Ibanez v. S&S Worldwide
Filed 5/20/13 Ibanez v. S&S Worldwide CA2/4
>NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
>
California Rules of Court, rule 8.1115(a), prohibits courts
and parties from citing or relying on opinions not certified for publication or
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION FOUR
>
CARLOS IBANEZ, Plaintiff and Appellant, v. S&S WORLDWIDE, INC., et al., Defendants and Respondents. | B238269 (Los Angeles County Super. Ct. No. PC045095) |
APPEAL from a judgment of the Superior
Court for Los
Angeles County, Burt Pines, Judge.
Affirmed.
Law Offices of Martin L. Stanley,
Martin L. Stanley and Jeffrey R. Lamb for Plaintiff and Appellant.
Lewis Brisbois Bisgaard & Smith,
Jeffry A. Miller, Brittany H. Bartold, Cary L. Wood and Stephen K. Hiura for
Defendants and Respondents.
Plaintiff
Carlos Ibanez appeals from a judgment entered in favor of defendants S&S
Worldwide, Inc. and S&S-Arrow, LLC (collectively, the S&S defendants),
after the trial court granted the S&S defendants’ motion for summary
judgment. We affirm the judgment.
BACKGROUND
Carlos Ibanez suffered href="http://www.sandiegohealthdirectory.com/">traumatic brain injury,
among other injuries, at the Six Flags Magic Mountain amusement park on August
30, 2008, when he was hit by a roller coaster (which was called the “Ninjaâ€) as
he was walking in the area in which the Ninja was operating.href="#_ftn1" name="_ftnref1" title="">[1] Ibanez, through his guardian ad litem, filed
a lawsuit against Six Flags Theme Parks, Inc., Six Flags Operations, Inc., and
Six Flags Magic Mountain (collectively, Six Flags), alleging claims for
negligence, premises liability, strict liability, and negligence per se. The complaint was amended several times, including
amendments to add the S&S defendants and Arrow Dynamics as defendants. The operative seconded amended complaint
alleges five claims against all defendants, for href="http://www.mcmillanlaw.com/">negligence, premises liability, strict
liability, common carrier liability, and negligence per se. This appeal involves only the negligence and
strict liability claims against the S&S defendants.href="#_ftn2" name="_ftnref2" title="">>[2]
The complaint alleges that
“Defendants, and each of them†(a) “negligently and carelessly designed, built,
positioned, and operated Ninja so low to the ground that they knew or should
have known it may collide with people walking nearbyâ€; (b) “negligently and
carelessly designed, built, positioned, and operated Ninja without adequate
warnings of the dangers associated with its operations and placementâ€; (c)
“negligently and carelessly designed and built the fencing and area surrounding
Ninja without adequate warnings of the dangers associated with Ninja’s
operations and placementâ€; (d) “negligently and carelessly designed and built
the fencing and area surrounding Ninja so as to allow park guests and other
persons to easily enter the area surrounding Ninjaâ€; (e) “negligently and
carelessly did not provide adequate supervision and security of the area surrounding
Ninjaâ€; (f) “negligently and carelessly designed, manufactured, and assembled,
the roller coaster ‘Ninja’ making it unsafe for its intended use by reason of a
defect including but not limited to its ‘footings’ being defectively and
negligently designedâ€; and (g) “negligently and carelessly designed,
manufactured, and assembled the roller coaster Ninja and the area surrounding
the Ninja in violation of Section 14 of American Society for Testing and
Materials (ASTM) F 1159-03a.â€
The S&S defendants moved for
summary judgment. They submitted the
declaration of Rich Allen, the chief executive officer of both entities,
stating that: (1) the Six Flags Magic
Mountain theme park is not, and has never been, owned, operated, managed,
maintained, or controlled by the S&S defendants; (2) the S&S defendants
did not own, design, manage, build, or maintain the fencing or area surrounding
the Ninja roller coaster; (3) the S&S defendants did not design,
manufacture, assemble, position, operate, or supply, nor have they ever owned,
the Ninja roller coaster; (4) the Ninja roller coaster was built by Arrow
Dynamics; (5) the S&S defendants are not, and have never been,
affiliated with Arrow Dynamics; (6) S&S Arrow purchased certain assets
(which did not include the Ninja roller coaster located at Six Flags Magic
Mountain) from Arrow Dynamics in a bankruptcy proceeding in October 2002; (7)
the asset purchase agreement was approved and authorized by the href="http://www.fearnotlaw.com/">bankruptcy court in an order stating that
S&S Arrow did not assume Arrow Dynamics’ liabilities, debts, commitments,
or obligations, and that S&S Arrow shall not, under any circumstances, be
deemed a successor of or to Arrow Dynamics; (8) the asset purchase did not
amount to a consolidation or merger of Arrow Dynamics and S&S Arrow; and
(9) the asset purchase did not cause or contribute to Arrow Dynamics’
bankruptcy.
