(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for
the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please
note that, in the interests of brevity, portions of any opinion may not have been summarized).
Argued November 17, 1997 -- Decided May 14, 1998
POLLOCK, J., writing for a majority of the Court.
The primary issue on appeal is whether the entity that sold and serviced a defective meat-slicing
machine that injured a user of the machine may maintain an action for indemnification against a company
that purchased and continued the product line of the manufacturer of the machine.
David Mettinger was cut by the unguarded blade of a meat-slicing machine he was operating in a
convenience store on November 22, 1988. The machine had been manufactured by Globe Slicing Machine
Co., Inc. (Globe Slicing) and sold and serviced by a distributor, W.W. Lowensten, Inc. (Lowensten).
Mettinger filed a products liability action against Globe Slicing, Lowensten, and several fictitious
corporations, and later added as defendants certain other corporations.
Lowensten asserted cross claims against the other defendants and in December 1992, filed a third-party complaint for indemnification against Globe Food Equipment Company (Globe Food) as the corporate
successor to the “Globe” product line. Lowensten contended that Globe Food, an entity incorporated in
February 1991, had purchased in May 1991, the meat-slicer assets of another defendant that previously had
purchased the meat-slicer assets of a corporate successor to Globe Slicing. Globe Food was aware of
Mettinger's suit when it purchased the meat-slicer assets.
After pretrial discovery, the Law Division granted Globe Food's motion for summary judgment
against Lowensten. The court concluded that injured plaintiffs but not corporate defendants are the intended
beneficiaries of 1981 Supreme Court decision (Ramirez) that holds that a corporation that acquires the
manufacturing assets of another corporation and continues the same manufacturing business is strictly liable
for injuries caused by defects in products from that manufacturing line, even if the defective products were
made and sold prior to the acquisition. Finding that Mettinger could not sue Globe Food because of the
statute of limitations, the court dismissed Lowensten's third-party indemnification complaint. Mettinger
proceeded to trial against Lowensten and obtained a jury verdict of $350,000.
Lowensten appealed to the Appellate Division, which affirmed the judgment for Mettinger, but
reversed the grant of summary judgment on the indemnification issue in favor of Globe Food. The court held
that because Mettinger could have proceeded against Globe Food as a successor to Globe Slicing, which had
been named as a defendant, Lowensten was entitled to seek indemnification by Globe Food. The court held
that the judgment against Lowensten on liability and damages was binding on Globe Food, so that if after
the remand ordered, it was determined that Globe Food had carried on Globe Slicing's product line to a
degree sufficient to justify the imposition of successor liability, there would not be a new trial on liability and
damages. The Appellate Division also held that because Mettinger had filed a timely complaint against Globe
Slicing, a complaint against Globe Food would not have been time-barred.
The Supreme Court granted Globe Food's petition for certification of the Appellate Division
judgment.
HELD: In a products liability action, distributors and retail sellers may use the Ramirez “product-line exception” to seek indemnification from corporations that purchased all or substantially all of the original manufacturer's assets and undertook essentially the same manufacturing operation as the purchased
entity, absent an agreement to the contrary.
1. The Court departed from the traditional rule against successor liability to injured parties or to distributors
and retailers when it adopted the product-line exception in Ramirez. The reasons for the exception include
the recognition that an injured person may be left without a remedy against the original manufacturer of a
defective product once the business is acquired by another company; a successor company can spread among
the purchasers of its products the cost of the risk of injuries from defective products; and, as a matter of
fairness, the company that succeeds to the good will of a manufacturer it takes over should assume some
responsibility for that manufacturer's defective products. The Court continues to believe the Ramirez
exception strikes a sound balance of competing interests. (pp. 6-9)
2. Extension of the benefit of the product-line exception to distributors and retailers who may be liable to an
injured party is justified by the risk-spreading rationale and the policy that calls for a successor company that
enjoys the benefits from a corporate acquisition to share some of the burdens as well. In this case, if Globe
Food is the successor to Globe Slicing, Mettinger could have sued Globe Food directly under Ramirez and
Lowensten could have filed a cross claim for indemnification against Globe Food. Mettinger's failure to
name Globe Food as a defendant should not deprive Lowensten of its cause of action. (pp.10-13)
3. It is not unfair to impose successor liability on a corporation like Globe Food that purchases assets after
an injury occurs. That company still benefits after the purchase from the good will of its predecessor, with
which it can negotiate indemnification or escrow agreements, and is able to spread the risk of liability for the
injury to its consumers through price increases. (pp. 14-15)
4. Lowensten's claim for indemnification did not accrue until Mettinger obtained a judgment against it, so
Lowensten was not time-barred from proceeding against Globe Food even if Mettinger was. (pp. 16-17)
5. Because Lowensten is seeking indemnification, but not contribution, from Globe Food, N.J.R.E. 803(c)
(26) applies and bars Globe Food from relitigating the underlying liability and damages issues or from
challenging the size of the jury award. By contrast, a claim for contribution requires a fact finder to
apportion fault among defendants. Due process concerns are satisfied here because Globe Food participated
in Mettinger's litigation and Lowensten, whose interests at trial were not adverse to Globe Food's,
vigorously contested Mettinger's claims. The decision of the Court on this issue is consistent with prior
decisions, so the Court declines to limit its holding to a prospective application. (pp. 17-20)
Judgment of the Appellate Division is MODIFIED and AFFIRMED.
