
The plaintiff and Encore agree that, under the general products liability rule, with its four traditional exceptions that Encore is not liable to the plaintiff. However, the plaintiff represents in his brief and oral argument that "Connecticut Courts have recognized that, in a product liability action, a successor corporation may be held liable under a certain [fifth] set of circumstances generally referred to as the "product line exception." Thus, it is the plaintiff's argument in opposition to the summary judgment motion, that: "In the present case, there are genuine issues of material fact as to whether Encore may be held liable to [the plaintiff] pursuant to the product line exception."
The general rule recognized in most jurisdictions is that a corporation which purchases substantially all the assets of another company does not become liable for the debts and liabilities of its predecessor except where: (1) the purchase agreement expressly or impliedly states the purchaser will assume such liability; (2) the transaction amounts to a consolidation or merger of the two firms; (3) the purchasing corporation is merely a continuation of the selling corporation; or (4) the transaction is entered into fraudulently for the purpose of escaping liability.
The standards governing summary judgment are well established. Summary judgment "shall be rendered forthwith if the pleadings, affidavits and any other proof submitted 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." LaFlamme v. Dallessio, 261 Conn. 247, 250 (2002); Practice Book § 17-49. The party moving for summary judgment bears the burden of proving the absence of a genuine dispute as to any material fact; and the party opposing such a motion must provide an evidentiary foundation to demonstrate the existence of a genuine issue of material fact. "Equally well settled is that the trial court does not sit as the trier of fact when ruling on a motion for summary judgment . . . [T]he trial court's function is not to decide issues of material fact, but rather to determine whether any such issues exist." (Citations omitted; internal quotation marks omitted.) Field v. Kearns, 43 Conn.App. 265, 269-70, cert. denied, 239 Conn. 942 (1996). "To satisfy his burden the movant must make a showing that it is quite clear what the truth is, and that excludes any real doubt as to the existence of any genuine issue of material fact." Witt v. St. Vincent's Medical Center, 252 Conn. 363, 373 n. 7 (2000); D.H.R. Construction Company v. Donnelly, 180 Conn. 430, 434 (1980).
In deciding a motion for summary judgment, the trial court must view the evidence in the light most favorable to the nonmoving party. The test is whether a party would be entitled to a directed verdict on the same facts. Sherwood v. Danbury Hospital, 252 Conn. 193, 201 (2001); Serrano v. Burns, 248 Conn. 419, 424 (1999); Forte v. Citicorp Mortgage, Inc., 66 Conn.App. 475 (2000). In Connecticut, "[a] trial court should direct a verdict for a defendant if, viewing the evidence in the light most favorable to the plaintiff, [the trier of fact] could not reasonably and legally reach any other conclusion than that the defendant is entitled to prevail." (Internal quotation marks omitted.) Colombo v. Stop Shop Supermarket Co., 67 Conn.App. 62, 64 (2001), cert. denied, 259 Conn. 912 (2002).
As counsel agreed during oral argument, the crux of the court's decision in this motion for summary judgment is the court's decision as to whether Connecticut has adopted the decidedly minority approach of a fifth exception to the Connecticut Product Liability Act.
The plaintiff urges this court to join the handful of Connecticut Superior Court judges, who were persuaded that the "product line exception" should be followed in Connecticut. Encore counters that, as the Connecticut Appellate and Supreme Court have not adopted this exception, that this court should not endorse the product line exception.
The genesis of the product line exception is succinctly explained by United States District Court Judge Hall in her 1998 opinion, which opinion on this very issue was considered and adopted by her colleague, District Court Judge Droney, in a 2006 decision. As summarized by Judge Hall, "The product-line exception or doctrine, established by the California Supreme Court in Ray v. Alad Corp., 19 Cal.3d 22, 136 Cal.Rptr. 574, 560 P.2d 3 (1977), imposes liability on a successor corporation for defects in products that a predecessor manufactured if the asset purchaser continues to manufacture the same product. Under the product line exception, an asset purchaser does not have to acquire an entire business for a court to impose liability as a successor corporation."