In addition to Allen’s declaration,
the S&S defendants submitted a copy of the bankruptcy court’s November 12,
2002 order authorizing and approving the asset
purchase agreement.href="#_ftn3"
name="_ftnref3" title="">[3] The bankruptcy court found, among other
things, that the asset purchase agreement was “negotiated, proposed and entered
into by [Arrow Dynamics] and [S&S Arrow] without collusion, in good faith,
and after arm’s-length and lengthy bargaining, which bargaining included the
active involvement of the Committee [of Unsecured Creditors]†and that the
terms and conditions of the sale and the purchase price “are fair and
reasonable under the circumstances†and “represent the highest or otherwise
best offer for the Acquired Assets.†In
addition, the bankruptcy court made several orders, including the following
relevant to this case: (1) “Except as
provided in the Asset Purchase Agreement with respect to the Assumed
Obligations, [S&S Arrow] is not assuming, nor shall it in any way
whatsoever be liable or responsible, as a successor or otherwise, for any
liabilities, debts, commitments or obligations (whether known or unknown,
disclosed or undisclosed, absolute, contingent, inchoate, fixed or otherwise)
of [Arrow Dynamics] or any liabilities, debts, commitments or obligations in
any way whatsoever relating to or arising from the Acquired Assets or [Arrow
Dynamics’] operations or use of the Acquired Assets on or prior to the Closing
Dateâ€; and (2) “Under no circumstances shall [S&S Arrow] be deemed a
successor of or to [Arrow Dynamics] for any interest against or in [Arrow
Dynamics] or the Acquired Assets of any kind or nature whatsoever. Except as provided in the Asset Purchase
Agreement with respect to Assumed Obligations, no person or entity . . . shall
assert by suit or otherwise against [S&S Arrow] or its successors in
interest any claim that they had, have or may have against [Arrow Dynamics].â€
Based on this evidence, the S&S
defendants argued they could not be held directly liable for negligence or
strict liability because they did not design, build, own, or operate the Ninja
roller coaster or the fencing surrounding it, and that Ibanez could not
establish successor liability.
Therefore, they were entitled to judgment as a matter of law.
In opposition, Ibanez submitted the
transcript of Allen’s deposition, which Ibanez contended showed that Allen had
no personal knowledge of the circumstances surrounding Arrow Dynamics’
bankruptcy or the details of the S&S defendants’ asset purchase. He also submitted a letter that Robert B.
Crates (who was Chairman of S&S Worldwide at the time) sent to Arrow
Dynamics submitting a bid for S&S Arrow to acquire the assets of Arrow
Dynamics (the letter was sent on May 29, 2002, before S&S Arrow was
formed). In addition, Ibanez produced
evidence that S&S Arrow used the name “Arrow Dynamics, Inc.†on documents
it sent to Six Flags California after the asset purchase, and that S&S
Arrow provided Six Flags Magic Mountain with replacement parts for the
Ninja. Based on this evidence, Ibanez
argued that the S&S defendants failed to meet their initial burden on
summary judgment (in essence arguing that Allen’s declaration was incompetent
for lack of personal knowledge), and that, in any event, Ibanez’s proffered
evidence raised triable issues as to whether the S&S defendants could be
held liable as successors to Arrow Dynamics, and whether they could be directly
liable because they had an independent duty to warn purchasers and users of
defective products.
