Dritsas v Amchem Prods., Inc.

[*1] Dritsas v Amchem Prods., Inc. 2018 NY Slip Op 28230 Decided on April 30, 2018 Supreme Court, New York County Billings, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and subject to revision before publication in the printed Official Reports.

Decided on April 30, 2018
Supreme Court, New York County

Christos Dritsas and ELENI DRITSAS, Plaintiffs

against

Amchem Products, Inc., et al., Defendants.



190276/2015



APPEARANCES:

For Plaintiffs

Pierre A. Ratzki Esq.

Weitz & Luxenberg

700 Broadway, New York, NY 10003

For Defendant ITW Food Equipment Group

Daniel J. Gagliardi Esq.

Lynch Daskal Emery LLP

137 West 25th Street, New York, NY 10001

Gary Saalman Esq.

Vorys Sater Seymour & Pease LLP

52 East Gay Street, Columbus, OH 43215
Lucy Billings, J.

I. BACKGROUND

Plaintiffs seek damages for plaintiff Christos Dritsas' injuries when Dritsas was working at restaurants from 1969 through 1988 and was exposed to kitchen equipment that was manufactured by Vulcan-Hart Corporation and that contained asbestos. The parties do not dispute that in 1986 Hobart Corporation purchased specified assets from Vulcan-Hart Corporation and assumed specified liabilities it owed, pursuant to an Agreement for Purchase and Sale of Assets (Purchase Agreement). In 2002, defendant ITW Food Equipment Group acquired Hobart Corporation's product lines and other assets. ITW Food Equipment now moves for summary judgment on the basis that neither Hobart Corporation nor ITW Food Equipment is a successor of Vulcan-Hart Corporation or assumed liability for Christos Dritsas' exposure to Vulcan-Hart Corporation's products containing asbestos. C.P.L.R. § 3212(b). ITW Food Equipment does not dispute that it assumed any liabilities Hobart Corporation assumed through the Purchase Agreement.

II. SUMMARY JUDGMENT STANDARDS

To obtain summary judgment, ITW Food Equipment must make a prima facie showing of entitlement to judgment as a matter of law, through admissible evidence eliminating all material issues of fact. Id.; Friends of Thayer Lake LLC v. Brown, 27 NY3d 1039, 1043 (2016); Nomura Asset Capital Corp. v. Cadwalader, Wickersham & Taft LLP, 26 NY3d 40, 49 (2015); Voss v. Netherlands Ins. Co., 22 NY3d 728, 734 (2014); Vega v. Restani Constr. Corp., 18 NY3d 499, 503 (2012). Only if ITW Food Equipment satisfies this standard, does the burden shift to plaintiffs to rebut that prima facie showing, by producing evidence, in admissible form, sufficient to require a trial of material factual issues. De Lourdes Torres v. Jones, 26 NY3d 742, 763 [*2](2016); Nomura Asset Capital Corp. v. Cadwalader Wickersham & Taft LLP, 26 NY3d at 49; Morales v. D & A Food Serv., 10 NY3d 911, 913 (2008); Hyman v. Queens County Bancorp, Inc., 3 NY3d 743, 744 (2004). In evaluating the evidence for purposes of the motion, the court construes the evidence in the light most favorable to plaintiffs. De Lourdes Torres v. Jones, 26 NY3d at 763; Vega v. Restani Constr. Corp., 18 NY3d at 503; Cahill v. Triborough Bridge & Tunnel Auth., 4 NY3d 35, 37 (2004). If ITW Food Equipment fails to meet its initial burden, the court must deny summary judgment despite any insufficiency in plaintiffs' opposition. Voss v. Netherlands Ins. Co., 22 NY3d at 734; Vega v. Restani Constr. Corp., 18 NY3d at 503; Smalls v. AJI Indus., Inc., 10 NY3d 733, 735 (2008); JMD Holding Corp. v. Congress Fin. Corp., 4 NY3d 373, 384 (2005).

