Opinion
No. 87-0988-CV-W-3.
May 17, 1990
MEMORANDUM OPINION AND ORDER
Before the Court are two motions: (1) plaintiff's motion in limine on the issue of corporate successor liability; and (2) defendant's motion to strike plaintiff's claims for enhanced damages based upon aggravating circumstances (hereinafter referred to as "punitive damages"). The primary issue raised by these two motions is whether punitive damages may be imposed upon defendant Celotex Corporation (Celotex) for wrongdoing on the part of its predecessor-in-interest, the Phillip Carey Manufacturing Company (Phillip Carey), the company which would have produced any asbestos-containing materials to which the decedent was exposed.
Also pending before the Court is plaintiff's motion in limine regarding the admissibility of evidence of cigarette smoking by decedent and plaintiff. This motion will be ruled during the trial of this case.
In briefing this issue the parties have apparently assumed that Missouri law controls the question of a successor corporation's liability for an injury allegedly caused by a defective product made by a predecessor. Based on the following analysis, the Court also concludes that Missouri law is applicable to the case at hand.
In Young v. Fulton Iron Works Co., 709 S.W.2d 927, 935 (Mo.Ct.App. 1986), the court held that the Missouri tort choice of law rule should be followed in determining which state law controls the question of corporate successor liability. InKennedy v. Dixon, 439 S.W.2d 173 (Mo. 1969) (en banc), the Supreme Court of Missouri adopted the rule of Restatement (Second) of Conflict of Laws § 145 (1971) for determining the substantive law to be applied in tort cases. The significant contacts to be considered under Restatement § 145 are (1) the place where the injury occurred; (2) the place where the conduct causing the injury occurred; (3) the domicil, residence, nationality, place of incorporation and place of business of the parties; and (4) the place where the relationship, if any, between the parties is centered.
In this case, the decedent's exposure to asbestos occurred primarily in Missouri. The asbestos-containing products were manufactured in Ohio. Plaintiff is a resident of the State of Kansas. Defendant Celotex is a Delaware corporation with its principal place of business in Florida. Any relationship between the decedent and Celotex was centered in Missouri. See Elmore v. Owens-Illinois, Inc., 673 S.W.2d 434, 437 (Mo. 1984) (en banc). After considering the policies of Missouri and the other interested states, this Court concludes that Missouri law applies to the instant case.
The general rule of law in Missouri is that where one corporation sells or otherwise transfers all of its assets to another corporation, the latter is not liable for the debts and liabilities of the transferor except: (1) where the purchaser expressly or impliedly agrees to assume such debts; (2) where the transaction amounts to a consolidation or merger of the corporation; (3) where the purchasing corporation is merely a continuation of the selling corporation; or (4) where the transaction is entered into fraudulently in order to escape liability for such debts. Brockmann v. O'Neill, 565 S.W.2d 796, 798 (Mo.App. 1978). In this case, Celotex merged with its predecessor, expressly agreeing to assume all debts and liabilities of the predecessor. Missouri Revised Statute § 351.450 provides:
In Re Related Asbestos Cases, 566 F. Supp. 818, 820 (N.D. Cal. 1983) spells out in great detail the manner in which Celotex became Phillip Carey's successor-in-interest. In brief, Glen Alden corporation acquired 28% of the outstanding shares of Phillip Carey Manufacturing Company ("PCMC I") in 1966 and 1967. PCMC I was then merged into Glen Alden and all the assets of PCMC I, subject to its liabilities, were transferred to a new corporation named the Phillip Carey Manufacturing Company ("PCMC II"). Thus, PCMC II became a wholly owned subsidiary of Glen Alden. In 1970 PCMC II was merged into Panacon Corporation. Panacon Corporation succeeded to all the assets and liabilities of PCMC II, which ceased to have corporate existence.
On April 17, 1972, Celotex purchased all the Panacon Corporation stock held by the Glen Alden Corporation, approximately 75%, for cash. Celotex later purchased all the remaining outstanding Panacon shares from their owners, also for cash. As a result of these transactions, Celotex bought all shares of the Panacon Corporation for cash, and no stockholders of the former Panacon Corporation became stockholders in Celotex or in any of Celotex's parent or subsidiary corporations. Celotex succeeded to all the assets and liabilities of Panacon, which ceased to have corporate existence. The Panacon-Celotex merger agreement provides that upon the effective date of the merger "all debts, liabilities and duties of Panacon . . . attach to Celotex and may be enforced against it to the same extent as if such debts, liabilities and duties had been incurred or contracted by Celotex." Wall v. Owens-Corning Fiberglas Corp., 602 F. Supp. 252 (N.D. Texas 1985).
