ATTORNEY FOR APPELLANTS: ATTORNEYS FOR APPELLEE:
DAVID C. KRAHULIK LLOYD H. MILLIKEN, JR.
Yosha Krahulik & Levy NICHOLAS C. PAPPAS
Indianapolis, Indiana JULIA BLACKWELL GELINAS
COURT OF APPEALS OF INDIANA
RAMIRO GUERRERO, as Administrator of )
the Estate of )
CARLOS GUERRERO, Deceased, )
vs. ) No. 49A02-9905-CV-362
ALLISON ENGINE COMPANY, )
APPEAL FROM THE MARION SUPERIOR COURT
The Honorable David A. Jester, Judge
Cause No. 49D11-9607-CT-1033
March 22, 2000
OPINION FOR PUBLICATION
Daniel Laguna (Laguna), and the estate of Carlos Guerrero (Guerrero), appeal the trial
courts Order entering summary judgment in favor of Allison Engine Company (Allison).
The sole issue is whether Indiana should recognize the product line exception in
product liability cases brought by injured persons against successor corporations.
The facts in this case are not in dispute. On July 20,
1994, Guerrero and Laguna were involved in a helicopter accident at Fort Campbell,
Kentucky. In this accident Guerrero died and Laguna was injured. The
helicopter, an AH-6, was equipped with an Allison 250-C30 enhanced diffuser engine.
Guerrero and Laguna allege that the helicopter stalled while in flight, causing it
to crash to the ground. Guerrero and Laguna claim that Allison was
negligent in the design and manufacture of the engine system. Further, Guerrero
and Laguna claim that the engine system was defective and unreasonably dangerous.
Guerrero and Laguna also assert a breach of implied warranty.
General Motors Corporation (GM), through its Allison Gas Turbine Division (GM/Allison), manufactured and
sold the helicopters engine on September 30, 1986. On March 31, 1990,
a Commercial Engine Bulletin (CEB 72-3176) was issued by GM/Allison, which called for
the installation of enhanced engine diffuser assemblies on model 250-C30 engines. The
enhanced engine diffuser assembly was installed into the subject engine on October 5,
1993, by Airwork, an independent company that was a GM authorized maintenance facility.
On December 1, 1993, Allison paid cash for the assets of GM/Allison.
No stock was transferred as a part of the consideration of the sale.
No members of GMs Board of Directors became members of Allisons Board
of Directors. The sale of GM/Allison to Allison represented a relatively small
percentage of GMs total assets. As part of the purchase agreement, Allison
assumed no liability for claims of damage, injury, or death arising from or
relating to any product designed, manufactured, acquired, marketed or sold prior to the
closing date of the asset sale.
After the asset sale, GM and Allison were separate and distinct companies.
GM remained in business and was not dissolved. Allison adopted a new
corporate logo and the GM logo was removed from equipment, vehicles, and signs
purchased by Allison and FAA nameplates were changed. Allison used a different
tax identification number and government cage code than that used by GM.
Allison also obtained a new classified clearance from the United States government.
Allison continued to manufacture the 250-C30 engine. Allison also continued to work
on the enhanced diffuser changes to 250-C30 engines.
Following the parties summary judgment hearing, the trial court denied Plaintiffs Motion for
Leave to File Amended Complaint against Allison, but granted Plaintiffs leave to file
an Amended Complaint as to GM. Thereafter, Guerrero and Laguna amended their
complaint to include a claim for damages against GM. GM answered Plaintiffs
Amended Complaint. Guerrero and Laguna appeal the trial courts Order entering summary
judgment against them on their complaints for personal injuries against Allison.
Guerrero and Laguna contend that Indiana should recognize the product line exception in
product liability cases brought by injured parties against successor corporations. Specifically, Guerrero
and Laguna argue the following:
The fact that [Allison] continued to sell and service the identical product line
with the same personnel at the same facility should result in its being
liable to Laguna and Guerrero for the defect in the enhanced diffuser which
allegedly caused the helicopter crash at issue. Under such facts the product
line exception to the general rule of successor non-liability should apply.
