American Std., Inc. v Oakfabco, Inc.

[*1] American Std., Inc. v Oakfabco, Inc. 2008 NY Slip Op 52705(U) [26 Misc 3d 1216(A)] Decided on February 20, 2008 Supreme Court, New York County Freedman, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on February 20, 2008
Supreme Court, New York County

American Standard, Inc., Plaintiff,

against

Oakfabco, Inc. f/k/a Kewanee Boiler Corp., Defendant.



601031/06



Appearances for American Standard

Attorneys for Plaintiff

MCGUIRE WOODS LLP

1345 Avenue of the Americas, 7th Floor

New York, New York 10105

Att: Yvette Harmon, Esq. and Marshall Beil, Esq.

(212) 548-2100

Attorneys for Defendant

Landman Corsi Ballaine & Ford P.C.

120 Broadway, 27th Floor

New York, New York 10271-0079

Att: Michael L. Gioia, Esq.

(212) 238-4800

Helen E. Freedman, J.

In this motion, American Standard Inc. ("American Standard") moves for summary judgment declaring that Kewanee Boiler Corporation ("Kewanee"), the predecessor of defendant Oakfabco, Inc. ("Oakfabco") assumed all obligations to personal injury and product liability plaintiffs for asbestos related claims allegedly caused by exposure to Kewanee boilers manufactured before 1970. American Standard also seeks to have Oakfabco permanently enjoined from disclaiming its obligations in any forum. Defendant Oakfabco cross-moves for partial summary judgment declaring that American Standard remains directly obligated to asbestos tort plaintiffs as respects pre-1970 Kewanee boilers, regardless of the scope of Oakfabco's assumption of liabilities. For the reasons stated below, both motions are granted albeit American Standard's is limited to this jurisdiction.

Plaintiff bases its motion on the following Agreement and Undertaking between American Standard and Kewanee. In 1970, American Standard sold its Kewanee Boiler Division [*2]to Kewanee Boiler Corporation ("Kewanee"). At the time of the Purchase and Sale Agreement, Kewanee assumed all of American Standard's obligations pursuant to a Buyer's Undertaking, as part of the 1970 Agreement. The Agreement and Undertaking state as follows:

Buyer does hereby assume and agree to pay, perform and discharge and indemnify Seller with respect to, all obligations, liabilities, debts and commitments (fixed or contingent) connected to Kewanee, existing and outstanding at the date hereof, including by way of specification, but not limitation, the following:

(i)all liabilities and obligations of Kewanee shown on the Balance Sheet of Kewanee dated as of December 31, 1969, a copy of which is annexed hereto;

(ii)all liabilities and obligations of Kewanee arising since December 31, 1969 to the date hereof inclusive of advances made by Seller;

(iii)warranty, service repair and return obligations of Kewanee and other claims and complaints arising out of, or in connection with any products manufactured, sold leased or installed by Kewanee on or prior to the date hereof.

Page 1 of Buyer's Undertaking dated March 2, 1970.

American Standard contends that the assumption of liabilities includes all of the asbestos related claims based on exposures to Kewanee boilers prior to 1970. It claims that the language that includes "fixed and contingent" obligations and liabilities and "other claims and complaints arising out of, or in connection with any products manufactured, sold leased or installed by Kewanee on or prior to the date hereof," is sufficiently broad to include such claims. That is consistent with the position that this Court took in its June 4, 2004 decision Anastasio v. A.O. Smith Products et al. 0105467/03 (Sup. Ct. NY Co. 2004). This Court, however, specifically limited the applicability of its decision to that particular case, and invited further consideration.

Oakfabco contends that the language stating that Kewanee was assuming liabilities that were "existing and outstanding" at the time of the purchase means that claims that arose later relating to pre 1970 exposure were not assumed. That is the position that Oakfabco took in Creech v. AGCO Corp., 113 Wn. App. 681, 138 P.3d 623 (2006) and the appellate Court there held that Oakfabco was not liable for claims that were not existing and outstanding at the time of the sale and undertaking agreements. Based on the Creech, decision, a trial Court in Oklahoma in Hopkins v. Am. Standard, Inc., CJ-2005-8284 (Okla. Co. December 11, 2006) also granted summary judgment to Oakfabco with respect to claims based on pre 1970 exposure. Oakfabco invokes Grant Howard Associates et al. v. General Housewares Corp., 63 NY2d 291 (1984), in which the Court of Appeals found that an agreement to assume liabilities that existed at the closing date did not include contingent tort liabilities.

In its decision in Anastasio, this Court relied on holdings in the Northern Illinois Bankruptcy Court where Kewanee, in 1986, filed for bankruptcy but did not list American Standard as a creditor for existing asbestos claims. In 2003, the Bankruptcy Court held that Kewanee had expressly agreed to assume and "hold American Standard harmless against all [*3]Kewanee liabilities, including claims and complaints arising out of or in connection with any products manufactureed, sold, leased or installed by Kewanee prior to the closing date.' " Oakfabco v. American Standard, 297 B.R. 720 (N.D. Ill. Bankr. 2003). This Court also considered two earlier cases, Kaczmarczyk v. American Standard Inc., L-8868-78 (DGE)(N.J. Sup. Ct. Jan. 2, 1980) and Chute v. Rozman, No. 460444, No. 460444(JPS)(Dist. Ct. Minn. Oct.1984). Both courts found that the 1970 agreements were not ambiguous and that Kewanee had assumed liability for all claims relating to the pre-1970 Kewanee boiler line.

