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Schumacher v. Shear Co.

Court of Appeals of the State of New York
Jun 14, 1983
451 N.E.2d 195 (N.Y. 1983)

Summary

holding that ordinarily, a corporation bears no responsibility for the prior tort debts of another corporation whose assets it has purchased

Summary of this case from Cargo Partner AG v. Albatrans, Inc.

Opinion

Argued March 24, 1983

Decided June 14, 1983

Appeal from the Appellate Division of the Supreme Court in the Third Judicial Department, JOHN M. KEANE, J.

James L. Chivers and James S. Gleason for Otto F. Schumacher and another, appellants. James C. Gocker for Richards Shear Company, Inc., appellant.

Thomas J. Hickey for respondent.


Plaintiff Otto F. Schumacher was blinded in one eye when he was struck by a scrap of flying metal ejected by a model 300-ton shearing machine he was operating at work. He and his wife sue defendant Richards Shear Company, Inc., who manufactured and sold the machine to his employer, and defendant Logemann Brothers Company, Inc., who subsequently purchased substantially all of Richards' assets. They seek to recover compensatory and derivative damages for the injury on theories of strict products liability and negligence. Richards Shear has interposed a cross claim against Logemann. The issue on this appeal is whether defendant Logemann is liable to plaintiff for the tortious conduct of Richards Shear or for its own conduct subsequent to acquiring Richards Shear's assets.

Defendant Logemann maintains that it is not liable in an action in strict products liability as a successor of Richards Shear under the rule of Hartford Acc. Ind. Co. v Canron, Inc. ( 43 N.Y.2d 823) or under extensions of that rule recognized in other jurisdictions (see Ray v Alad Corp., 19 Cal.3d 22; Ramirez v Amsted Inds., 86 N.J. 332 [the product line theory]; and see Turner v Bituminous Cas. Co., 397 Mich. 406 [the "continuity of enterprise" theory]), and that it cannot be held liable for its own nonfeasance because it had no common-law duty to warn plaintiff of any defect in the machine. It moved for summary judgment dismissing the complaint and the cross claim. Special Term granted the motion and the Appellate Division affirmed with two Judges dissenting. The dissenters found factual issues warranting a trial on whether defendant Logemann's failure to warn plaintiff's employer of danger from the machine constituted negligence.

There should be a modification. Defendant Logemann's motion for summary judgment should be granted dismissing the first cause of action in strict products liability and denied insofar as it seeks dismissal of the cause of action alleging a negligent failure to warn. We hold that the rule in Hartford Acc. Ind. Co. v Canron, Inc. ( supra) applies to personal injury cases and bars recovery from defendant Logemann for any fault of Richards Shear. Moreover, there are no facts alleged which warrant our consideration or application of the "product line" or "continuity of enterprise" theories extending liability to a successor corporation. The court is also unanimous in its recognition that a negligence cause of action for failure to warn may exist on behalf of an employee injured by an unsafe machine against a manufacturing corporation which subsequently acquires all or part of the assets of the manufacturer of the machine. The duty arises because of the relationship between the acquiring corporation and the purchaser of the machinery, plaintiff's employer in this case, and because of the knowledge which the acquiring corporation possesses or has reason to possess concerning the risk of personal injury created by operation of the machine without a safety guard. We disagree only on whether evidence submitted by plaintiff in response to defendant's motion for summary judgment is sufficient to create an issue of fact. A majority of the court believes it is. Accordingly, Logemann's motion for summary judgment should have been denied as to the failure to warn cause of action.

Plaintiff, an employee of Wallace Steel and Supply Company, was injured on April 17, 1978 when he was struck by a piece of metal thrown from a hydraulic shearing machine while he was operating it. The machine was purchased by plaintiff's employer from Richards Shear in January, 1964. It is plaintiff's contention that the machine was defective in design and manufacture because it did not have a guard to deflect metal ejected from the machine, and that Richards Shear and Logemann should have taken measures to correct the existing dangerous condition or have alerted users of it.

Logemann's status as a "successor" arises principally from a "License and Sales Agreement" dated January, 1968 in which Richards Shear granted to Logemann, among other things, the exclusive right to manufacture and sell Richards Shear products, improvements, and inventory, and to use the trade name "Richards". In substance, the transaction was a sale of all assets because thereafter Richards Shear discontinued its business of selling, manufacturing and servicing shears. Currently, it has no liability insurance, employees, or business volume and it has few assets.

