DeLuca et al v. Portland Orthopaedics Limited et al
MEMORANDUM OF DECISION & ORDER granting in part and denying in part 68 Motion for Summary Judgment. For the reasons set forth above, the Moving Defendants' motion for summary judgment pursuant to Rule 56, is granted as to Counts II, III, IV, and V of the Plaintiffs complaint and is denied with respect to Count I. SEE ATTACHED DECISION for details. So Ordered by Judge Arthur D. Spatt on 12/2/2017. (Coleman, Laurie)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
ROCCO DELUCA and MARGARET
DECISION & ORDER
-againstPORTLAND ORTHOPAEDICS LIMITED, an
Australian company; PLUS ORTHOPEDICS, a
California corporation; MAXX HEALTH, INC.,
a Pennsylvania corporation; MAXX
ORTHOPEDICS, INC, a Pennsylvania
corporation; and MIPRO US, INC., a
Houssiere Durant & Houssiere, LLP
Counsel for the Plaintiffs
1990 Post Oak Blvd, Suite 800
Houston, TX 77056
Monica C. Vaughan, Esq., Of Counsel
Peters Berger Koshel & Goldberg, P.C.
Counsel for the Plaintiffs
26 Court Street, Suite 2803
Brooklyn, NY 11242
Richard L. Goldberg, Esq., Of Counsel
Hinshaw & Culbertson LLP
Counsel for the Defendants
28 State Street, 24th Floor
Boston, MA 02109
Geoffrey M. Coan, Esq.,
Jamie Kessler, Esq.,
Kristen G. Niven, Esq., Of Counsel
SPATT, District Judge:
On September 25, 2015, Plaintiffs Rocco Deluca (“Rocco”) and Margaret Deluca
(“Margaret”) (together, the “Delucas” or “Plaintiffs”) initiated this action against the Defendants
Portland Orthopaedics Limited (“Portland”), Plus Orthopedics (“Plus”), Maxx Orthopedics, Inc.,
(“Maxx Ortho”), Maxx Health, Inc. (“Maxx Health”), Mipro US, Inc. (“Mipro US”) (together, the
“Defendants”). The complaint alleges numerous claims that arise out of the alleged failure of a
hip replacement device, the M-Cor Modular Hip System (“M-Cor”), which was surgically
implanted into Rocco. See Docket Entry (“DE”) 1. The complaint asserts five causes of action:
(1) strict products liability – failure to warn; (2) strict products liability – manufacturing defect;
(3) strict products liability – design defect; (4) negligence; and (5) breach of implied warranty. Id.
Portland and Plus both failed to appear in this action and as a result, the action against Portland
was dismissed on May 12, 2016. Defendants’ Rule 56.1 Statement and Plaintiffs’ CounterStatement of Undisputed Material Facts (“SOF”) ¶ 6.
Presently before the Court is a motion for summary judgment filed by Maxx Health, Maxx
Ortho and Mipro US (together, the “Moving Defendants”) pursuant to Federal Rule of Civil
Procedure (“FED. R. CIV. P.” or “Rule”) 56, seeking summary judgment.
For the reasons set forth herein, the Moving Defendants’ motion for summary judgment is
granted in part and denied in part.
A. THE FACTUAL BACKGROUND
On January 5, 2009, Rocco, a New York resident, received an M-Cor implant during hip
replacement surgery at Plainview Hospital in Plainview, New York. SOF ¶ 2. X-rays confirmed
that Rocco’s M-Cor implant failed on September 26, 2012. Id. ¶ 3. As a result, Rocco required
incidental medical treatment, which occurred in New York. Id. ¶ 4.
Portland, an Australian company that has not appeared in this action, designed and
manufactured M-Cor. Id. ¶ 7. The company went into voluntary administration on December 2,
2008 and entered into receivership on or about December 5, 2008. Id. ¶ 8. Public auctions
conducted by the trustees and receivers of Portland resulted in an Asset Sale and Purchase
Agreement (the “Agreement”) with Mipro Ortho Pte. Ltd., the Singaporean parent of Mipro US,
on March 27, 2009. The Agreement included the purchase of the M-Cor product line as well as
the intellectual property, inventory, equipment and design documents regarding that product. Id.