(3) Such surviving or new corporation shall have all the rights, privileges, immunities, and powers and shall be subject to all the duties and liabilities of a corporation organized under this chapter. . . .
(5) Such surviving or new corporation shall thenceforth be responsible and liable for all the liabilities and obligations of each of the corporations so merged or consolidated; and any claim existing or action or proceeding pending by or against any of such corporations may be prosecuted to judgment as if such merger or consolidation had not taken place, or such surviving or new corporation may be substituted in its place. . . . The remaining question to be addressed, therefore, is whether Celotex's liability as a successor corporation is limited under Missouri law to only compensatory damages.
It is clear in this case that Celotex is liable for the debts and liabilities of Phillip Carey. In fact, Celotex does not argue that it is not liable for any compensatory damages awarded in this case. However, Celotex does argue that punitive damages based on the conduct of its predecessor Phillip Carey should not be awarded against Celotex. Specifically, Celotex maintains that the purpose of punitive damages — to punish and deter wrongdoers — will not be served if awarded against a successor who is not responsible for the wrongful conduct at issue.
In support of its argument, Celotex relies upon the rationale and holding of In Re Related Asbestos Cases, 566 F. Supp. 818 (N.D. Cal. 1983). In In Re Related Asbestos Cases, the court refused to hold Celotex liable for punitive damages, noting that punitive damages are not a part of a plaintiff's remedies for harm suffered and serve only to punish and deter the wrongdoer.Id. at 822.
The court in Hanlon v. Johns-Manville Sales Corp., 599 F. Supp. 376, 378 (D. Iowa 1984), reached the opposite conclusion. In Hanlon the court found that punitive damages could be imposed upon Celotex, relying on Iowa caselaw which stated that one goal of punitive damages was general deterrence to others.See Moran v. Johns-Manville Sales Corp., 691 F.2d 811 (6th Cir. 1982). Likewise, in Missouri punitive damages are imposed for the purpose of punishment and deterrence to prevent the wrongdoer or others from engaging in the same type of act again.State v. Greene, 494 S.W.2d 55 (Mo. 1973) (en banc). Thus the imposition of punitive damages upon a successor corporation such as Celotex would not violate Missouri policy.
Several courts in other jurisdictions have held Celotex liable for punitive damages based on the conduct of its predecessor by interpreting the assumption of "all debts, liabilities and duties" to include contingent liabilities such as claims for punitive damages. See Wall v. Owens-Corning Fiberglas Corp., 602 F. Supp. 252 (N.D. Texas 1985); Man v. Raymark Industries, 728 F. Supp. 1461 (D. Hawaii 1989); Krull v. Celotex Corp., 611 F. Supp. 146, 148 (D. Ill. 1985). Celotex has not directed the Court to any Missouri caselaw or statute that distinguishes between actual and punitive damages in this context. Furthermore, this Court has not found any Missouri authority for the proposition that the assumption of a predecessor's liabilities does not include claims for punitive damages against that predecessor. Missouri Revised Statute § 351.450 clearly places a successor corporation in the shoes of its predecessor. Without authority to the contrary, this Court is not inclined to interpret the term "liabilities" as used in the Panacon-Celotex merger agreement and in § 351.450 as excluding the imposition of punitive damages upon Celotex. Accordingly, this Court finds that Celotex may be subjected to punitive damages for the acts of its predecessors in the manufacture and/or sale of defective products.
This Court has considered the other contentions raised in defendant Celotex's motion to strike claims for enhanced damages and finds that those arguments do not warrant the relief requested in defendant's motion.
It is hereby ORDERED
(1) that defendant's motion to strike claims for enhanced damages based upon aggravating circumstances is denied; and
(2) that plaintiff's motion in limine on the issue of corporate successor liability is granted. During the trial of this case, defendant Celotex cannot argue that its position as a successor corporation precludes the imposition of compensatory or punitive damages.
IT IS SO ORDERED.