Payne v. Saberhagen Holdings, Inc.

190 P.3d 102

147 Wn. App. 17

Harold F. PAYNE and Elizabeth Payne, husband and wife, Respondents, v. SABERHAGEN HOLDINGS, INC., as successor to Tacoma Asbestos Company and The Brower Company; Allis-Chalmers Corporation, Individually and as successor in interest to Buda Corporation; American Standard, Inc., Individually and as parent and alter ego of American Boiler Corp., Westinghouse Air Brake Company and Kewanee Boiler Company, a division of American Radiator

& Standard Sanitary Company; Aqua-Chem, Inc., Individually and as successor to Cleaver-Brooks Company; Borg Warner Corporation, n/k/a Burns International Services Corporation; BW/IP International, Inc., f/k/a Borgwarner Industrial Products, successor-in-interest to Byron Jackson Pump; Carrier Corporation, Individually and as successor-in-interest to Bryant Heating & Manufacturing Co.; Elliott Company; Fairbanks Morse Pump Corporation; Flowserve Corporation, Individually and as successor-in-interest to Pacific Pumps and Durco Pumps; General Electric Company; Goulds Pumps (IPG), Inc.; Ingersoll-Rand Company; J.T. Thorpe & Son, Inc.; Leslie Controls, Inc.; Babcock Borsig Power, Inc., f/k/a D.B. Riley, Inc., f/k/a Riley Stoker Corp.; Viacom, Inc., Individually and as successor by merger to CBS Corporation, f/k/a Westinghouse Electric Corporation; Warren Pumps, Inc., Individually and as successor-in-interest to Quimby Pump Company, Defendants Viad Corporation, Individually and as successor to Griscom-Russell Company, Appellant, and Yarway Corporation, Defendant.

No. 58638-6-I.

Court of Appeals of Washington, Division 1.

August 18, 2008.

David S. Frockt, Bergman & Frockt PLLC, Seattle, WA, for Respondents.

Philip Albert Talmadge, Talmadge Fitzpatrick, Emmelyn Hart-Biberfeld, Talmadge Law Group PLLC, Tukwila, WA, Ronald Clayton Gardner, Gardner Bond Trabolsi PLLC, Seattle, WA, for Appellant.

GROSSE, J.

¶ 1 There are only limited circumstances under which a purchaser of corporate assets acquires a transferor's liabilities, such as by de facto merger or by continuing the same product line. Here, there are no such circumstances. Viad Corporation's predecessor, Baldwin-Lima-Hamilton (PA), did not acquire Griscom-Russell's asbestos-related liabilities when it purchased Griscom-Russell's parent company, Hamilton Thomas, in 1962. Harold and Elizabeth Payne have failed to present evidence of continuity of ownership of the merged company, required for finding a de facto merger, and failed to present evidence of sales made after the purchase, indicating the continuation of the same product lines. We reverse the trial court.

FACTS

¶ 2 In a personal injury suit, Harold Payne alleges he was exposed to asbestos used in conjunction with evaporators and fuel oil heaters manufactured by Griscom-Russell Corporation (GR) while serving in the United States Navy as a boiler operator and technician from 1952 to 1981. In August 2005, he was diagnosed with mesothelioma, an invariably fatal cancer closely linked with prior asbestos exposure. Harold Payne and his wife, Elizabeth Payne (hereinafter Payne), Oregon residents, filed a personal injury suit in King County Superior Court on November 1, 2005 against numerous defendants, including Viad Corporation (Viad).

¶ 3 Payne sued Viad as the corporate successor-in-interest to GR. Viad is incorporated in Delaware and its business transactions are widespread. During the 1950s and early 1960s, GR manufactured marine engineering products including fuel oil heaters and evaporators used for desalinization of seawater onboard naval vessels. These GR products were in use on approximately half of United States Navy vessels at one point while Payne served. While not dangerous or defective as sold, proper usage of these GR products required insulation and the United States Navy used asbestos to this end. This court has already held that Viad, if GR's successor, may potentially be held strictly liable for failure to warn of inherent dangers when its product required the use of another product and the two together caused a release of a hazardous substance, asbestos.¹ Harold Payne contends he was exposed to asbestos during routine maintenance on GR equipment onboard naval vessels at sea and does not assign his exposure to any specific incident(s), leaving the location of the purported injury unknown.

¶ 4 Viad denies that it is GR's corporate successor and thus not responsible for any of GR's asbestos-related liabilities. Viad alternatively defends arguing that GR neither owed nor breached a duty to warn Payne and denies that asbestos, used in conjunction with GR products, substantially contributed to Payne's mesothelioma. The first issue of Viad's liability as corporate successor to GR was severed for trial and is the only issue we address on appeal.