III. HOBART CORPORATION'S LIABILITY AS A SUCCESSOR

A corporation that acquires the assets of another corporation is not liable for the predecessor corporation's torts unless the successor corporation assumed that liability, the predecessor consolidated or merged with the successor, the successor was a mere continuation of the predecessor, or the predecessor transferred its assets fraudulently to escape its obligations. Semenetz v. Sherling & Walden, Inc., 7 NY3d 194, 198 (2006); Abreu v. Barkin & Assoc. Real Estate, LLC, 136 AD3d 600, 601-602 (1st Dep't 2016); Matter of New York City Asbestos Litig., 112 AD3d 529, 530 (1st Dep't 2013); Tap Holdings, LLC v. Orix Fin. Corp., 109 AD3d 167, 175-76 (1st Dep't 2013). See Grant-Howard Assoc. v. General Housewares Corp., 63 NY2d 291, 296 (1984); Schumacher v. Richards Shear Co., 59 NY2d 239, 245 (1983). Plaintiffs do not claim this final exception to a successor corporation's nonliability: that Vulcan-Hart Corporation sold its assets to Hobart Corporation to escape the predecessor corporation's obligations. Nor is the successor corporation liable for the predecessor corporation's torts under the "mere continuation" exception if ITW Food Equipment establishes that the predecessor survived the transaction. Id.; Ring v. Elizabeth Found. for Arts, 136 AD3d 525, 526 (1st Dep't 2016). See Tap Holdings, LLC v. Orix Fin. Corp., 109 AD3d at 176.

A. Hobart Corporation's Assumption of Liability Through the 1986 Purchase Agreement

In determining whether the first exception applies, whether the successor corporation assumed liability for the predecessor corporation's torts under the 1986 Purchase Agreement, the court must construe the contract to effectuate the parties' intent and, where the contract is unambiguous, must enforce its plain meaning. Beardslee v. Inflection Energy, LLC, 25 NY3d 150, 157 (2015); IDT Corp. v. Tyco Group, S.A.R.L., 13 NY3d 209, 214 (2009); Gilbane Bldg. Co./TDX Constr. Corp. v. St. Paul Fire & Mar. Ins. Co., 143 AD3d 146, 156 (1st Dep't 2016); Orix Venture Fin. LLC v. Eagle Ltd., 120 AD3d 1108, 1109 (1st Dep't 2014). A contract is ambiguous when it is reasonably susceptible of more than one interpretation. Universal Am. Corp. v. Natl. Union Fire Ins. Co. of Pittsburgh, Pa., 25 NY3d 675, 680 (2015); Ellington v. EMI Music, Inc., 24 NY3d 239, 244 (2014); Gilbane Bldg. Co./TDX Constr. Corp. v. St. Paul Fire & Mar. Ins. Co., 143 AD3d at 151; Chen v. Yan, 109 AD3d 727, 729 (1st Dep't 2013). A contract's provisions are not ambiguous, however, merely because the parties interpret the provisions differently. Universal Am. Corp. v. Natl. Union Fire Ins. Co. of Pittsburgh, Pa., 25 NY3d at 680; Lend Lease (U.S.) Const. LMB Inc. v. Zurich Am. Ins. Co., 136 AD3d 52, 56 (1st Dep't 2015), aff'd, 28 NY3d 675 (2017); CT Inv. Mgt. Co., LLC v. Chartis Specialty Ins. Co., 130 AD3d 1, 6-7 (1st Dep't 2015). The court may refer to a dictionary to determine the plain and ordinary meaning of a contract's terms. Universal Am. Corp. v. Natl. Union Fire Ins. Co. of Pittsburgh, Pa., 25 NY3d at 681; Lend Lease (U.S.) Const. LMB Inc. v Zurich Am. Ins. Co., 136 AD3d at 57; CT Inv. Mgt. Co., LLC v. Chartis Specialty Ins. Co., 130 AD3d at 6 n.2.

To support the motion for summary judgment, ITW Food Equipment presents no evidence other than the 1986 Purchase Agreement, which plaintiffs claim is unauthenticated. Since plaintiffs do not claim that the Purchase Agreement is fraudulent or otherwise invalid, however, the Purchase Agreement, being over 30 years old, is admissible as an ancient document. Essig v. 5670 58 St. Holding Corp., 50 AD3d 948, 949 (2d Dep't 2008); Szalkowski v. Asbestospray Corp., 259 AD2d 867, 868 (3d Dep't 1999).

The Purchase Agreement provides that the purchaser Hobart Corporation was to assume specified liabilities of the seller Vulcan-Hart Corporation and its subsidiary Hanson Porcelain Company, Inc.:

2. LIABILITIES OF SELLER AND HANSON2.1 Liabilities Not Assumed by PurchaserAll commitments, liabilities, debts, payables and obligations of Seller or Hanson of any kind or nature whatever, liquidated or contingent, known or unknown, which arise out of the business of the Seller or Hanson prior to the Closing shall except as otherwise provided in this Agreement, remain the sole commitments, liabilities, and obligations of Seller or Hanson . . . .2.2 Liabilities Assumed by PurchaserAt the Closing, Purchaser shall assume only the following liabilities of the Seller and Hanson (hereinafter "Assumed Liabilities"):. . .J. to the extent provided for in Section 2.2K hereof, liability for Products Liability Claims (as hereinafter defined) which relates to personal injury or property damage claims made after the Closing. . . ;K. (i) Seller shall be solely responsible for the defense, settlement and final disposition of any Products Liability Claim (as defined in Subsection (iv) of this Section 2.2K) with an occurrence date prior to Closing whether asserted against Seller, Hanson or any Subsidiary prior or subsequent to Closing.(ii) Purchaser shall be solely responsible for the defense, settlement and final disposition of any Products Liability Claim with an occurrence date subsequent to Closing asserted against Seller, Hanson or any of the Subsidiaries with respect to any products distributed, manufactured, or sold prior to or after Closing.(iii) With respect the Product Liability Claims with an occurrence date prior to Closing which are asserted against Seller, Hanson or any of the Subsidiaries subsequent to Closing, Purchaser shall reimburse Seller and hold it harmless for Seller's out-of pocket cost of defense, settlement and/or final disposition of such claims after allowance for any insurance proceeds received by Seller. (iv) For the purposes of this Section 2.2K, the term "Products Liability Claims" shall mean any claim filed with any court of competent jurisdiction. . . alleging liability for any bodily injury to any individual or for any damage to property which is alleged to have arisen from possession, use, contact with, exposure to . . . any product.

Aff. of Charles Christian Bauerman (Aff. of Daniel Gagliardi Ex. 4) Ex. A, at 4-7.

ITW Food Equipment maintains that "occurrence date" means the date when Christos Dritsas was exposed to asbestos and injured, rendering Vulcan-Hart Corporation liable for his injuries under § 2.2(K)(i) of the 1986 Purchase Agreement, assuming he first was exposed to Vulcan-Hart Corporation's equipment containing asbestos before 1986. Plaintiffs maintain that "occurrence date" means the date when the claim was filed, rendering Hobart Corporation and thus ITW Food Equipment liable for Dritsas' injuries under § 2.2(K)(ii) of the Purchase Agreement.

Section 2.2(K)(iv) of the Purchase Agreement, on which plaintiffs rely, defines only products liability claims as claims filed with a court or other governmental authority. At most this provision might be interpreted to define a claim date as the date the claim is filed, but not an occurrence or occurrence date. Neither this provision nor any other provision of the Purchase Agreement that the parties present defines either "occurrence" or "occurrence date." The Purchase Agreement twice specifies, however, that claims "with an occurrence date prior to Closing" may be "asserted . . . subsequent to Closing." Bauerman Aff. (Gagliardi Aff. Ex. 4) Ex. A § 2.2(K)(i) and (iii). Claims necessarily are "asserted" before or when they are filed. In either [*3]event, claims with an "occurrence date" before the closing thus may be asserted and filed after the closing and hence after and separately from the "occurrence date."

Moreover, "occurrence" is commonly used in insurance policies, an analogous context involving responsibility for liabilities due to a third party's personal injury, where the term ordinarily is defined as "an accident, event, or continuing condition that results in personal injury." Black's Law Dictionary (10th ed. 2014), "occurrence." The "term occurrence is synonymous with accident," an event that results in injury or damage, unless the parties indicate otherwise in their contract. Appalachian Ins. Co. v. General Elec. Co., 8 NY3d 162, 173 (2007). See id. at 172. Two common forms of liability insurance policies are "claims-made" and "occurrence" based policies, the former providing coverage only for claims made during the policy period, distinguished from the latter providing coverage for injuries during the policy period. John Paterno, Inc. v. Curiale, 88 NY2d 328, 331 (1996); Segal Co. v. Certain Underwriters at Lloyds, London, 21 AD3d 138, 142 (1st Dep't 2005). See Appalachian Ins. Co. v. General Elec. Co., 8 NY3d at 172. Thus, according to the most commonly used definition of "occurrence," "occurrence date" is interpreted as the date Dritsas was injured, not the date he filed a claim for those injuries. Using this interpretation, since a person is injured by asbestos upon exposure, the "occurrence date" under the Purchase Agreement refers to the date when Dritsas was exposed to asbestos. See International Flavors & Fragrances, Inc. v. Royal Ins. Co. of Am., 46 AD3d 224, 232 (1st Dep't 2007).

Even using ITW Food Equipment's definition of the occurrence date, ITW Food Equipment concedes that Christos Dritsas worked in a restaurant with Vulcan-Hart Corporation equipment containing asbestos until 1988, two years after the Purchase Agreement's closing date. Yet ITW Food Equipment presents no evidence that Dritsas was not exposed to asbestos from that equipment during those two years after the 1986 closing or even that his initial exposure occurred before the closing. Neither does ITW Food Equipment show or even claim that the meaning of "occurrence date" under the Purchase Agreement is the date of his initial exposure.

