Kradel v. Fox River Tractor Co. , 308 F.3d 328 ( 2002 )

Opinions of the United
2002 Decisions States Court of Appeals
for the Third Circuit
10-24-2002
Kradel v. Fox River Tractor Co
Precedential or Non-Precedential: Precedential
Docket No. 99-4069
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Recommended Citation
"Kradel v. Fox River Tractor Co" (2002). 2002 Decisions. Paper 666.
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PRECEDENTIAL
Filed October 24, 2002
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
Nos. 99-4069 / 00-3146
HARRY T. KRADEL; MARILENE KRADEL, his wife,
Appellants
v.
FOX RIVER TRACTOR COMPANY, a foreign corporation;
FOX CORPORATION, a foreign corporation; PIPER
INDUSTRIES, INC., a foreign corporation; HINIKER
COMPANY, a foreign corporation; CERTIFIED PARTS, a
foreign corporation; AMCA/KOEHRING COMPANY; KENT
REYNOLDS, as escrow agent on behalf of the former
shareholders of defendant Piper Industries, Inc.
(Intervenor/Defendant in D.C.)
v.
HINIKER COMPANY,
Third Party Plaintiff
v.
AMCA/KOEHRING COMPANY,
Third Party Defendant
Appeal from the United States District Court
for the Western District of Pennsylvania
(D.C. Civil Action No. 96-1808)
District Judge: Honorable Alan N. Bloch
Argued December 12, 2000
Questions Certified to Supreme Court
of Tennessee February 6, 2001
Response of Supreme Court of Tennessee
to Certified Questions November 27, 2001
Before: SCIRICA, and AMBRO, Circuit Judges, and
POLLAK, District Judge.**
(Opinion filed: October 24, 2002)
Matthew L. Kurzweg (ARGUED)
445 Fort Pitt Boulevard
Fort Pitt Commons Building,
Suite 400
Pittsburgh, PA 15222
Attorney for Appellants
Wayne W. Ringeisen (ARGUED)
Arnd N. von Waldow
Reed Smith Shaw & McClay
435 Sixth Avenue
Pittsburgh, PA 15219
Attorney for Appellee Kent
Reynolds, as Escrow Agent on
Behalf of the Former Shareholders
of Piper Industries, Inc.
Clem C. Trischler (ARGUED)
Pietragallo, Bosick & Gordon
301 Grant Street
One Oxford Centre, 38th Floor
Pittsburgh, PA 15219
Attorney for Appellee Hiniker
Company
_________________________________________________________________
** Honorable Louis H. Pollak, Senior United States District Judge for the
Eastern District of Pennsylvania, sitting by designation.
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OPINION OF THE COURT
AMBRO, Circuit Judge.
Harry Kradel was injured in 1994 while operating a
forage harvester. He and his wife, Marilene Kradel, filed this
product liability suit in Pennsylvania state court in 1996,
naming, inter alia, the original manufacturer and its
corporate successors, Piper Industries, Inc. ("Piper") and
the Hiniker Company ("Hiniker"), as defendants. The case
was removed to the United States District Court for the
Western District of Pennsylvania based on diversity of
citizenship. 28 U.S.C. S 1332. The District Court granted
summary judgment in favor of Hiniker and Piper on the
grounds that (1) under Pennsylvania tort law, Hiniker is not
liable because it does not fall within the "product line"
exception to Pennsylvania’s bar on successor liability, and
(2) under Tennessee corporate law, Piper--which dissolved
in 1986--is not liable for injuries caused by its products
eight years after its dissolution.
The Kradels ask us to reverse the District Court’s ruling
in favor of Hiniker and Piper. We conclude that the District
Court correctly ruled that Hiniker is not liable for the
Kradels’ injuries under Pennsylvania’s successor liability
law. Because the claim against Piper raised unsettled
questions of Tennessee corporate law, we certified it--in the
form of five questions--to the Supreme Court of Tennessee.
That Court has resolved each of the certified questions
against the Kradels.1 Accordingly, we affirm the District
Court’s judgment in favor of Piper as well.