¶ 5 Prior to trial, Viad moved to apply the law of Delaware to the issue of Viad's successor liability. Payne objected and the trial court reserved its decision regarding the applicable law pending the conclusion of trial. At trial, the parties presented competing evidence, much of it circumstantial, regarding the disputed events of 1962 and 1965. Only two witnesses testified: one in-person² and the other through videotaped perpetuation deposition testimony.³ After a four day bench trial, the trial court ruled against Viad, finding it responsible for any GR asbestos-related liabilities as GR's corporate successor or through its continuation of the pertinent GR product lines. Finding Viad's corporate predecessor acquired any GR asbestos-related liabilities in 1962 through de facto merger or, alternatively, under the product line exception and having retained any such liabilities during the contested events of 1965, the trial court entered partial final judgment against Viad on successor liability on July 31, 2006.⁴ Viad appeals.

ANALYSIS

¶ 6 While the chain of companies and transactions connecting GR to Viad is complicated, only two transactions are germane to determining Viad's successor liability vis-à-vis GR and Payne's claims sounding in tort. First, in 1962, Baldwin-Lima-Hamilton (BLHPA), a Pennsylvania corporation, Viad's corporate predecessor, purchased a 93.4 percent interest in GR's parent company, Hamilton Thomas. The trial court found that BLHPA acquired GR's asbestos-related liabilities in a de facto merger through its purchase and its subsequent actions consolidating and exercising control over Hamilton Thomas' wholly owned subsidiary, GR. BLHPA was found to have substantively acquired GR in its entirety as opposed to merely purchasing its assets. Alternatively, the trial court determined BLHPA acquired GR's asbestos-related liabilities in 1962 under application of Pennsylvania law's product line exception to the general rule of nonliability for corporate successors. The court held that BLHPA continued GR's product lines pertinent to Payne's claims after its asset purchase.

¶ 7 Secondly, the court held that in 1965, by statutory merger, BLHPA passed any liabilities it had acquired from GR in 1962 (under either theory of liability) to Armour & Company. Further, the trial court found Viad's position that any such liabilities were immediately transferred to a separate tax free entity, Baldwin-Lima-Hamilton, a Delaware corporation (BLHDE), after the 1965 merger between BLHPA and Armour & Company unpersuasive. Viad is corporate successor to Armour & Company but not to BLHDE. Therefore, Viad was held liable for any GR liabilities acquired by BLHPA in 1962.

1962 De Facto Merger

¶ 8 Because Washington, Delaware, and Pennsylvania law are in accord with regard to the well settled general principles of corporate law governing statutory and de facto mergers, the trial court's application of Washington law was proper.⁵

¶ 9 The general rule is that there is no corporate successor liability. Thus, where a company sells its assets to another company, the purchaser is not liable for the debts and liabilities of the selling company, including those arising out of the seller's tortious conduct.⁶ There are four traditional narrow exceptions to this general rule:

(1) the successor expressly or impliedly assumes the obligations of the predecessor, (2) the transaction is a de facto merger, (3) the successor is a mere continuation of the predecessor, or (4) the transaction is a fraudulent effort to avoid liabilities of the predecessor.[⁷]

The only traditional exception the trial court found applicable to the events in 1962 is that of de facto merger between BLHPA and GR. A merger or consolidation occurs when there is a union between two or more corporations that results in either the absorption of one by the other or the creation of a new corporation. After a merger, whether statutory or de facto, the surviving company is responsible for the merged (or subsumed) company's liabilities.⁸ De facto merger is a judicial framework for analyzing the substance of a transaction over its form.⁹ A court considers four factors in a de facto merger analysis: (1) continuity of the business (including personnel and management, physical location, operating, use of brand names); (2) continuity of ownership; (3) seller's existence ceasing as soon as legally and practically possibly; and (4) if the purchaser expressly or impliedly assumes the seller's obligations.¹⁰ Not all four elements must be present to find an asset purchase constitutes a de facto merger. Nonetheless, continuity of ownership has repeatedly been held essential.¹¹

¶ 10 In Uni-Com Northwest, Ltd. v. Argus Publishing Co., this court observed that a de facto merger "only occurs when the consideration flowing to the selling corporation is shares of the purchasing corporations stock, as opposed to cash."¹² In Fox v. Sunmaster Products, Inc., we summarized:

Generally, a de facto merger is found where a seller corporation continues its business existence as an absorbed part of the buyer and the sellers shareholders or officers continue their...