Herlihy v A.F. Supply Corp.

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Herlihy v A.F. Supply Corp. 2013 NY Slip Op 30010(U) January 2, 2013 Sup Ct, New York County Docket Number: 190149/11 Judge: Sherry Klein Heitler Republished from New York State Unified Court System's E-Courts Service. Search E-Courts (http://www.nycourts.gov/ecourts) for any additional information on this case. This opinion is uncorrected and not selected for official publication. SCANNED ON 11712013 [* 1] SUPREME COURT OF THE STATE OF NEW YORK NEW YORK COUNTY Justice Index Number : 190149/2011 HERLIHY, ARTHUR D. vs . A F SUPPLY GORP. SEQUENCE NUMBER : 002 INDEX NO. MOTION DATE MOTION SEQ. NO. Qb . DISMISS The following papers, numbered 1 to I _ _ Notice of MotionlOrder to Show Cause Answering Affidavits I were read on this motion tolfor -Affidavits - Exhibits IW s ) . IW 3 ) . IW s ) . - Exhibits Replying Affidavits Upon the foregoing papers, it is ordered that this motion is is decided i accordance with the n memorandum decision dated I C 2 -1 3 HQN. I. CHECK ONE: ..................................................................... 2. CHECK AS APPROPRIATE: 3. CHECK IF APPROPRIATE: ...........................MOTION IS: ................................................ CASE DISPOSED GRANTED 0DENIED 0SETTLE ORDER DO NOT POST NON-FINAL DISPOSITION 0GRANTED IN PART aOTHER SUBMIT ORDER FIDUCIARYAPPOINTMENT REFERENCE [* 2] SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK: PART 30 X _ _ _ I _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ r _ _ _ l _ _ _ _ _ l _ _ _ _ _ l GAIL HERLIHY, Individually and as Executrix of the Estate of ARTHUR HERLIHY, Index No. 190149/11 Motion Seq. 002 DECISION AND 0RX)ER P1ainti ffs, -against- A,F. SUPPLY CORP,, et al., SHERRY KLEIN HEITLER, J.: Defendant Munaco Packing & Rubber Co., Inc., a South Carolina corporation ( Muna SC ), moves pursuant to CPLR 321 l(a)(8) to dismiss the complaint and all cross-claims asserted against it for lack of personal jurisdiction. Plaintiffs oppose on the ground that this court has jurisdiction over Munaco SC because it i s the successor-in-interest to Munaco Packing and Rubber Co., Inc., a now dissolved New York corporation ( Munaco NY ) which manufactured asbestos-containing products and which is alleged to have caused plaintiffs decedent Arthur Herlihy s asbestos-related injuries. For the reasons set forth below, the motion is denied, BACKGROUND This action was commenced on April 21,201 1 by Arthur Herlihy and his wife Gail Herlihy to recover for personal injuries allegedly caused by Mr. Herlihy s exposure to asbestoscontaining products while working for the Brooklyn Boiler Repair Company of Brooklyn, New York from 1962 to 1991. In Mr. Herlihy s answers to interrogatories and at his deposition, he testified he was exposed to asbestos from products manufactured by Munaco NY. -1- [* 3] Munaco NY was founded in the mid 1940 sby William Mum. Its main oftice was located at 325 West 16th Street, New York, NY. During World War 11, the company manufactured and supplied gaskets and packing for the Brooklyn Navy Yard. Thereafter, it manufactured gasket inaterials for the Brooklyn Boiler Repair Company, the General Electric Company, and the Consolidated Edison Company of New York, among others. Mr. Mum sold the company to Dennis Cullen in 1972. In 1995, Mr. Cullen formed Munaco SC in order to be closer to the company s primary client at its new location in South Carolina. Munaco NY was dissolved by Mr. Cullen approximately two years later on January 3 1, 1997. Prior to Munaco SC s formation, Munaco NY had eight employees, six of whom decided to relocate to South Carolina to work for Munaco SC. Mr. Denton Taylor, who chose not to relocate, purchased the right to use the name Munaco in New York. He formed his own company, Denton Taylor Industries, Inc., and filed a certificate of doing business as Munaco Packing and Rubber Company. As such, Denton Taylor Industries operated out of Munaco NY s former office space from 1995 until 2001. Three former Munaco NY employees were deposed in connection with this action. Mr. Denton Taylor , who from 1988 to 1995 was responsible for computerizing the company, testified that when Munaco SC was formed Dennis Cullen took most o Munaco N Y s machinery f and equipinciit to South Carolina. Ms. Dianne Walsh2,who began working for Munaco NY as a gasket cutter in 1983 and currently serves as Munaco SC s Secretary/Treasurer, testified that Munaco NY s accounts receivable and payable came with us when Munaco moved to South ~~ ~ I Mr. Taylor was deposed on September 22,201 1 (Plaintiffs exhibit 10). 