¶¶ 11-12. The Agreement specifically excluded the sale of other product lines, Portland’s
goodwill, cash, accounts receivable, insurance policies, tax documents, minute books. The
agreement provided that the buyer: “shall not assume and shall not be liable for all of the debts,
contracts, commitments, obligations and other Liabilities of any nature whatsoever of [Portland]
and [its] direct and indirect subsidiaries, whether known or unknown, accrued or not accrued, fixes
or contingent…” Id. ¶¶ 13-14.
On March 26, 2009, Mipro US and Maxx Health incorporated in the State of Pennsylvania.
Id. ¶ 10. On April 13, 2009, Mipro US and Mipro Ortho Pte. Ltd. entered into a subsidiary
agreement in which Mipro US began manufacturing the M-Cor product line in the United States.
The subsidiary agreement states that “Mipro US will be responsible for procuring inventory,
components and other supplies and for manufacturing, testing, assembling and delivering the [MCor] to its customers.” Id. ¶¶ 46-48.
On April 7, 2009, Mipro US and Maxx Health entered into a distributor sales agreement.
That same day, Mipro US also entered into a consulting agreement with Maxx Ortho. Neither
Maxx Health nor Maxx Ortho is a parent or subsidiary of any other Defendant nor have they ever
acquired assets or liabilities from Portland. Further, neither company has ever manufactured the
M-Cor product line. See id. ¶¶ 27-43.
A. STANDARD OF REVIEW: FED. R. CIV. P. 56
Pursuant to Rule 56, a “court shall grant summary judgment if the movant shows that there
is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of
law.” FED. R. CIV. P. 56(a); see Tolbert v. Smith, 790 F.3d 427, 434 (2d Cir. 2015); Kwong v.
Bloomberg, 723 F.3d 160, 164-65 (2d Cir. 2013); Holcomb v. Iona Coll., 521 F.3d 130, 137 (2d
Cir. 2008). A dispute is genuine if the “evidence is such that a reasonable jury could return a
verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct.
2505, 2510, 91 L. Ed. 2d 202 (1986).
It is the movant’s burden to initially demonstrate the absence of material facts that preclude
summary judgment. See Huminski v. Corsones, 396 F.3d 53, 69 (2d Cir. 2005) (citing Castro v.
United States, 34 F.3d 106, 112 (2d Cir. 1994)). Such a “burden on the moving party may be
discharged by ‘showing’ … that there is an absence of evidence to support the nonmoving party’s
case.” PepsiCo, Inc. v. CocaCola Co., 315 F.3d 101, 105 (2d Cir. 2002) (quoting Celotex Corp.
v. Catrett, 477 U.S. 317, 325, 106 S. Ct. 2548, 2554, 91 L. Ed. 2d 265 (1986)). If the moving party
meets the initial burden, the nonmoving party must present specific facts that demonstrate there is
a genuine issue that should be left for the fact-finder to decide. Davis v. New York, 316 F.3d 93,
100 (2d Cir. 2002); see also Matsuhita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 58687, 106 S. Ct. 1348, 1356, 89 L. Ed. 2d 538 (1986) (requiring the nonmoving party to “do more
than simply show that there is some metaphysical doubt as to the material facts … the nonmoving
party must come forward with ‘specific facts showing that there is a genuine issue for trial.’”
(internal citations omitted)). Mere conjecture, speculation, or conclusory statements are not
enough to defeat summary judgment. Kulak v. City of New York, 88 F.3d 63, 71 (2d Cir. 1996)
(internal citations omitted). The “mere existence of a scintilla of evidence” is insufficient to defeat
summary judgment. Anderson, 477 U.S. at 252.
In considering a summary judgment motion pursuant to Rule 56, the Court must “view the
evidence in the light most favorable to the non-moving party … and may grant summary judgment
only when ‘no reasonable trier of fact could find in favor of the nonmoving party.’” Allen v.
