Fowler et al v. New Werner Co et al

Filing 60

OPINION AND ORDER GRANTING 33 MOTION for Summary Judgment by Defendants New Werner Co, New Werner Holding Co Inc, New Werner Holding Co LLC, Werner Co. d/b/a New Werner Co. Signed by Judge Robert L Miller, Jr on 9/18/2014. (lhc)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF INDIANA
FORT WAYNE DIVISION
JERRY J. FOWLER AND MICHELE
FOWLER,
PLAINTIFFS,
VS.

WERNER CO. D/B/A NEW WERNER
CO., A DELAWARE CORPORATION, NEW
WERNER HOLDING CO. (DE), INC.
F/K/A NEW WERNER HOLDING CO.
(DE), LLC D/B/A WERNER
HOLDING CO., A DELAWARE
CORPORATION, LOWE’S COMPANIES,
INC., A NORTH CAROLINA
CORPORATION, AND LOWE’S HOME
CENTERS, INC., A NORTH CAROLINA
CORPORATION,
DEFENDANTS.

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CAUSE NO. 1:13-CV-126-RLM-RBC

OPINION and ORDER
This matter is before the court on a summary judgment motion filed by
defendants Werner Co. d/b/a New Werner Co., and New Werner Holding Co.
(DE), Inc. f/k/a New Werner Holding Co. (DE), LLC d/b/a Werner Holding Co.
The Werner defendants argue there is no genuine issue of material fact as to
the claims asserted by plaintiffs Jerry Fowler and Michele Fowler. The Fowlers
oppose the motion. Argument was heard on August 21, 2014.

I. BACKGROUND

In July 2007, the Fowlers purchased a Type III six-foot aluminum
Werner step ladder from a Lowe’s store in Fort Wayne. On April 29, 2011, Mr.
Fowler used the ladder for a painting project. During the course of the project,
he claims the ladder’s spreader or spreader arm broke, causing him to fall onto
the ladder and the ground. As a result of the fall, Mr. Fowler sustained broken
ribs, a lacerated spleen, damaged kidneys, and damaged vertebrae.
Werner Co. had designed and manufactured the ladder in 2001. In 2006,
Werner Co. and three other companies1 filed for Chapter 11 bankruptcy relief
in the United States Bankruptcy Court for the District of Delaware. New
Werner Holding Co. (DE), LLC2 d/b/a Werner Holding Co., purchased the
assets of the bankrupt entities for cash, a credit bid, and assumption of
liabilities as limited and defined in the parties’ Asset Purchase Agreement.
Before the bankruptcy court approved the sale, Lowe’s Companies, Inc.
objected to the agreement’s “Assumed Liabilities” provision and requested
confirmation that the purchaser would be liable for “all of Lowe’s product
liability and indemnity claims.” Limited Objection and Reservation of Rights by
Lowe’s Companies, Inc., together with its subsidiaries to Notice of Debtors’ Intent
to Assume and Assign Certain Leases and Executory Contracts and Fixing Cure

The three other companies were Werner Holding Co. (PA), Inc., Werner Holding
Co. (DE), Inc., and WIP Technologies, Inc.
1

In 2007, New Werner Holding Co. (DE), LLC became defendant New Werner
Holding Co., Inc. Defendant Werner Co. is the operating company of New Werner
Holding Co., Inc. Correspondingly, New Werner Holding Co., Inc. owns all the stock of
Werner Co.
2

