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Savage Arms Inc. v. Western Auto Supply Co. (3/2/01) sp-5370
Savage Arms Inc. v. Western Auto Supply Co. (3/2/01) sp-5370
Notice: This opinion is subject to correction before publication in
the Pacific Reporter. Readers are requested to bring errors to the attention of
the Clerk of the Appellate Courts, 303 K Street, Anchorage, Alaska 99501, phone
(907) 264-0608, fax (907) 264-0878.
THE SUPREME COURT OF THE STATE OF ALASKA
SAVAGE ARMS, INC., )
) Supreme Court Nos. S-8611/8612/
Petitioner, ) 8721
)
v. ) Superior Court No.
) 3KN-90-922 CI
WESTERN AUTO SUPPLY CO., )
) O P I N I O N
Respondent. )
______________________________) [No. 5370 - March 2, 2001]
Petition for Review from the Superior Court of
the State of Alaska, Third Judicial District, Kenai,
Jonathan H. Link, Judge.
Appearances: Theodore M. Pease, Jr., and
Michael W. Sewright, Burr, Pease & Kurtz, Anchorage, for
Petitioner. James M. Powell and Kimberlee A. Colbo, Hughes,
Thorsness, Powell, Huddleston & Bauman, LLC, Anchorage, for
Respondent.
Before: Matthews, Chief Justice, Eastaugh,
Fabe, Bryner, and Carpeneti, Justices.
EASTAUGH, Justice.
I. INTRODUCTION
Can a corporation that purchases assets of the
manufacturer of a rifle sold in Alaska be held liable for personal
injury caused in Alaska by a defect in the rifle? The superior
court held that it could, and we agree. But we reverse and remand
for application of the pertinent successor liability doctrines
discussed below. We also hold that the indemnity claim brought by
the rifle's distributor against the successor corporation must be
prosecuted by the insurers which fully discharged the distributor's
personal injury liability.
II. FACTS AND PROCEEDINGS
The relevant facts are few. Jack Taylor's minor son
suffered personal injuries when a defective .22 caliber rifle
discharged during target shooting near Nikiski. Savage Industries,
Inc. manufactured the rifle, and Western Auto Supply Company, which
claimed to have acquired the rifle from the manufacturer, sold it
to a retail store in Maine; the rifle was eventually resold to Jack
Taylor in Alaska. Taylor sued Savage Industries in 1990 for his
son's injuries; in an amended complaint, he also sought recovery
from Western Auto.
Western Auto filed a third-party complaint in its name
seeking indemnity from Savage Arms, Inc., which had purchased
assets from Savage Industries in 1989. Western Auto settled with
the Taylors in May 1995, and its insurers paid the entire
settlement amount.
At issue here are three superior court orders. The first
held that Alaska law governs the issue of successor liability. The
second granted Western Auto summary judgment against Savage Arms,
holding Savage Arms liable as "the legal successor to Savage
Industries, Inc." The third denied Savage Arms' motion to
substitute Western Auto's insurers for Western Auto as the real
parties in interest, but required the insurers to ratify the
litigation.
The superior court denied Savage Arms' motions for
reconsideration. We granted Savage Arms' petitions for review and
ordered full briefing. We review the three orders under AS
22.05.010 and Alaska Rule of Appellate Procedure 402.
III. DISCUSSION
A. Standard of Review
The appropriate choice of law is a legal question to
which we apply our independent judgment. [Fn. 1] The scope of
successor liability in Alaska is a legal question of first
impression, which we answer by adopting "the rule of law that is
most persuasive in light of precedent, reason, and policy." [Fn. 2]
In applying rules of successor liability to this case, we will
affirm Western Auto's summary judgment only if the record presents
no genuine issues of material fact and Western Auto is entitled to
judgment as a matter of law. [Fn. 3]
Although we generally review rulings on joinder and
ratification for abuse of discretion, [Fn. 4] we review de novo the
underlying legal questions, [Fn. 5] such as whether a party is a
real party in interest under Alaska Civil Rule 17(a).
B. Choice of Law
Savage Arms challenges the superior court's ruling that
Alaska law governs the issue of successor liability. It argues
that Texas law should apply because all transactions relevant to
its purchase of Savage Industries' assets occurred in Texas. In
Savage Arms' view, the case before the court deals with the
transaction between Savage Arms and Savage Industries, and the
underlying tort does not bear on the choice of law question. [Fn.
6]
Western Auto defends the superior court's decision,
contending that Alaska law should apply because the underlying
injury occurred in Alaska. Western Auto also reasons that
successor liability is but an extension of products liability law,
which is itself a tort doctrine.
Texas statutory and case law seems to disfavor both
traditional and modern doctrines of successor liability, [Fn. 7]
but neither this court nor the Alaska state legislature has
resolved the successor liability questions presented in this case.
We look to the Restatement (Second) of Conflict of Laws
for guidance in resolving choice-of-law issues. [Fn. 8] The Second
Restatement requires a separate choice-of-law analysis for each
issue presented. [Fn. 9] We likewise follow this rule of d‚pe‡age,
[Fn. 10] and determine the proper choice of law on the issue of
successor liability without regard to other issues in the case.