(Appellants Brief at 9.)
A. Standard of Review
In reviewing a motion for summary judgment, this court applies the same standard
as the trial court. We must determine whether there is a genuine
issue of material fact and whether the law has been correctly applied by
the trial court. Summary judgment is appropriate only if no genuine issues
of material fact exist and the moving party is entitled to judgment as
a matter of law. Neither the trial court, nor the reviewing court,
may look beyond the evidence specifically designated to the trial court. Once the
movant for summary judgment has established that no genuine issue of material fact
exists by submission of materials contemplated by T.R. 56, the nonmovant may not
rest on his pleadings but must set forth specific facts, using supporting materials
contemplated under the rule, which show the existence of a genuine issue for
trial. A trial court's grant of summary judgment is clothed with a
presumption of validity, and the appellant bears the burden of demonstrating that the
trial court erred.
Stevenson v. Hamilton Mut. Ins. Co., 672 N.E.2d 467, 470-71 (Ind. Ct. App.
1996) (internal citations and quotation omitted).
B. The Indiana Product Liability Act Strict Liability
The Indiana Product Liability Act provides the following grounds for action:
Sec. 1. Except as provided in section 3 of this chapter, a person
who sells, leases, or otherwise puts into the stream of commerce any product
in a defective condition unreasonably dangerous to any user or consumer or to
the user's or consumer's property is subject to liability for physical harm caused
by that product to the user or consumer or to the user's or
consumer's property if:
(1) that user or consumer is in the class of persons that the
seller should reasonably foresee as being subject to the harm caused by the
(2) the seller is engaged in the business of selling the product;
(3) the product is expected to and does reach the user or consumer
without substantial alteration in the condition in which the product is sold by
the person sought to be held liable under this article.
Ind. Code § 34-20-2-1. Indianas Product Liability Act is a codification of
the common law of products liability. Whittaker v. Federal Cartridge Corp., 466
N.E.2d 480, 482 (Ind. Ct. App. 1984).
An action for strict liability in tort against sellers and manufacturers of defective
products is governed by Indiana Code § 34-20-2-3, which reads as follows:
A product liability action based on the doctrine of strict liability in tort
may not be commenced or maintained against a seller of a product that
is alleged to contain or possess a defective condition unreasonably dangerous to the
user or consumer unless the seller is a manufacturer of the product or
of the part of the product alleged to be defective.
One purpose of this section is to deter manufacturers from producing products that
are unreasonably dangerous to foreseeable users. See Maxon Corp. v. Tyler Pipe
Industries, Inc., 497 N.E.2d 570, 578 (Ind. Ct. App. 1986). While a
manufacturer is under no duty to produce accident proof products, it is legally
bound to design and build products which are reasonably fit and safe for
the purpose for which they are intended. Liberty Mutual Ins. Co. v.
Rich Ladder Co., Inc., 441 N.E.2d 996, 999 (Ind. Ct. App. 1982).
C. The Indiana Product Liability Act and Freedom of Contract
In a product liability suit, it is not dispositive that an agreement exists
between a successor corporation and its predecessor that the successor is not to
assume the predecessors liabilities. Lucas v. Dorsey Corp., 609 N.E.2d 1191, 1201
(Ind. Ct. App. 1993). In McGraw-Edison Co. v. Northeastern Rural Electric Membership
Corp., 678 N.E.2d 1120 (Ind. 1997), our supreme court addressed the question of
whether a disclaimer of liability in a purchase agreement barred a strict liability
claim brought under Indianas Product Liability Act.
We are interpreting the interplay between the provisions of the Uniform Commercial Code
-- Sales, Ind. Code § 26-2-2-719, which generally supports the enforceability of limitations
of liability in commercial transactions, and the Indiana Product Liability Act, Ind. Code
§ 33-1-1.5-3, which codified strict liability and makes some of these choices that
would otherwise be left to the court.