Coughlin, 64 F.3d 77, 79 (2d Cir. 1995) (internal citations omitted); see also Doro v. Sheet Metal
Workers’ Int’l Ass’n, 498 F.3d 152, 155 (2d Cir. 2007) (noting that in deciding a summary
judgment motion, the court will “constru[e] the evidence in the light most favorable to the
nonmoving party and draw all inferences and resolv[e] all ambiguities in favor of the nonmoving
party”); Amnesty Am v. Town of W. Hartford, 361 F.3d 113, 122 (2d Cir. 2004) (stating that in
deciding a Rule 56 motion, the court “is not to weigh the evidence but is instead required to view
the evidence in the light most favorable to the party opposing summary judgment, to draw all
reasonable inferences in favor of that party, and to eschew credibility assessments.” (internal
It is not the Court’s responsibility to resolve any purported issues of disputed facts, but
merely to “assess whether there are any factual issues to be tried, while resolving ambiguities and
drawing reasonable inferences against the moving party.” Knight v. U.S. Fire Ins. Co., 804 F.2d
9, 11 (2d Cir. 1986) (internal citations omitted); accord Cioffi v. Averill Park Cent. Sch. Dist. Bd.
Of Educ., 444 F.3d 158, 162 (2d Cir. 2006) (noting that the responsibility of the district court is
not “to weigh the evidence and determine the truth of the matter but to determine whether there is
a genuine issue for trial” (quoting Anderson, 477 U.S. at 249)). “A genuine issue of fact for trial
exists when there is sufficient evidence on which a jury could reasonably find for the plaintiff.”
Cioffi, 444 F.3d at 162 (quoting Anderson, 477 U.S. at 252).
B. NEW YORK LAW GOVERNS PLAINTIFFS’ SUCCESSOR LIABILITY CLAIMS
As a threshold matter, the Court must determine whether Pennsylvania or New York law
applies to the Plaintiffs’ successor liability claims.
In both New York and Pennsylvania, a corporation that acquires another’s assets is
generally not liable for the torts of its predecessor. Schumacher v. Richards Shear Co., 59 N.Y.2d
239, 244-45, 464 N.Y.S.2d 437, 451 N.E.2d 195 (N.Y. 1983); Cont’l Ins. Co. v. Schneider, Inc.,
582 Pa. 591, 873 A.2d 1286, 1291 (2005). However, while Pennsylvania recognizes the product
line exception to this rule in certain situations, see Kradel v. Fox River Tractor Co., 308 F.3d 328,
331 (3d Cir. 2002), New York does not. Semenetz v. Sterling & Walden, Inc., 7 N.Y.3d 194, 201,
818 N.Y.S.2d 819, 851 N.E.2d 1170 (N.Y. 2006). As New York law more stringently protects
successor corporations, the Moving Defendants, who are all incorporated in Pennsylvania, seek to
apply it in the instant matter.
This Court exercises jurisdiction over this matter pursuant to its diversity jurisdiction under
28 U.S. § 1332. A district court sitting in diversity must apply the choice of law rules of the forum
state. Tri-State Employment Servs., Inc. v. Mountbatten Sur. Co., 295 F.3d 256, 260 (2d. Cir.
2002) (citing Klaxon Co. v. Stentor Co., 313 U.S. 487, 496, 61 S. Ct. 1020, 85 L. Ed. 1477 (1941));
Jackson v. Domtar Indus., Inc., 35 F.3d 89, 92 (2d Cir. 1994) (same). See also Erie R. Co. v.
Tompkins, 304 U.S. 64, 78, 58 S. Ct. 817, 822, 82 L. Ed. 1188 (1938) (“There is no federal general
common law.”). Accordingly, in this case, the Court will apply New York choice of law rules.
See Beth Israel Med. Ctr. v. Horizon Blue Cross & Blue Shield of New Jersey, Inc., 448 F.3d 573,
582 (2d Cir. 2006). An actual conflict occurs when the laws of each jurisdiction differ in a way
that has the potential to impact the outcome of the case. Fin. One Pub. Co. v. Lehman Bros. Special
Fin., 414 F.3d 325, 331 (2d Cir. 2005).
Under New York law, courts apply an “interest analysis to determine which of two
competing jurisdictions has the greater interest in having its law applied in the litigation.” Padula
v. Lilarn Props. Corp., 84 N.Y.2d 519, 521, 620 N.Y.S.2d 310, 311, 644 N.E.2d 1001 (N.Y. 1994);
accord GlobalNet Financial.Com, Inc. v. Frank Crystal & Co., 449 F.3d 377, 384 (2d Cir. 2006).