In February, 1968, approximately four years after plaintiff's employer purchased the machine from Richards Shear, Logemann contacted plaintiff's employer, Wallace Steel, and notified it of the acquisition of the Richards Shear product line along with the inventories and blueprints for new shears. In July, 1968, a former Richards Shear serviceman was sent by Logemann to service and check Wallace Steel's machine. Thereafter, in April, 1976, Logemann again contacted Wallace Steel and solicited business with respect to the shear machine, made assurances concerning service, and notified Wallace Steel of its acquisition of another former Richards Shear serviceman. Logemann also supplied Wallace Steel with replacement parts for the machine.

It is the general rule that a corporation which acquires the assets of another is not liable for the torts of its predecessor (19 CJS, Corporations, § 1380; 15 Fletcher's Cyclopedia Corporations [rev ed], § 7122). There are exceptions and we stated those generally recognized in Hartford Acc. Ind. Co. v Canron, Inc. ( 43 N.Y.2d 823, 825, supra). 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. Nothing in the record suggests liability under any of these theories. The only arguable basis upon which plaintiffs can predicate a finding of successor liability is to characterize Logemann as a "mere continuation" of Richards Shear Company. The exception refers to corporate reorganization, however, where only one corporation survives the transaction; the predecessor corporation must be extinguished (see McKee v Harris-Seybold Co., 109 N.J. Super. 555; Ladjevardian v Laidlaw-Coggeshall, Inc., 431 F. Supp. 834, 839). The cases cited by plaintiff do not hold otherwise ( Cyr v Offen Co., 501 F.2d 1145; Turner v Bituminous Cas. Co., 397 Mich. 406, supra). Since Richards Shear survived the instant purchase agreement as a distinct, albeit meager, entity, the Appellate Division properly concluded that Logemann cannot be considered a mere continuation of Richards Shear.

Plaintiffs also contend that liability may be imposed on defendant Logemann for strict products liability based upon recent decisions in other jurisdictions which have extended successor liability. The courts that have addressed the issue impose strict products liability on a successor corporation, based upon a balancing approach, where there has been a basic "continuity of the enterprise" of the seller corporation ( Turner v Bituminous Cas. Co., 397 Mich. 406, supra), an expansion of the traditional merger or consolidation exceptions, or where the successor corporation continues to produce the predecessor's product in the same plant ( Ray v Alad Corp., 19 Cal.3d 22, supra ["product line" exception]). We do not adopt the rule of either case but note that both are factually distinguishable in any event. Applying the test adopted by the Michigan Supreme Court in Turner to the instant facts, plaintiffs would have no claim against defendant Logemann as a matter of law because the factors manifesting continuity of corporate responsibility, such as continuity of management, key personnel, and physical location are not present in this case. Logemann did not purchase the manufacturing plant or equipment of Richards Shear and except for the hiring of two servicemen, no employees of Richards Shear became employees of Logemann. A stronger claim may be based upon the "product line" theory developed by the California Supreme Court in Ray v Alad Corp. ( supra). In Ray, the court, noting its rule on successor liability (which is the same as New York's), stated that where none of the four exceptions for imposing liability were present, it would consider the policies underlying strict tort liability for defective products to determine whether an exception to the general rules insulating the defendant therein from liability were warranted. These policies included the availability of remedies for the injured plaintiff as well as the fairness of requiring the successor to assume a responsibility for defective products. However, the Ray case presented unique facts which are clearly distinguishable from the present case and the California court's policy decision was obviously influenced by them. Those circumstances, the dissolution of the prior corporation shortly after the purchase of its equipment and the use by the successor corporation of essentially the same factory, name and office personnel after the transactions to produce the same product, are not present in this case.