I. Facts and Procedural History
Harry Kradel lost part of his right leg in 1994 in an
accident involving a 1970 model Fox forage harvester (with
_________________________________________________________________
1. Those questions and the answers to them are set out in II(B) of this
opinion. We express our gratitude to the Tennessee Supreme Court for
entertaining our certified questions and for responding so clearly and
comprehensively.
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a Fox corn head attachment) on his farm in western
Pennsylvania. In 1970, Fox brand farm equipment was
manufactured by the Koehring Company ("Koehring").2 In
1981, Koehring sold, inter alia, its Fox line to Piper. A
provision of that asset sale agreement required Piper to
assume Koehring’s product liability claims.
Piper, in turn, sold the Fox line to Hiniker in 1986 by an
agreement that expressly provided for no adoption of
liabilities by Hiniker. Piper then dissolved under Tennessee
law on December 31, 1986 by filing Articles of Dissolution.
After selling its farm equipment business, Koehring
merged with another company in 1981 to become the
AMCA/Koehring Company, which continues to operate
today. AMCA/Koehring settled with the Kradels on October
5, 1998 for $450,000. The "released parties" under the
AMCA/Koehring settlement agreement include "the present
and former parents, subsidiaries, predecessors, affiliates,
officers, directors, employees, agents, servants. . . ,
including but not limited to the Fox Tractor Division of
Koehring Company; Koehring Company; AMCA/Koehring
Company; . . . ."
This appeal is from the grant of summary judgment in
favor of Hiniker, Piper, and Kent Reynolds, an escrow agent
who holds assets for the benefit of Piper shareholders.3 We
have jurisdiction under 28 U.S.C. S 1291 (which permits
appeals from final decisions of the district courts), and we
_________________________________________________________________
2. We found nothing in the parties’ briefs or the portions of the record
included within the parties’ appendices that explains the involvement of
Fox Corporation and Fox River Tractor Company, who were initially
named as defendants in this action. It seems likely that these companies
were the original manufacturers of the Fox line, and sold the line, with
the accompanying "Fox" trademark, at some time prior to 1970, to the
Koehring Company.
3. Reynolds remains in this case because the Kradels have sued him
under the trust fund doctrine as an alternate way to recover from Piper.
We treat the claim against him as part of the claim against Piper. The
other defendants have all been dismissed. Fox River Tractor Company
was eliminated for failure of service. Fox Corporation was dismissed
pursuant to a motion by the plaintiff. Certified Parts was dismissed by
stipulation of the parties.
4
review the District Court’s grant of summary judgment de
novo. American Medial Imaging Corp. v. St. Paul Fire and
Marine Ins. Co., 949 F.2d 690, 692 (3d Cir. 1991).
II. Discussion
A. The Hiniker Claim
The District Court found Hiniker not liable under
Pennsylvania law for injuries allegedly caused by Koehring’s
forage harvester and corn head attachment.4 The Kradels
argue that they can reach Hiniker under the "product line"
exception to the general rules of successor liability.
Because the Kradels successfully recovered a settlement
from the original manufacturer, however, this argument is
unavailing.
Under Pennsylvania’s successor liability doctrine,"[i]n
general, when one corporation sells or transfers its assets
to a second corporation, the successor does not become
liable for the debts and liabilities of the predecessor."
LaFountain v. Webb Indus. Corp., 951 F.2d 544, 546-47 (3d
Cir. 1991). One exception to this rule is the "product line"
exception, which Pennsylvania courts adopted in Dawejko
v. Jorgensen Steel Co., 434 A.2d 106 (Pa. Super. Ct. 1981),
because the successor liability doctrine left some plaintiffs
who were injured by defective products without recourse.
See Hill v. Trailmobile, Inc., 603 A.2d 602, 606 (Pa. Super.
Ct. 1992) (explaining that "[p]laintiffs injured by products
manufactured by predecessor corporations purchased by
multiple corporations, or which shared no identity of
corporate structure were, unfortunately, left without a
remedy in strict liability").