The overwhelming majority of state courts considering the issue have expressly declined to endorse this theory of liability. The supreme courts of only three states have adopted it: California, Washington, and New Jersey. Numerous Federal court judges have also expressed reservations that the product line exception would be adopted by several state courts. Pesce v. Overhead Door Corp., 1998 WL 34347073, 1998 U.S. Dist. Lexis 20665, at FNS 4 5 (D.Conn. 1998, Hall, J.). In the Pesce decision, at 12, Judge Hall concluded: "The court declines to join the small minority of courts that have recognized the product line exception . . . Moreover, [to do so] would impose drastic changes to the principles of state corporate law, changes best reserved for the state legislature." Quoting this language from the Pesce case, District Court Judge Droney recently granted summary judgment, stating "The Court agrees with Judge Hall, and similarly declines to apply the product line exception in this case." Collins v. Olin Corporation, (D. Conn. 2006).
The plaintiff, in his memorandum in objection to the motion, states that "there are genuine issues of material fact as to whether Encore may be held liable to Mr. Albini pursuant to product line exception." The plaintiff urges that this court follow the "number of Connecticut Superior Courts [that] have recognized a fifth exception to the general rule of non-liability for a successor corporation in a product liability action . . . known as the `product line exception' . . ." The plaintiff further advocates that this court decline to find persuasive the widely stated rule of the Restatement, Third, Torts, which rule, and associated commentary, does not find any merit in extending successor liability beyond the four traditional exceptions.
The defendant, in support of its motion, and in urging the court not to follow California and adopt a fifth exception, quotes extensively from the pertinent comment in the Restatement. In part, the defendant highlights, for the court's consideration, that portion of the Comment that reads: "Moreover a majority of courts have concluded that the substantial social costs of a more expansive liability rule would be incurred without actually benefitting very many tort plaintiffs. In most instances, the magnitude of future liability for products distributed pretransfer is difficult, if not impossible, to assess. As a majority of courts have recognized, the result of imposing successor liability as a general rule would be to depress the prices for transferred assets to the point that piecemeal disposition of assets, which clearly would not subject the buyers to liability, would be a preferable alternative to sale of the assets as part of a going concern. The benefits to society of preserving the predecessor's assets as a going concern would be sacrificed, with no commensurate benefits to tort claimants." Restatement, Third, Torts, Sec. 12 Comment b. Rationale.
This court has considered carefully those few cases decided by its colleagues, in the 1990s, wherein the fifth exception was adopted. However, absent controlling authority in this state, this court declines to adopt what is clearly a minority position. In so declining, this court has taken into consideration the limited applicability of this handful of Connecticut Superior Court decisions to its determination on this motion. Specifically, it has been stated, that: "these cases are not binding because the decisions were rendered by trial courts. Though trial court decisions can serve as persuasive authority for other trial courts, one trial court in Connecticut cannot bind another when the issue has yet to be determined by the Connecticut Appellate or Supreme Court or the United States Supreme Court." State v. Dehaney, Superior Court, judicial district of Hartford, Docket No. CR95-481648, fn 17 (December 24, 1998, Barry, J.). Furthermore, these cases, which rely upon state law in California, Washington and New Jersey, for a determination as to successor liability in Connecticut are not persuasive for two additional reasons: the Connecticut federal district court decisions applying Connecticut law have consistently declined to adopt a fifth exception, absent directive ruling from a Connecticut appellate court; and, this court is mindful of the compelling rationale presented in the Comment to the Restatement adopted in part, above.
There is no factual dispute between the parties that Encore does not fall within any of the four exceptions to the rule that under Connecticut law, a corporation that purchases all the assets of another company does not become liable for debts and liabilities of its predecessor. As discussed above, the court declines to apply a fifth exception. Therefore, this court overrules the plaintiff's objection and grants the defendant's motion for summary judgment.