JUSTICE GARIBALDI, dissenting, in which JUSTICE COLEMAN joins, is of the view that if there
must be a product-line exception to the rule against successor liability, there is no justification for extending
it beyond the remediless injured plaintiff to corporate defendants seeking indemnification. Here, where
Mettinger has recovered against Lowensten for his injuries, the exception is inapplicable. Also, although
Lowensten, which sold and serviced the meat- slicing machine, could have taken steps to avert the injury to
Mettinger and could have protected itself with a contractual indemnity provision, Globe Food, which did not
exist when the injury occurred, could not have acted to avoid the risk of harm. Making Globe Food pay in
these circumstances creates a windfall for Lowensten and is unfair to Globe Food.
CHIEF JUSTICE PORITZ and JUSTICES HANDLER, O'HERN, and STEIN join in JUSTICE
POLLOCK's opinion. JUSTICE GARIBALDI filed a separate, dissenting opinion in which JUSTICE
COLEMAN joins.
SUPREME COURT OF NEW JERSEY
A-
47 September Term 1997
DAVID METTINGER,
Plaintiff,
v.
GLOBE SLICING MACHINE CO., INC.,
NEW GLOBE PARENT, INC., DAPHNE
HORIZON, CO., INC., ABC 1-5 (said
entities being fictitious and
unknown), and XYZ 1-5 (said
entities being fictitious and
unknown component parts
manufacturers),
Defendants,
and
W.W. LOWENSTEN, INC.,
Defendant and Third Party
Plaintiff-Respondent,
v.
GLOBE FOOD EQUIPMENT COMPANY,
Third Party Defendant-
Appellant.
Argued November 17, 1997 -- Decided May 14, 1998
On certification to the Superior Court,
Appellate Division, whose opinion is reported
at
292 N.J. Super. 293 (1996).
Joel Schneider argued the cause for appellant
(Archer & Greiner, attorneys; George F.
Kugler, Jr. and Sean T. O'Meara, on the
briefs).
Michelle Wall argued the cause for respondent
(Melli & Wright, attorneys).
The opinion of the Court was delivered by
POLLOCK, J.
The ultimate issue is whether W.W. Lowensten, Inc.
(Lowensten), a distributor, which sold and serviced a defective
meat slicer that injured plaintiff, David Mettinger, is entitled
to maintain an action for indemnification against Globe Food
Equipment Company (Globe Food), the alleged successor to the
product line of the manufacturer, Globe Slicing Machine Co.
(Globe Slicing). The Law Division rejected Lowensten's claim for
indemnification, and the Appellate Division reversed,
292 N.J.
Super. 293 (1996). We granted Globe Food's petition for
certification,
149 N.J. 139 (1997), and affirm the judgment of
the Appellate Division.
The relevant facts may be summarized as follows. Mettinger instituted a products liability action against Globe Slicing, Lowensten, and several fictitious corporate defendants. He amended his complaint to name New Globe Parent, Inc. (New Globe), Daphne Horizon Co., Inc. (Daphne), and Mozley Manufacturing Co.,
Inc. (Mozley) as defendants. Mettinger alleged that in 1987,
Globe Slicing sold its outstanding stock together with its assets
and liabilities to New Globe. New Globe then sold Globe
Slicing's meat-slicer assets to Mozley. Thereafter, New Globe
changed its name to Daphne, and Globe Slicing merged into Daphne.
All defendants answered Mettinger's complaint. Lowensten
asserted crossclaims against the other defendants. Globe
Slicing, New Globe, Daphne, and Mozley failed to answer
interrogatories. Pursuant to Rule 4:23-5, the Law Division
dismissed their answers and entered defaults against them.
In December 1992, Lowensten asserted a third-party complaint
against Globe Food. Lowensten claimed that Globe Food was a
successor to the producers of the "Globe" meat-slicer product
line, namely, Globe Slicing, New Globe, Daphne, and Mozley.
Globe Food was incorporated in February 1991, and purchased
Mozley's meat-slicer assets in May 1991. The asset-purchase
agreement between Mozley and Globe Food required Mozley to
indemnify Globe Food for, among other things, any liability
arising out of product-liability actions brought against Globe
Food or its indemnities related to products that were
manufactured or sold before the date of purchase. Globe Food was
aware of Mettinger's lawsuit before its purchase of Mozley.
Lowensten provided Globe Food with all discovery obtained in
the matter before its appearance. Globe Food also participated
in discovery. It answered Lowensten's interrogatories and
requests for documents, and appeared at depositions, including
that of Globe Food's president, Hilton Garner.
The Law Division granted Globe Food's motion for summary
judgment dismissing Lowensten's third-party complaint seeking
indemnification. The court found the existence of a genuine
issue of material fact on the issue whether Globe Food had
continued Globe Slicing's product line. It declined, however, to
extend to Lowensten's benefit the product-line exception to
successor liability adopted in Ramirez v. Amsted Industries,
86 N.J. 332 (1981). The court held that the product-line exception
benefitted plaintiffs only. Because the court found that the
statute of limitations had expired on Mettinger's claims against
Globe Food, it granted Globe Food's motion for summary judgment
dismissing Lowensten's third-party complaint for indemnification.
Mettinger proceeded to trial against Lowensten. The jury
returned a verdict in favor of Mettinger in the amount of
$350,000.
On Lowensten's appeal, the Appellate Division upheld the
judgment for Mettinger, but reversed the grant of summary
judgment in favor of Globe Food, holding that Lowensten could
maintain an action for indemnification against Globe Food. The
Appellate Division reasoned that Mettinger could have pursued an
action against Globe Food as a successor to Globe Slicing. 292
N.J. Super. at 315-17. It concluded that because both Globe Food
and Lowensten were potentially liable to Mettinger, Mettinger's
decision to sue only Lowensten should not predetermine whether
Globe Food or Lowensten is ultimately liable. Id. at 317.