Id. at 1122. The Indiana Supreme Court reasoned and concluded as follows:
D. Successor Corporation Non-Liability General Rule and Exceptions
The General Assembly enacted the Product Liability Act against that background of its
judicial patina and commentary as they sat in 1978. . . that climate
was hostile to disclaimers. . . . [W]e conclude that the legislature has
chosen to override the considerations of freedom of contract in the interest of
encouraging safety of products and responsibility for products that are defective under the
standards imposed by the statute. That is a judgment the legislature can
make, and in Indiana our General Assembly has made it.
Id. at 1124-25. Justice Sullivan, in his dissent, summarized the rule of
law announced in McGraw-Edison Co., as follows: the Product[s] Liability Act mandates
that any disclaimer as to products liability with respect to a product covered
by the Act will be ineffective unless there has been a knowing waiver
of the purchasers rights thereunder. Id. at 1125.
When one corporation purchases the assets of another, the buyer does not assume
the debts and liabilities of the seller. Sorenson v. Allied Products Corp.,
706 N.E.2d 1097, 1099 (Ind. Ct. App. 1999) (citing Winkler v. V.G. Reed
& Sons, Inc., 638 N.E.2d 1228, 1233 (Ind. 1994)). However, there are
four generally recognized exceptions to this rule:
(1) an implied or express agreement to assume the obligation; (2) a fraudulent
sale of assets done for the purpose of escaping liability; (3) a purchase
that is de facto consolidation or merger; or (4) instances where the purchase
is a mere continuation of the seller.
Id. Under these exceptions, a successor corporation is liable only when the
predecessor corporation no longer exists. Id.
E. The Product Line Exception
The product line exception was originally articulated by the Supreme Court of California
in Ray v. Alad, 136 Cal.Rptr. 574, 560 P.2d 3 (1977).
[A] party which acquires a manufacturing business and continues the output of its
line of products . . . assumes strict tort liability for defects in
units of the same product line previously manufactured and distributed by the entity
from which the business was acquired.
Id. at 582, 560 P.2d at 11. Only a minority of states
have adopted the product line exception. See Garcia v. Coe Mfg. Co.,
123 N.M. 34, 933 P.2d 243 (1997); Martin v. Abbott Laboratories, Inc., 102
Wash.2d 581, 689 P.2d 368 (1984); Dawejko v. Jorgensen Steel Co, 290 Pa.Super
15, 434 A.2d 106 (1981); Ramirez v. Amstead Indus., Inc., 86 N.J. 332,
431 A.2d 811 (1981).(1) The Majority View Case Law and Rationale
As noted by Allison, the majority of courts have rejected the product line
exception. (Appellees Brief at 6.) The rationales supporting the rejection of
the product line exception were summarized as follows by the Colorado Court of
Appeals, in Johnston v. Amsted Industries, Inc., 830 P.2d 1141 (Colo. Ct. App.
Strict liability should not be imposed because: the successor corporation did not create
the risk nor did it directly profit from the predecessors sale of the
defective product; it did not solicit the use of the defective product nor
make any representations as to its safety; and it is not able to
enhance the safety of a product that is already on the market.
Id. at 1144 (citing Bernard v. Kee Mfg. Co., 409 So.2d 1047 (Fla.
1982), Domine v. Fulton Iron Works, 76 Ill.App.3d 253, 32 Ill.Dec. 72, 395
N.E.2d 19 (1979), Jones v. Johnson Machine & Press Co., 211 Neb. 724,
320 N.W.2d 481 (1982), Ostrowski v. Hydra-Tool Corp., 144 Vt. 305, 479 A.2d
126 (1984), Fish v. Amsted Industries, Inc., 126 Wis.2d 293, 376 N.W.2d 820
(1985)). The Johnston court further recognized case law holding that the product
line exception was inconsistent with the principles of strict liability and resulted in
the imposition of liability without a corresponding duty. Supporting case law further
states that the product line exceptions to successor corporation non-liability should be left
to the legislature and that this exception threatens the viability of small successor
businesses. (Citing Guzman v. MRM/Elgin, 409 Mass. 563, 567 N.E.2d 929 (1991),
Downtowner, Inc. v. Acrometal Products, Inc., 347 N.W.2d 118 (N.D. 1984), Fish v.