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Amounts, at 3 In re Werner Holding Co. (DE), Inc., No. 06-10578 (KJC) (Bankr.
D. Del. Apr. 25, 2007) (Doc. No. 44-11). The debtors later told the bankruptcy
court the dispute was resolved and the proposed form of order altered
accordingly. On April 25, 2007, the bankruptcy court approved the sale, Order:
(1) Approving Sale of Substantially All of Debtors’ Assets Free and Clear of All
Liens, Claims, Interests and Encumbrances; (2) Authorizing and Approving the
Purchase Agreement[;] (3) Approving Assumption and Assignment and Sale of
Certain Contracts and Leases; (4) Authorizing the Exemption of the Sale from
Stamp and Similar Taxes; and (5) Granting Related Relief In re Werner Holding
Co. (DE), Inc., No. 06-10578 (KJC) (Bankr. D. Del. Apr. 25, 2007) (Doc. No. 354), and the related Asset Purchase Agreement, dated March 20, 2007 (Doc. No.
35-5), between the debtors and Werner Holding Co. (DE), Inc. The parties
contend that different sections of the bankruptcy court’s order — that point to
the Asset Purchase Agreement and agreements between the Lowe’s Companies
and the Werner defendants — determine the Werner defendants’ liability. The
pertinent sections of the documents are reproduced as needed in the
discussion that follows.
The Fowlers allege that the Werner defendants are liable for their injuries
contractually, pursuant to the Indiana Product Liability Act, and under
common law theories of negligence, gross negligence, and/or recklessness. The
Fowlers also assert a claim under the Indiana Consumer Protection Act. The
Werner defendants seek summary judgment and contend they aren’t liable
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because they didn’t expressly assume the liabilities of the company which
manufactured the ladder and didn’t design, manufacture, or market the ladder.

II. STANDARD OF REVIEW
A movant is entitled to summary judgment if no genuine dispute as to
any material fact exists and the movant is entitled to judgment as a matter of
law. FED. R. CIV. P. 56(a). The court must construe all facts in the light most
favorable to the nonmoving party and draw all reasonable inferences in favor of
the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255
(1986). The movant initially has the burden to show there is a lack of evidence
to support the nonmoving party’s case. Celotex Corp. v. Catrett, 477 U.S. 317,
325 (1986). If, based on the evidence of record, a reasonable factfinder could
return a verdict for the nonmoving party, summary judgment must be denied.
Kodish v. Oakbrook Terrace Fire Prot. Dist., 604 F.3d 490, 507 (7th Cir. 2010).

