Tabor v. The Metal Ware Corp.

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2007 UT 71
This opinion is subject to revision before final publication in the Pacific Reporter.
IN THE SUPREME COURT OF THE STATE OF UTAH - --- 00000 ----
Timothy A. Tabor, Debra J. Tabor, and Farmers Insurance
No. 20060504
Group, Plaintiffs and Appellants,
V.
The Metal Ware Corporation, FILED
a Wisconsin corporation; et al., Defendants and Appellee. August 31, 2007
Certification from the Federal Court
Attorneys : Theodore E. Kanell, Joseph C. Alamilla, John Warren May, Salt Lake City, for appellants Brian C. Webber, Salt Lake City, for appellee
On Certification from the United States Court of Appeals for the Tenth Circuit, The Honorable Timothy M. Tymkovich
DURHAM, Chief Justice:
INTRODUCTION
This case comes to us on certification from the United States Court of Appeals for the Tenth Circuit, which asks first, "Does Utah law recognize an exception to the general rule of successor nonliability under the circumstances of this case?" and second, "Does Utah law impose on successor corporations a post- sale duty to independently warn customers of defects in products manufactured and sold by the predecessor corporation?" If we conclude that there is such a duty to warn, the federal court further asks, "What factors are considered in determining whether a successor has discharged that duty?"

No. 20060504 2
BACKGROUND
¶2 In the spring of 1996, Timothy and Debra Tabor
purchased a food dehydrator manufactured by American Harvest,
Inc. When the Tabors purchased the food dehydrator, they were
unaware that, in August 1995, the United States Consumer Products
Safety Commission (USCPSC) had issued a manufacturer’s recall
because the food dehydrator constituted a fire hazard due to a
faulty heating element. In February of 1996, the USCPSC
completed and closed the recall process.
¶3 On April 2, 1997, Newco of Two Rivers, Inc. (Newco), a
subsidiary of Metal Ware, entered into an asset purchase
agreement with American Harvest. The agreement contained a “No
Assumption of Liabilities” clause that stated that Newco “shall
not assume or become liable for any contracts, obligations, or
liabilities of [American Harvest] (including, but not limited to,
. . . product liability . . .) and [American Harvest] shall
indemnify and hold [Newco] harmless for any liability arising out
of any such contracts, obligations, or liabilities.” Among the
assets purchased was American Harvest’s line of food dehydrators,
which included the food dehydrator model purchased by the Tabors.
After the asset purchase, Newco continued to manufacture this
line under the American Harvest trade name. When Newco was
absorbed by Metal Ware, Metal Ware also continued to manufacture
the line of food dehydrators under the American Harvest trade
name. On November 19, 1998, a fire destroyed the Tabor’s home.
The Tabors allege that the American Harvest food dehydrator
caused the fire.
¶4 The Tabors sued Metal Ware in the federal district
court of Utah, claiming, among other things, that Metal Ware was
liable for damages caused by the defective food dehydrator both
as American Harvest’s successor and because of its failure to
independently warn the Tabors that the product was defective.
The federal court consolidated the Tabors’ suit with the
subrogation action filed by Farmers Insurance Company, the
Tabors’ insurance carrier. The court granted Metal Ware’s motion
for summary judgement, concluding that under the traditional rule
of successor nonliability, successor corporations are not liable
for the defective products of a predecessor, subject only to four
widely recognized exceptions. Accordingly, the court rejected
the Tabors’ claim that Utah would adopt two additional exceptions
recognized by a minority of jurisdictions, namely, the continuity
of enterprise and product line theories. The court concluded
that Utah law would impose an independent duty to warn on
successor corporations; however, the court determined that the
Tabors failed to establish that their damages were caused by
Metal Ware’s failure to warn. Both the Tabors and Farmers