Logemann may be answerable to plaintiffs, however, apart from liability resting on its status as a successor corporation. Under general tort rules, a person may be negligent because he or she fails to warn another of known dangers or, in some cases, of those dangers which he had reason to know. The duty commonly is imposed because of some special relationship, frequently economic, not only for those bearing special responsibilities such as common carriers and innkeepers, but on defendants generally, e.g., owners and occupiers of land (see Restatement, Torts 2d, § 356 [landlord and tenant]; Krause v Alper, 4 N.Y.2d 518; Restatement, Torts 2d, § 373 [vendor and vendee]; Velez v City of New York, 45 A.D.2d 887 [duty of owner to warn one on premises]; and see, generally, 2 Harper and James, Torts, §§ 27.15, 27.16; Prosser, Torts [4th ed], § 57 et seq.), on operators of motor vehicles to their passengers (see Higgins v Mason, 255 N.Y. 104, 109), bailors to their bailees (see Knapp v Gould Auto. Co., 252 App. Div. 430, 433), and suppliers and manufacturers of chattels (see, generally, Restatement, Torts 2d, § 388; 2 Harper and James, Torts, § 28.7; 1 Weinberger, NY Products Liability, § 18.18 et seq.; 1 N.Y. PJI2d, p 364). As Professor Prosser has stated: "[d]uring the last century, liability for `nonfeasance' has been extended still further to a limited group of relations, in which custom, public sentiment and views of social policy have led the courts to find a duty of affirmative action. It is not likely that this process of extension has ended. For the most part such a duty has been imposed where the relation is of some actual or potential economic advantage to the defendant, and the expected benefit justifies the requirement of special obligations" (Prosser, Torts [4th ed], § 56, p 339). Consistent with that observation, several recent Federal cases have recognized that a successor corporation may have an independent duty to warn under circumstances similar to those present in this case (see Leannais v Cincinnati, Inc., 565 F.2d 437; and cf. Tucker v Paxson Mach. Co., 645 F.2d 620; Gee v Tenneco, Inc., 615 F.2d 857; Travis v Harris Corp., 565 F.2d 443). The courts focused upon the relationship between the defendant "successor" corporation and the customers of the predecessor and the actual or potential economic advantage to the defendant successor corporation. Several factors may be considered in determining whether there exists a sufficient link to create a duty to warn, among them "[s]uccession to a predecessor's service contracts, coverage of the particular machine under a service contract, service of that machine by the purchaser corporation, [and] a purchaser corporation's knowledge of defects and of the location or owner of that machine" ( Travis v Harris Corp., 565 F.2d 443, 449, supra).

In Travis, plaintiff was injured in 1973 by a die press machine which his employer had purchased a year before the injury. The machine had been manufactured in 1957 by C.B. Sheridan Company (Old Sheridan), sold to Inland Container Corporation in that year, and then purchased by plaintiff's employer. Defendant Harris Corporation purchased all the assets of Old Sheridan Company in 1964. When plaintiff sued defendant Harris Corporation, the court acknowledged his theory of liability based upon a duty to warn but rejected his contention that Harris had such a duty to his employer ( 565 F.2d 443, 448). The only fact offered in support of the claim was a single service call by defendant's employee to Inland, a prior purchaser of the machine, not plaintiff's employer. In Leannais v Cincinnati, Inc. ( supra), however, the same court found a duty to warn when the machine which injured plaintiff was manufactured and sold by defendant's predecessor in 1964, defendant acquired the assets in 1967, and plaintiff was injured in 1973. Despite the expressed refusal of the successor to assume liability for the predecessor's torts, the court found an issue of fact on the relationship of the successor to the predecessor's customers, the knowledge of their identity and the equipment they possessed and the economic benefit to the successor.

The Appellate Division here ruled as a matter of law that no duty to warn should be imposed upon Logemann as a purchaser corporation. Applying traditional common-law tort concepts, it noted that 14 years had elapsed between the purchase and the date of plaintiff's injury and that there was a lack of foreseeability because of this lapse of time. Thus, it held that there was no lack of reasonable care under the circumstances. Certainly, the passage of time is relevant to the duty issue, but it is not dispositive (see Leannais v Cincinnati, Inc., 565 F.2d 437, 442, supra).

There is sufficient evidence in this record of contacts between Logemann and Wallace Steel to defeat the motion for summary judgment (see Wilson v Fare Well Corp., 140 N.J. Super. 476; Shane v Hobam, Inc., 332 F. Supp. 526). Other than the single service call (which, standing alone, might not be enough to create a duty to warn), Logemann knew of the location and owner of the machine and actively offered to service it. Moreover, Logemann held itself out on at least two occasions as having expertise in the product line it had acquired from Richards Shear. Although Logemann apparently did not formally assume Richards Shear's service contracts, it did, in fact, offer to service the machine to the potential economic advantage of both parties. On the trial plaintiff will be required to establish that a duty to warn existed based upon these contacts between defendant Logemann and plaintiff's employer. Its liability, if any, arises out of this relationship, not because of any "successor" liability or because it acted as a serviceman or repairman for the machine.

On the issue of knowledge, Logemann claims that an isolated service call did not bring the absence of a protective guard to its attention. However, there is evidence on the record to indicate that this defect was open and notorious based on prevailing industry standards. This was sufficient to create a jury question on the issue of what Logemann knew or had reason to know (see Restatement, Torts 2d, § 401, Comment i).

One of the dissenters contends that as a matter of law there was no duty to warn because the alleged defect was open and notorious and that fact alone negated the duty to warn (at p 254). That theory of liability rests upon the distinction between latent and patent defects which we rejected in Micallef v Miehle Co., Div. of Miehle-Goss Dexter ( 39 N.Y.2d 376).

The order of the Appellate Division should be modified by denying defendant's motion to grant summary judgment as to plaintiff's second cause of action sounding in negligence and as so modified affirmed.