Before we can address which state's law should apply to
this issue, we must first determine whether successor liability is
better characterized in terms of contract or tort. [Fn. 11] In one
sense, successor liability derives from corporate and contract law,
because it may require the interpretation of the contracts that
governed the transfer of assets between corporations. But
successor liability is also a creature of tort law when it is
claimed that the successor is liable because a product defect has
caused injury or death.
Other jurisdictions are split as to whether successor
liability should be evaluated using the choice-of-law rules
governing tort or corporate and contract law. The Fifth Circuit,
for example, has held that the law of the state with the most
significant corporate contacts should apply to successor liability
questions. [Fn. 12] The Seventh Circuit held similarly in Ruiz v.
Blentech Corp. [Fn. 13] But several federal district courts have
explicitly applied the law of the state with the most significant
torts contacts, [Fn. 14] and state courts have split on the
question. [Fn. 15]
We decline to follow the Fifth and Seventh Circuits,
because we believe that when a defective product causes personal
injury, successor liability is most appropriately characterized as
a torts question. Successor liability is essentially an expansion
of products liability law, which derives from tort principles of
negligence and strict liability, and rejects contract-derived
requirements such as privity. The purpose of the modern strict
liability regime "is to insure that the cost of injuries resulting
from defective products [is] borne by the manufacturers that put
such products on the market rather than by the injured persons who
are powerless to protect themselves." [Fn. 16] Treating a
successor liability question solely as one of contract law would
allow "the party who benefitted from the bargain [to] escape
liability even though the party who transferred the benefit would
have been liable had not the contract been consummated." [Fn. 17]
Such a result would undermine the principles that govern our
products liability law. And although Savage Arms argues that the
public policy behind products liability law is of "little interest"
here because Western Auto purchased liability insurance that fully
protected it, Western Auto's suit does not pursue a commercial
cause of action. Because Western Auto's insurers settled the
personal injury suit, Western Auto now stands in the tort
plaintiff's shoes.
Thus, in context of a claim that a defective product has
caused personal injury, we think successor liability is more aptly
treated as a matter of tort law.
Having determined that successor liability in a products
liability context is best characterized as part of the law of tort,
we must now decide which state's laws should apply to the case at
hand. The Second Restatement states that "with respect to an issue
in tort," courts should look to the local law of the state with the
"most significant relationship" to the parties and the occurrence.
[Fn. 18] We conclude that Alaska has the most significant torts
contacts with this legal issue. We look in particular to the
underlying tort action that gave rise to this litigation. Jack
Taylor and his son were both Alaska residents when the accident
occurred. Taylor purchased the rifle in Alaska, and the rifle was
being used here, where its defect injured his son. The defect that
injured Taylor's son potentially endangered any person within a
lethal vicinity while the rifle was being used in Alaska. Finally,
Jack Taylor litigated his suit against Western Auto in Alaska's
state courts. Because the relationship between the tort litigants
is centered in Alaska, Alaska law should govern.
We therefore conclude that the superior court did not err
by concluding that Alaska law applies to the issue of successor
tort liability.
C. Successor Liability
Savage Arms challenges Western Auto's summary judgment on
the issue of successor liability. It argues that it should not be
held liable even if Alaska law applies. This argument raises
issues of first impression in Alaska.
Generally, when one company sells all its assets to
another, the acquiring corporation is not liable for the debts and
liabilities of the selling company. [Fn. 19] Courts have
traditionally recognized four exceptions to this rule of non-
liability, where (1) the purchaser expressly or implicitly agrees
to assume liability, (2) the asset purchase amounts to a
consolidation or merger, (3) the purchasing corporation is a "mere
continuation" of the selling corporation, or (4) the transfer
amounts to little more than a "sham" transaction to avoid
liabilities. [Fn. 20] More recently, some courts have recognized
three additional "modern" exceptions to the rule of non-liability:
the "continuity of enterprise," "product line," and "duty-to-warn"
exceptions. [Fn. 21]
Western Auto argues that we should adopt any one of three
different successor liability doctrines in this case: the
traditional "mere continuation" exception and the modern
"continuity of enterprise" and "product line" exceptions. We first
identify which exceptions are available under Alaska law, and then
remand for the factual analysis necessary to ascertain whether
successor liability is proper in this case under any of the
approved exceptions. The superior court did not specify which
exception justified its imposition of successor liability against
Savage Arms.
1. The traditional "mere continuation" exception
Courts have traditionally imposed liability on successor
corporations where the successor corporation is "merely a
continuation" of the selling corporation. [Fn. 22] The primary
elements of the "mere continuation" exception include use by the
buyer of the seller's name, location, and employees, and a common
identity of stockholders and directors. [Fn. 23] This well-
established exception stems from judicial refusal to honor a
transaction which is "little more than a shuffling of corporate
forms, lacking any fundamental change with independent
significance." [Fn. 24]
The "mere continuation" exception is available to
claimants seeking to impose liability on a successor corporation
for products manufactured by a predecessor. Although Savage Arms
argues that we should not adopt this exception, we disagree,
because this is a well-recognized exception, and we see no reason
to reject its application here. We therefore hold that it is
available under Alaska law.