When the Pennsylvania Superior Court first adopted the
product line exception in Dawejko, it considered various
formulations employed in other states. It then borrowed
_________________________________________________________________
4. It is uncontested that Pennsylvania law governs the Kradels’ suit
against Hiniker. Thus we follow (or predict if necessary) what the
Pennsylvania Supreme Court would do and, in so doing, we may rely on
opinions of intermediate appellate courts. See Glenn Distributors Corp. v.
Carlisle Plastics, Inc., 297 F.3d 294, 300 n.3 (3d Cir. 2002); Borse v.
Piece Goods Shop, Inc., 963 F.2d 611, 614 (3d Cir. 1992).
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from New Jersey the most general statement of the
exception:
[W]here one corporation acquires all or substantially all
the manufacturing assets of another corporation, even
if exclusively for cash, and undertakes essentially the
same manufacturing operation as the selling
corporation, the purchasing corporation is strictly
liable for injuries caused by defects in units of the
same product line, even if previously manufactured
and distributed by the selling corporation or its
predecessor.
Dawejko, 434 A.2d at 110 (quoting and adopting the
standard from Ramirez v. Amsted Indus., Inc., 431 A.2d
811, 825 (N.J. 1981)). The Kradels argue from this
formulation that the product line exception clearly confers
liability on Hiniker. On its face, the exception quoted from
Dawejko seems to support their argument. But the Kradels
err in relying solely on this statement of the product line
exception without considering the entire Dawejko opinion
and its progeny.
The Dawejko court looked in part to Ray v. Alad Corp.,
560 P.2d 3 (Cal. 1977), for guidance in formulating its
statement of the product line exception. The California
Supreme Court in Ray announced three requirements
before the exception would apply:
[S]trict liability should be imposed upon a successor to
a manufacturer if three circumstances were shown:‘(1)
the virtual destruction of the plaintiff’s remedies
against the original manufacturer caused by the
successor’s acquisition of the business, (2) the
successor’s ability to assume the original
manufacturer’s risk-spreading rule, and (3) the fairness
of requiring the successor to assume a responsibility
for defective products that was a burden necessarily
attached to the original manufacturer’s good will being
enjoyed by the successor in the continued operation of
the business.’
Dawejko, 434 A.2d at 109 (citing Ray, 560 P.2d at 8-9).
Requirement (1) is most relevant for our purposes because
the Kradels received a $450,000 settlement from
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AMCA/Koehring, which, as will be discussed below, is
effectively a recovery from the original manufacturer.
Dawejko characterized the three Ray factors as advisory
only and expressly excluded them from its formulation of
the product line exception. Dawejko, 434 A.2d at 111.
Thus, were Dawejko the last statement on the issue, it
would be unclear whether in Pennsylvania a recovery from
the original manufacturer bars the Kradels from recovering
from Hiniker, a successor corporation, under the product
line exception.
The Pennsylvania Superior Court, however, has revisited
this issue. In Hill, the Court recast the three factors in Ray
as requirements.5 Hill, 603 A.2d at 606 ("The [Dawejko]
court also stated that the product-line exception to the
general rule of no liability for successor corporations may
only be applied when the following three circumstances
have each been established: [listing the three Ray
factors].")(emphasis omitted). While Hill arguably read more
into Dawejko than is there, it nevertheless elevated the Ray
factors into prerequisites for the product line exception.6
Furthermore, the rule that the product line exception is
unavailable when the plaintiff has recourse against the
original manufacturer has been adopted subsequently in
_________________________________________________________________
5. Before the Pennsylvania Superior Court decided Hill, we twice
predicted that Pennsylvania courts would require the lack of remedy
against an original manufacturer as a prerequisite to the product line
exception. See Conway v. White Trucks, Div. of White Motor Corp., 885
F.2d 90, 95 (3d Cir. 1989) ("We predict, however that [Pennsylvania
courts] would not apply [the product line] exception in cases where the
claimant had a potential remedy against the original manufacturer, but
failed to exercise all available means to assert his or her claim."); La
Fountain v. Webb Indus. Corp., 951 F.2d 544, 547 (3d Cir. 1991) (noting
that "[n]othing has happened since Conway was decided to indicate any
weakening of its holding").