Chief Judge COOKE and Judges WACHTLER and MEYER concur with Judge SIMONS; Judges JASEN and JONES dissent and vote to affirm in separate dissenting opinions.

Order modified, with costs to plaintiff, in accordance with the opinion herein and, as so modified, affirmed.


The court today has fashioned a remedy for a person injured due to an allegedly defectively designed product against a corporation acquiring the assets of the manufacturer of the product on the theory of negligence by imposing upon the successor corporation an independent duty to warn based upon a "special relationship". Inasmuch as I do not believe that the plaintiff has established any cause of action against the successor corporation, even under common-law negligence principles, I must respectfully dissent.

I do, however, agree with the majority that none of the four exceptions to the general rule that a corporation acquiring the assets of another does not acquire the tort liability of the predecessor corporation are applicable in this case. (At pp 242-243, 245; Hartford Acc. Ind. Co. v Canron, Inc., 43 N.Y.2d 823; Leannais v Cincinnati, Inc., 565 F.2d 437, 439.) Similarly, on the facts as presented, I agree that there is no basis for adopting either the continuation of enterprise theory (at pp 243, 245; Turner v Bituminous Cas. Co., 397 Mich. 406; Travis v Harris Corp., 565 F.2d 443, 446-447; Tucker v Paxson Mach. Co., 645 F.2d 620, 625-626) or the products line exception to impute liability to Logemann as a successor corporation (at pp 242-243, 245-246; Ray v Alad Corp., 19 Cal.3d 22; Leannais v Cincinnati Inc., supra, at p 440; Tucker v Paxson Mach. Co., supra, at pp 624-625; Phillips, Products Liability of Successor Corporations: A Corporate and Commercial Law Perspective, 11 Hofstra L Rev 249.)

While I am also in agreement with the majority that "[u]nder general tort rules, a person may be negligent because he or she fails to warn another of known dangers or, in some cases, of those dangers which he had reason to know" (at p 246), I do not believe the rule should be applied to this case where the plaintiff has failed to allege, as required under general tort principles, that the alleged breach of duty to warn was the proximate cause of his injury. Under general tort law, it is necessary to allege and establish all the elements of a cause of action sounding in negligence — that is, that the defendant owed the plaintiff a duty which it breached and that that breach was the proximate cause of plaintiff's injury. (Dillard Hart, Product Liability: Directions for Use and the Duty to Warn, 41 Va L Rev 145.)

First, I address the majority's imposition of a duty to warn of the dangers inherent in the shearing machine involved in this case on defendant Logemann because of what it terms a special relationship. While the majority concludes that the "plaintiff will be required to establish that a duty to warn existed based upon these contacts between defendant Logemann and plaintiff's employer" (at p 249), the factors cited also relate to the relationship between the successor and predecessor corporation. ( Leannais v Cincinnati, Inc., supra, at p 442; Note, Products Liability: Successor Corporations: Liability for Defective Products, 35 Okla L Rev 846, 857.) An inquiry based on those factors appears to question whether there was a de facto assumption of the predecessor's liability by the successor corporation. Two factors are key: (1) whether there was an actual succession to the predecessor's service contracts, including questioning whether service was done on the machine in question; and (2) whether the successor corporation knew of the design defect and the location and ownership of the machine. ( Tucker v Paxson Mach. Co., 645 F.2d 620, 626, supra.) The latter is particularly pertinent to the question of duty because, in the words of the Federal courts which have developed this theory: "Absent knowledge of defects, nothing is known to warn against." ( Travis v Harris Corp., 565 F.2d 443, 449, supra.)

I recognize that the majority also states that liability is to be imposed only because of the relationship between Logemann and Wallace Steel (plaintiff's employer) and not on the basis of any successor theory or "because it [Logemann] acted as a serviceman or repairman for the machine." (At p 249.) But if in fact neither theory will serve to establish the special relationship necessary to impose a duty on Logemann, I fail to perceive what basis there is for creating this special relationship, especially in this case where Logemann's only direct contact with Wallace Steel was one service call.