Instead, ITW Food Equipment impermissibly shifts the burden of proof to plaintiffs by contending that Dritsas' deposition testimony is too speculative to show that he worked with the equipment containing asbestos during the two years after the closing date. ITW Food Equipment, however, by failing to show that the "occurrence date" of Dritsas' exposure to asbestos from Vulcan-Hart Corporation's equipment was not during the two years after the closing, leaves a factual issue whether his exposure after the 1986 closing triggered Hobart Corporation's assumption of liability under § 2.2(K)(ii) of the Purchase Agreement.

Finally under the Purchase Agreement, ITW Food Equipment maintains that, since the agreement imposes liability on Hobart Corporation for claims brought against Vulcan-Hart Corporation, ITW Food Equipment is not liable under the agreement unless plaintiffs have brought their claims against Vulcan-Hart Corporation. Plaintiffs nonetheless are entitled to elect whether to bring their action against Vulcan-Hart Corporation or the party assuming Vulcan-Hart Corporation's liabilities, which is now ITW Food Equipment. Grant-Howard Assoc. v. General Housewares Corp., 63 NY2d at 297. The two corporations' contract may allocate liability between themselves, but may not affect the rights of plaintiffs, who are nonparties to the contract.

B. The Exception for a De Facto Merger

As set forth above, other exceptions to the rule that a corporate purchaser of a corporate seller's assets is not liable for the seller's torts preceding the purchase include when the purchaser was a mere continuation of the seller and when the seller consolidated or merged with the purchaser. Here, the Purchase Agreement shows that Vulcan-Hart Corporation was not immediately extinguished or dissolved, but that it continued after the transaction, albeit under a different name. Even if the seller continued only to wrap up the corporation and maintain insurance for pre-sale liabilities, the seller's survival in any form renders the mere continuation doctrine inapplicable. Schumacher v. Richards Shear Co., 59 NY2d at 245; Ring v. Elizabeth Found. for Arts, 136 AD3d at 526. This exception is limited to circumstances "where only one corporation survives the transaction." Schumacher v. Richards Shear Co., 59 NY2d at 245.

While the Purchase Agreement between the predecessor Vulcan-Hart Corporation and the successor Hobart Corporation does not expressly refer to the transaction as a consolidation or merger of the two corporations, the issue remains whether Hobart Corporation's purchase of Vulcan-Hart Corporation's assets fits within the exception for a de facto merger. To eliminate this issue, ITW Food Equipment must negate the confluence of factors required to satisfy this exception: (1) continuity of ownership; (2) the predecessor's cessation of ordinary business operations and dissolution; (3) the successor's assumption of the liabilities necessary for the uninterrupted continuation of the predecessor's business; and (4) continuity of management, personnel, location, assets, and overall business operations. Ring v. Elizabeth Found. for Arts, 136 AD3d at 526-27; Matter of New York City Asbestos Litig., 15 AD3d 254, 256 (1st Dep't 2005); Fitzgerald v. Fahnestock & Co., Inc., 286 AD2d 573, 574 (1st Dep't 2001).

The purchase continued the predecessor corporation's ownership if its shareholders became the successor corporation's shareholders as a result of the transaction. Ambac Assur. Corp. v. Countrywide Home Loans, Inc., 150 AD3d 490, 490-91 (1st Dep't 2017); Abreu v. Barkin & Assoc. Real Estate, LLC, 136 AD3d at 602; Fitzgerald v. Fahnestock & Co., Inc., 286 AD2d at 575. The predecessor's shareholders, however, need not have acquired the successor's shares in the purchase transaction. Ambac Assur. Corp. v. Countrywide Home Loans, Inc., 150 AD3d at 491. See TBA Glob., LLC v. Fidus Partners, LLC, 132 AD3d 195, 210 (1st Dep't 2015).