The Appellate Division remanded the matter for trial on the
issue whether Globe Food sufficiently continued the product line
of Globe Slicing to justify the imposition of successor liability
on it. Ibid. The court held, however, that Mettinger's judgment
on liability and damages against Lowensten bound Globe Food. Id.
at 318. Consequently, the court refused to grant Globe Food a
new trial on liability and damages if, on remand, Globe Food was
found liable to indemnify Lowensten. Id. at 317-18. The
Appellate Division relied on N.J.R.E. 803(c)(26), which permits a
judgment debtor seeking indemnity to introduce a final judgment
entered against it in a prior action as conclusive evidence of
the judgment debtor's liability, the facts on which the judgment
is based, and the reasonableness of the damages recovered in that
action, provided the defendant in the indemnification action had
notice and an opportunity to defend the first action.
Additionally, the Appellate Division held that Mettinger had
timely sued Globe Slicing. Consequently, the statute of
limitations pertaining to his personal injury claim, N.J.S.A.
2A:14-2, would not have barred Mettinger's claim against Globe
Food. The court concluded that Mettinger's failure to join Globe
Food "should not determine whether the burden of paying his
damages should ultimately rest on Lowensten or on Globe Food[ ]."
292 N.J. Super. at 317.
Traditionally, if the manufacturer sells or transfers its assets to another company, the successor is not liable either to injured parties or to distributors and retailers unless: (1) the purchaser expressly or impliedly agreed to assume such debts or liabilities; (2) the transaction amounts to a consolidation or merger of the seller and purchaser; (3) the purchasing corporation is merely a continuation of the selling corporation; or (4) the transaction is entered into fraudulently to escape the debt or liability. McKee v. Harris-Seybold Co., 109 N.J. Super. 555, 561 (Law Div. 1970), aff'd, 118 N.J. Super. 480 (App. Div.
1972). A fifth exception, sometimes incorporated in one of the
preceding exceptions, arises from the absence of adequate
consideration for the sale or transfer. Ibid. Thus, under
traditional rules, neither plaintiffs nor distributors and
retailers may maintain an action against a successor corporation
unless they can establish one of the exceptions.
In Ramirez v. Amsted Industries, supra, however, this Court
abandoned the traditional approach in the products liability
context and adopted the "product-line exception" to successor
corporation liability, holding:
[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.
part of the overall producing and marketing enterprise that
should bear the cost of injuries resulting from defective
products.'" Id. at 371 (quoting Ray v. Alad Corp.,
560 P.2d 3,
11 (1977)).
Only a minority of states have adopted the Ramirez product-line exception. See Restatement (Third) of Torts § 12 cmt. b
(1997). Critics of the exception believe that it is unfair,
socially wasteful, and may lead to the piecemeal transfer of
assets. Ibid. On this appeal, however, neither party challenges
the validity of the Ramirez exception, and we continue to believe
it strikes a sound accommodation of the competing interests.
In Ramirez, we recognized three reasons for imposing
potential liability on a successor corporation that acquires the
assets and continues the manufacturing operation of its
predecessor:
(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 role, 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.
[86 N.J. at 349 (quoting Ray, supra, 560 P.
2d
at 11).]
Subsequent lower court decisions have examined a plaintiff's right to use the product-line exception to hold successor manufacturers liable for injuries caused by their predecessors'
products. See, e.g., Bussell v. DeWalt Prods. Corp.,
259 N.J.
Super. 499 (App. Div. 1992) (permitting, among other things, use
of product-line exception against successor corporation that
continued to manufacture "essentially" same product), certif.
denied,
133 N.J. 431 (1993); Goncalvez v. Wire Technology & Mach.
Co.,
253 N.J. Super. 327 (Law Div. 1991) (permitting plaintiff
injured by defective equipment to maintain action against
successor corporation that allegedly purchased manufacturer's
assets in liquidation proceeding and continued product line);
Wilkerson v. C.O. Porter Mach. Co.,
237 N.J. Super. 282 (Law Div.
1989) (permitting injured plaintiff to use product-line exception
against successor manufacturer that purchased original
manufacturer's assets in bankruptcy sale); Brotherton v. Celotex
Corp.,
202 N.J. Super. 148 (Law Div. 1985) (holding that
Ramirez's product-line exception is applicable to recovery of
compensatory damages only, not punitive damages). To date,
however, no New Jersey decision has examined whether a defendant
distributor or retailer may use the product-line exception to
maintain a third-party action for indemnification against a
successor manufacturer.
Globe Food argues that the product-line exception is
intended to benefit injured plaintiffs only and does not support
Lowensten's indemnification claim. To support its argument,
Globe Food relies on Hill v. Trailmobile, Inc.,
603 A.2d 602 (Pa.
Super. Ct. 1992). In Hill, an intermediate Pennsylvania
appellate court upheld the trial court's refusal to permit
defendant Trailmobile, Inc., which manufactured a trailer
containing an allegedly defective power gear, to seek
indemnification from alleged successors to the manufacturer of
the defective power gear. The court rested its decision on two
grounds. First, it stated that "[t]he 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 product." Id. at
607. It believed that permitting Trailmobile to obtain
indemnification from the successors would "subvert[] the policy
considerations that prompted adoption of the rule." Ibid.
Second, the court reasoned that justice did not require
imposition of liability on the successor corporation because
Trailmobile could have obtained indemnification from the parent
corporation of the power-gear manufacturer, which had
contractually assumed its subsidiary's liabilities, had it timely
asserted a claim against it. Ibid. Moreover, the court found
Trailmobile's "efforts to extend the product-line exception in
this case particularly inappropriate[,]" ibid., because the
purchase of the power-gear manufacturer's assets did not
virtually destroy Trailmobile's remedies and because neither of
the purchasers could properly be considered "successors" to the
manufacturer. Ibid.