III. DISCUSSION
A. Contractual Liability
The Werner defendants first argue they didn’t contractually assume the
liabilities of the company that manufactured the ladder in 2001 when they
purchased the assets of the bankrupt company six years later. They point to
the provision in the bankruptcy court’s order regarding the general assumption
of liabilities created by the sale.
Except as expressly provided in the Purchase Agreement or the
Ancillary Documents, Buyer is not assuming nor shall it or any
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affiliate of Buyer be in any way liable or responsible, as a
successor or otherwise, for any liabilities, debts, or obligations of
the Debtors in any way whatsoever relating to or arising from the
Debtors’ ownership or use of the Purchased Assets prior to the
consummation of the transactions contemplated by the Purchase
Agreement or the Ancillary Documents, or any liabilities calculable
by reference to the Debtors or their operations or the Purchased
Assets, or relating to continuing or other conditions existing on or
prior to the Closing Date, which liabilities, debts, and obligations
are hereby extinguished insofar as they may give rise to liability,
successor or otherwise, against Buyer or any affiliate of the Buyer.
Bankruptcy Court Order Approving Sale, at ¶ 9. The Werner defendants
conclude that based on the bankruptcy court’s order, they can’t be held liable
as a matter of law. Such a blanket statement overlooks the exception to the
general rule found in the first sentence of the provision — “Except as expressly
provided in the [Asset] Purchase Agreement or the Ancillary Documents.”
Section 2.3 of the Asset Purchase Agreement contains the expressly assumed
liabilities of the purchaser, and subsection (d) specifically addresses customer
product liability. The purchaser assumed
[a]ll Liabilities of any Seller in respect of the product liability claims
of the customers of Sellers listed on Schedule 2.3(d) . . . that exist
as of immediately prior to the Closing; provided, however, Buyer
will assume any Liability of Sellers to any customer of any Seller
that is not listed on Schedule 2.3(d) (which would otherwise have
been assumed by Buyer had such customer been listed on
Schedule 2.3(d)), but only to the extent that such Liability is or
becomes an allowed administrative expense claim of Sellers’
estates pursuant to Section 503(b) of the Bankruptcy Code.
Asset Purchase Agreement, at 16-17. The assumed liabilities fall within two
categories: (1) product liability claims that existed prior to the sale for
customers of Sellers listed on Schedule 2.3(d); and (2) allowed administrative
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expense claims for customers of Sellers not listed on Schedule 2.3(d). Schedule
2.3(d), titled Assumed Customer Product Liability Claims, states, in its entirety:
All of Seller’s customers with the exception of:
Home Depot
Kawan Lama
MAB Paints
Sears
(Doc. No. 35-4, at 31). Lowe’s was a customer, as the objection to this provision
during the bankruptcy proceedings showed, and so included in the assumed
product liability claims that existed prior to the sale closing. The Werner
defendants argue, and the court agrees, however, that the Fowlers’ claim didn’t
exist before the 2007 bankruptcy sale because the fall occurred years later, in
2011. Under the general sections of the bankruptcy court’s order and the Asset
Purchase Agreement, the Werner defendants didn’t contractually assume
liability for the Fowlers’ claim.
The Fowlers respond that the Werner defendants expressly assumed
liability for ladders sold at Lowe’s stores and that liability stems from two
different provisions in the bankruptcy court’s order. First, the Fowlers refer to
Section 2.3 of the Asset Purchase Agreement (approved by the bankruptcy
court’s order) that contains the expressly assumed liabilities of the purchaser.
Pursuant to subsection (a), the purchaser assumed “[a]ll Liabilities of any
Seller under the Seller Agreements . . . .” In Section 2.1(e), “Seller Agreements”
are defined to be all contracts listed or described in Schedule 2.1(e), which
includes “open, existing or on-going agreements and/or purchase orders with
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Sellers’ service providers, vendors or customers.” (Doc. No. 44-10, at 6). The
Fowlers contend the Lowe’s contracts with the bankrupt entities were open,
existing or on-going agreements and the Werner defendants consequently
assumed all liabilities related to ladders sold through Lowe’s stores under the
then existing Lowe’s agreements.
Second, the Fowlers refer to a provision of the bankruptcy court’s order
they say resulted from an objection filed by Lowe’s Companies, Inc. to the
debtors’ notice of intent to assume and assign certain leases and contracts in
the sale. The objection referenced “a number of ongoing obligations from the
Debtors to Lowe’s under the Lowe’s Contracts, including, without limitation, (i)
Lowe’s right of indemnification for product liability and other claims involving
Debtors’ products and (ii) customer product claims arising from Lowe’s
performance under the Lowe’s Contracts” and sought confirmation that the
purchaser/assignee would “honor any and all of the Debtors’ obligations to
indemnify Lowe’s for Indemnity Claims, whether such claims involve accidents
or conduct occurring before or after the Petition Date and whether such claims
are allowed administrative claims or not.” Lowe’s Obj., at ¶¶ 4, 5(b). At a
hearing, counsel for the debtors told the bankruptcy court the objection was
resolved and changes were made to the proposed form of order accordingly.
Transcript of Apr. 25, 2007 Hearing, at 10 In re Werner Holding Co. (DE), Inc.,
No. 06-10578 (KJC) (Bankr. D. Del. Apr. 25, 2007) (Doc. No. 44-12). The
bankruptcy court approved the sale the next day, and the Fowlers claim the
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following provision of the bankruptcy court’s order regarding the relationship
between Lowe’s and the Werner defendants was the result of those
negotiations:
Notwithstanding [the assumed liabilities clause of the purchase
agreement], the Debtors are hereby authorized, effective only as of
the Closing and in accordance with [sections of the bankruptcy
code], to: (a) assume all (but not less than all) Lowe’s Agreements;
(b) sell, assign, and transfer to Buyer all (but not less than all)
Lowe’s Agreements in each case free and clear of all Encumbrances
(except as provided in this decretal paragraph); and (c) execute and
deliver to Buyer, such assignment documents as may be necessary
to sell, assign and transfer all (but not less than all) Lowe’s
Agreements. For the avoidance of doubt, upon the assignment of
the Lowe’s Agreements to the Buyer, the Buyer will be required to
perform all obligations under the Lowe’s Agreements, including,
but not limited to, the provision of any customer programs or
indemnity obligations, if such obligations are set forth in or arise
out of the Lowe’s Agreements.
Bankruptcy Court Order Approving Sale, at ¶ 15. The Fowlers claim the “Lowe’s
Master Standard Buying Agreement” dated February 19, 1996 (Doc. No. 47-2)
is a “Lowe’s Agreement,” and as such, pursuant to paragraph 15, the
purchaser must perform all obligations under the contract. Further, they argue
that agreement contains a “Hold Harmless & Indemnity Policy.”
The Werner defendants reply that any contractual indemnity obligation is
to Lowe’s as a customer and not end-user customers like the Fowlers. From
this, the Werner defendants reason that they aren’t directly liable to an enduser of a ladder purchased at a Lowe’s store; they must simply indemnify
Lowe’s if it is found to be liable to an end-user. The Fowlers didn’t have the
opportunity to respond to this argument that was first raised in the reply. In
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the end, the parties agree the Werner defendants have contractually agreed to
indemnify the Lowe’s defendants for product liability claims. They differ in
opinion as to the legal consequences of this contractual obligation. The Fowlers
claim the Werner defendants are directly liable to end-users of the product
through their liability to Lowe’s. In their reply, the Werner defendants claim
they are directly liable to Lowe’s and Lowe’s alone. Indiana law appears to be
well-settled that an injured party has no right of direct action against the
tortfeasor’s