1 The Tabors and Farmers Insurance Company have taken the
same position in this lawsuit. Thus, any reference here to the
Tabors’ position is that of Farmers Insurance Company as well.
3 No. 20060504
Insurance Company appealed to the Tenth Circuit Court of Appeals,
which has now certified controlling questions of law to us.1 We
have jurisdiction over certified questions of state law pursuant
to Utah Code section 78-2-2(1) (2002).
STANDARD OF REVIEW
¶5 When a federal court certifies questions of state law,
“we answer the legal questions presented without resolving the
underlying dispute.” In re Kunz, 2004 UT 71, ¶ 6, 99 P.3d 793
(internal quotation marks omitted).
ANALYSIS
¶6 To aid the federal court in this matter, we must
determine the breadth of successor nonliability recognized by
Utah law and decide whether a successor corporation has an
independent duty to warn consumers of its predecessor’s defective
products. We conclude that Utah adheres to the traditional rule
of successor nonliability, subject to four exceptions, as set
forth in section 12 of the Restatement (Third) of Torts.
Further, Utah imposes on a successor corporation an independent
post-sale duty to warn of a predecessor corporation’s product
defects under the conditions outlined in section 13 of the
Restatement (Third) of Torts.
I. UTAH ADHERES TO THE TRADITIONAL RULE OF SUCCESSOR
NONLIABILITY, SUBJECT TO FOUR WIDELY RECOGNIZED EXCEPTIONS
¶7 The general rule of successor nonliability and its four
exceptions are outlined in the Restatement (Third) of Torts
section 12, which provides as follows:
A successor corporation or other business
entity that acquires assets of a predecessor
corporation or other business entity is
subject to liability for harm to persons or
property caused by a defective product sold
or otherwise distributed commercially by the
predecessor if the acquisition:
(a) is accompanied by an agreement for
successor to assume such liability; or

No. 20060504 4
(b) results from a fraudulent conveyance to
escape liability for the debts or
liabilities of the predecessor; or
(c) constitutes a consolidation or merger
with the predecessor; or
(d) results in successor becoming a
continuation of the predecessor.
Restatement (Third) of Torts: Products Liability § 12 (1998).
¶8 The Tabors have not claimed that any of the four
traditional exceptions apply to their claim. Instead they ask us
to recognize the additional “product line” exception, the
“continuity of enterprise” exception, or both. These exceptions
have been recognized in only a minority of jurisdictions. See
Restatement (Third) of Torts: Products Liability § 12 cmt. b, c.
In our view, the general rule of successor nonliability, together
with the four exceptions provided by section 12, affords adequate
protection to consumers, and we accordingly decline to expand the
exceptions.
¶9 The continuity of enterprise theory urged by the Tabors
holds a successor corporation liable when:
(1) There was basic continuity of the
enterprise of the seller corporation,
including . . . a retention of key
personnel, assets, general business
operations, and even the [product or
trade] name.
(2) The seller corporation ceased ordinary
business operations, liquidated, and
dissolved soon after distribution of
consideration received from the buying
corporation.
(3) The purchasing corporation assumed those
liabilities and obligations of the
seller ordinarily necessary for the
continuation of the normal business
operations of the seller corporation.
(4) The purchasing corporation held itself
out to the world as the effective
continuation of the seller corporation.

2 We note that this doctrine seeks to expand the existing
continuation exception, contained in section 12(d) of the
Restatement (Third) of Torts. It does so by eliminating burdens
like the necessity of proving a common identity “of officers,
directors, and shareholders in the predecessor and successor
corporations.” See Restatement (Third) of Torts: Products
Liability § 12 cmt. g. We believe, however, that the traditional
exceptions are broad enough to provide justice and sufficiently
protect consumers.
5 No. 20060504
Turner v. Bituminous Cas. Co., 244 N.W.2d 873, 883-84 (Mich.
1976).2
¶10 The product line exception holds a successor
corporation liable if it acquires “substantially all the
manufacturing assets” and “undertakes essentially the same
manufacturing operation” despite the fact that the successor was
not involved in the design, manufacture, distribution, or sale of
the successor corporation’s defective product. Ramirez v. Amsted
Indus., Inc., 431 A.2d 811, 825 (N.J. 1981).
¶11 Courts adopting these exceptions justify the decision
to do so on the theory that the predecessor is no longer
available and the successor is in a better financial position to
bear the cost of injury than the consumer-victim. Decius v.
Action Collection Serv., Inc., 2004 UT App 484, ¶ 14, 105 P.3d
956. Courts also base their decision on the fact that the
successor profits from exploiting the predecessor’s goodwill and
reputation. Id. We acknowledge these points but are not
persuaded that they justify disrupting the policy balance
reflected in the Restatement. We decline to adopt either the
product line or the continuity of enterprise exception because we
believe that the four exceptions to the traditional rule provide
adequate protection to consumers. We note that if the
legislature believes the existing exceptions inadequately protect
consumers, it may wish to create additional statutory
protections. See Michael D. Green, Successor Liability: The
Superiority of Statutory Reform to Protect Products Liability
Claimants, 72 Cornell L. Rev. 17, 41 (1986) (suggesting that
consumers could receive additional protection through a
dissolution-restricting statute making a predecessor
corporation’s assets available to future products liability
claimants). Thus, we adopt the traditional rule of successor
nonliability and its four exceptions as outlined in section 12 of
the Restatement (Third) of Torts.
II. UTAH LAW IMPOSES ON SUCCESSOR CORPORATIONS AN INDEPENDENT
POST-SALE DUTY TO WARN CONSUMERS OF DEFECTS IN PRODUCTS
MANUFACTURED AND SOLD BY THE PREDECESSOR CORPORATION