The trial court granted the summary
judgment motion and entered judgment in favor of the S&S defendants. Ibanez appeals.
DISCUSSION
Ibanez makes the same arguments on
appeal that he made in the trial court:
he contends the S&S defendants failed to meet their burden on
summary judgment, that he produced evidence raising a triable issue as to whether
the S&S defendants are liable as successors to Arrow Dynamics, and that his
evidence also raised triable issues as to whether the S&S defendants are
directly liable for failing to warn of the defective design and operation of
the Ninja roller coaster.
A. Law
Regarding Successor Liability
To properly analyze Ibanez’s
contentions, we must briefly review the law regarding successor liability.
As a general rule, a corporation that
purchases the principal assets of another corporation “does not assume the
seller’s liabilities unless (1) there is an express or implied agreement of
assumption, (2) the transaction amounts to a consolidation or merger of the two
corporations, (3) the purchasing corporation is a mere continuation of the
seller, or (4) the transfer of assets to the purchaser is for the fraudulent
purpose of escaping liability for the seller’s debts.†(Ray v.
Alad Corp. (1977) 19 Cal.3d 22, 28.)
In Ray v. Alad Corp., the
Supreme Court created an additional exception to the general rule of
nonliability, to provide a remedy, under certain limited circumstances, against
the successor when a person has been injured by the predecessor’s product. This limited exception, sometimes called the
“product line successor†rule, allows the injured party to recover under a
strict liability theory when three elements are present: “(1) the virtual destruction of the
plaintiff’s remedies against the original manufacturer caused by the
successor’s acquisition of the business, (2) the successor’s ability to assume
the original manufacturer’s risk-spreading role, and (3) the fairness of
requiring the successor to assume a responsibility for defective products that
was a burden necessarily attached to the original manufacturer’s good will
being enjoyed by the successor in the continued operation of the
business.†(Id. at p. 31.)
With this law in mind, we turn to
Ibanez’s contentions on appeal.
B. The
S&S Defendants Met Their Initial Burden on Summary Judgment
Ibanez contends that the S&S
defendants failed to meet their initial burden of production on their motion
for summary judgment. We disagree.
In the trial court, a defendant moving
for summary judgment must present evidence that one or more elements of the
plaintiff’s claim cannot be established or that there is a complete defense to
the claim. If, and only if, the
defendant meets that burden of production, the burden shifts to plaintiff to
show that a triable issue of material fact exists as to that claim or
defense. (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850.) The plaintiff shows that a triable issue of
material fact exists by pointing to evidence that would allow a reasonable
trier of fact to find that fact in favor of the plaintiff. (Ibid.) If the plaintiff fails to do so, the
defendant is entitled to judgment as a matter
of law.
As noted above, in moving for summary
judgment, the S&S defendants submitted the declaration of their chief
executive officer, Rich Allen, and the order of the bankruptcy court approving
the sale of most of Arrow Dynamics’ assets to S&S Arrow. That evidence established that (1) the
S&S defendants did not own, design, manufacture, operate, or supply the
Ninja roller coaster or the fencing surrounding it; (2) the S&S defendants
purchased certain assets from Arrow Dynamics in a bankruptcy proceeding; (3)
the asset purchase did not cause Arrow Dynamics’ bankruptcy; (4) the asset
purchase did not amount to a consolidation or merger of Arrow Dynamics and
S&S Arrow; (5) the asset purchase agreement was negotiated in good faith,
without collusion, and after arm’s-length bargaining, resulting in terms and
conditions and a purchase price that were fair and reasonable under the
circumstances; and (6) the S&S defendants did not assume Arrow Dynamics’ liabilities
and may not be deemed a successor to Arrow Dynamics. These facts are sufficient to establish that
the S&S defendants are not directly liable for Ibanez’s injuries because
they did not own, supply, or control the Ninja roller coaster or the fence surrounding
it, and they are not liable as successors to Arrow Dynamics because none of the
exceptions to successor nonliability apply.