We decline to apply the product-line exception so narrowly.
More persuasive is the reasoning of the California Court of
Appeal, which explained:
The constant theme of strict tort liability
has been "to elevate justice and equity above
the exact contours of a mathematical
equation. . . ."
Fundamental fairness has been sought through
a balancing of the rights of the injured
party against the rights of those engaged in
business, including the latter's reasonable
commercial expectations. Placing the
economic burden of injuries on those best
able to pay for those costs while permitting
the transfer of that burden to those most
culpable is consistent with the equitable
considerations inherent in the resolution of
the difficult problems which have been
judicially posed.
[Rawlings v. D.M. Oliver, Inc.,
159 Cal.
Rptr. 119, 124 (Ct. App. 1979) (citation
omitted).]
Thus, in Rawlings, the court applied the product-line exception
to a successor corporation even though its predecessor's product
was not mass-produced but was manufactured in accordance with the
owner's plans and specifications. Id. at 124-25. See also
Kaminski v. Western MacArthur Co.,
220 Cal. Rptr. 895, 901-02
(Ct. App. 1985) (permitting product-line exception to be used
against successor distributors as well as manufacturers).
Although a primary justification for the product-line
exception is to provide compensation for otherwise remediless
victims of a defective product, the imposition of successor
liability on corporations also serves the public interest "of
spreading the risk to society at large for the costs of injuries
from defective products." Ramirez, supra, 86 N.J. at 350; see
also Ray, supra, 560 P.
2d at 8 ("The paramount policy to be
promoted by the rule is the protection of otherwise defenseless
victims of manufacturing and the spreading throughout society of
the cost of compensating them.") (emphasis added). In general,
manufacturers are better positioned to avoid and allocate risk
than distributors. See Promaulayko, supra, 116 N.J. at 513
(indicating that those higher in chain of distribution are more
efficient accident avoiders and better able to bear risk); Suter
v. San Angelo Foundry & Mach. Co.,
81 N.J. 150, 173 (1979)
(finding that manufacturers are "in the best position to make the
cost-benefit analysis between accident costs and accident
avoidance costs and to act on that decision once it is made").
Moreover, successor manufacturers that acquire resources
previously available to the original manufacturer such as its
trade name, physical plants, manufacturing equipment, inventory,
records of manufacturing designs, patents, customer lists, and
employees have "virtually the same capacity as [the original
manufacturer] to estimate the risks of claims for injuries from
defects in previously manufactured [products] for purposes of
obtaining insurance coverage or planning self-insurance." Ray,
supra, 560 P.
2d at 10. Likewise, the successor manufacturer can
distribute the cost of insuring against injuries among all
purchasers of its product.
If the product-line exception did not redound to the benefit
of distributors and retailers as well as claimants, the
distributors and retailers that are liable to the injured party
would be cut-off from recourse against the successor to the
manufacturer. Ibid. Recourse against a successor corporation is
justified "as a burden necessarily attached to [the successor's]
enjoyment of [the original manufacturer's] trade name, good will
and the continuation of an established manufacturing enterprise.
Ramirez, supra, 86 N.J. at 352. "Public policy requires that
having received the substantial benefits of the continuing
manufacturing enterprise, the successor corporation should also
be made to bear the burden of the operating costs that other
established business operations must ordinarily bear." Id. at
353. Ordinarily, the manufacturer must bear the cost of
indemnifying entities lower in the chain of distribution for
injuries caused by defects in its products. Promaulayko, supra,
116 N.J. at 511. Therefore, the successor manufacturer must also
bear that cost.
Any other conclusion would lead to unacceptable results.
Globe Food acknowledges that if it is the successor to Globe
Slicing then Mettinger could have pursued a claim against it
directly using the product-line exception. Under those
circumstances, Lowensten would have been entitled to file a
cross-claim for indemnification against Globe Food. Merely
because Mettinger failed to name Globe Food as a defendant should
not preclude Lowensten from asserting its claim against Globe
Food. As the Appellate Division found below, "plaintiff's choice
of defendants should not determine whether the burden of paying
[Mettinger's] damages should ultimately rest on Lowensten or on
Globe Foods." 292 N.J. Super. at 317; see also Gangemi v.
National Health Labs., Inc.,
305 N.J. Super. 97, 106 (App. Div.
1997) (explaining that plaintiff's failure to name a potentially
liable party as defendant does not preclude existing defendant
from seeking contribution or indemnification from that party).
Consequently, we hold that, absent an agreement to the
contrary, distributors and retailers may use the product-line
exception to seek indemnification from corporations that
purchased all or substantially all of the original manufacturer's
assets and undertook essentially the same manufacturing operation
as that corporation.
Application of the product-line exception, however, is not contingent on the timing of a plaintiff's injury. See Rawlings,
supra, 159 Cal. Rptr. at 123 (holding that plaintiff's right to
use product-line exception against successor manufacturer was
unaffected by fact that claimant's injuries occurred three months
before successor manufacturer's purchase of enterprise). The
exception is premised on the theory that corporations that
purchase manufacturing assets and continue a product line become
"'an integral part of the overall producing and marketing
enterprise that should bear the cost of injuries resulting from
defective products.'" Nieves, supra, 86 N.J. at 371 (quoting
Ray, supra, 560 P.
2d at 11).
No unfairness inheres in imposing successor liability on a
corporation that purchases assets after an injury has occurred.