2. The modern "continuity of enterprise" exception
Western Auto also asks us to adopt the modern "continuity
of enterprise" and "product line" exceptions. We conclude that the
facts in this case are ill-suited to the "product line" exception,
and we therefore decline to consider it at this time. [Fn. 25] We
do, however, adopt the "continuity of enterprise" exception, for
the reasons explained below.
The "continuity of enterprise" exception is an outgrowth
of the traditional "mere continuation" theory of liability. [Fn.
26] Under this exception, a successor corporation may be held
liable for injuries caused by its predecessor's products where the
totality of the transaction between the successor and the
predecessor demonstrates a basic continuity of the predecessor
enterprise. [Fn. 27] The successor may be held liable even though
the sale of assets is for cash and there is no continuity of
shareholders. [Fn. 28]
Thus, whereas the traditional "mere continuation"
exception depends on the existence of identical shareholders, the
"continuity of enterprise" looks beyond that formal requirement and
considers the substance of the underlying transaction. [Fn. 29]
The key factors under the "continuity of enterprise" exception,
first articulated in Turner v. Bituminous Casualty Co., [Fn. 30]
are: (1) continuity of key personnel, assets, and business
operations; (2) speedy dissolution of the predecessor corporation;
(3) assumption by the successor of those predecessor liabilities
and obligations necessary for continuation of normal business
operations; and (4) continuation of corporate identity. [Fn. 31]
This is a limited exception that looks past the identity of
shareholders and directors, and focuses on whether the business
itself has been transferred as an ongoing concern.
Only a minority of courts have thus far adopted the
"continuity of enterprise" exception. [Fn. 32] And the American
Law Institute recently declined to adopt both this exception and
the "product line" exception for the Restatement (Third) of Torts.
[Fn. 33] The Third Restatement's commentary indicates that the
vast majority of courts considering these modern exceptions have
rejected them. [Fn. 34] Although there is some dispute about
exactly how many jurisdictions have decided the issue, [Fn. 35] it
is clear that a majority of jurisdictions have not adopted the
"continuity of enterprise" exception.
Critics of the modern exceptions (such as "continuity of
enterprise") argue primarily that expanding liability harms the
overall economy by making it more difficult for companies to
reorganize or sell their assets without destroying the value of the
ongoing business enterprise. [Fn. 36] For example, they assert
that a buyer interested in purchasing substantially all of the
assets of a corporation will, in some cases, decline to make the
purchase if it will be forced to assume liability for past product
defects as well. As a result, some corporations will be unable to
find purchasers, and will instead be forced to sell off the
corporate assets on a piecemeal basis, squandering any accumulated
goodwill. [Fn. 37] Such a piecemeal sale would give a corporation
certain economic advantages: the seller's shareholders would be
able to receive full value for the remaining assets, and successor
liability would not flow to the purchasers under any of the
traditional or modern theories. [Fn. 38] But a piecemeal sale
would cause an ongoing business to be lost to society, and
potential claimants would be no better off.
This argument, although compelling in theory, seems to
paint an incomplete picture of the economic realities. If
successor liability is expanded to include the "continuity of
enterprise" exception, some companies indeed might be unable to
find buyers for their ongoing businesses. But we have not been
referred to any evidence that adopting this modern "continuity of
enterprise" exception (or the marginally more popular "product
line" exception) has in fact increased the number of corporate
liquidations or piecemeal breakups, or that rejecting the modern
exceptions has in fact decreased liquidations or piecemeal sales.
[Fn. 39] And our research has not disclosed studies that have so
concluded.
We also note that permitting successor liability under
the "continuity of enterprise" exception will not discourage large-
scale transfers so long as anticipated successor liabilities do not
exceed the value of the corporation's accumulated goodwill.
Presumably, many corporations will continue to engage in efficient
and productive transfers, with the purchasing firm merely factoring
into the purchase price the cost of those successor liabilities.
[Fn. 40] When firms contract for an asset transfer where the basic
enterprise is to be continued, they negotiate to a price that
reflects the fair market value of the transfer, taking heed of the
risk of future claims. [Fn. 41] The purchasing firm will value any
potential successor liability claims at least at the incremental
cost of obtaining insurance coverage against successor liability
for them. [Fn. 42] Where that insurance is too expensive or is
unavailable, negotiations could collapse, and the firm will either
continue to exist (and be subject to liability claims) or liquidate
(and future victims will receive no recovery). But in many cases,
we would expect selling and purchasing firms simply to negotiate to
a rational price that takes account of these potential claims. The
posited negative effects on the overall economy are too
indeterminate and speculative to outweigh the policy of
compensating persons injured by product defects. [Fn. 43]
The same reasoning applies to the Restatement authors'
concerns regarding potential "windfalls." [Fn. 44] In many cases,
a predecessor manufacturing company will be purchased by a larger,
more financially-sound corporation. The rule we adopt here does
not limit injured plaintiffs' recovery to the value of the assets
purchased by the successor corporation, so there could conceivably
be situations in which product defect victims would receive a
larger recovery than they conceivably could have received had the
predecessor company remained an ongoing concern, and been
bankrupted by the total claims. The Restatement authors view the
added recovery potential as an "injustice" to the successor
corporation. [Fn. 45] But we think the Restatement analysis
defeats the assumptions behind tort law. We assume that
meritorious claims will be paid; that they are sometimes not paid
due to insolvency does not change that underlying assumption. To
characterize as a "windfall" full recovery for losses caused by
product defects unjustly challenges the legitimacy of the injuries
suffered. And once again, purchasing corporations can attempt to
account for this risk of loss in the purchase price.