Ibanez, however, argues that this
evidence did not satisfy the S&S defendants’ burden of production because
Allen was not personally involved in S&S Arrow’s purchase of Arrow
Dynamics’ assets and therefore did not have personal knowledge of the details
of the purchase. Allen’s lack of
personal involvement in the negotiations surrounding S&S Arrow’s purchase
does not negate his testimony about the acquisition of assets by
defendant. As the current chief
executive officer of both S&S defendants, Allen is competent to testify as
to the fact of and terms of the purchase.
To the extent Ibanez contends there is evidence that might indicate some
sort of collusion or subterfuge was involved in the asset purchase, that
evidence goes to whether Ibanez has raised a triable issue of fact rather than
whether the S&S defendants satisfied their burden of production.
In short, Allen’s declaration, along
with the bankruptcy court’s order, were sufficient to prove that Ibanez could
not establish essential elements of his claims or that the S&S defendants
had a complete defense to those claims.
Thus, the burden shifted to Ibanez to show that a href="http://www.mcmillanlaw.com/">triable issue of material fact exists as
to his negligence or strict liability claims.
(Aguilar v. Atlantic Richfield Co.,
supra, 25 Cal.4th at p. 850.)
C. Ibanez’s
Evidence Does Not Raise a Triable Issue
Ibanez contends he presented
sufficient evidence to raise a triable issue of fact with regard to whether (1)
the asset purchase was a de facto merger or S&S Arrow is a mere
continuation of Arrow Dynamics; (2) there was a collusive agreement between the
S&S defendants and Arrow Dynamics to use the bankruptcy proceedings to
shield the S&S defendants from Arrow Dynamics’ liabilities; (3) the product
line successor rule applies; and (4) the S&S defendants had an independent
duty to warn purchasers and users of Arrow Dynamics’ products because they had
a continuing relationship with Arrow Dynamics’ customers. We are not convinced.
1. The
Evidence Does Not Show a De Facto Merger or Continuation
Ibanez presented evidence that S&S
Arrow used the name “Arrow Dynamics, Inc.†on at least one document it sent to
Six Flags California in 2003 (after the asset purchase in October 2002), and
that S&S Arrow provided Six Flags Magic Mountain with replacement parts for
the Ninja. He also submitted deposition
testimony by Allen that S&S Arrow employed about 10 of Arrow Dynamics’
former employees for a short time after the asset purchase, and continues to
employ two of those former Arrow Dynamics employees. He contends this evidence shows that the
asset purchase amounted to a de facto merger or mere continuation of Arrow
Dynamics. It does not.
As the Supreme Court explained in >Ray v. Alad Corp., supra, 19 Cal.3d 22, an asset purchase will be deemed a
consolidation or merger for the purpose of imposing successor liability only
“where one corporation takes all of another’s assets without providing any
consideration that could be made available to meet claims of the other’s
creditors [citation] or where the consideration consists wholly of shares of
the purchaser’s stock which are promptly distributed to the seller’s
shareholders in conjunction with the seller’s liquidation.†(Id.
at p. 28.) Similarly, “a corporation
acquiring the assets of another corporation is the latter’s mere continuation
and therefore liable for its debts . . . only upon a showing of one or both of
the following factual elements: (1) no
adequate consideration was given for the predecessor corporation’s assets and
made available for meeting the claims of its unsecured creditors; (2) one or
more persons were officers, directors, or stockholders of both
corporations.†(Id. at p. 29.) As one Court
of Appeal has noted, “although other factors are relevant to both the de facto
merger and mere continuation exceptions, the common denominator, which must be
present in order to avoid the general rule of successor nonliability, is the
payment of inadequate consideration.†(>Franklin v. USX Corp. (2001) 87
Cal.App.4th 615, 627.)href="#_ftn4"
name="_ftnref4" title="">[4]
Here, none of the evidence Ibanez
relies upon addresses whether the S&S defendants paid adequate
consideration for the Arrow Dynamics assets.
