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KRULL v. CELOTEX CORP.

May 31, 1985

EDWARD F. KRULL, PLAINTIFF,
v.
CELOTEX CORPORATION, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Shadur, District Judge.

MEMORANDUM OPINION AND ORDER

Edward F. Krull ("Krull") initially filed this action seeking both compensatory and punitive damages from The Celotex Corporation ("Celotex") and others as a result of his having contracted pleural mesothelioma after exposure to insulating materials containing asbestos.*fn1 On the eve of trial Celotex moved for partial summary judgment on the issue of its liability for punitive damages. For the reasons stated in this memorandum opinion and order, this Court has denied the motion.*fn2

Facts

All facts material to Celotex's motion are both uncomplicated and undisputed. Phillip Carey Corporation ("Carey") was for many years active in the manufacture of the type of asbestos products to which Krull was allegedly exposed. In April 1970 Carey merged with Briggs Manufacturing Co. to form the Panacon Corporation ("Panacon"), a Michigan corporation. Panacon continued Carey's asbestos manufacturing and mining operations. In June 1972 Panacon was in turn merged into Celotex, a Delaware corporation.

Celotex had not been involved in the mining or manufacture of asbestos products before the Panacon merger. After the merger Celotex both (1) placed warning labels on all asbestos-containing products and (2) restricted its asbestos products sales primarily to products used in manufacturing processes rather than the insulating products to which Krull was exposed.

Celotex's Status As a Successor Corporation

Celotex Motion for Summary Judgment ¶ 3 argues Krull's claim for punitive damages is "solely predicated upon the alleged misconduct of Phillip Carey Corporation." Celotex urges the unfairness of saddling it with such punitive damages because it (id. ¶ 4):

  never participated in or ratified any of the
  allegedly wrongful acts committed by either the
  Phillip Carey Corporation or the Panacon
  Corporation.

Celotex's emphasis on its own conduct is misplaced. That error reflects the fundamental flaw in Celotex's analysis: its failure to distinguish between the liability of a successor corporation by merger from the very different situation that has generated most "successor corporation" litigation in the products liability field.

Celotex argues as if it had simply bought Carey's (or Panacon's) business assets without an express assumption of liabilities. Rules of law dealing with that common kind of acquisition have, in recent years, been in a state of flux. Several jurisdictions have made the policy determination that an asset purchaser may nonetheless be saddled with liability for the predecessor manufacturer's torts. See, e.g., In re Related Asbestos Cases, 566 F. Supp. 818, 821-22 (N.D.Cal. 1983). But the general rule in such cases remains that, subject to certain exceptions, the asset-acquiring company is not liable for the debts and liabilities of the seller. Manh Hung Nguyen v. Johnson Machine & Press Corp., 104 Ill. App.3d 1141, 1143, 60 Ill.Dec. 866, 868, 433 N.E.2d 1104, 1106 (1st Dist. 1982).

But the Celotex-Panacon transaction was a merger, not merely a purchase of assets. And the universal rule applicable to mergers or consolidations is that, by operation of law, the successor corporation assumes all debts and liabilities of the predecessor corporation precisely as if it had incurred those liabilities itself. Hanlon v. Johns-Manville Sales Corp., 599 F. Supp. 376, 378 (N.D.Iowa 1984) (applying Iowa law); Moe v. Transamerica Title Insurance Co., 21 Cal.App.3d 289, 304-05, 98 Cal.Rptr. 547, 556-57 (1971); Nguyen, 104 Ill. App.3d at 1143, 60 Ill.Dec. at 868, 433 N.E.2d at 1106.

That rule is inherent in the concept of a merger, under which the surviving corporation stands in the shoes of the disappearing corporation in every respect. And that concept is uniformly codified in every merger statute, including the Delaware General Corporation Law under which the Celotex-Panacon merger was accomplished.*fn3 Del.Code Ann. tit. 8, § 259(a) specifically provides:

  When any merger or consolidation shall have
  become effective under this chapter, for all
  purposes of the laws of this State the separate
  existence of all the constituent corporations, or
  of all such constituent corporations except the
  one into which the other or others of such
  constituent corporations have been merged, as the
  case may be, shall cease and the constituent
  corporations shall become a new corporation, or
  be merged into one of such corporations, as the
  case may be, possessing all the rights,
  privileges, powers and franchises as well of a
  public as of a private nature, and being subject
  to all the restrictions, disabilities and duties
  of each of such corporations so merged or
  consolidated . . . and all debts, liabilities and
  duties of the respective constituent corporations
  shall thenceforth attach to said surviving or
  resulting corporation, and may be enforced
  against it to the same extent as if said debts,
  liabilities and duties had been incurred or
  contracted by it.

Indeed, Section 11 of the Celotex-Panacon merger agreement has been reported in Hanlon, 599 F. Supp. at 378 as ...


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