The second factor, the predecessor's cessation of ordinary business operations and dissolution, also is flexible. As long as the predecessor "is shorn of its assets and has become, in essence, a shell," that continuing shell, a corporation in name only, does not thwart satisfaction of that second factor. Ring v. Elizabeth Found. for Arts, 136 AD3d at 526; Matter of New York City Asbestos Litig., 15 AD3d at 257; Fitzgerald v. Fahnestock & Co., Inc., 286 AD2d at 575. If the purchase continued the predecessor corporation's management, personnel, location, assets, and overall business operations in the purchaser corporation and not in the continuing shell of the seller, that mere shell still satisfies the second factor and further satisfies the fourth factor. Moreover, since all four factors need not be satisfied to find a de facto merger, even if ITW Food Equipment negated one or more factors, it would not necessarily eliminate this issue. The court must determine whether the successor corporation sought to obtain the predecessor corporation's intangible assets such as good will, trademarks, patents, customer lists, and the right to use the predecessor's name, as well as continuing the predecessor's management, personnel, location, assets, and business operations. Abreu v. Barkin & Assoc. Real Estate, LLC, 136 AD3d at 602; Tap Holdings, LLC v. Orix Fin. Corp., 109 AD3d at 176; Fitzgerald v. Fahnestock & Co., Inc., 286 AD2d at 574. See Matter of New York City Asbestos Litig., 15 AD3d at 256. The successor may not assume all the predecessor's intangible assets, products, product names, employees, and facilities without the concomitant liabilities. Grant-Howard Assoc. v. General Housewares Corp., 63 NY2d at 296; Abreu v. Barkin & Assoc. Real Estate, LLC, 136 AD3d at 602.

ITW Food Equipment fails to establish that Hobart Corporation was not a successor to Vulcan-Hart Corporation via a de facto merger. Although the Purchase Agreement shows that Hobart Corporation paid Vulcan-Hart Corporation entirely in cash, the agreement does not indicate whether Vulcan-Hart Corporation acquired shares in Hobart Corporation via a related transaction, and no other evidence indicates the absence of such an acquisition. Since Vulcan-Hart Corporation need not have acquired shares in Hobart Corporation, evidencing a continuity of ownership, in the purchase transaction itself, a factual issue remains whether Vulcan-Hart acquired Hobart Corporation's shares via another transaction. Ambac Assur. Corp. v. Countrywide Home Loans, Inc., 150 AD3d at 491. See TBA Glob., LLC v. Fidus Partners, LLC, 132 AD3d at 210.

ITW Food Equipment claims it has shown that the predecessor did not cease ordinary business operations or dissolve, the second factor militating in favor of a de facto merger, because the Purchase Agreement reflects that Vulcan-Hart Corporation retained its stock ledgers, [*4]minute books, other corporate records, and insurance policies that covered the liabilities retained under §§ 2.1 and 2.2(K)(i). Although according to the agreement Vulcan-Hart Corporation did retain these documents, as well as a single account identified as "Cash-CMC," no evidence indicates that, simply because Vulcan-Hart Corporation held onto its vestigial corporate documents, it continued to or intended to continue operating and did not remain as a mere shell shorn of its assets. Bauerman Aff. (Gagliardi Aff. Ex. 4) Ex. A § 1.2(A). See Ring v. Elizabeth Found. for Arts, 136 AD3d at 526; Matter of New York City Asbestos Litig., 15 AD3d at 257; Fitzgerald v. Fahnestock & Co., Inc., 286 AD2d at 575.

The Purchase Agreement expressly transfers to Hobart Corporation all the assets used in and thus necessary to absorption and continuation of Vulcan-Hart Corporation's business operations. These assets encompassed its intellectual property, including its name, business and financial records, and customer lists; its contractual rights and obligations, including under its employees' contracts; and its physical assets, both personal and real property, including its inventory, equipment, and facilities. Tap Holdings, LLC v. Orix Fin. Corp., 109 AD3d at 176; Fitzgerald v. Fahnestock & Co., Inc., 286 AD2d at 575. No evidence indicates that the single account retained by Vulcan-Hart Corporation held any funds or was more than a mere repository of the purchase price or of Hobart Corporation's reimbursements owed to Vulcan-Hart Corporation for any liabilities retained by Vulcan-Hart Corporation insofar as the insurance retained did not cover them. Bauerman Aff. (Gagliardi Aff. Ex. 4) Ex. A § 2.2(K)(i) and (iii). ITW Food Equipment fails to present any evidence showing that Vulcan-Hart Corporation's other assets, management, personnel, physical location, and overall business operations did not continue in Hobart Corporation.

IV. CONCLUSION

For the reasons explained above, the court grants defendant ITW Food Equipment Group's motion for summary judgment to the extent that ITW Food Equipment Group is not liable for plaintiffs' claims against Vulcan-Hart Corporation under the mere continuation or fraudulent transfer doctrines, but otherwise denies the motion. C.P.L.R. § 3212(b) and (e). Plaintiffs' request for further disclosure regarding the de facto merger exception thus is moot. C.P.L.R. § 3212(f).

DATED: April 30, 2018

_____________________________

LUCY BILLINGS, J.S.C.