2 Ms. Walsh was deposed on April 11,2012 (Plaintiffs exhibit 11). -2- [* 4] Carolina. (Plaintiffs exhibit 11, p. 151). She testified that Munaco SC carried out the same business operations as Munaco NY) namely the manufacture, distribution and sale of gaskets and packing, among other products, Plaintiffs also deposed Munaco SC s current owner, Ms. Brenda DeWachter3,who began working for Munaco NY in 1982 as a file clerk. She testified that Munaco NY s pension fund was continued by Munaco SC upon its formation. Both Ms. Walsh and Ms. DeWachter tcstified that Munaco NY and Munaco SC used the same logo. It is undisputed that Munaco SC was not incorporated until 1995 and thus could not have directly caused Mr. Herlihy s injuries. The issue is whether Munaco SC may be deemed to have inherited the jurisdictional status of Munaco NY such that this court may adjudicate plaintiffs claims against it. DISCUSSION The ultimate burden in this case rests on the plaintiff as the party asserting jurisdiction. O Brien v Hackensack Univ. Med. Ctr., 305 AD2d 199,200 (1st Dept 2003). However, courts do not generally require that plaintiffs make aprima facie showing of personal jurisdiction. Rather, to defeat a CPLR 321 l(a)(8) motion, a plaintiff must only demonstrate that facts may exist to exercise personal jurisdiction over the defendant. Ying Jun Chen v Lei Shi, 19 AD3d 407,408 (2d Dept 2005). Courts are required to view jurisdictional allegations in a light most favorable to the plaintiff and resolve all doubts in its favor. Bvandt v T O T Q ~ ~ , 273 AD2d 429, 430 (2d Dept 2000). However, plaintiffs must nonetheless allege jurisdictional contacts that, if proven, would be sufficient to demonstrate that the exercise of personal jurisdiction would be proper under either New York s general jurisdiction statute (CPLR 30 1) or New York s long-arm 3 Ms. DeWachter was deposed on April 11-12,2012 (Plaintiff s exhibit 12). -3- [* 5] statute (CPLR 302), and that the exercise of jurisdiction compoits with tlle coiistitutional limits of due process. See LaMarca v Pak-Mor A k Co., 95 NY2d 210,214 (2000). 4. Munaco SC argucs it is entitled to dismissal because it is a South Carolina corporation that has no presence in New York. In opposition, plaintiffs argue that this court has personal jurisdiction over the defendant as successor-in-interest to Munaco NY. In this regard, it is settled in New York that a corporation which acquires the assets of another corporation generally is not liable for the torts of its predecessor unless it (1) impliedly assumed the predecessor s tort liability; (2) there was a consolidatioii or merger of seller and purchaser; (3) the purchasing corporation was a mere continuation of the selling corporation; or (4)the transaction was entered into fi-audulently to escape such obligations. Schurnacher v Richards Shear Co., 59 NY2d 239, 245 (1983). The defendant argues that while the law may confer liability to a successor corporation, it does not similarly confer personal jurisdiction. The defendant relies primarily on Sernenetz v Sherling & Wulden, Inc., 21 AD3d 1138, 1140 (3d Dept ZOOS), qfd on other grounds, 7 NY3d 194 (2006). In Sernenetz, a child was injured while using a sawmill. The defendant, an Alabama corporation, had purchased all of the assets of another Alabama-based business which manufactured the sawmill. The defendant sought dismissal on the basis of lack of personal jurisdiction. The trial court ruled that under the product line exception, since the manufacturer was subject to long-arm jurisdiction, the defendant was likewise subject to such jurisdiction. The Third Department reversed. In this respect, the court opined (21 AD3d at 1140): The product line . . . exception[] to the successor liability rule deal[s] with the concept of tort liability, not jurisdiction. When and if [an] exception is found applicable, the corporate successor would be subject to liability for the torts of its predecessor in any -4- [* 6] forum having in personam jurisdiction over the successor, but the cxceptions do not and cannot confer such jurisdiction over the successor in the first ii~staiice.