Some background facts are relevant. Kewanee continued to produce boilers after the 1970 sale (although there was another stock transfer in 1975) until it filed for bankruptcy in 1986. In the 1986 Bankruptcy proceedings, Kewanee sold all of the Kewanee assets and the name to Coppus Engineering, and the reorganized debtor changed its name to Oakfabco. During the bankruptcy proceedings, Kewanee n/k/a Oakfabco assumed that it was liable for pre and post 1970 asbestos claims although it did not list American Standard as a creditor until 1990.. Oakfabco petitioned the Bankruptcy Court in 1990 to reopen the bankruptcy proceedings to extend the claims bar date in order to schedule personal injury asbestos related lawsuits brought against American Standard so as to resolve their claims in the Bankruptcy Court. In the case of Kewanee Boiler Corp. n/k/a Oakfabco v. Smith, 198 B.R. 519 (N.D. Ill. Bankr. 1996) involving the steam explosion of a 1952 Kewanee boiler, the Court found that Oakfabco was potentially liable to plaintiff for any injuries caused by a boiler defect and that the claims of tort claimants who were not specifically noticed as creditors in the bankruptcy proceedings survived the reorganization. In Oakfabco, Inc v. American Standard, Inc., 86 B 16937, Adversary 02 A 00076, the Bankruptcy Court in the Northern District of Illinois implicitly found that Oakfabco bore responsibility for asbestos claims and allowed claims against insurance proceeds. (Decision of Hon. Jack Schmetterer, August 29, 2003). It also found that a previous indemnification claim that American Standard had submitted had been discharged.

Ordinarily, a stock or asset purchase does not include assumption of tort liabilities by the successor corporation unless certain criteria are met. Schumacher v. Richard Shear Co., 59 NY2d 239 (1983). The Court of Appeals specifically rejected the "product line" exception that California adopted in Ray v. Alad Corp., 19 Ca 3d 22 to impute liability to a successor corporation. That exception applied to situations where the successor corporation continued to produce the product at the same plant. The exceptions that Schumacher did adopt, however, included an express or implied assumption of the predecessor's tort liability. Other exceptions included merger of seller and purchaser, purchaser as mere continuation of predecessor, or transaction was entered into to fraudulently escape such obligations.

In this case, the only exception invoked or applicable is the express or implied assumption of the predecessor's tort liability. As discussed above, interpreting the very same language of the Agreement and Undertaking, courts have reached different conclusions. In Anastasio v. A.O. Smith Products et al. 0105467/03 (Sup. Ct. NY Co. 2004), this Court, following Kaczmarczyk v. American Standard Inc., L-8868-78 (DGE)(N.J. Sup. Ct. Jan. 2, 1980) and Chute v. Rozman, No. 460444, No. 460444(JPS)(Dist. Ct. Minn. Oct.1984) as well as the decisions of the Bankruptcy Court, found that Kewanee, and thus its successor Oakfabco, specifically assumed obligations arising out of pre-1970 boilers and were thus viable defendants as to those claims. After this Court's Anastasio decision, courts in Washington and Oklahoma [*4]found that the words "existing and outstanding" so modified the liability assumption as to render claims that arose after the sale had not been assumed. However, consistent with this court's decision, an appellate court in California found that in the 1970 sale Kewanee had assumed liability for tort claims arising from pre- 970 Kewanee products in Purcell v. Oakfabco, Inc., No. A100654, 2004 Cal App. (March 26, 2004).

After reading the decisions of all of the Courts that have weighed in on whether the language of the Agreement and Undertaking involves and assumption of liability for injuries sustained as a result of boilers installed prior to 1970, this court finds that it does. Contrary to the findings of the Courts in Washington and Oklahoma, the words "existing and outstanding" do not limit liabilities to those already in existence. The last paragraph speaks specifically of

"other claims and complaints arising out of, or in connection with any productsmanufactured, sold leased or installed by Kewanee on or prior to the date hereof".

The assumption also speaks to "contingent liabilities". Unlike the more limited assumption of liabilities in Grant Howard Associates et al. v. General Housewares Corp., 63 NY2d 291 (1984), the plain language of the Agreement and Undertaking presumes an assumption of liabilities for injuries associated with Kewanee boilers.

Therefore, as long as the Bankruptcy Court does not determine that the asbestos liabilities have been discharged or that Oakfabco's liability to American Standard has been discharged, Oakfabco continues to be liable for pre 1970 Kewanee boiler injuries in this jurisdiction. This Court takes no position as to other jurisdictions who may legitimately have a narrower interpretation of the words "existing and outstanding," as has already occurred in two jurisdictions.

At the same time, American Standard remains liable to third parties for injuries sustained as a result of pre 1970 boiler installations. The fact that the parties have made an arrangement between themselves concerning liability assumption or indemnification does not affect third parties. A sale does not vitiate the original company's liability. An injured party can elect to proceed against the original corporation, the successor corporation, or both. Grant Howard Associates et al. v. General Housewares Corp., 63 NY2d 291 (1984). Thus, American Standard is still liable to plaintiffs for injuries sustained. as a result of Kewanee boilers installed prior to 1970, and it may not disclaim liability to plaintiffs on that ground.

Based on the foregoing, it is hereby

ORDERED that in this jurisdiction, Oakfabco is liable for injuries sustained as a result of tortious conduct in connection with Kewanee boilers installed prior to 1970; and it is further

ORDERED that American Standard remains liable to plaintiffs for injuries incurred as a result of torts relating to Kewanee boilers installed prior to 1970.

Dated: February 20, 2008

Enter:

Helen E. Freedman, J.S.C.