No. 20060504 6
¶12 The second certified question asks, “Does Utah law
impose on successor corporations a post-sale duty to
independently warn customers of defects in products manufactured
and sold by the predecessor corporation?” If we conclude that it
does, the Tenth Circuit then asks, “What factors are considered
in determining whether a successor has discharged that duty?” We
conclude that Utah does impose an independent post-sale duty on
successor corporations to warn customers of defects in products
manufactured and sold by the predecessor corporation as outlined
in section 13 of the Restatement (Third) of Torts. Section 13
provides:
(a) A successor corporation or other
business entity that acquires assets of
a predecessor corporation or other
business entity, whether or not liable
under the rule stated in § 12, is
subject to liability for harm to persons
or property caused by the successor’s
failure to warn of a risk created by a
product sold or distributed by the
predecessor if:
(1) the successor undertakes or agrees
to provide services for maintenance
or repair of the product or enters
into a similar relationship with
purchasers of the predecessor’s
products giving rise to actual or
potential economic advantage to the
successor, and
(2) a reasonable person in the position
of the successor would provide a
warning.
(b) A reasonable person in the position of
the successor would provide a warning
if:
(1) the successor knows or reasonably
should know that the product poses
a substantial risk of harm to
persons or property; and
(2) those to whom a warning might be
provided can be identified and can

3 Thus, if Metal Ware does have a duty to warn, it would owe
that duty to end users, like the Tabors, not just its retail
distributors, such as Shopko.
7 No. 20060504
reasonably be assumed to be unaware
of the risk of harm; and
(3) a warning can be effectively
communicated to and acted on by
those to whom a warning might be
provided; and
(4) the risk of harm is sufficiently
great to justify the burden of
providing a warning.
Restatement (Third) of Torts: Products Liability § 13 (1998).
¶13 We leave it to the federal court to apply the duty to
warn standard outlined in section 13 of the Restatement (Third)
of Torts. If a successor corporation has a duty to warn under
section 13, one factor in determining whether a successor
corporation has discharged its duty to warn is whether it
provided warning to the end user, not just an intermediary like a
distributor or retailer.3 In making this determination, the
successor has a duty to only warn the end user if it has a
reasonable means of doing so. Another factor to consider in this
case might be the effect of the closed USCPSC recall. Other
factors may be relevant, but the factual development of this case
is insufficient for us to identify them.
CONCLUSION
¶14 In response to the certified questions presented to us,
we conclude that Utah adheres to the general rule of successor
corporation nonliability, subject to the traditional four
exceptions, as recognized in the Restatement (Third) of Torts
section 12. We decline to adopt either the product line or the
continuity of enterprise exceptions at this time. Furthermore,
we hold that Utah law does impose a duty to warn on a successor
corporation in accordance with section 13 of the Restatement
(Third) of Torts.
---
¶15 Associate Chief Justice Wilkins, Justice Durrant,
Justice Parrish, and Justice Nehring concur in Chief Justice
Durham’s opinion.

No. 20060504
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