~ While the Court of Appeals affirmed on a different ground (Semenetz, supra, 7 NY3d at 202) it declined to rule on the jurisdictional issue. Id. at 199, n. 2 ( Because we do not adopt the product line exception, we need not and do not address plaintiffs argpment that personal jurisdiction may properly be imputed to a successor corporation whenever it is substantively responsible for its predecessor s allegedly tortious conduct. ) The defendant argues that the gravamen of the Court of Appeals opinion strongly counsels against the imputation of jurisdiction on corporate successors.s However, the Sernenetz case is different fiom this case and the defendant s reliance thereon is misplaced. In Semenetz, both the predecessor and the successor corporations were based in Alabama and ostensibly were the subject of an arm s length transaction. Here, the alleged predecessor company was domiciled and registered to do business in New York and apparently merely moved its business to South Carolina. More important, the Court of Appeals in Semenetz explicitly declined to discuss the jurisdictional issue having focused its analysis on why it rejected the plaintiff s theory of successor corporate liability based upon the product line doctrine. Unlike Semenetz, the case at 4 The product line doctrine in Semenetz was rejected by the Court of Appeals. Prior thereto, it was considered another potential exception to the general rule that a successor corporation is not liable for the torts of its predecessor. In order for such rule to apply, a party would have to show that the injured party s remedy against the original manufacturer was destroyed by the successor s acquisition of all the predecessor s assets, the successor continued to manufacture the same line of products as the predecessor, the successor had the ability to assume the predecessor s risk-spreading role and the successor benefitted from the predecessor s goodwill. Semenetz, supra, at 1140. 5 Defendant s Memorandum of Law, dated June 19,2012, p. 14. -5- [* 7] bar turns on the application of the four exceptions found in Schumachcr v Richards Shear Co., supra. Moreover, several courts, including the Third Department in Semenetz, have explicitly acknowledged that a successor may inherit its predecessor s jurisdictional status based on the predecessor s transaction of business in the forum state. Scrnenetz, supra, 21 AD3d at 11401141 (internal citations omitted) ( While we recognize that in certain circumstances a successor corporation may inherit its predecessor s jurisdictional status . . . the facts of the subject case do not fit within such a scenario ); see Transfield ER Cape Ltd. v India. Carriers, Inc. 571 F3d 221,224 (2d Cir. 2009) (quoting Patin v Thoroughbred Power Boats, 294 F3d 640,653 [5th Cir. 20021) ( [Ilt is compatible with due process for a court to exercise personal jurisdiction over an individual or a corporation that would not ordinarily be subject to personal jurisdiction in that court when the individual or corporation is an alter ego or successor of a corporation that would In re Nazi Era Cases Against German be subject to personal jurisdiction in that Defendants Litig., 153 Fed. Appx. 8 19,822 (3d Cir. 2005) ( The method by which corporations combine can render a successor in interest to a prior corporation subject to personal jurisdiction under [CPLR] 6 302 based on the predecessor s actions. ); Minn, Mining & Mfg. Co. v Eco Chem, 757 F2d 1256, 1263 (Fed. Cir. 1985) ( When the successor in interest voluntarily steps into the shoes of its predecessor, it assumes the obligations of the predecessor s pending litigation if the court properly assumed jurisdictioii over the predecessor and if the successor is properly served . . . . Were this not so, the owners of the property could merely transfer legal ownership of the assets from one shell corporation to another in a different jurisdiction, putting a party whose initial suit satisfied the jurisdictional requirements to the immense burden of chasing the involved assets from courtroom to courtroom. ); Time Warner Cczble, Im. v Netwurkr Group, -6- [* 8] LLC, Index No. 09-CV-10059,2010 U.S. Dist. LEXIS 93855, at 16 (SDNY Sept. 9,2010) ( An allegation of siiccessor liability against an cntity whose predecessor is subject to personal jurisdiction can provide personal jurisdiction over the successor entity ); Linzer v EM1 Blackwood M s c Zulc., 904 F. Supp. 207,213 (SDNY Nov. 13, 1995) (a successor in interest ui, can be subject to personal jurisdiction based on the activities of its predecessor as long as the companies are one and the same and the predecessor continues to be part of the successor);Fehl v S. KC. Corp., 433 F. Supp. 939, 945 (D. Del. 1977) (a successor corporation not transacting business in the state is subject to personal jurisdiction based on specific business transacted by its predecessor if the successor continued the predecessor s business under a different name). These cases confirm that so-called successorjurisdiction inay be imputed where a corporation is a mere continuation of another company or where there is a de facto merger between two