In contrast, the S&S defendants submitted evidence that adequate
consideration was given for those assets:
the bankruptcy court’s order finding that the terms and conditions of
the purchase agreement and the purchase price “(i) are fair and reasonable
under the circumstances, (ii) represent the highest or otherwise best offer for
the Acquired Assets, (iii) will provide a recovery for [Arrow Dynamics’]
creditors that is equal to or greater than what would be provided by any other
available alternative and (iv) constitute reasonably equivalent value and fair
consideration under and within the meaning of the Bankruptcy Code and other
applicable laws.†Thus, we conclude
Ibanez failed to raise a triable issue as to whether the S&S defendants
could be held liable under the de facto merger or mere continuation exceptions
to the successor nonliability rule.
2. >Ibanez’s Evidence is Insufficient to Show
Collusion or Fraud
Ibanez contends he raised a triable
issue as to whether the fourth exception to the successor nonliability rule
applies, based upon a letter that he contends indicates there was collusion
between the S&S defendants and Arrow Dynamics to avoid Arrow Dynamics’
liabilities through the use of the bankruptcy process. Ibanez makes much of the fact that the
letter, printed on letterhead identifying the sender as “S&S-Arrow
Acquisition, LLC,†was sent in May 2002, months before S&S Arrow was formed
and the bankruptcy sale was completed.
He argues that the fact that the letter was sent before S&S Arrow
was formed, and that it refers to “prior discussions [S&S Worldwide had]
with shareholders and management with respect to a prospective investment
transaction,†shows that the S&S defendants induced Arrow Dynamics to file
for bankruptcy to avoid future tort liability.
Ibanez misunderstands both the letter
and his burden on a motion for summary judgment.
To defeat a defendant’s motion for
summary judgment, the plaintiff must point to evidence that would allow a
reasonable trier of fact to find in favor of the plaintiff. (Aguilar
v. Atlantic Richfield Co., supra,
25 Cal.4th at p. 850.) The letter does
not accomplish this.
The fact that the letter was sent
before S&S Arrow actually was formed does not, as Ibanez suggests, show
that the S&S defendants were attempting something subversive. The letter clearly states that S&S-Arrow
Acquisition, LLC is “a to be formed
subsidiary or affiliate of S&S Worldwide, Inc.†(Italics added.) In other words, the letter acknowledges that
S&S Worldwide intended to, but had not yet formed, S&S Arrow in order
to purchase Arrow Dynamics’ assets. No
reasonable trier of fact could conclude from the timing of the letter or the
fact that it was on S&S Arrow’s letterhead that the eventual transfer of
Arrow Dynamics’ assets to the S&S defendants was “for the fraudulent
purpose of escaping liability for the seller’s debts.†(Ray v.
Alad Corp., supra, 19 Cal.3d at
p. 28.)
Nor is there anything in the letter to
indicate that the S&S defendants induced Arrow Dynamics to file for
bankruptcy. Instead, it is clear from
the content of the letter that the bankruptcy proceeding had begun well before
the letter was sent. The letter refers
to the Unsecured Creditors’ Committee that had been formed, as well as the
bankruptcy court’s approval of the assets available for purchase, the bidding
and auction procedures, and the sale date.
While Ibanez is correct that the letter refers to prior discussions
S&S Worldwide had with shareholders and management regarding “a prospective
investment transaction,†it cannot be inferred from that reference that the
S&S defendants and Arrow Dynamics agreed that Arrow Dynamics would file for
bankruptcy so that S&S Arrow could avoid liability for Arrow Dynamics’
debts. Any such inference would be based
upon pure speculation, and therefore is insufficient to defeat summary
judgment. (Joseph E. Di Loreto, Inc. v. O’Neill (1991) 1 Cal.App.4th 149, 161
[“When opposition to a motion for summary judgment is based on inferences,
those inferences must be reasonably deducible from the evidence, and not such
as are derived from speculation, conjecture, imagination, or guessworkâ€].) In short, Ibanez failed to raise a triable
issue as to the fourth exception to successor nonliability.