The other objections to expanded successor liability
rules are also not dispositive. Successor liability potentially
conflicts with maximizing the value received for bankrupt estates.
[Fn. 46] But we see no persuasive reason to favor corporate
creditors over claimants later injured by the seller corporation's
products. [Fn. 47] Also, some courts have argued that the modern
exceptions impose liability on entities having no causal
relationship with the harm. [Fn. 48] But basic to the "continuity
of enterprise" exception is the preservation of a substantial
portion of the goodwill of the predecessor corporation; the
successor is fundamentally the same enterprise as the predecessor.
When a firm negotiates to purchase another corporation, keeping the
"enterprise" intact, it must anticipate any potential successor
liabilities and negotiate an appropriate price. To permit the
successor, which presumably negotiated a discount for potential
successor liabilities when dickering over the purchase price, to
avoid liability based on lack of causation would give the successor
an unwarranted windfall.
Finally, this new rule will also have the effect of
encouraging existing corporations to produce safer products, in
keeping with the public policy goals that underlie product
liability law generally. [Fn. 49] Corporations are currently
motivated to correct defects to reduce their own exposure to
liability, but the traditional successor liability regime
undermines that incentive by giving the manufacturing corporation
another option: offering itself for sale to a new investor.
Without successor liability, the original shareholders can receive
full compensation for the current value of the firm, without
sharing the burden caused by any defective products manufactured
before the sale. The rule we announce today will give
manufacturing corporations additional incentives to market non-
defective products, in order to maximize the corporations' market
value in event of sale. [Fn. 50]
Some commentators, [Fn. 51] including the Restatement
authors, [Fn. 52] reason that legislatures are better situated than
courts to define the parameters of successor liability. But we
think this is an appropriate subject for judicial decision because
it is directly related to products liability law, a doctrinal road
long traveled by courts. [Fn. 53] For example, the four
traditional exceptions were created by the courts. [Fn. 54] There
is also some suggestion that legislation in other states has failed
to address these problems. [Fn. 55] We see no reason to await
legislation before addressing this issue.
We therefore adopt the "continuity of enterprise"
exception to the general rule of nonliability for corporate
successors.
3. Propriety of the summary judgment order
Although we here approve the "mere continuation" and
"continuity of enterprise" exceptions, it is nonetheless necessary
to reverse Western Auto's summary judgment order for two reasons.
First, material factual disputes remain unresolved. Many key facts
are uncontested, but certain important facts (such as the
percentage of stock former shareholders in Savage Industries own in
Savage Arms) are not established by the record. Second, the
uncertainty regarding the proper legal standard governing successor
liability appears to have prevented the parties from developing the
record to address the applicable legal tests. We consequently
remand for consideration of the "mere continuation" and "continuity
of enterprise" exceptions in the context of this case.
We also note that Savage Arms is not shielded from
liability by the fact that it purchased Savage Industries' assets
through a bankruptcy proceeding. The First Circuit ruled in a
related aspect of this case [Fn. 56] that Western Auto and Taylor
were not "afforded appropriate notice of the material terms of the
all-asset transfer, nor of the chapter 11 plan" and therefore that
the parties to the transfer, Savage Industries and Savage Arms,
"are not entitled to rely on the protective jurisdiction of the
bankruptcy court." [Fn. 57] The failure to give proper notice and
to seek approval of the plan from the bankruptcy court "precluded
a legitimate basis for enjoining the Alaska state court action."
[Fn. 58]
D. Journal Articles as Inadmissible Hearsay
Savage Arms argues that the superior court abused its
discretion by considering journal articles Western Auto submitted
in support of its summary judgment motion. These articles included
statements attributed to Savage Arms' chief executive officer
supporting Western Auto's argument that Savage Arms holds itself
out to the world as the legal successor to Savage Industries.
Savage Arms asserts that the articles contain multiple levels of
hearsay. Since we remand for other reasons, it is unnecessary to
discuss this issue at length. But we address it briefly here
because it may recur on remand. For purposes of our discussion, we
assume that the CEO uttered the statements attributed to him.