Although the successor was not benefitting from its predecessor's
enterprise or good will at the time of plaintiff's injury, it so
benefitted after its purchase. Moreover, a successor's knowledge
of pre-existing claims permits it to take those claims into
consideration when determining the terms of its asset
acquisition. See Ramirez, supra, 86 N.J. at 354. Presumably,
the purchase price will reflect any potential liability. Ibid.
Additionally, the successor may enter into full or partial
indemnification or escrow agreements with the selling
corporation. Ibid. Indeed, Globe Food extracted such an
indemnification provision from Mozley. Finally, the successor
manufacturer is still in the best position to spread the risk of
liability among consumers by raising its prices.
Globe Food also contends that Lowensten's third-party
complaint fails to assert any common-law or contractual basis for
indemnity, that Globe Food was not a joint tortfeasor, and that
Lowensten's claim for contribution was barred by the statute of
limitations. We disagree.
Lowensten's third-party complaint expressly demanded
"judgment for contribution and indemnification from the third-party defendant, Globe Food Equipment Company." Thus, Globe
Food's contention that Lowensten sought only contribution is
simply incorrect. From the inception, moreover, the essence of
Lowensten's claim has been one for common-law indemnification.
The third-party complaint identified the Mettinger action as one
pending in strict liability and stated that Globe Food's
liability rested on Lowensten's contention that it was "a
successor to the defendants who manufactured the slicer in
question[.]" A fair reading of the allegation is that it seeks
indemnification, a point that Globe Food has made clear on
appeal.
Furthermore, the statute of limitations did not bar
Lowensten's right to seek contribution or indemnification from
Globe Food. The two-year statute of limitations imposed on a
plaintiff's claims for personal injuries does not preclude a
defendant's claim for contribution or indemnification. McGlone
v. Corbi,
59 N.J. 86, 95 (1971); McNally v. Providence Washington
Ins. Co.,
304 N.J. Super. 83, 94 (App. Div. 1997); Biddle v.
Biddle,
163 N.J. Super. 455, 458 (Law Div. 1978). Rather, the
statute of limitations pertaining to a defendant's claim for
contribution or indemnification begins to accrue when the
plaintiff recovers a judgment against it. McGlone, 59 N.J. at
95. Under the entire controversy doctrine, if those claims are
known, they should be asserted in the original action. Harley
Davidson Motor Co. v. Advance Die Casting, Inc.,
150 N.J. 489,
502 (1997). Thus, even if Mettinger's potential claims against
Globe Food had expired, Lowensten could still seek contribution
or indemnification from Globe Food. Because Mettinger had not
yet obtained a judgment against Lowensten, the statute of
limitations on Lowensten's claim for contribution or
indemnification had not begun to accrue. Likewise, because
Lowensten asserted its claim against Globe Food in Mettinger's
action, Lowensten complied with the entire controversy doctrine.
Globe Food submits that it is entitled to a new trial on
liability and damages under Johnson v. Cyklop Strapping Corp.,
220 N.J. Super. 250 (App. Div. 1987), certif. denied,
110 N.J. 196 (1988). In Johnson, the Appellate Division found that the
Law Division had erred in refusing to vacate its grant of partial
summary judgment in favor of a manufacturer and its successor.
Id. at 264-65. As a consequence of the grant of partial summary
judgment, the defendant distributor was left to defend the action
alone. Id. at 257. The jury awarded plaintiff substantial
damages against the distributor. Ibid. To rectify the error
without disturbing plaintiff's judgment against the distributor,
the Appellate Division permitted the distributor to seek
contribution and indemnification from the manufacturers in a
plenary proceeding in which the manufacturers could litigate
their respective liability and damages. Id. at 265. In reaching
its decision, the court stated:
[W]here contribution is in issue, an alleged
joint tortfeasor against whom a contribution
is made is entitled to "have his day in court
as to both liability and damages." The same
is clearly so in respect of a common-law
indemnity claim. [The successor
manufacturer's] liability as a joint
tortfeasor or as a common-law indemnitor has
never been determined, and [the distributor]
must bear the burden of proving that
liability now, as must [the successor
manufacturer] against [the manufacturer].
Moreover, since all claims against [the
manufacturer and its successor] were
dismissed long before trial, we are of the
view that both may address the damages issue
as well in respect of their obligations on
the cross-claims.
N.J.R.E. 803(c)(26) provides:
[T]he record of a final judgment is admissible if offered by the judgment debtor in an action in which he seeks to recover partial or total indemnity or exoneration for money paid or a liability incurred because of the judgment, as evidence of the liability of the judgment debtor, of the facts on which the judgment is based, and of the reasonableness of the damages recovered. If the defendant in the second action had notice and an opportunity to defend the first action, the judgment is conclusive evidence.
Basically, the rule bars an indemnitor from relitigating an
indemnitee's underlying liability or the amount and
reasonableness of the damages recovered against the indemnitee
when the indemnitor received procedural due process.
Due process is a flexible concept that calls for such
procedural protections as fairness demands. New Jersey Parole
Bd. v. Byrne,
93 N.J. 192, 209 (1983). The essential components
of due process are notice and an opportunity to be heard.
Mullane v. Central Hanover Bank & Trust Co.,
339 U.S. 306, 313,
70 S. Ct. 652, 656-57,
94 L. Ed. 865, 873 (1950); Doe v. Poritz,
142 N.J. 1, 106 (1995). Thus, a party's due process rights are
not violated if it is held liable for a judgment arising out of
an action in which it participated or had the opportunity to be
heard. Louisville & Nashville R.R. Co. v. Schmidt,
177 U.S. 230,
20 S. Ct. 620,
44 L. Ed. 747 (1900); Bussell, supra, 259 N.J.
Super. at 510-11.