To conduct such an analysis, the Court examines two separate questions: “(1) what are the
significant contacts and in what jurisdiction are they located, and (2) whether the purpose of the
law is to regulate conduct or allocate loss.” Id. This will either yield a true conflict of laws, or, as
in most choice of law cases, that there is no true conflict. See Beth Israel Med. Ctr., 448 F.3d at
582-83; Matter of Crichton, 20 N.Y.2d 124, 135, 281 N.Y.S.2d 811, 288 N.E.2d 799, 806 n.8
Under the choice-of-law analysis presented in Babcock v. Jackson, 12 N.Y.2d 463, 191
N.E.2d 279 (1963), conduct-regulating rules giving rise to a cause of action, such as the duty and
standard of care applicable to manufacturers are commonly supplied by the place where the tort
occurred. This is because that state has “the greatest interest in regulating behavior within its
borders.” Padula, 84 N.Y.2d at 519.
In the instant case, the Plaintiffs are residents of New York. The M-Cor implant was sold
in New York to Rocco’s physician and Rocco’s surgery occurred in New York. When the M-Cor
implant failed, which occurred in New York, Rocco received medical care in New York. See, e.g.,
Cacciola v. Selco Balers, Inc., 127 F. Supp. 2d 175, 184 (E.D.N.Y. 2001). The Court finds that
New York has the strongest interest in regulating the conduct of manufacturers who sell devices
that will be used by its citizens. See O’Connor v. U.S. Fencing Ass’n, 260 F. Supp. 2d 545, 557
(E.D.N.Y. 2003) (holding that New York has a “significant interest in affording a remedy to its
own domiciliaries who are injured as a result of the negligence of another”); Fargas v. Cincinati
Mach., LLC, 986 F. Supp. 2d 420, 425 (S.D.N.Y. 2013) (stating that New York has a “legitimate
interest in protecting its residents from defective products even in cases in which the product was
delivered a long time ago”). As a result, the Court will apply New York law.
C. SUCCESSOR LIABILITY UNDER NEW YORK LAW
Under New York law, successor liability does not apply in the instant case. The Court
notes that while the Plaintiffs failed to address successor liability under New York law in their
briefing papers, the Court nevertheless fully examined the Plaintiffs successor liability claims
under New York State law.
As previously mentioned, in New York State, a corporation that purchases the assets of
another corporation is not automatically responsible for the seller’s liabilities. Douglas v. Stamco,
363 F. App’x 100, 101 (2d Cir. 2010) (internal citations omitted); New York v. Nat’l Serv. Indus.,
Inc., 460 F.3d 201, 209 (2d Cir. 2006); Kessenich v. Raynor, 120 F. Supp. 2d 242, 255 (E.D.N.Y.
2000); Schumacher, 59 N.Y.2d at 243. However, there are four common-law exceptions whereby
liability is assumed: “(1) the successor corporation either expressly or impliedly agrees to assume
the predecessor’s liabilities; (2) the transaction is a de facto merger; (3) the successor may be
considered a mere continuation of the predecessor; or (4) the transaction is fraudulent.” Kessenich,
120 F. Supp. 2d at 255; accord Douglas, 363 F. App’x at 101-02; Nat’l Serv. Indus., Inc., 460 F.3d
at 209; Cargo Partner AG v. Albatrans, Inc., 352 F.3d 41, 45 (2d Cir. 2003). None of these
exceptions apply to the present facts.
Where, as here, the buyer purchases the assets of a bankrupt entity, it is pertinent to
examine the relevant policy considerations involving the bankruptcy laws. The enforcement of a
“free and clear” asset purchase agreement furthers the goals of our bankruptcy laws, which
encourage sales that maximize the value of the estate, see Douglas, 363 F. App’x at 102-03. Such
agreements have been recognized by the Second Circuit as an integral part of maximizing the value
of a bankrupt estate for the benefit of all creditors. Id. In recognizing the importance of allowing
such free and clear agreements, the Second Circuit noted that “without this assurance of finality,
purchasers could demand a large discount for investing in a property that is laden with the risk of
endless litigation as to who has rights to estate property.” In re Gucci, 126 F.3d 380, 387 (2d Cir.
1997) (internal citations omitted); accord Cargo Partner AG, 207 F. Supp. 2d at 112.