indemnitor,

Central

States

Grain

Co-operative

v.

Nashville

Warehouse & Elevator Corp., 48 F.2d 138, 140 (7th Cir. 1931), so the
bankruptcy court’s order and the Lowe’s Agreement don’t give the Fowlers any
right to sue the Werner defendants. At best (from the plaintiffs’ perspective),
the contract vests in the Werner defendants a duty to indemnify Lowe’s for any
damages Lowe’s might be required (or agree through settlement) to pay.
The court reaches this conclusion hesitantly. Given the way the briefing
unfolded in this case, the Fowlers haven’t had a chance to disagree with the
proposition that Indiana law gives no right of direct action against indemnitors.
The principle appears — to the court — too well settled to demand additional
investment of attorney time and party expense through further briefing or
motion practice. But if the Fowlers disagree, and think there is a right of direct
action in Indiana, the court will welcome a motion to reconsider.
Another word is in order concerning the briefing of this motion. After
reading the Werner defendants’ brief and turning to the Fowlers’ opposing brief,
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the court was surprised to learn the facts the Werner defendants omitted from
their submission. Because it was left to the Fowlers to be the first to discuss
the indemnification provision, they were left without a chance to respond to
what the Werner defendants posited about the indemnification provision in
their reply. Some of those challenges were ameliorated by oral argument, but
the Werner defendants’ cherry picking from the bankruptcy court’s order and
the Asset Purchase Agreement in their opening brief casts a long shadow over
the Werner defendants’ credibility with the court. As the court of appeals
explained last month:
We caution [movants] tempted to adopt this approach to summary
judgment practice that it quickly destroys their credibility with the
court.
This approach to summary judgment is also both costly and
wasteful. If a district court grants summary judgment in a party’s
favor based on its mischaracterizations of the record, the judgment
will in all likelihood be appealed, overturned, and returned to the
district court for settlement or trial. This course is much more
expensive than simply pursuing a settlement or trying the case in
the first instance. Further, the costs incurred while engaging in
these shenanigans stand a real chance of being declared excessive
under 28 U.S.C. § 1927, even if the abusive party prevails at trial
on remand. Risking such pitfalls in the hope of avoiding a trial is a
dramatic miscalculation of the risks and rewards of each
approach.
Malin v. Hospira, Inc., No. 13-2433, 2014 WL 3896175, at *6 (7th Cir. Aug. 7,
2014).
B. General Rule – Indiana
The Werner defendants further argue they can’t be liable under Indiana
law because when one corporation purchases the assets of another, the buyer
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doesn’t assume the debts and liabilities of the seller. Sorenson v. Allied
Products Corp., 706 N.E.2d 1097, 1099 (Ind. Ct. App. 1999). There are several
exceptions to this general rule, but the exceptions can only be invoked if the
predecessor corporation no longer exists. Id.
The Werner defendants claim no exception can apply because the
bankrupt predecessor entities still exist and they have provided the plaintiffs
with the address for service of process and the contact information for the
liquidating trustee’s counsel. This argument isn’t persuasive. The entities
declared bankruptcy eight years ago and the sale of substantially all of their
assets was completed seven years ago. For all intents and purposes, the
bankrupt entities no longer exist. See Id. (exceptions only apply “when the
predecessor corporation no longer exists, such as when a corporation dissolves
or liquidates in bankruptcy”); cf. South Bend Lathe, Inc. v. Amsted Indus., Inc.,
925 F.2d 1043, 1047 (7th Cir. 1991) (recovery under product-line exception
theory barred because predecessor company remained a viable company
capable of satisfying judgments against it).
An implied or express agreement between the buyer and the seller to
assume the obligation is a recognized exception to the general rule that a buyer
doesn’t assume the seller’s liabilities. Sorenson v. Allied Products Corp., 706
N.E.2d