entities, See, e.g., In re Nazi Era Cases, supra, at 823; Cargo Partner AG v Albatrans, Inc., 352 F.3d 41,46 n.3 (2d Cir 2003); c$ Schumacher, supra. The mere continuation exception applies where it is not simply the business of the original corporation which continues, but the corporate entity itself. Societe Anonyme Dauphitex y Schoenfelder Cop,No. 07-CV-489,2007 US Dist. LEXIS 81496, at 14 (SDNY Nov. 1,2007) (quoting Ladjevardian v Laidlaw-Coggeshall, Inc., 431 F . Supp. 834,839 (SDNY May 12,1977). A continuation envisions a common identity of directors, stockholders and the existence of only one corporation at the completion of the transfer. Ladjevardian, supra, at 839. The de facto merger similarly is rooted in equity, and has the purpose of avoiding patent injustice which might befall a party simply because a merger has been called something else. Cargo Partner AG, supra, at 46; see also In Re New York City Asbestos Litigation, 15 AD3d 254,258 (1st Dept 2005) (purpose of de facto merger doctrine is to ensure that a source remains to pay for the [* 9] victim s injuries ). In this respect, the First Department held in Fitzgerald v Fahnestock & Co., 286 AD2d 573, 574-575 (1st Dept 2001) (internal citations omitted): The hallmarks of a de facto merger include: continuity of ownership; cessation of ordinary business and dissolution of the acquired corporation as soon as possible; assumption by the successor of the liabilities ordinarily necessary for the uninterrupted continuation of the business of the acquired corporation; and, continuity o f management, personnel, physical location, assets and general business operation . . . Not all of these elements are necessary to find a de facto merger. Courts will look to whether the acquiring corporation was seeking to obtain for itself intangible assets such as good will, trademarks, patents, customer lists and the right to use the acquired corporation s name. The defendant asserts that these factors weigh against the imposition of successor jurisdiction, and relies on the fact that former Munaco NY employee Denton Taylor licensed the right to use the name Munaco in New York and continued to operate out of Munaco N Y s corporate headquarters for several years after Munaco SC was formed. But the totality of the facts herein strongly suggest that Munaco SC was a mere continuation of Munaco NY, the only difference between the two being a change of location. In this regard, the facts are that Munaco SC manufactured, distributed, and sold the same goods and products as Munaco NY to its same primary customer. Munaco SC employed six of Munaco N Y s eight employees, and utilized most of Munaco NY s equipment, including gasket presses, a cutting table, steel tables, and desks. Dennis Cullen, the sole owner of Munaco NY, was also the sole owner of Munaco SC until he passed away in or about 2004. It was Dennis Cullen, not Denton Taylor, who signed dissolution papers for Munaco NY in January of 1997. This is evidence that Munaco NY was not, as defendant urges, sold to Mr. Taylor, but rather that Mr. Cullen simply continued his operation in South Carolina. A further fact evidencing this is that Munaco SC took with it to South Carolina Munaco NY s accounts receivable, accounts payable, and pension funds. In light of these facts, and in accordance with the authorities recited above, I find that this [* 10] court may propcrly exercise personal jurisdiction over the continuation of such company in the form of Munaco SC. The relatioilship between Munaco NY and Munaco SC is such that the jurisdictional contacts of one [may be deemed] the jurisdictional contacts of the other. Patin, supra, 294 F3d at 653. On this ground the motion to dismiss is denied. Plaintiffs request for further jurisdictional discovery is granted. CPLR 32 11(d). Munaco SC maintains that it does not engage in a regular and systematic course of doing business in New York. See Laufer v Ostrow, 55 NY2d 305,309 (1 982). But it does not appear that plaintiffs have been given the opportunity to examine the defendant s customer lists, shipment requests, invoices, and the like. Plaintiffs should be permitted to discover such documents, subject to certain restrictions (i.e. confidentiality). The court has considered the defendant s remaining contentions and finds thein to be without merit. Accordingly, it is hereby ORDERED that defendant Munaco Packing & Rubber Co., Inc. s motio FTTiE D denied in its entirety. JAN 07 2013 This constitutes the decision and order of the court. NEW YORK COUNTY CLERK S OFFICE DATED: t 2 1 3 J.S.C. -9-

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