In effect, the statements were uttered at least twice,
first by Savage Arms' CEO and ultimately by the articles' authors
upon publication. When the statements were first uttered, the
declarant was Savage Arms' CEO and the statements were not hearsay,
because they were admissions by a party-opponent. [Fn. 59] But
when the articles were offered to prove the truth of their
assertions -- that the CEO had made the statements the articles
attributed to him -- their authors became the declarants whose out-
of-court statements were being offered into evidence. If the
articles were offered for their truth, they normally would have
been inadmissible hearsay. [Fn. 60] The superior court rejected
Savage Arms' hearsay objection, but so far as we can tell from the
record, did not address the author-as-declarant issue. Whether it
must do so on remand depends on whether the articles are offered
for the truth of the matters they assert.
E. Real Parties in Interest
Western Auto's liability insurers, Allstate Insurance
Company and Certain Underwriters at Lloyd's of London
(Underwriters), fully paid the expenses of defending and settling
the Taylor lawsuit against Western Auto. Savage Arms moved to
substitute the insurers as the plaintiffs in Western Auto's
indemnity action. Savage Arms claimed that the insurers were the
only real plaintiffs in interest under Alaska Civil Rule 17(a).
[Fn. 61] The superior court denied the motion, but at Western
Auto's suggestion allowed the insurers to ratify the action or be
subject to substitution.
We agree with Savage Arms that it was error not to
substitute Western Auto's insurers as the real parties in interest.
Western Auto admits that Allstate and the Underwriters are its
fully subrogated insurers. Western Auto has identified no possible
remaining interest it has in the indemnity claim. The superior
court reasoned that Western Auto had an interest in the claim that
was "difficult to define," and that joinder of the insurers might
present an inaccurate picture to the jury. The court did not
explain what Western Auto's interest was.
Although we have not previously addressed the proper
procedural treatment of fully subrogated insurers, we held in
Municipality of Anchorage v. Baugh Construction & Engineering Co.[Fn. 62] that ratification by partially subrogated insurers is an
acceptable substitute for joinder. [Fn. 63] We there reasoned that
Rule 17(a) did not require joinder of a partially subrogated
insurer because ratification satisfied the policy concerns
underlying that rule. [Fn. 64] We explained that ratification is
generally adequate in cases involving partially subrogated insurers
because it protects against multiple lawsuits, ensures that the
interested party makes a formal appearance in court, ensures that
the party is subject to any court orders concerning discovery or
attorney's fees, and assures that all interested parties bear the
burdens of claims litigated on their behalf. [Fn. 65] Implicitly
acknowledging the key distinction between partially and fully
subrogated insurers, we noted that the insured party was not a sham
plaintiff because its claim had not been paid in full by the
insurer:
We further note that [the insurer's] absence
as a named party in this case does not mean that the action would
be prosecuted by a sham plaintiff. The municipality was a real
party in interest as the amount of its claim had not been paid in
full by [the insurer].[ [Fn. 66]]
This language implies that where, as here, the insurer has paid the
full amount, the insured would be a sham plaintiff.
We have relied before on a Montana Supreme Court case,
State ex rel. Nawd's T.V. & Appliance Inc. v. District Court, [Fn.
67] in determining the proper procedural treatment of insurers.
[Fn. 68] The plaintiffs in Nawd's T.V. had received varying levels
of compensation from their partly and fully subrogated insurers.
[Fn. 69] Although the court held that partially subrogated
insurers could opt for ratification rather than substitution or
joinder, it effectively upheld a lower court's ruling requiring
substitution of fully subrogated insurers. [Fn. 70]
Critical commentary bears out the significance of this
distinction:
The general rule in the federal courts is that
if the insurer has paid the entire claim, it is the real party in
interest and must sue in its own name. If no money or enforceable
promise to pay money has been advanced, then there has not been any
subrogation and the insured remains the real party in interest.
This seems sound since it is logical that an insured who has no
interest in the outcome of the litigation may not bring suit.[ [Fn.
71]]
We find this reasoning persuasive, and conclude that it was error
not to require the insurers to substitute for their insured.
IV. CONCLUSION
We REVERSE the order denying Savage Arms' motion to
require Western Auto's insurers to substitute for Western Auto,
VACATE the orders imposing successor liability on Savage Arms, and
REMAND for application of the doctrines adopted today and for
further proceedings.
FOOTNOTES
Footnote 1:
See Langdon v. Champion, 752 P.2d 999, 1001 (Alaska 1988).
Footnote 2:
Guin v. Ha, 591 P.2d 1281, 1284 n.6 (Alaska 1979).
Footnote 3:
See Newton v. Magill, 872 P.2d 1213, 1215 (Alaska 1994).
Footnote 4:
See Fairbanks N. Star Borough v. Kandik Constr., Inc. &
Assoc., 795 P.2d 793, 802-03 (Alaska 1990), vacated in part on
other grounds, 823 P.2d 632 (Alaska 1991).
Footnote 5:
See Langdon, 752 P.2d at 1001.
Footnote 6:
Savage Arms invokes our opinion in Armstrong v. Armstrong, 441
P.2d 699 (Alaska 1968), in which we held that Alaska law governs
the question of interspousal tort immunity, even though the auto
accident that inspired the tort suit occurred in Canada. See id.
at 700-01. There, we treated the interspousal immunity question
independently of the underlying tort question, and focused on the
spousal relationship between the parties to the lawsuit. See id.