6. Hill went on to explain why the failure to recover from the original
manufacturer was a prerequisite to use of the exception. 603 A.2d at
607 ("The product-line exception is a remedy which was created to afford
relief to plaintiffs, victims of manufacturing defects who, due to the sale
or transfer of the manufacturing corporation, otherwise would have no
avenue of redress for injuries caused by defective products.")(emphasis
omitted).
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another Pennsylvania case, Keselyak v. Reach All, Inc., 660
A.2d 1350, 1354 (Pa. Super. Ct. 1995). Though the court in
Keselyak did not cite to Hill, it relied on the two cases from
this Court predicting its holding on this issue, Conway and
LaFountain. See supra n.5. It is thus clear that the inability
to recover from an original manufacturer is a prerequisite
in Pennsylvania to the use of the product line exception.
The Kradels assert that their recovery from
AMCA/Koehring is not a recovery from an original
manufacturer. We are not persuaded. First, it is obvious
that the Kradels have treated AMCA/Koehring as the
original manufacturer throughout this litigation. Hiniker
references several court documents in which the Kradels
refer to AMCA/Koehring as the original manufacturer. See
Br. of Hiniker at 27-28. For example, the Kradels stated the
following in their brief in opposition to summary judgment
for Hiniker: "Plaintiffs also agree that they have already
asserted a claim against the original manufacturer,
Koehring Company, currently doing business as
‘AMCA/Koehring Company,’ and misnamed ‘Koehring
Corporation’ in Plaintiff’s Complaint (hereinafter collectively
‘Koehring’)." Hiniker’s Supp. Appendix at 231. Hiniker
argues that the doctrine of judicial estoppel prevents the
Kradels from asserting inconsistent positions as to whether
AMCA/Koehring is the same entity as the original
manufacturer.
We need not look to judicial estoppel, however, to bind
the Kradels to their earlier representations. Adequate
evidence that the Kradels had a remedy against the original
manufacturer exists in the definition of "released parties"
contained in AMCA/Koehring’s settlement agreement with
them. Hinker’s Appendix at 255. The Kradels settled their
claim with an entity known as "Koehring Company" when
they settled with AMCA/Koehring. As noted above, the
released parties included "AMCA/Koehring and the present
and former parents, subsidiaries, predecessors, affiliates,
officers, directors, employees, agents, servants and insurers
of each, including but not limited to the Fox Tractor
Division of Koehring Company; Koehring Company;
AMCA/Koehring Company; AMCA International." Id. Thus,
both in the release of "predecessors" and in the explicit
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mention of "Koehring Company," the "released parties" with
whom the Kradels settled included the entity that merged
with and ultimately became the current AMCA/Koehring.
We thus reject the Kradels’ argument that they have not
recovered from the original manufacturer, and we shall not
permit them to rely on the product line exception. The
District Court properly granted summary judgment in
Hiniker’s favor.
B. The Piper Claim
The District Court concluded that Piper could not be
liable for claims against it arising eight years after its
dissolution and therefore granted summary judgment in its
favor. Whether that decision was correct depends on which
version of Tennessee’s corporation code--the one in place
until January 1988 or the current one--applies to this
case, whether Piper properly complied with the relevant
dissolution laws, and whether a trust fund action is
available against Reynolds to circumvent the effect of
Piper’s dissolution on its post-dissolution tort liabilities.
These were at least partly unsettled matters of Tennessee
corporate law. Accordingly, pursuant to Tennessee Supreme
Court Rule 23, we certified the following five questions to
the Tennessee Supreme Court:
1) What law governs the making of claims arising in
1994 against a corporation which filed Articles of
Dissolution in 1986--the law of 1986 or those revisions
to the law effective January 1, 1988, Tenn. Code Ann.