Here, Globe Food not only had notice of the Mettinger
action, but actually participated in it. Lowensten properly
served Globe Food with a third-party complaint seeking
indemnification for its potential liability to Mettinger. It did
so for the express purpose of compelling Globe Food to defend
against Mettinger's claims. Globe Food answered interrogatories
and otherwise participated in discovery. Through no fault of
Lowensten, Globe Food erroneously obtained a summary judgment
dismissing Lowensten's third-party complaint.
At trial, Lowensten vigorously challenged Mettinger's claims
on both liability and damages. No conflict of interest existed
between Globe Food and Lowensten on those issues. See
Restatement (Second) of Judgments § 57 (1982) (requiring that
indemnitee defend action with due diligence and reasonable
prudence and that there be no conflict of interest between
indemnitee and indemnitor). Thereafter, Lowensten satisfied
Mettinger's judgment.
It would be unfair and inefficient to permit Globe Food to
benefit from its erroneous procurement of a summary judgment
dismissing Lowensten's claim for indemnification and to require
Lowensten to relitigate its liability to Mettinger. Cf. Ramos v.
Browning Ferris Indus. of S. Jersey, Inc.,
194 N.J. Super. 96,
102-03 (App. Div. 1984) (refusing to remand plaintiff's tort
claim for new trial where third-party defendant erroneously
obtained summary judgment, reasoning that plaintiff should not
suffer because of third-party defendant's wrongful rejection of
its obligation and right to defend), rev'd on other grounds,
103 N.J. 177 (1986). Because Lowensten seeks indemnification, its
recovery against Globe Food is limited to the amount it paid
Mettinger. A new trial on liability and damages could inure only
to the benefit of Globe Food.
Finally, Globe Food contends that permitting Lowensten to rely on the product-line exception to support its indemnification claim and on N.J.R.E. 803(c)(26) to bar Globe Food from relitigating liability and damages constitute new rules of law that should apply prospectively. We disagree. Our holding is consistent with prior decisions concerning strict products liability, successor liability, and indemnification. Furthermore, Globe Food knew of Mettinger's action when it acquired Mozley's meat-slicing assets. Indeed, Globe Food required Mozley partially to indemnify it against such lawsuits. Its liability is not unexpected.
The judgment of the Appellate Division is affirmed as modified, and the matter is remanded to the Law Division.
CHIEF JUSTICE PORITZ and JUSTICES HANDLER, O'HERN, and STEIN
join in JUSTICE POLLOCK's opinion. JUSTICE GARIBALDI has filed a
separate dissenting opinion in which JUSTICE COLEMAN joins.
SUPREME COURT OF NEW JERSEY
A-
47 September Term 1997
DAVID METTINGER,
Plaintiff,
v.
GLOBE SLICING MACHINE CO., INC.,
NEW GLOBE PARENT, INC., DAPHNE
HORIZON CO., INC.,
Defendants,
and
W.W. LOWENSTEN, INC.,
Defendant and Third Party
Plaintiff-Respondent,
v.
GLOBE FOOD EQUIPMENT COMPANY,
Third Party Defendant-
Appellant.
GARIBALDI, J., dissenting.
The majority expands the product-line exception to enable a
defendant to sue a successor corporation for indemnification,
even though the injured plaintiff has already recovered for his
injuries. Extending the product-line exception to benefit
corporate defendants undermines the policy justification for the
product-line exception-- making injured plaintiffs whole.
Because such an expansion of the product-line exception is unwise
and unwarranted, I dissent.
Plaintiff David Mettinger injured his hand on an unguarded blade of a "Globe Model 500" meat slicer. He then instituted a products liability claim against W. W. Lowensten, Inc., New Globe Parent, Inc., Daphne Horizon Co., Inc., and Mozely Manufacturing Co., Inc. Lowensten filed a third party complaint against Globe Food Equipment Co., asserting that Globe Food was a successor to the manufacturer of the Globe meat slicer product line. The trial court granted summary judgment in favor of Globe Food, concluding that the product-line exception benefitted only plaintiffs. Mettinger's claim against Lowensten proceeded to trial. A jury awarded Mettinger $350,000. The Appellate Division upheld the award against Mettinger, but reinstated the indemnification claim against Globe Food. The panel remanded for trial on the issue of whether Globe Food sufficiently continued the Globe Slicing product line to justify the imposition of successor liability. Additionally, the court held that if, on remand, Globe Food was found to have continued the product line, Globe Food would be bound by the judgment against Lowensten.
Traditionally, "[w]here one company sells or otherwise transfers all its assets to another company, the latter is not liable for the debts and liabilities of the transferor, including those arising out of the latter's tortious conduct." Wilson v. Fare Well Corp., 140 N.J. Super. 476, 484 (Law Div. 1976)
(quoting McKee v. Harris Seybold Co.,
109 N.J. Super. 555 (Law
Div. 1970), aff'd,
118 N.J. Super. 480 (App. Div. 1972)).
In Ramirez v. Amisted Industries, Inc., this Court
recognized that the traditional approach to corporate successor
liability was "unresponsive to the legitimate interests of the
product liability plaintiff," and did not protect "the innocent
injured party."
86 N.J. 332, 341, 354 (1981) (citations
omitted). The Court, therefore, abandoned the traditional
approach and adopted the "product-line exception." That
exception provides:
[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 predecessors.
Further, the Court provided three policy justifications for adopting the product line exception:
(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 role, 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.