But to apply the Armstrong approach here only begs the question of
whether successor liability should be treated as wholly
independent. Armstrong does not control.
Footnote 7:
See Tex. Bus. Corp. Act Ann. art. 5.10(B)(2) (Vernon 1997);
Mudgett v. Paxson Mach. Co., 709 S.W.2d 755, 758-59 (Tex. App.
1986); see also McKee v. American Transfer & Storage, 946 F. Supp.
485, 487 (N.D. Tex. 1996). But see Western Resources Life Ins. Co.
v. Gerhardt, 553 S.W.2d 783, 786 (Tex. App. 1977) (noting
exceptions for merger, consolidation, and fraud).
Footnote 8:
See, e.g., Palmer G. Lewis Co. v. ARCO Chemical Co., 904 P.2d
1221, 1227 (Alaska 1995) ("When choice of law issues arise, we
commonly refer to the Restatement (Second) of Conflicts for
guidance.").
Footnote 9:
See Restatement (Second) of Conflict of Laws sec. 145 cmt. d
(1971) ("The courts have long recognized that they are not bound to
decide all issues under the local law of a single state."); Ruiz v.
Blentech Corp., 89 F.3d 320, 324 (7th Cir. 1996) (holding that
under the Second Restatement test, "[a] court therefore conducts a
separate choice-of-law analysis for each issue in a case,
attempting to determine which state has the most significant
contacts with that issue.").
Footnote 10:
See Black's Law Dictionary 448 (7th ed. 1997) (defining
d‚pe‡age as "[a] court's application of different state laws to
different issues in a legal dispute; choice of law on an issue-by-
issue basis"); see also Bryan A. Garner, A Dictionary of Modern
Legal Usage 2666 (2d ed. 1995).
Footnote 11:
See, e.g., Ruiz, 89 F.3d at 326 ("[T]he courts of several
states have struggled to decide whether [successor liability law]
is a part of corporate law or tort law.").
Footnote 12:
See Webb v. Rodgers Mach. Mfg. Co., 750 F.2d 368, 374 (5th
Cir. 1985).
Footnote 13:
89 F.3d 320, 326 (7th Cir. 1996).
Footnote 14:
See, e.g., Ede v. Mueller Pump Co., 652 F. Supp. 656, 658 n.1
(D. Colo. 1987), disagreed with on different grounds, Floron v.
Elliott Mfg., 867 F.2d 570, 579-80 (10th Cir. 1989); Reed v.
Armstrong Cork Co., 577 F. Supp. 246, 248 (E.D. Ark. 1983); Korzetz
v. Amsted Indus., 472 F. Supp. 136, 141-42 (E.D. Mich. 1979),
declined to follow on other grounds, Johnson v. Ventra Group, Inc.,
191 F.3d 732, 746 (6th Cir. 1999).
Footnote 15:
See, e.g., In re Asbestos Litigation (Bell), 517 A.2d 697, 699
(Del. Super. 1986) (holding that corporate law should apply because
key question was legal effect of contracts between corporations);
American Nonwovens, Inc. v. Non Wovens Eng'g, S.R.L., 648 So. 2d
565, 570 (Ala. 1994) (holding that conflict rule for tort cases
should apply to corporate successor liability issue). See also
David W. Pollak, Successor Liability in Asset Acquisitions, 1126
PLI/Corp 85, 107-12 (1999) (discussing different jurisdictions'
approaches to choice-of-law issues for successor liability claims).
Footnote 16:
Caterpillar Tractor Co. v. Beck, 593 P.2d 871, 878 (Alaska
1979) (quoting Clary v. Fifth Ave. Chrysler Ctr., Inc., 454 P.2d
244, 248 (Alaska 1969)); see also Greenman v. Yuba Power Prods.,
Inc., 377 P.2d 897, 900-01 (Cal. 1963).
Footnote 17:
Korzetz, 472 F. Supp. at 141.
Footnote 18:
See Restatement (Second) of Conflict of Laws sec. 145(1). To
determine the place of most significant relationship, we look to:
(a) the place where the injury occurred,
(b) the place where the conduct causing the
injury occurred,
(c) the domicil, residence, nationality,
place of incorporation and place of business of the
parties, and
(d) the place where the relationship, if any,
between the parties is centered.
Id. sec. 145(2). We evaluate these factors and contacts in light
of
their "relative importance" to the particular issues in each case.
Id.
Footnote 19:
See Pollak, supra note 15, at 99; see also Richard A. Epstein,
Torts 400-02 (1999).
Footnote 20:
See Pollak, supra note 15, at 100-03.
Footnote 21:
See id. at 103-08.
Footnote 22:
See id. at 101.
Footnote 23:
See id.; see also Phillip I. Blumberg, The Continuity of the
Enterprise Doctrine: Corporate Successorship in United States Law,
10 Fla. J. Int'l L. 365, 371 (1996) ("The doctrine . . . is
applicable only where the successor has the same stockholders as
the predecessor and conducts the same business with the same
management, facilities, employees, products, and trade names.").