Amsted Industries Inc., 376 N.W.2d 820, Leannais v. Cincinnati, Inc., 565 F.2d 437
(7th Cir. 1977), and Bernard v. Kee, 409 So.2d 1047.) In determining
whether to adopt the product line exception in this case, this Court looks
to the factors we consider when applying the traditional exceptions to successor non-liability
and those reasons driving the application of the product line exception in other
In Sorensen v. Allied Products Corporation, 706 N.E.2d 1097 (Ind. Ct. App. 1999),
the estate of a mechanic who had died from asbestos exposure brought a
products liability suit against Allied Products Corporation (Allied) which had acquired the assets
of the bankrupt manufacturer of the same brakes and clutches which exposed the
mechanic to asbestos. The estate argued that the transaction between Allied and
the bankrupt manufacturer amounted to a de facto merger, and as such Allied
was liable via an exception to the general rule of successor non-liability.
We held that the estate failed to establish the requisite elements of the
de facto merger exception, noting that the predecessors shareholders never held any stock
in Allied, that there was not continuity of management, personnel, and physical location
between Allied and its predecessor, and the predecessor shareholders never dissolved that corporation.
Id. at 1099-1100. We next discussed the applicability of another exception
to the successor non-liability rule, namely the assumption by the successor of the
liabilities ordinarily necessary for the uninterrupted continuation of the business of the predecessor,
and articulated the following test:
The test for a mere continuation of the sellers business is not the
continuation of the business operation, but rather the continuation of the corporate entity.
An indication that the corporate entity has been continued is a common
identity of stock, directors, and stockholders and the existence of only one corporation
at the completion of the transfer.
Id. at 1100 (citing Travis v. Harris Corp., 565 F.2d 443, 447 (7th
Circuit 1977)). Considering the same factors which precluded the application of the
de facto merger exception, we held that Allieds purchase of its predecessor did
not qualify as a mere continuation of the sellers business. Id.
Accordingly, we affirmed the trial courts grant of summary judgment in favor of
In Travis v. Harris, 565 F.2d 443, the Seventh Circuit considered whether Indiana
would adopt the product line exception. In Travis, the plaintiff injured his
hand in a die press machine. Travis and his wife filed suit
against Harris Corporation (Harris), as one of the alleged corporate successors to the
manufacturer of the die press, seeking damages in strict liability and for negligence
in the design, manufacture, and distribution of the die press. Id. at
445. After rejecting plaintiffs de facto merger and mere continuation arguments, the
court considered the product line exception. The Travis court found no basis
for adding to the laws of Ohio or Indiana a product line theory
on which Harris might be liable. Id. at 448. The Travis
court held that the following language from Leannais v. Cincinnati, Inc., 565 F.2d
437, was equally applicable to the courts of Ohio and Indiana:
[T]he record contained no indication that the courts of Wisconsin have created, or
would create, such a far-reaching exception to the non-liability of asset purchasers, so
long the basis of economic decisions by its citizens.
Travis v. Harris, 565 F.2d at 448 (quoting Leannais v. Cincinnati,
Inc., 565 F.2d at 441). (2) The Minority View Case Law and Rationale
The Seventh Circuit revisited the product line exception in South Bend Lathe, Inc.
v. Amsted Industries, Inc., 925 F.2d 1043 (7th Circuit 1991). In South
Bend Lathe, Inc., the buyer of a business sued the seller pursuant to
an indemnity provision in the purchase agreement for amounts buyer paid in product
liability claims and attorney fees for defective products. On appeal, a part
of sellers argument against indemnification was that buyers claims arose under the product
line exception, which had not been adopted by any state appellate court when
the parties purchase agreement was executed in 1975. Id. at 1044-45.