The majority's emphasis on service contracts I find all the more troublesome because Logemann is claimed to have negligently carried out its duty to warn of a design defect. A relationship established by a service contract would, I believe, more properly impose liability for detecting and warning of a manufacturing defect which might be detected during service work. To impose liability for detecting and warning of design defects may well have the effect of imposing a greater liability on a serviceman, whose knowledge and familiarity with the product is much more limited, than on the manufacturer which designed the machine and in the course of re-evaluating and improving its product line is more likely to become aware of defects and methods to improve or correct them. To impose a continuing duty to warn on the manufacturer is consistent with the theory behind strict products liability of imposing liability on the party which is most capable of correcting the defect and is in a position to keep defective products off the market. Imposing a duty to warn based on negligence on a party in Logemann's position, on the other hand, will not make the manufacturer more responsible or keep defective products off the market. Instead, it will put those who service machines under a continuing duty to warn of defects which may only be learned of through extensive and continuing studies in the current state of the art in any industry in which it services products produced by that industry. There is no rationale for imposing a duty to become and remain aware of all the technical developments in a given industry merely because one has assumed the responsibility of servicing another's product. ( Bichler v Willing, 58 A.D.2d 331; Restatement, Torts 2d, § 402A, Comment j.)

The majority appears to hold that a special relationship may exist on the basis of public sentiment or social policy. (At p 247, citing Prosser, Torts [4th ed], § 56, p 339.) I assume that the majority is reacting to its perception of public sentiment or out of concerns of social policy, apparently on a theory that parties like Logemann derive significant benefit from their economic relationship with companies like Wallace Steel which justifies imposing liability. I cannot agree with this for two reasons. First, as to social policy, I assume the concern would be that the plaintiff may be left completely without a remedy if the successor corporation is not liable under some theory. ( Ray v Alad Corp., 19 Cal.3d 22, supra.) That reasoning I find unpersuasive in this case because plaintiff as an employee injured while performing his job is clearly eligible for workers' compensation benefits, as well as any benefits from accident, health and disability insurance policies which may be available to compensate him for his injury. In addition, plaintiff's claims against the manufacturer of the machine involved, Richards Shear, which sound in both strict products liability and negligence, remain pending and will provide plaintiff recourse regardless of the disposition of this appeal.

Secondly, I find it unreasonable because the clear implication of this decision is that any economic relationship will be sufficient to impose liability, rather than a significant economic relationship. Certainly a mere economic exchange would be insufficient to establish a special relationship; otherwise all vendors and patrons could be said to have a special relationship. Indeed, the very words "special relationship" indicate that a unique situation of economic interrelation must exist before a special relationship will arise. As noted in Gee v Tenneco, Inc. ( 615 F.2d 857, 866), "[t]he rationale of these decisions is consistent with a benefit/burden analysis, and also imposes a burden which the manufacturer can realistically bear." So, too, before the burden should be placed on one in Logemann's position, a substantial showing of benefit should be required. Thus, in deciding whether a special relationship exists on the basis of an economic interrelation, courts have so held only in situations evidencing an on-going relationship which was of both immediate and potentially greater future economic advantage to the party which would be held liable. (Compare Leannais v Cincinnati, Inc., 565 F.2d 437, supra, with Tucker v Paxson Mach. Co., 645 F.2d 620, supra.)

Accepting arguendo the concept of a special relationship, I do not believe the facts as alleged support the conclusion that a special relationship existed in this case. The affidavits indicate at best an extremely limited relationship between Logemann and the plaintiff. On two occasions, Logemann wrote to plaintiff's employer, Wallace Steel, soliciting any service work on Richards Shear produced equipment. There was only one actual service call by Logemann and that was not related to the cutting device involved in this lawsuit, but to repairs on the power unit of the hydraulic shears. Unlike the situation in Leannais v Cincinnati, Inc. ( supra), there was no assumption of service obligations by Logemann and no indication that the knowledge Logemann had of where Richards Shear's former customers were and the age of any customers' machinery had or would, in any way, aid Logemann in obtaining future business. This is especially so because Logemann never undertook to produce machines in the Richards Shear line and there is no indication that any inventory of this type of machine was turned over pursuant to the agreement between Logemann and Richards Shear. I find it difficult to agree that such limited contact is sufficient, as a matter of law, to establish a special relationship based on economic interrelation. Even assuming that Logemann should incur some liability for its failure to warn, certainly the liability imposed under a negligence cause of action should be no greater than that which would have been imposed on the original manufacturer.

At common law, the duty to warn reached only to hidden dangers or because the product was inherently dangerous in a way which would likely remain undetected by the consumer. On the other hand, if the danger was generally known or obvious to an observer, there was no duty to warn imposed at common law. ( Rosebrock v General Elec. Co., 236 N.Y. 227, 238; Thomas v Winchester, 6 N.Y. 397; Ann., 76 ALR2d 9, § 9, pp 28-37.)

This basic rule was incorporated in section 388 of the Restatement of Torts, Second. The rule as stated by the Appellate Division in Young v Elmira Tr. Mix ( 52 A.D.2d 202, 204-205) is that "a supplier is subject to liability where the supplier has reason to know that the product he furnishes is likely to be dangerous for the use for which it is supplied; has no reason to believe the user will realize its dangerous condition; and fails to exercise reasonable care to inform the user of the facts which make the product likely to be dangerous."

