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GAVETTE v. WARNER & SWASEY CO.

July 17, 1997

BARRY L. GAVETTE and DONNA V. GAVETTE, Plaintiffs,
v.
THE WARNER & SWASEY CO. and WORK WEAR CORPORATION, Defendants.



The opinion of the court was delivered by: SCANLON

 Plaintiffs filed this suit to recover for personal injuries sustained in a 1987 work-related accident by Barry Gavette. *fn1" Jurisdiction in this matter is based upon diversity of citizenship. 28 U.S.C. § 1332(a). The parties have consented to have the undersigned conduct any and all further proceedings in this case, including the entry of final judgment, in accordance with 28 U.S.C. § 636(c).

 Plaintiff formerly was employed as a lathe operator by Goulds Pumps, Inc. ("Goulds Pumps"), in Seneca Falls, New York. On March 30, 1987, his left arm was pulled suddenly into the lathe he was operating after his sleeve became entangled in moving machinery. He alleges that he suffered serious and debilitating injuries as a result of the accident. In 1990 plaintiffs brought suit alleging negligence, products liability, and breach of warranty against The Warner & Swasey Company ("Warner & Swasey") and the Work Wear Corporation ("Work Wear"), who is no longer a party to this suit. *fn2" Upon information and belief, plaintiffs plead that Warner & Swasey, a Michigan corporation, was the manufacturer and seller of the lathe that plaintiff had been operating.

 During the course of litigation, however, the parties concluded that Warner & Swasey could not have manufactured or sold the lathe in question because its manufacture and sale to plaintiff's employer predated the incorporation of Warner & Swasey by more than a quarter of a century: the lathe was sold to Goulds Pumps in 1957; defendant was incorporated in Michigan in 1984. If Warner & Swasey is liable in this matter, therefore, it must be a successor in liability. To resolve this issue, the Court conducted a hearing on September 14, 1994 to determine whether defendant might be held liable under a theory of successor liability. For the following reasons, the Court finds that defendant potentially may be held liable under a theory of successor liability.

 BACKGROUND

 Warner & Swasey is the culmination of a series of business transactions and decisions that date back many years. The original predecessor of Warner & Swasey was the similarly named Warner & Swasey Co. of Ohio ("Warner & Swasey-Ohio"), which was incorporated in that state in 1928. It was that corporation, now defunct, that manufactured and sold the lathe in question to Goulds Pumps in 1957. In 1980, Warner & Swasey-Ohio was acquired by the Bendix Corporation ("Bendix"), and merged into a subsidiary of Bendix. The corporation formed as a result of that transaction was The Bendix Acquisition Company ("Bendix Acquisition"), and it expressly assumed all of the liabilities of Warner & Swasey-Ohio. Moreover, it continued to do business as The Warner & Swasey Company. Bendix itself was acquired in 1982 by the Allied Corporation ("Allied"), which continued to hold Bendix Acquisition as an independent subsidiary. A year later, Bendix Acquisition filed a name change to Bendix Automation Company ("Bendix Automation").

 In 1984, Cross & Trecker Corporation ("C & T Corp.") and Bendix entered into a Purchase Agreement. As a result of the agreement, C & T Corp. acquired substantially all of the assets of Bendix Automation and assumed some of its liabilities. At roughly the same time that C & T Corp. and Bendix entered into the Purchase Agreement, C & T Corp. incorporated a new subsidiary in Michigan: C & T Subsidiary, Inc. C & T Corp. assigned all of the assets and liabilities that it had acquired in the recent Purchase Agreement to C & T Subsidiary, Inc., which in turn changed its name to Warner & Swasey. It is this Warner & Swasey that is the defendant in the instant action.

 The Purchase Agreement is explicit regarding those liabilities that C & T Corp. assumed in its transaction with Bendix. As set forth in the Purchase Agreement, C & T Corp. refused to assume "any liability or obligation for damages . . . based on product liability or product warranty relating to the products sold by [Bendix] prior to the Closing Date, except for any such liability or obligation" based upon:

 
(a)(I) a product of [Bendix] other than a rebuilt product which was sold during the thirty-six month period immediately preceding the Closing Date (a "Current Product"), or (ii) a product . . . other than a rebuilt product which is substantially the same in performance, capability and function to, and is the same or substantially similar in design (including safety features and size) to, a Current Product ; and (b) an event happening after the Closing Date.

 Purchase Agreement P 2.6.1 (emphasis added).

 It is undisputed that plaintiff's injury was "an event happening after the Closing Date"-- e.g., April 19, 1984. *fn3" If defendant succeeds in liability for plaintiff's injury, then the lathe that caused the injury: (1) cannot have been rebuilt; and (2) must be substantially the same in performance, capability, and function--and the same or substantially similar in design, including safety features and size--to a Current Product. A Current Product would include a lathe sold by defendant's corporate predecessors within a three-year period prior to April 19, 1984.

 The lathe that injured plaintiff has been identified as a model 1-A Warner & Swasey extra heavy duty saddle-type turret lathe ("model 1-A"). At the hearing the parties agreed that among the lathes manufactured by defendant's predecessor during the three-year period immediately preceding the Closing Date were models 3-A, 4-A and 5-A Warner & Swasey extra heavy duty saddle-type turret lathes ("models 3-A, 4-A, and 5-A," respectively). No model 1-A lathes were produced during that time period. *fn4" At issue is whether the model 1-A lathe is substantially the same in performance, capability, and function and the same or substantially similar in design, including safety features and size, to a model 3-A, 4-A, or 5-A lathe. Based upon the evidence, the Court finds that the model 1-A and model 3-A are substantially the same in performance, capability, and function, and are substantially similar in design, including safety features and size.

 I. Burden of proof and choice of law.

 This case is before the Court as a diversity action, which means that ultimately state law will govern all issues of substantive law. See Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S. Ct. 817, 82 L. Ed. 1188 (1938). The issue of which party has the burden of proving that successor liability exists raises a question of substantive law. See Prudential Ins. Co. of America v. Schroeder, 414 F.2d 1316 (5th Cir. 1969), cert. denied, 90 S. Ct. 751, 396 U.S. 1058, 24 L. Ed. 2d 752. Under ordinary circumstances, when faced with an issue of substantive law in a diversity action, the Court would determine which state's substantive laws should apply; however, as both Michigan and New York would place the burden of proof on plaintiffs to prove that successor liability exists, it is premature for the Court to undertake a choice of law analysis at this juncture. See, e.g., Lemire v. Garrard Drugs, 95 Mich. App. 520, 291 N.W.2d 103 (1980) (dismissing complaint sounding in products liability because plaintiff had not alleged sufficient facts to support finding of vicarious or successor liability); Heights v. U.S. ...


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