The Seventh Circuit focused upon the unambiguous language of the purchase agreement (and
sellers failure to argue otherwise), in determining that it was irrelevant that product
line liability did not exist at the time that the parties executed the
Agreement. Id. at 1046. Nevertheless, the court went on to consider
the applicability of the product line exception. The court held that since
the buyers predecessor remained a viable company capable of satisfying judgments against it,
such fact would bar recovery under the product line exception. Id. at
1047. Accordingly, the Seventh Circuit ruled that it was the contractual language
of the parties purchase agreement that caused the seller to be liable for
the product liability claims at issue. Id. at 1048.
a. The Supreme Court of California
In Ray v. Alad, 560 P.2d 3, the plaintiff was injured when he
fell off a defective ladder manufactured by the Alad Corporation (Alad I).
By means of a cash transfer, the successor corporation (Alad II) acquired all
the assets of Alad I, and continued to manufacture the same product, using
the same personnel and equipment, and soliciting the same customers. Shortly after
the transfer, Alad I was dissolved. The court provided three justifications for
imposing liability on Alad II:
The virtual destruction of the plaintiffs remedies against the original manufacturer caused by
the successors acquisition of the business, (2) the successors ability to assume the
original manufacturers risk-spreading rule, 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 good will being enjoyed by the successor in the continued
operation of the business.
Ray v. Alad, 560 P.2d at 9. Accordingly, the court held that
a successor corporation that acquires a manufacturing business and continues the output of
its line of products under the circumstances here presented assumes strict tort liability
for defects in units of the same product line previously manufactured and distributed
by the entity from which the business was acquired. Id. at 11.b. The Supreme Court of New Mexico
In Garcia v. Coe Mfg. Co., 933 P.2d 243, an employee who worked
at a fiberboard plant came into contact with a conveyor. The conveyor
pulled the employee underneath and crushed him to death. The employees estate
brought a products liability action against Coe Manufacturing Company (Coe). Coe had
purchased the assets of its predecessor corporation, which had manufactured the conveyor.
The court rejected the estates argument that Coe was a mere continuation of
its predecessor, as Coe did not share the same directors, officers or shareholders
with its predecessor. Id. at 247. However, the court went on
to consider the product line exception:
When a successor corporation continues to market many of the same products and
represents to the public and its predecessors customers that it is continuing the
predecessors enterprise, it essentially picks up where the predecessor left off. Whether
liability should be imposed depends on whether the successor has the same ability
as its predecessor to assess, control, and distribute the risks and costs of
injuries caused by a product defect. If it does, we must still
determine whether under the facts of a particular case this ability is nevertheless
outweighed by the policies underlying the contract-law-based rule of successor corporation nonliability-chiefly, promoting
the alienability of corporate assets.
Id. at 248 (citing Ray v. Alad Corp., 560 P.2d 3, 9-11 ).
The court acknowledged that the product line exception had been rejected by
many courts. Garcia v. Coe, 933 P.2d at 249 (citing Timothy E.
Travers, et al., American Law of Products Liability § 7:27, at 44 (3d
ed. 1994). However, the court chose to adopt the product line exception,
reasoning in part as follows: [A] successor [corporation] is positioned to assess the
risks before purchasing the assets, and to then decide whether to assume the
potential burden associated with its acceptance of the predecessors goodwill by continuing to
produce the same product line. Moreover, because strict liability focuses on the
product, and not on conduct, it is not unfair to assess liability to
successor manufacturers who have purchased the right to benefit from selling and servicing
the product. Id. at 249-250 (quoting Brooks v. Beech Aircraft Corp., 120
N.M. 372, 378, 902 P.2d 54, 60 (1995)).c. The Supreme Court of New Jersey
Having adopted the product line exception, the court determined that there may be
genuine issues of material fact affecting its application, and reversed the summary judgment
dismissing the estates strict liability claim.
In Ramirez v. Amsted Industries, Inc., 431 A.2d 811, the plaintiff was injured
while operating an allegedly defective power press on the premises of his employer.
Plaintiffs filed suit against Amsted Industries, Inc. (Amsted) as a successor corporation
to Johnson Machine & Press Company (Johnson), the manufacturer of the machine involved.
