Lefever v. Lull Industries, Inc.

311 N.J. Super. 1, 709 A.2d 253 (App. Div. 1998)
  • Opinion Date: April 23, 1998

SUCCESSOR LIABILITY; BANKRUPTCY—The bankruptcy of a predecessor manufacturer of a product line will not cut off the liability that a subsequent acquirer of the product line may have to a party injured by reason of a defective, earlier manufactured product.

A forklift tipped over, injuring its operator. The operator sued the forklift manufacturer (LM) alleging a design defect. After the accident, all of the shares of LM were sold to a separate company (Stamatakis). Subsequently, Stamatakis transferred LM’s assets as follows. The operating assets of LM belonged to a subsidiary of Stamatakis and LM’s fixed assets were transferred to another subsidiary (Lull). Lull continued to make the same machines at the same location with the same employees and sold to the same customers, using the same logo and trademarks as LM. Lull also agreed to assume responsibility for product liability actions brought in connection with LM’s machines. Two years after the forklift operator brought suit, Lull filed for bankruptcy but the operator chose not to file a claim with the Bankruptcy Court. All of Lull’s assets were eventually purchased by a third party (Lull II) which did not assume liability for Lull’s product liability claims. The Law Division allowed the forklift operator to amend his complaint to include Lull II as a successor entity. Lull II filed a motion for summary judgment, conceding that but for the bankruptcy it would be liable as a successor entity. However, it argued that the forklift operator’s claim was discharged by the bankruptcy sale. The Law Division agreed with Lull II.

The Appellate Division disagreed, stating that Lull’s bankruptcy did not alter the status of Lull II under the “product line successor liability doctrine” discussed in Ramirez v. Amsted Industries, Inc., 86 N.J. 332 (1981). The Court stated that this complaint was not brought against Lull, but against LM, and that it was LM’s plant, machinery, name and goodwill, not Lull’s, which were purchased by Lull II. Additionally, some of LM’s assets that were purchased by Lull II were never owned by Lull. Paraphrasing Ramirez, the Court justified application of its doctrine on the grounds that a successor corporation continuing the business of a manufacturer has the means for avoiding the risk of harm caused by its predecessor’s defective products. The Court then found no reason why a buyer in bankruptcy is any less able to similarly protect itself, especially when the New Jersey Supreme Court, in Ramirez, clearly expressed the intention, “to allow persons injured by defective products to recover against those who can best spread the risk of such injury.” The Appellate Division also found that the Ramirez doctrine was fair because it required successors to assume responsibility for a predecessor’s defective products in exchange for the use of its trade name, goodwill, and the profit to be had from an established enterprise. In short, having received the benefits of LM, Lull II must also bear its burdens. Although the bankruptcy sale discharged “any lien or interest…including any claim of any kind whatsoever,” the Court stated that this was of no importance because the injured party was not claiming an interest in Lull’s property. Finally, the Appellate Division held that it was irrelevant that Lull had assumed LM’s product liability, stating that such an agreement did not break the chain of liability of subsequent successor entities. In other words, the forklift operator was not required to file a claim against Lull because he had a basis for a claim against LM and others in LM’s chain of succession.