3. >The Product Line Successor Rule Does Not
Apply
Ibanez argues that the evidence before
the trial court was sufficient to satisfy the requirements of the product line
successor rule set forth in Ray v. Alad
Corp., supra, 19 Cal.3d 22. The evidence in this case, however,
conclusively negates the first element of the rule, and therefore the rule does
not apply.
It is well settled that, to be liable
under the product line successor rule, the successor must have caused the
destruction of the plaintiff’s remedies.
(See Stewart v. Telex
Communications, Inc. (1991) 1 Cal.App.4th 190, and cases cited
therein.) Where the original
manufacturer files a voluntary petition for bankruptcy, and the asserted
successor merely purchases the manufacturer’s assets in the bankruptcy
proceeding, it is the manufacturer’s bankruptcy, and not the subsequent
purchase of assets that destroys the plaintiff’s remedies. (Id.
at p. 200.) That is what happened
here. There is no evidence that the
S&S defendants caused Arrow Dynamics to file for bankruptcy. Thus, there is no evidence that the S&S
defendants caused the destruction of Ibanez’s remedies, and the trial court
properly ruled that the product line successor rule does not apply.
4. >Ibanez’s Theory for Direct Liability Does
Not Apply
Relying upon Gee v. Tenneco, Inc. (9th Cir. 1980) 615 F.2d 857,> Ibanez contends the S&S defendants
are directly liable for negligence and strict product liability because they
had an independent duty to warn purchasers and users of defects in the Ninja
roller coaster manufactured by Arrow Dynamics due to the S&S defendants’
continuing relationship with Arrow Dynamics’ customer, Six Flags. He asserts the S&S defendants were not
entitled to summary judgment because there was no evidence that they warned Six
Flags of the alleged defect, i.e., that the roller coaster was designed, built,
and positioned to operate so close to the ground that it could collide with
people walking nearby.
We disagree that the S&S
defendants had a duty to warn Six Flags about any alleged defect in the design
or operation of the Ninja roller coaster.
First, as noted by the court in Burroughs
v. Precision Airmotive Corp. (2000) 78 Cal.App.4th 681, “California has not
adopted an independent duty to warn theory of liability.†(Id.
at p. 698.) But even if we were to adopt
the theory here, the duty of a successor to warn of defects in its
predecessor’s product would not arise under the facts of this case.
The independent duty to warn arises
only when there is a “continuation of the relationship between the successor
and the customers of the predecessor.†(>Gee v. Tenneco, Inc., >supra, 615 F.2d at p. 866.) “Factors which may be considered in order to
determine if a nexus or relationship sufficient to create a duty to warn exists
are whether the successor assumed the predecessor’s service contracts, whether
the particular product was covered under a service contract with the
predecessor’s customer, whether the successor actually serviced the product,
and whether the successor knew of the alleged defects and knew how to reach the
predecessor’s customers.†(>Burroughs v. Precision Airmotive Corp., >supra, 78 Cal.App.4th at p. 696.) In this case, the undisputed evidence is that
the S&S defendants did not assume any service contracts between Arrow
Dynamics and Six Flags (if any existed), and did not own or service the Ninja
roller coaster. They simply supplied
parts to Six Flags. The relationship
between the S&S defendants and Six Flags (i.e., as supplier of parts) does
not come close to the kind of relationship that could give rise to a duty to
warn of the defect alleged here, related to the positioning of the roller
coaster itself. Thus, the S&S
defendants had no duty to warn and cannot be held directly liable for
negligence or strict liability.
DISPOSITION
The judgment is
affirmed. The S&S defendants shall
recover their costs on appeal.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
WILLHITE,
J.
We concur:
EPSTEIN, P. J.
SUZUKAWA, J.