1097,

1099

(Ind.

Ct.

App.

1999).

Reiterating

the

arguments

surrounding contractual liability, the parties dispute whether this exception
applies to the Werner defendants. As previously discussed, the Werner
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defendants expressly agreed to indemnify Lowe’s for product liability claims –
an obligation assumed when the Werner defendants purchased the assets of
the bankrupt entities. But, that express agreement to indemnify Lowe’s doesn’t
extend to the Fowlers.
The Fowlers alternatively argue that a “product-line exception” to the
general rule could apply to the Werner defendants. In Guerroro v. Allison
Engine Co., 725 N.E.2d 479 (Ind. Ct. App. 2000), the Indiana court of appeals
discussed a product-line exception under which a party that acquired a
manufacturing business and continued the output of the predecessor’s line of
products was strictly liable for defects in units of the same product line that
was previously manufactured and distributed by the predecessor. Id. at 483.
Indiana courts haven’t adopted or disclaimed this exception. Id. at 487 (“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.”). The Fowlers effectively ask this
federal court to push Indiana law to a place the Indiana courts haven’t yet
ventured. That’s the role of the state court, not of a federal court sitting in
diversity. See Doe v. City of Chicago, 360 F.3d 667, 672 (7th Cir. 2004) (“A
litigant who wants an adventurous interpretation of state law should sue in
state court . . . rather than ask us to declare such an interpretation to be the
law of” Indiana).
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The Werner defendants concede they contractually agreed to indemnify
the Lowe’s defendants, but that liability doesn’t transfer to the Fowlers. The
court declines to determine whether the product-line exception could apply in
this situation because the exception has yet to be applied under Indiana law.
No exception applies, so the Werner defendants are subject to the general rule;
when they purchased the assets of the bankrupt company, they didn’t assume
its liabilities. It follows that the Werner defendants aren’t liable under the
Indiana Product Liability Act, common law theories of negligence, gross
negligence, or recklessness (that, regardless, are subsumed by a Product
Liability Act claim), the Indiana Consumer Protection Act, or a breach of a postsale duty to warn theory (that the court found didn’t exist under Indiana law in
the co-defendants’ dismissal order).
IV. CONCLUSION
For the foregoing reasons, the defendants’ motion for summary judgment
(Doc. No. 33) is GRANTED.
SO ORDERED.
ENTERED: September 18, 2014

/s/ Robert L. Miller, Jr.
Judge
United States District Court

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