Comment k under section 388 of the Restatement further clarifies this rule by stating that the duty to warn exists "only if [the supplier] has no reason to expect that those for whose use the chattel is supplied will discover its condition and realize the danger involved. It is not necessary for the supplier to inform those for whose use the chattel is supplied of a condition which a mere casual looking over will disclose" unless the supplier has reason to believe that even a casual observation will not be made or that special expertise would be required to perceive the danger. As even the majority described the failure to include a safety guard on this machine was an "open and notorious" danger, I believe this is a case in which the court could properly conclude, as a matter of law, that there was no duty to warn. ( Lancaster Silo Block Co. v Northern Propane Gas Co., 75 A.D.2d 55, 65.)

Indeed, causes of action for failure to warn are so similar, whether sounding in negligence or strict products, one Appellate Division court held that liability even under strict products would not exist unless the plaintiff would not have discovered the defect and apprehended its danger. ( Wolfgruber v Upjohn Co., 72 A.D.2d 59, affd 52 N.Y.2d 768, citing Codling v Paglia, 32 N.Y.2d 330.)

Moreover, it is precisely because the cause of action being recognized is failure to warn that the majority's reliance on the abandonment by this court of the latent and patent defect distinction is misplaced. Micallef v Miehle Co., Div. of Miehle-Goss Dexter ( 39 N.Y.2d 376) addresses itself to the manufacturer's duty to design a reasonably safe machine. ( Supra, at pp 385-386.) Because the issue in a design defect case is whether the "product, as designed, was not reasonably safe" ( Voss v Black Decker Mfg. Co., 59 N.Y.2d 102), the distinction between latent and patent defects was no longer viable once strict products liability was recognized as a cause of action in this State.

So, too, the advent of comparative negligence, still a valid concern even under strict products liability, eroded the rationale behind latent and patent defects because even if the plaintiff could be found to have been aware of the risk and assumed it or to have caused in part his injury by his misuse of the product, recovery against the manufacturer would not be barred. ( Micallef v Miehle Co., Div. of Miehle-Goss Dexter, supra, at p 384.)

Duty to warn, on the other hand, is imposed in order to provide some protection when a product must remain dangerous in order to retain its utility. The function of the warning is to make the product reasonably safe by alerting the user to the inherent danger of the product or the danger in misuse of the product. To say that there is no duty to warn when the defect is obvious does not conflict with the obligation imposed by Codling v Paglia ( 32 N.Y.2d 330, supra) on the manufacturer "to exercise that degree of care in his plan or design so as to avoid any unreasonable risk of harm to anyone who is likely to be exposed to the danger when the product is used in the manner for which the product was intended * * * as well as an unintended yet reasonably foreseeable use". ( Micallef v Miehle Co., Div. of Miehle-Goss Dexter, 39 N.Y.2d 376, 385-386 supra [citations omitted].) The duty to warn being conceptually different from the duty to properly design or manufacture a product, it does not necessarily follow that the elimination of the latent and patent defect distinction for causes of action based on negligent design or manufacture imposes a duty to warn when a defect is obvious, as I believe recent decisions have held. ( Wolfgruber v Upjohn Co., 72 A.D.2d 59, affd 52 N.Y.2d 768, supra.) This is all the more so when the cause of action alleged is negligence, rather than strict products liability.

Even if it were to be assumed that the alleged facts did justify finding a special relationship between the plaintiff and defendant Logemann and that the defect was not so open and notorious so as to negate the duty to warn, I would still be compelled to disagree with my colleagues because, as stated before, I do not believe proximate cause, another necessary element to establish liability under the common-law theory of a duty to warn, has been pleaded or could be established. (Ann., 76 ALR2d 9, at pp 66-72.) Liability at common law was imposed for failure to warn about an inherently dangerous product or of hidden dangers on the theory that this was the only means of making a dangerous product safe. (Ann., 76 ALR2d 9.) Once the manufacturer had issued the warning properly, he would no longer be considered negligent and was thus relieved of liability. If those to whom the warning was given failed to heed it, their failure would likely constitute a supervening cause because it was not considered reasonably foreseeable that the warnings once given would be ignored. ( McLaughlin v Mine Safety Appliances Co., 11 N.Y.2d 62, 68-71; Sider v General Elec. Co., 203 App. Div. 443, 448-450, affd 238 N.Y. 64.)