Section 48-24-101, et seq.? More specifically, do the
saving provisions of Tenn. Code Ann. Section 48-27-
103(a)(2), stating that the repeal of the pre-1988 law
does not affect liabilities incurred under the statute
before its repeal, support the contention that a liability
incurred after the law’s effective date is governed by the
1988 revisions?
2) If the pre-1988 law applies, do the provisions of
Tenn. Code Ann. Section 48-1-1013(a) [repealed] apply
to liabilities incurred after Piper filed Articles of
Dissolution and, if not, does the common law of
Tennessee bar such actions? See Great American Ins.
Co. v. Byrd & Watkins Constr., Inc., 630 F.2d 460, 461
9
(6th Cir. 1980); Cf., Hunter v. Fort Worth Capital Corp.,
620 S.W.2d 547, 549 (Tex. 1981).
3) Did Piper comply with Tenn. Code Ann. Section 48-
1-1007 [repealed]? If not, does the manner in which
Piper failed to comply invalidate an otherwise lawful
corporate dissolution and permit a cause of action
accruing almost eight years after the dissolution was
filed? Cf. Swindle v. Big River Broadcasting Corp., 905
S.W.2d 565, 567 (Tenn. Ct. App. 1995).
4) Do the pre-1988 Tennessee dissolution statutes
require provision for unforeseen future liabilities or
that the process of asset distribution to shareholders
be final? See Blankenship v. Demmler Mfg. Co. , 411
N.E.2d 1153, 1155 (Ill. App. Ct. 1980).
5) Could Kradel’s claims proceed under the "trust fund"
doctrine established in Voightman & Co. v. Southern
Ry. Co., 131 S.W. 982, 983 (Tenn. 1910) and Bean v.
Commercial Sec., Inc., 156 S.W.2d 338, 346 (Tenn. Ct.
App. 1942), in the absence of corporate insolvency, if
other remedies are unavailable to Kradel for the claims
against Piper? See Ottarson v. Dobson & Johnson, Inc.,
430 S.W.2d 873, 878 (Tenn. Ct. App.1968).
The Tennessee Supreme Court accepted the certified
questions and resolved them thoroughly in Kradel v. Piper
Ind., Inc., 60 S.W.3d 744 (Tenn. 2001). Its answers, taken
directly from its opinion, are as follows:
[I]n answer to the first question certified, the General
Corporation Act, which was in effect before January 1,
1988, governs the propriety of Piper’s dissolution and
the scope of the petitioner’s remedies available against
Piper.
. . .
[I]n answer to the second question certified, Tennessee
Code Annotated section 48-1-1013(a) (repealed) does
apply to limit the liabilities incurred by Piper after it
filed its Articles of Dissolution.
. . .
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[I]n answer to the third question certified, Piper fully
complied with the dissolution provisions of the
Tennessee General Corporation Act, effective prior to
January 1, 1988.
. . .
[In answer to the fourth question:] Because we have
already discussed the answers to this question in
addressing the third question certified, we answer
respectfully, and without further comment, that the
General Corporation Act does not require that adequate
provisions be made for unforeseen future liabilities to
effect a proper dissolution under the statute. In
addition, we answer that the General Corporation Act
does require a final distribution of corporate assets to
shareholders "in accordance with their respective rights
and interests," a requirement that appears to have
been satisfied under the facts as certified.
. . .
[I]n answer to the [fifth] question certified, the trust
fund doctrine has been applied to solvent corporations
under Tennessee law, but the application of that
doctrine in this case is necessarily limited by the
provisions of Tennessee Code Annotated section 48-1-
1013(a) (repealed).
Kradel, 60 S.W.3d at 750-58. In short, the Tennessee
Supreme Court has, with minor caveats, decided each of
the certified questions against the Kradels. Accordingly, the
Kradels’ claims against Piper and the escrow agent for
Piper’s shareholders, Reynolds, cannot succeed.
* * * * * * *
For the foregoing reasons, the District Court’s judgment
is affirmed.
A True Copy:
Teste:
Clerk of the UnitedStates Court of Appeals
for the Third Circuit
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