Footnote 24:
Blumberg, supra note 23, at 371.
Footnote 25:
Under the "product line" exception, a successor will be liable
if it acquires substantially all of the predecessor's assets and
undertakes essentially the same manufacturing operation of the same
or similar products. See Ray v. Alad Corp., 560 P.2d 3, 8-11 (Cal.
1977); 63 Am. Jur. 2d Products Liability sec. 133 (1997); Pollak,
supra note 15, at 104-16. Because the facts in this case seem ill-
suited to this exception, we decline to evaluate the wisdom of
adopting the "product line" theory at this time. Our decision
today does not preclude further consideration of this exception in
an appropriate case.
Footnote 26:
See Richard L. Cupp, Jr., Redesigning Successor Liability,
1999 U. Ill. L. Rev. 845, 848 & n.16 (1999).
Footnote 27:
See 63 Am. Jur. 2d Products Liability sec. 129.
Footnote 28:
See Turner v. Bituminous Cas. Co., 244 N.W.2d 873, 883-84
(Mich. 1976); Cupp, supra note 26, at 848-49.
Footnote 29:
See 63 Am. Jur. 2d Products Liability sec. 130.
Footnote 30:
244 N.W.2d 873 (Mich. 1976).
Footnote 31:
See id. at 883-84; see also Pollak, supra note 15, at 103; 63
Am. Jur. 2d Products Liability sec. 132.
Footnote 32:
See Restatement (Third) of Torts: Products Liability sec. 12,
Reporters' Note at 215-19 (1998).
Footnote 33:
See id. sec. 12 cmt. b at 210 & Reporters' Note at 215-19.
Footnote 34:
See id. sec. 12, Reporters' Note at 217-18. The Restatement
identifies only three states where courts have adopted the
"continuity of enterprise" exception: Alabama, Michigan, and New
Hampshire. See id. at 219.
Footnote 35:
The Third Restatement lists twenty-two states in which state
courts (or federal courts applying state law) have rejected both
the "continuity of enterprise" and "product line" exceptions. Seeid. sec. 12, Reporters' Note at 217-18. But one commentator
estimates
that only eighteen jurisdictions as of mid-1998 had actually
rejected the modern exceptions, when considering those states whose
highest courts had yet to rule on the issue. See Cupp, supra note
26, at 852-54. Professor Cupp states that courts interpreting the
law of Mississippi, Ohio, and South Carolina have also recognized
and adopted the "continuity of enterprise" exception. See Cupp,
supra note 26, at 854 n.44.
Footnote 36:
See Restatement (Third) of Torts: Products Liability sec. 12
cmt.
b, at 211; Epstein, supra note 19, at 400-01; Michael D. Green,
Fairness and Successor Liability: The Limits of the Common Law
Process, 8 Kan. J.L. & Pub. Pol'y 119, 121 (1998).
Footnote 37:
See Epstein, supra note 19, at 401; Restatement (Third) of
Torts: Products Liability sec. 12 cmt. b, at 211.
Footnote 38:
See Epstein, supra note 19, at 401-02; Restatement (Third) of
Torts: Products Liability sec. 12 cmt. b, at 211.
Footnote 39:
See, e.g., Restatement (Third) of Torts: Products Liability
sec.
12 cmt. b at 211 & Reporters' Note at 215-21; Epstein, supra note
19, at 400-02; Green, supra note 36, at 121.
Footnote 40:
See Cupp, supra note 26, at 861-77.
Footnote 41:
See Michael D. Green, Successor Liability: the Superiority of
Statutory Reform to Protect Product Liability Claimants, 72 Cornell
L. Rev. 17, 40 (1986).
Footnote 42:
See id. at 40; Cupp, supra note 26, at 862 n.90.
Footnote 43:
See Epstein, supra note 19, at 402 (explaining that
corporations are learning to navigate modern successor liability
rules).
Footnote 44:
See Restatement (Third) of Torts: Products Liability sec. 12
cmt. b., at 210-11.
Footnote 45:
Id. at 210.
Footnote 46:
See Michelle M. Morgan, The Denial of Future Tort Claims in In
Re Piper Aircraft: Will the Court's Quick-Fix Solution Keep the
Debtor Flying High or Bring it Crashing Down?, 27 Loy. U. Chi. L.J.
27, 36-37 (1995).
Footnote 47:
Nonetheless, federal bankruptcy law may govern whether
potential claims for injuries not yet incurred may be discharged in
a bankruptcy proceeding. In this case, the First Circuit has ruled
that there is no discharge of Western Auto's claims. See infra
note 56.
Footnote 48:
See, e.g., Polius v. Clark Equip. Co., 802 F.2d 75, 82-83 (3d
Cir. 1986); Johnston v. Amsted Indus., Inc., 830 P.2d 1141, 1144
(Colo. App. 1992); see also Restatement (Third) of Torts: Products
Liability sec. 12 cmt. b, at 210.
Footnote 49:
See Cupp, supra note 26, at 860-63 (arguing that greater
successor liability will channel responsibility back to original
product manufacturer).