Similarly, it has been held that a manufacturer and retailer's liability for failure to label dangerous substances might be excused if it was established that the party in a position to avoid the injury was already privy to the knowledge the warnings would have conveyed. ( Howard Stores Corp. v Pope, 1 N.Y.2d 110, 115.) The clear implication of that holding is that to establish liability under a negligent failure to warn theory, proximate cause must link the failure to warn with the injury — that is to say, that the injury must be caused because the plaintiff was not warned of the product's dangers or defects. ( De Vito v United Air Lines, 98 F. Supp. 88.) Thus, in this case, where the open and notorious nature of the danger would undoubtedly become apparent in over 10 years of operating the machine, I fail to understand how the breach of the duty to warn could be the proximate cause of the injury, assuming that the duty to warn could have been established in the first instance.

Undoubtedly, and understandably, strict products liability was formulated to reduce the burden the plaintiff bore in establishing either duty or proximate cause in any negligence based case and thereby to make those who could correct the negligence responsible to do so or bear the costs. Simply because strict products liability does not afford every plaintiff a remedy does not justify the reshaping of long-standing reasonable negligence concepts, as I believe the majority appears to be doing here. Accordingly, I would affirm the order of the Appellate Division.


We are all in agreement that Logemann's motion for summary judgment dismissing the first cause of action sounding in strict products liability was properly granted. Our differences arise with respect to the dismissal of the second cause of action alleging negligent failure of Logemann to warn of design defects in the shearing machine that plaintiff was operating when he was injured. In my view the dismissal of this cause of action was proper as well.

I accept the proposition that in some circumstances a servicer of machinery manufactured by another may be liable to the owner or user of machinery if the particular relationship between the servicer and the owner is such as to impose a cognizable duty on the servicer to warn the owner of defects in the design of the machinery of which the servicer has actual knowledge or of which in the exercise of reasonable care he should have knowledge. This liability may arise when the services rendered by the servicer are of such nature and extent as to create a special relation between the servicer and the owner giving rise to a duty on the part of the servicer to warn of such defects (see Restatement, Torts 2d, § 314A), and where the injuries suffered are reasonably foreseeable as a consequence of a failure to give such warning. Evidently, whether in a particular instance the factual aspects of the relationship between the servicer and the owner are such as to give rise to liability of the servicer is a question for determination by the jury, subject, of course, to the obligation of the court to take the question from the jury if the evidence would be insufficient as a matter of law to sustain a verdict for the plaintiff.

For present purposes I assume that liability of the servicer, if any, would extend to employees of the owner injured in the course of their employment. Counsel for Logemann advance no argument based on any distinction between the rights of an owner and those of an employee of the owner.

I further accept the proposition that, to establish liability on this theory, evidence would be admissible from which it could be found that the owner was aware that the servicer was a commercial successor to the manufacturer as sponsor of the line of products of which the owner's unit was one and that for that reason the servicer possessed a familiarity and special expertise with respect to maintenance and repair of the unit and evaluation of its possible defects of design.

The determinative issue then, as I see it, is whether the evidence tendered in admissible form on the motion for summary judgment in this instance was sufficient to warrant submission of the pertinent factual questions for jury determination. I am persuaded that the evidence was insufficient to go to a jury and accordingly that the second cause of action was properly dismissed.

The affidavits, including attachments, submitted on the motion show that four years after Wallace Steel and Supply Company had purchased the 300-ton hydraulic shearing machine in question from Richards Shear Company, Inc., Logemann in January, 1968 acquired substantially all the assets of Richards Shear together with the exclusive right to manufacture and sell Richards Shear products, improvements, and inventory and to use the trade name "Richards". Although Logemann did not continue to manufacture or sell shearing machines of the model which Wallace Steel had purchased, by letter dated February 16, 1968 individually addressed to Wallace Steel, the general sales manager of Logemann advised that the entire inventories of Richards Shear with blueprints for new equipment and repair parts were stocked by Logemann in Milwaukee "where all new Logemann-Richards shears will be built under one roof, tested and shipped." The letter also advised that "two fine Richards servicemen" had joined Logemann and would be available for service calls, and concluded, "All of us at Logemann sincerely hope that our acquisition of the Richards Shear line will benefit you". An employee of Logemann thereafter made a service call on Wallace Steel on July 25, 1968 and described the work done: "Power unit Had a Lot of shock. Reset pilot choke on main Directional Valve. Power unit ok. Runs like a normal 300 TON. Checked Machine in General." By letter dated April 16, 1976, Logemann advised Wallace Steel that it had entered into a servicing agreement with Philip S. Peterson of St. Paul "for servicing of all Richards Shears" and that Peterson would have the full co-operation of Logemann "in engineering assistance and availability of parts". Finally, it appears that, on order of Wallace Steel, Logemann supplied undescribed replacement parts "at various times".