[Id. at 349 (quoting Ray v. Alad Corp.,
560 P.2d 3, 11
(Cal. 1977).]
Though the majority concedes that providing an otherwise
remediless plaintiff with a source of compensation was a primary
justification for adopting the product-line exception, see ante
at __ (slip op. at 11), the majority fails to recognize that
"[t]he central thesis of [the product-line exception] is premised
on the elimination by the successor of an effective remedy. That
is an essential condition precedent to recovery." 86 N.J. at 358
(Schreiber, J., concurring) (emphasis added). Therefore, where,
as in the present case, the plaintiff has already recovered for
his injuries, the product-line exception is inapplicable.
Nieves v. Bruno Sherman Corp.,
86 N.J. 361 (1981), decided
the same day as Ramirez, supra,
86 N.J. 332, is consistent with
that understanding. In Nieves, supra, the Court extended the
product-line exception to enable a plaintiff to recover from an
intermediate corporation that acquired the assets of the original
manufacturer, continued its product line, but sold those assets
to another corporation before plaintiff was injured. Id. at 368.
Even though the Court extended the product-line exception, the
Court continued to view a remediless plaintiff as a prerequisite
for invoking the product-line exception. See Id. at 371.
Moreover, regarding apportionment of liability after the
plaintiff is made whole, the Court explained: "While the Ramirez
rationale is concerned with imposing strict tort liability for
damages caused by defects in units of the product line acquired
and continued by successor manufacturers, neither Ramirez nor the
injured plaintiff . . . is concerned with how the liability will
be allocated . . . ." Id. at 372 (emphasis added).
In Ramirez, supra, the Court rested its adoption of the product-line exception on social and economic policy grounds. The Court recognized that adopting the product-line exception may prevent small manufacturers from transferring ownership of their business assets for a fair price. 86 N.J. at 353. However, the Court held that such "concerns, genuine as they may be, cannot be permitted to overshadow the basic social policy, now so well entrenched in our jurisprudence, that favors imposition of the costs of injuries from defective products on the manufacturing enterprise and consuming public rather than on the innocent injured party." Id. at 354.
The Court also rested the adoption of the product-line exception on economic policy, concluding that, even though successor liability would result in lowering the purchase price of a corporation's assets,
a reduction of the sale price by an amount calculated to compensate the successor corporation for the potential liability it has assumed is a more, not less, accurate measure of the true worth of the business.
. . . In time, the risk-spreading and cost avoidance
measures . . . should become a normal part of business
planning in connection with the corporate acquisition
of assets of a manufacturing enterprise.
[t]he imposition of successor liability on a company that has merely purchased the assets of a predecessor for cash and does not otherwise fall within the [traditional] exceptions would encourage the dissolution of a financially troubled corporation by piecemeal sale of assets rather than as a going concern. The end result would be the needless destruction of an ongoing business enterprise with no net advantage to anyone.
[Restatement, supra, § 12 reporters' note (citing
Polius v. Clark Equip. Co.,
802 F.2d 75 (3d Cir.
1986)).]
See also Bernard v. Kee Mfg. Co. Inc.,
409 So.2d 1047, 1049 (Fla.
1982) ("We choose not to join this vanguard of courts, due in
part to the threat of economic annihilation that small businesses
would face under such a rule of expanded liability."); A. Schiff,
Products Liability and Successor Corporations: Protecting the
Product User and the Small Manufacturer Through Increased
Availability of Products Liability Insurance,
13 U.C. Davis L.
Rev. 1000, 1003 (1980) (noting that most small companies are
unable to obtain insurance coverage for liabilities from injuries
caused by a predecessor's products).
It is, therefore, not surprising that the overwhelming majority of states that have considered the product-line exception have rejected it. See, e.g., Page v. Gulf Oil Co., 812 F.2d 249, 250 (5th Cir. 1987) (applying Louisiana law); Reed v. Armstrong Cork Co., 577 F.Supp. 246, 247-48 (E.D. Ark. 1983) (applying Arkansas law); LeSane v. Hillenbrand Indus., Inc., 791 F.Supp. 871, 873-874 (D.D.C. (1992) (applying the law of the District of Columbia); Johnston v. Amsted Indus., 830 P.2d 1141, 1147 (Colo. Ct App. 1992); Bernard, supra, 409 So. 2d at 1049-50; Bullington v. Union Tool Corp., 328 S.E.2d 726, 728 (Ga. 1985); Myers v. Putzmeister, Inc., 596 N.E.2d 754, 758 (Ill. App. Ct.), appeal denied, 603 N.E.2d 458 (Ill. 1992) ; DeLapp v. Xtraman, Inc., 417 N.W.2d 219, 222 (Iowa 1987); Stratton v. Garvey Int'l, Inc., 676 P.2d 1290, 1297-98 (Kan. Ct. App. 1984); Guzman v. MRM/Elgin, 567 N.E.2d 929, 933 (Mass. 1991); Pelc v. Bendix Mach. Tool Corp., 314 N.W.2d 614, 620 (Mich. Ct. App. 1981); Niccum v. Hydra-Tool Corp., 438 N.W.2d 96, 100 (Minn. 1989); Young v. Fulton Iron Works Co., 709 S.W.2d 927, 940 (Mo. Ct. App. 1986); Jones v. Johnson Mach. & Press Co., 320 N.W.2d 481, 484 (Neb. 1982); Simoneau v. South Bend Lathe, Inc., 543 A.2d 407 (N.H. 1988); Downtowner, Inc. v. Acrometal Products, Inc., 347 N.W.2d 118, 125 (N.D. 1984); Flaugher v. Cone Automatic Mach., Co., 507 N.E.2d 331, 338 (Ohio 1987); Goucher v. Parmac, Inc., 694 P.2d 953, 954 (Okla. Ct. App. 1984); Hamaker v. Kenwel-Jackson Mach. Inc., 387 N.W.2d 515, 521 (S.D. 1986); Griggs v. Capital Machine Works, Inc., 690 S.W.2d 287, 294 (Tex. Ct. App.), writ denied,
701 S.W.2d 238 (Tex. 1985); Ostrowski v. Hydra-Tool Corp.,
479 A.2d 126, 127 (Vt. 1984); Harris v. T.I., Inc.,
413 S.E.2d 605,
609 (Va. 1992); Fish v Amsted Indus., Inc.,
376 N.W.2d 820, 829
(Wis. 1985); accord Nissen Corp. v. Hydra Tool Corp.,
594 A.2d 564, 570 (Md. 1991) (applying the traditional rule of successor
liability and noting that the product-line exception has been
rejected by many jurisdictions as "too far-reaching and
radical"). Those courts have all recognized that, for both
economic and social reasons, the product-line exception is
unjustifiable.
