The opinion of the court was delivered by: PECKHAM
Cross-motions on the issue of the successor liability of defendant Pittsburgh Corning Corporation (Pittsburgh Corning) came before the court for hearing on October 3, 1983. The court, having reviewed the memoranda submitted in support of and in opposition to the cross-motions, and having heard argument of counsel, rules as follows.
The issue before the court is whether Pittsburgh Corning is to be held liable as the successor manufacturer and distributor of an asbestos-containing product, Unibestos. Unibestos was originally manufactured from approximately 1936 through 1962 by Unarco Industries, Inc. (Unarco). In 1962, Unarco sold the entire Unibestos product line, including the know-how, manufacturing facilities, customer lists, and exclusive right to use the trade name "Unibestos" to Pittsburgh Corning. From 1962 to 1972, Pittsburgh Corning was the sole manufacturer, producer, and distributor of Unibestos. In 1972, Pittsburgh Corning ended its manufacture, production, and distribution of Unibestos.
Following the 1962 sale of Unibestos to Pittsburgh Corning, Unarco remained in business, manufacturing and selling various other products. On July 29, 1982, Unarco filed a Debtor's Petition under Chapter 11 of the Bankruptcy Code in the United States District Court for the Northern District of Illinois. Upon the filing of this petition triggered an automatic stay that effectively stayed all legal proceedings against Unarco. 11 U.S.C. § 362(a).
Under the California law governing this diversity action, a corporation acquiring the assets of another corporation is not normally liable for the debts or liabilities incurred by the predecessor corporation. Ortiz v. South Bend Lathe, 46 Cal. App. 3d 842, 846, 120 Cal. Rptr. 556 (1975). In 1977, however, the California Supreme Court established an exception to this general rule when it found that a successor corporation could be deemed strictly liable for the product liability torts of a predecessor corporation. Ray v. Alad, 19 Cal. 3d 22, 136 Cal. Rptr. 574, 560 P.2d 3 (1977). In reaching this conclusion, the Alad court considered three factors:
(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 "manufacturers's good will being enjoyed by the successor in the continued operation of the business.
Id. at 31. This three-pronged analysis controls the decision here.
It is important to note that the facts of the instant case do not strictly accord with the facts before the California Supreme Court in Alad. In Alad, an injured plaintiff sued a successor corporation (Alad II) because the actual manufacturer of the defective product (Alad I) had sold out to the successor. The Alad plaintiff could not have sued the original manufacturer -- Alad I -- because that corporation no longer existed. Significantly, the predecessor corporation no longer existed because it had been bought out by the successor corporation Alad II. In that situation, where the successor corporation acquired all of the assets of the predecessor corporation, the California Supreme Court found that the successor corporation should be held strictly liable for the product liability torts of its predecessor.
That factual situation is not presented here. Pittsburgh Corning did not buy all of the assets of Unarco in 1962; it merely purchased one (out of hundreds) of Unarco's product lines. Unarco continued to exist after the 1962 sale and continues to exist today. The only reason that successor liability is even an issue in this case is Unarco's July 1982 decision to commence Chapter 11 proceedings. As a result of this decision by Unarco, an automatic stay went into effect that blocked the plaintiffs' litigation proceedings against Unarco. Thus, as a result of this decision, Unarco is -- for all intents and purposes -- a non-sueable entity.
The record here is clear that this showing cannot be made. Pittsburgh Corning asserts, and the plaintiffs concede, that Pittsburgh Corning had nothing to do with the destruction of the plaintiffs' ability to recover against the predecessor corporation Unarco. The plaintiffs' lack of recourse stems entirely from Unarco's unilateral decision to avail itself of the bulwark of Chapter 11 of the Bankruptcy Code.
Given these facts, holding Pittsburgh Corning strictly liable for injuries caused by Unarco-manufactured Unibestos would be an unwarranted extension of the Alad logic. Alad permitted the shifting of the burden from a wholly blameless plaintiff to a successor corporation at least partially to blame for the destruction of the plaintiffs' remedies. In the instant case, Pittsburgh Corning is not partially blameworthy; it is in an entirely different situation than the successor corporation in Alad. The court cannot ascribe blame to Pittsburgh Corning for the destruction of plaintiffs' remedies by Unarco. It would be ...