1. Implied or Express Assumption of Liability Exception
Regarding the first exception, the Moving Defendants did not expressly or impliedly
assume Portland’s tort liabilities as a result of the Agreement, nor have they subsequently assumed
such liabilities. The Agreement makes clear that Mipro Ortho Pte., Ltd. expressly rejected all
Portland’s liabilities, including tort liability prior to the effective date of the Agreement. See SOF
¶ 14 (“The [Agreement] further provided that [Mipro Ortho Pte., Ltd.]: shall not assume and shall
not be liable for all of the debts, contracts, agreements, commitments, obligations and other
Liabilities of any nature whatsoever of [Portland].”). Further, the Moving Defendants were not a
party to the Agreement nor any other agreement with Portland. As such, the first exception does
not apply to the Moving Defendants.
2. De Facto Merger Exception
“A de facto merger occurs when a transaction, although not in form a merger, is in
substance ‘a consolidation or merger of seller and purchaser.’” Cargo Partner AG, 352 F.3d at 45
(quoting Schumacher, 59 N.Y.2d at 245); Bowers v. Andrew Weir Shipping Ltd., 27 F.3d 800, 806
(2d Cir. 1994) (“A de facto merger is no different conceptually from an ordinary merger, except
the fact that there has not been ‘compliance with the statutory requirements for a merger.’”
(quoting Arnold Graphics Indus. v. Independent Agent Ctr., 775 F.2d 38, 42 (2d Cir. 1985)).
There are four factors that are used to determine if a transaction constitutes a de facto
merger: (1) continuity of ownership; (2) termination of seller’s ordinary business and dissolution
of selling corporation; (3) buyer’s assumption of liabilities; and (4) continuity of management,
assets, operations and physical locations. Cargo Partner AG, 352 F.3d at 46 (citing Fitzgerald v.
Fahnestock & Co., 286 A.D.2d 573, 574, 730 N.Y.S.2d 70, 71 (1st Dep’t 2001)); see Arnold
Graphics Indus., 775 F.2d at 42 (listing the four factors). The Court is not required to satisfy all
four factors to find the existence of a merger. Diaz v. S. Bend Lathe Inc., 707 F. Supp. 97, 100-01
(E.D.N.Y. 1989). See also 15 Fletcher Cyclopedia of the Law of Private Corporations § 7165.5 at
339 (perm. ed. 1983) (listing the factors). However, “‘continuity of ownership is the essence of a
merger,’ and the doctrine of de facto merger cannot apply in its absence.” Priestley v. Headminder,
Inc., 647 F.3d 497, 505-06 (2d Cir. 2011) (quoting Nat’l Serv. Indus., Inc., 460 F.3d at 211); accord
Matter of New York City Asbestos Litig., 15 A.D.3d 254, 789 N.Y.S.2d 484, 486 (1st Dep’t 2005).
Applying these factors to the instant facts, it is clear that the Agreement did not constitute
a de facto merger. The first inquiry under the de facto exception centers on continuity of
ownership. “This factor questions whether shareholders of the predecessor become, at the time of
the sale of assets, shareholders of the successor corporation.” Diaz, 707 F. Supp. at 101 (internal
citations omitted). The Second Circuit has explicitly held that continuity of ownership is a
prerequisite to a finding of de facto merger. Cargo Partner AG, 352 F. 3d at 46.
The record demonstrates that there was no continuity of ownership between Portland and
the Moving Defendants. The Agreement calls for an asset purchase in exchange for cash
consideration. An examination of the record yields no evidence that there was ever overlap in
ownership of Portland and any of the Moving Defendants.
The second factor under the de facto merger exception requires the cessation of ordinary
business operations and the dissolution of the selling corporation soon after the transaction. This
entails a finding that “there was a corporate reorganization and only one corporation survives the
transaction.” Howard v. Clifton Hydraulic Press Co., 830 F. Supp. 708, 710 (E.D.N.Y. 1993).
Portland continues to exist as a distinct corporate entity and as such, “[where] the predecessor
corporation continues to exist after the transaction, in however gossamer a form, the mere
continuation [and de facto] exception[s are] not applicable.” Desclafani v. Pave-Mark Corp.,
No.07-cv-4639, 2008 WL 3914881, at *5 (S.D.N.Y. Aug. 22, 2008) (quoting Diaz, 707 F. Supp.
Factor three requires the assumption of liabilities by the buyer necessary for the
uninterrupted continuation of the business. According to the Agreement, Mipro Ortho Pte., Ltd.
did not assume any liabilities of Portland and as such, neither did the Moving Defendants.
The fourth factor requires continuity of management, assets, personnel, business operation
and physical locations. An examination of the record reveals no evidence that the Moving
Defendants, at any point, assumed any ownership, management, personnel or physical location.