There is no tender of proof that Logemann assumed any of the Richards Shear servicing contracts (contrast Leannais v Cincinnati, Inc., 565 F.2d 437, 442; Shane v Hobam, Inc., 332 F. Supp. 526, 530).

In my opinion this evidence, viewed in the perspective most favorable to plaintiff, is not sufficient to warrant submission of the second cause of action to the jury. There is no more than a tender of evidence from which a jury could find that Logemann was the continuing commercial sponsor of the Richards Shear line of products and accordingly offered a familiarity and special expertise in the repair and servicing of such products. The only contact between Logemann and Wallace Steel in addition to the representation of such successorship and expertise was a single service call six months after Logemann took over the Richards' deal but nearly 10 years before the accident that resulted in plaintiff's injuries ( Travis v Harris Corp., 565 F.2d 443, 449). Sending advice of the Peterson servicing arrangement and the supplying of spare parts, although perhaps not wholly irrelevant to the relationship between Logemann and Wallace Steel, would have little if any probative worth on the issue of Logemann's duty to warn Wallace Steel of design defects in the shearing machine.

If, on the other hand, there were evidence that the servicing relationship between Logemann and Wallace Steel had been of sufficient substance, whether by reason of the all-embracing nature of the services rendered (as, for instance, if Logemann had been engaged to rebuild the shearing machine [see Restatement, Torts 2d, §§ 403-404]) or by reason of their having continued over an extended period of time (during which Logemann had responsibility for maintenance of the machine) or otherwise, it might be that such evidence would support a finding that the obligations of Logemann included a responsibility to alert Wallace Steel to defects in the design of the 300-ton shearing machine of which Logemann had actual knowledge or in the circumstances in the exercise of reasonable care should have had knowledge. No such evidence, however, was tendered in this instance.

As indicated, I recognize that advertising by a successor commercial sponsor of a product line and aggressive solicitation of servicing orders may contribute to exposing it as servicer to liability to which it would not otherwise be exposed. Nonetheless, to impose liability on anything less than the substantial evidence outlined above or its equivalent, would in my opinion, be to recognize another category of the grounds on which liability could be imposed on a corporate successor with respect to products manufactured by its predecessor — however vociferous might be our verbal disclaimers. It would, of course, be classified as a liability based on negligence rather than a strict products liability. But it would be a liability to which, I suggest, every successor commercial sponsor would almost inevitably be exposed. It can scarcely be imagined that the purchaser of the right to continue sponsorship of any product line worth purchasing would not wish to exploit the good will and know-how acquired from the predecessor and in the solicitation of business prominently represent the fact of such successorship — as did Logemann in this instance. If coupled with that fact all that is needed to expose the successor to liability to the owner or user for design defects in a product manufactured by the predecessor is acceptance of a single service order of any nature from that owner or user, the sweep of the possible liability of a successor sponsor would be very greatly enlarged, beyond any point warranted by the cases in New York. No such holding is cited to us.

In sum, in the fact situation presented in this record, in my view, liability, if any, of Logemann would have to be grounded in its responsibility as a servicer, drawn from its servicing obligations to Wallace Steel, with recognition that its responsibilities in this regard might more readily arise or be of greater scope because of its representation of familiarity and expertise in consequence of having taken over the Richards Shear line. On this analysis the determination of liability, as in any servicing situation, should take into account the holding out by the servicer of special expertise but such holding out, standing alone, would not be a sufficient predicate on which to impose liability.

I also observe that as in other instances of determination of liability for negligence plaintiff here must establish proximate causation. On that issue in this case the lapse of nearly 10 years between the date the services were rendered and the date of the accident would be material.

Finally, I would note my agreement that proper evidence of prevailing industry standards would be admissible as evidence on the issue of whether Logemann had actual knowledge or in the exercise of reasonable care should have known of the design defect which was the cause of plaintiff's injuries.


Summaries of

Schumacher v. Shear Co.

Court of Appeals of the State of New York
Jun 14, 1983
451 N.E.2d 195 (N.Y. 1983)

holding that ordinarily, a corporation bears no responsibility for the prior tort debts of another corporation whose assets it has purchased

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holding that application of de facto merger doctrine requires that "the predecessor corporation . . . be extinguished"

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Case details for

Schumacher v. Shear Co.

Case Details

Full title:OTTO F. SCHUMACHER et al., Appellants, v. RICHARDS SHEAR COMPANY, INC.,…

Court:Court of Appeals of the State of New York

Date published: Jun 14, 1983

Citations

451 N.E.2d 195 (N.Y. 1983)
451 N.E.2d 195
464 N.Y.S.2d 437

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