Footnote 50:
See id. This incentive holds true until the firm knows that
its liabilities will outstrip any goodwill available to be sold.
But companies in that position would not be relevant to this
successor liability issue, because no buyer would pay for an
ongoing concern valued at less than its assets.
Footnote 51:
See, e.g., Green, supra note 41.
Footnote 52:
See Restatement (Third) of Torts: Products Liability sec. 12,
Reporters' Note at 216-17.
Footnote 53:
See Cupp, supra note 26, at 877-78.
Footnote 54:
See Cupp, supra note 26, at 878.
Footnote 55:
See Cupp, supra note 26, at 879-83.
Footnote 56:
In April 1992 Western Auto filed a third-party complaint
against Savage Arms for indemnification or apportionment of
damages. Savage Arms contended that Western Auto's claims were
barred by the terms of Savage Industries' bankruptcy. The First
Circuit Court of Appeals ultimately resolved the issue in Western
Auto's favor in December 1994. See Western Auto Supply Co. v.
Savage Arms, Inc. (In re Savage Indus., Inc.), 43 F.3d 714, 723
(1st Cir. 1994).
Footnote 57:
Id.
Footnote 58:
Id. at 722.
Footnote 59:
See Alaska R. Evid. 801(d)(2) (defining statements by party
opponents as non-hearsay).
Footnote 60:
See Alaska R. Evid. 802.
Footnote 61:
Alaska Civil Rule 17(a) provides in relevant part:
Every action shall be prosecuted in the name
of the real party in interest. . . . [A] party with whom or in
whose name a contract has been made for the benefit of another, or
a party authorized by statute may sue in that person's own name
without joining the party for whose benefit the action is brought
. . . . [R]atification, joinder, or substitution [of the real party
in interest] shall have the same effect as if the action had been
commenced in the name of the real party in interest.
Footnote 62:
722 P.2d 919 (Alaska 1986).
Footnote 63:
See id. at 926.
Footnote 64:
See id. at 925-26.
Footnote 65:
See id.
Footnote 66:
Id. at 926.
Footnote 67:
543 P.2d 1336 (Mont. 1975).
Footnote 68:
See Baugh, 722 P.2d at 926.
Footnote 69:
See Nawd's T.V., 543 P.2d at 1337.
Footnote 70:
See id. at 1338-39.
Footnote 71:
6A Charles Alan Wright et al., Federal Practice and Procedure
sec. 1546, at 355-56 (2d ed. 1990) (footnotes omitted).
In the Supreme Court of the State of Alaska
Savage Arms, Inc., )
)Supreme Court No. S-08611/S-8612/S-8721
Petitioner, )
v. ) Order
) Petition for Rehearing
Western Auto Supply Co., )
)
Respondent. ) Date of Order: 3/2/01
)
Trial Court Case # 3KN-90-00922CI
Before: Matthews, Chief Justice, Eastaugh, Fabe, Bryner, and
Carpeneti, Justices.
On consideration of Savage Arms' Petition for Rehearing and
Western Auto's response to the petition,
It is Ordered:
1. The Petition for Rehearing is Granted with respect to the
hearsay issue. The petition is denied with respect to the issue of
continuity of enterprise.
2. Opinion No. 5293, issued on June 30, 2000, is Withdrawn.
3. Opinion No. 5370, is issued on this date in its place.
The following language replaces the two paragraphs of text in Part
III.D of the opinion issued June 30, 2000.
Savage Arms argues that the superior court abused
its discretion by considering journal articles Western
Auto submitted in support of its summary judgment motion.
These articles included statements attributed to Savage
Arms' chief executive officer supporting Western Auto's
argument that Savage Arms holds itself out to the world
as the legal successor to Savage Industries. Savage Arms
asserts that the articles contain multiple levels of
hearsay. Since we remand for other reasons, it is
unnecessary to discuss this issue at length. But we
address it briefly here because it may recur on remand.
For purposes of our discussion, we assume that the CEO
uttered the statements attributed to him.
In effect, the statements were uttered at least
twice, first by Savage Arms' CEO and ultimately by the
articles' authors upon publication. When the statements
were first uttered, the declarant was Savage Arms' CEO
and the statements were not hearsay, because they were
admissions by a party-opponent.[EN 59] But when the
articles
were offered to prove the truth of their assertions --
that the CEO had made the statements the articles
attributed to him -- their authors became the declarants
whose out-of-court statements were being offered into
evidence. If the articles were offered for their truth,
they normally would have been inadmissible hearsay.[EN 60]
The superior court rejected Savage Arms' hearsay
objection, but so far as we can tell from the record, did
not address the author-as-declarant issue. Whether it
must do so on remand depends on whether the articles are
offered for the truth of the matters they assert.
ENDNOTES:
59 See Alaska R. Evid. 801(d)(2) (defining statements by party
opponents as non-hearsay).
60 See Alaska R. Evid. 802
Entered by direction of the court.
Clerk of the Appellate Courts
Marilyn May
cc: Supreme Court Justices
Judge Link
Trial Court Appeals Clerk/Anchorage
West Publishing
Other Publishers
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