Domanske v. Rapid-American Corporation

330 N.J. Super. 241, 749 A.2d 399 (App. Div. 2000)
  • Opinion Date: April 24, 2000

NON-COMPETITION; CONFIDENTIALITY—A successor in interest may become such by an assignment of rights and there is no need for there to be a merger or consolidation.

Company One was formed in 1888 and for nearly eighty years was engaged in mining asbestos and the manufacture and sale of asbestos-related products. By a plan of merger, it merged with, and into, Company Two. Company Two was the surviving corporation and assumed all the liabilities of Company One. Prior to the effective day of the merger, Company Two created a wholly-owned subsidiary known as Company Three. When the merger of Company One and Company Two was effective, Company Two immediately transferred all the assets and liabilities it had received from Company One to Company Three. Company Three, a wholly-owned subsidiary of Company Two, carried on the asbestos-related business. Several years later, Company Three merged with Company Four. Two years later, Company Two sold all its interest in Company Four to Company Five. Company Five then merged Company Four into itself, and, as a result, Company Five then assumed all the liabilities of Company One. Following the sale of Company Four to Company Five, Company Two had no further interest in Company Three. Then, Company Two merged with Company Six. Company Two was the surviving corporation, but, concurrent with the merger, it changed its name to that of Company Six.

An individual filed a suit for damages against nine defendants including Company Five. Eventually, that suit was settled, and a release was given by the injured person to Company Five. The release specifically provided that the claimant “covenant[ed] and agree[d] forever to refrain from bringing any suit or proceeding at law or in equity against [Company Five], its successors and predecessors in interest, heirs, and assigns, arising from any and all claims that [the claimant] ever had, ... resulting from alleged exposure to asbestos… .” Shortly after that settlement and release, the claimant was diagnosed with lung cancer and instituted a further suit. That suit was against Company Six, which had resulted from the merger of Company Two and Company Five. The claimant contended that Company Six, as a matter of law, was not encompassed within her release of Company Two. The core of her argument revolved around the contention that Company Two (survivor by merger with Company Five and now known as Company Six) could not be considered a successor to Company One. To support that view, she stressed that Company Three obtained the rights and obligations of Company One through assignment and urged that an assignee could not be considered a successor. The Court rejected the claimant’s premise that Company Three’s status as subsidiary and assignee precluded it from being considered a successor to Company One. “So far as corporate law is concerned, the words ‘successor’ and ‘obligation’ have no fixed meaning in all cases… The word ‘successors,’ in a grant to a corporation and its successors, is to be interpreted according to the surrounding circumstances. One corporation may be the successor of another within the meaning of such a provision although there is neither a merger nor a consolidation.” The fact that the fifth edition of Black’s Law Dictionary notes that the entry for the term “successor in interest” indicates that the term does not apply to transfers or assignments, was not dispositive. The seventh edition contained no such limitation. It stated merely: “one who follows another in ownership or control of property. A successor in interest retains the same rights as the original owner, with no change in substance.” According to the Court, in this matter, Company Two “obtained the rights and liabilities of Company One with no change in substance and should be considered a successor in interest.” The Court was clear that it was not called upon to consider whether such a transfer could effectively shield any of the successors from liability, but rather whether Company Six could be considered as a successor to Company Two.