Aside from New Jersey, only four other states have adopted the product-line exception: California, New Mexico, Pennsylvania, and Washington. See Ray v. Alad Corp., supra, 560 P.2d 3 (Cal. 1977); Garcia v. Coe Mfg. Co., 933 P.2d 243, 250 (N.M. 1997); Dwejko v. Jorgensen Steel Co., 434 A.2d 106, 110 (Pa. Super. Ct. 1981); Martin v. Abbott Labs., 689 P.2d 368, 388 (Wash. 1984). Of those four states, none have extended the product-line exception to benefit defendants. See 63 Am.Jur. 2d Products Liability § 133 (1996) ("The product line theory may not be applied to support a claim for contribution or indemnity made by an initial successor corporation against a subsequent corporation; the purpose of [the] product-line exception is to compensate otherwise remediless tort victims.").
In Hill v. Trailmobile, Inc.,
603 A.2d 602, 607 (Pa. Super
Ct. 1992), the defendant/lessor of a truck trailer sought
indemnification from the product line successor to the
manufacturer. In affirming a lower court ruling that
indemnification could not be sought under the product-line
exception, the Pennsylvania Superior Court explained:
Original defendant Trailmobile is now asking this court
to extend the product-line exception to successor
liability to apply for the first time to defendants.
This we are unwilling to do. 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.
Trailmobile's effort to obtain indemnification from co-defendants through the product-line exception subverts
the policy considerations that prompted adoption of the
rule.
remedyless [sic] tort victims, not to preempt the role of
contract in corporate successorships." Id. at 929.See footnote 1
Even if the Court is convinced that the product-line
exception should remain as the law of this State, there is no
justification for extending that exception to benefit corporate
defendants. Once the plaintiff has recovered for his injuries,
the policy considerations that prompted the adoption of the rule
no longer exist. There is no connection between the public
policy considerations in Ramirez-- enabling an injured consumer
to recover for his injuries-- and the present case. Globe Food
was not even in existence at the time the injury occurred. It
acquired the predecessor corporation's assets two and one-half
years after Mettinger's accident, one year after his lawsuit had
been filed and six months after the statute of limitations for
Mettinger to sue Globe Food had expired. Moreover, because Globe
Food was not in existence at the time of Mettinger's accident, it
could not have acted to avoid his loss.
Lowensten, on the other hand, could have acted to avoid the
risk of harm to plaintiff. Lowensten sold and serviced the
defective slicer to Mettinger's employer and provided the care
and operation booklets. Lowensten knew where the slicer was
located and, more significantly, at the time it sold the slicer
to Mettinger's employer, it sold the same slicer to other
customers, but with an interlock. Moreover, Lowensten could
have protected itself by insisting on a contractual indemnity
provision. However, it did not so do.
Underlying the product-line exception is the concept of
fairness. Declining to expand the product-line exception to
cover Globe Food does not impose any liability on Lowensten that
did not already exist under New Jersey law. As a seller of a
defective product, Lowensten is liable to the injured plaintiff.
However, making Globe Food pay for an accident it did not cause
and could not avoid provides a windfall to Lowensten and creates
liability for Globe Food where none had previously existed. Such
a result is unfair.
Because I would hold that the product-line exception is not
available to benefit corporate defendants, I would not reach the
other issues addressed by the Court. I would reverse the
judgment of the Appellate Division.
Justice Coleman joins in this dissent.
NO. A-47 SEPTEMBER TERM 1997
ON APPEAL FROM
ON CERTIFICATION TO Appellate Division, Superior Court
DAVID METTINGER,
Plaintiff,
v.
GLOBE SLICING MACHINE CO., INC.,
et al.,
Defendants,
and
W.W. LOWENSTEN, INC.,
Defendant and Third Party
Plaintiff-Respondent,
v.
GLOBE FOOD EQUIPMENT COMPANY,
Third Party Defendant-
Appellant.
DECIDED May 14, 1998
Chief Justice Poritz PRESIDING
OPINION BY Justice Pollock
CONCURRING OPINION BY
DISSENTING OPINION BY Justice Garibaldi
REVERSE CHIEF JUSTICE PORITZ X JUSTICE HANDLER X JUSTICE POLLOCK X JUSTICE O'HERN X JUSTICE GARIBALDI X JUSTICE STEIN X JUSTICE COLEMAN X
Footnote: 1 The court did not decide whether Pennsylvania law or New Jersey law would govern, as it determined that under the laws of both states, the product-line exception was not available. 644 F.Supp. at 927.