The trial court granted Amsteds motion for summary judgment.
On appeal, the court recognized that the purchase agreement between successor and predecessor
manifested a clear intent to negate any assumption of liability by Amsted for
contingent product claims, yet agreed with plaintiffs assertion that a corporation that purchases
the assets of a manufacturer and continues the business of the selling corporation
in an essentially unchanged manner should not be allowed to use the exculpatory
contractual language to avoid liability for contingent personal injury claims arising out of
defects in the predecessors product. Id. at 813.
Upon granting Amsteds petition for certification, the Supreme Court of New Jersey affirmed
the judgment of the Appellate Division, echoing the rationales first heard in Ray
v. Alad, 560 P.2d 3. First, the plaintiffs potential remedy against Johnson,
the original manufacturer of the allegedly defective press, was destroyed by the purchase
of the Johnson assets, trade name and good will, and Johnsons resulting dissolution.
Id. at 820. Second, the imposition of successor corporation liability upon
Amsted is consistent with the public policy of spreading the risk to society
at large for the cost of injuries from defective products. Id.
Third, the imposition upon Amsted of responsibility to answer claims of liability for
injuries allegedly caused by defective Johnson presses is justified as a burden necessarily
attached to its enjoyment of Johnsons trade name, good will and the continuation
of an established manufacturing enterprise. Id. at 822.
Guerrero and Laguna allege that the enhanced engine diffuser in the subject helicopter
was defective and unreasonably dangerous. One of the purposes of the strict
liability section of the Indiana Product Liability Act is to deter manufacturers from
producing products that are unreasonably dangerous to foreseeable users. See Maxon, 497
N.E.2d at 578. Thus, on its face, Guerrero and Lagunas Complaint alleges
facts falling under the Indiana Product Liability Act.
Guerrero and Laguna base their product liability claim on the doctrine of strict
liability in tort. Accordingly, they must establish that Allison was the manufacturer
of the allegedly defective part. See Ind. Code § 34-20-2-3. To
this end, Guerrero and Laguna argue that Allison, as the successor to the
assets of GM/Allison, should be held liable for any defect in the enhanced
engine diffuser originally manufactured by Allison/GM. Guerrero and Laguna urge us to
impute liability to Allison through application of the product line exception to the
traditional rule of corporate successor non-liability.
In applying the four generally recognized exceptions to the successor non-liability rule, we
have held that a successor corporation is liable only when the predecessor corporation
no longer exists. See Sorenson, 706 N.E.2d at 1099. A similar
requirement is found among that minority of states applying the product line exception.
See e.g. Ray, 560 P.2d at 9 (holding that one of the
justifications for imposing liability on a successor corporation was the virtual destruction of
the plaintiffs remedies against the original manufacturer caused by the successors acquisition of
Here, Allisons purchase of GM/Allison did not destroy Guerrero and Lagunas potential
remedy against GM. Therefore, we do not reach the other supporting rationales
of the product line exception; namely, whether Allison had the same ability to
spread the risks and costs of injuries allegedly caused by the enhanced engine
diffuser, and whether it is fair to impose liability upon Allison for an
allegedly defective part manufactured by GM.
The product line exception may be an appropriate means by which to balance
the seemingly juxtaposed concepts of strict liability under the Indiana Product Liability Act,
and freedom of contract long supported by common law, as well as
both state and federal constitutions. However, considering that the predecessor corporation continues
to exist, the inequities which would warrant our full consideration of this proposed
fifth exception to successor non-liability under Indiana law are not present. Accordingly,
Guerrero and Lagunas Complaint against Allison neither alleges facts to which the four
generally accepted exceptions to the successor non-liability rule apply, nor asserts claims from
which this Court need consider applying a legal theory novel to the state
of Indiana. Thus, the trial courts grant of summary judgment in favor
of Allison is affirmed.
NAJAM, J., and MATTINGLY, J., concur.
We held oral argument on February 24, 2000, at Franklin College
in Franklin, Indiana.