As such, the Court declines to find that the Agreement constituted a de facto merger.
3. The Mere Continuation Exception
The mere continuation exception applies where “it is not simply the business of the original
corporation which continues, but the corporate entity itself.” Ladjevardian v. Laidlaw-Coggeshall,
Inc., 431 F. Supp. 834, 839 (S.D.N.Y. 1977) (internal citations omitted). “A continuation
‘envisions a common identity of directors, stockholders and the existence of only one corporation
at the completion of the transfer.’” Parra v. Prod. Mach. Co., 611 F. Supp. 221, 224 (E.D.N.Y.
1985) (quoting Ladjevardian, 431 F. Supp. at 839). The Second Circuit has commented that this
exception is so similar to the de facto merger jurisprudence, they may be considered as a single
exception. Cargo Partner AG, 352 F.3d at 45 n. 3. Regardless of whether it exists as its own
exception, on the record, the Plaintiffs are unable to support such a claim. The Plaintiffs have not
procured any evidence of overlapping shareholders, managers or directors between the Moving
Defendants and Portland. Moreover, “[i]f the predecessor corporation continues to exist after the
transaction, in however gossamer a form, the mere continuation exception is not applicable.” Diaz,
707 F. Supp. at 100. As Portland continues to exist to this day as PLD Corporation Limited, the
mere continuation exception is inapplicable to the instant case.
4. Fraudulent Transaction
The fourth and final exception is met when a transaction is consummated in order to
fraudulently avoid liability. The Plaintiffs have not alleged nor presented any evidence that the
Agreement was entered into in order to fraudulently escape obligations. The record demonstrates
that Portland entered into bankruptcy prior to the Agreement and that the Agreement was approved
by Portland’s bankruptcy trustees.
As such, the fourth exception does not apply to the
circumstances surrounding the Agreement.
Thus, under New York State law, the four common-law exceptions are inapposite to the
record present in this case. As such, the Moving Defendants are not liable for the liabilities of
D. SUCCESSOR LIABILITY UNDER PENNSYLVANIA LAW
1. General Successor Liability
Even if Pennsylvania successor liability law were to be applied to the present claims, the
Plaintiffs’ claims still fail as a matter of law.
The State of Pennsylvania also recognizes that “when one corporation sells or transfers its
assets to a second corporation, the successor does not become liable for the debts and liabilities of
the predecessor.” LaFountain v. Webb Indus. Corp., 951 F.2d 544, 546-47 (3d Cir. 1991); Conway
v. White Trucks, A Div. of White Motor Corp., 885 F.2d 90, 93 (3d Cir. 1989); Keselyak v. Reach
All, Inc., 443 Pa.Super. 71, 660 A.2d 1350, 1353 (Pa. Super. Ct. 1995). There are five commonlaw exceptions to this rule:
“(1) the purchaser of assets expressly or impliedly agrees to assume obligations of
the transferor; (2) the transaction amounts to a consolidation or de facto merger; (3)
the purchasing corporation is merely a continuation of the transferor corporation;
(4) the transaction is fraudulently entered into to escape liability;” or (5) the transfer
was made without adequate consideration and no provisions were made for
creditors of the selling corporation.
Dale v. Webb Corp., 252 F. Supp. 2d 186, 189 (E.D. Pa. 2003) (quoting Philadelphia Elec. Co. v.
Hercules, Inc., 762 F.2d 303, 308-09 (3d Cir. 1985)). The first four exceptions have already been
discussed in Section II.C. and the Court’s analysis of these exceptions under New York law lead
to the same result under Pennsylvania law. The fifth exception is inapplicable based on the record
of this case.
2. The Product Line Exception
The Plaintiffs assert that the Moving Defendants assumed Portland’s liabilities pertaining
to the M-Cor product line based on a sixth exception, the product line exception, which states:
“when a corporation buys substantially all of the assets of a corporate manufacturer and thereafter
continues essentially the same manufacturing operation it may be strictly liable for defects in
products in the same line, though they were in fact made by the predecessor.” LaFountain, 951
F.2d at 547; Keselyak, 660 A.2d at 1353.
This exception has never been expressly adopted by the Pennsylvania Supreme Court and
recently, that court declined to address its “viability.” See Schmidt v. Boardman Co., 608 Pa. 327,
357, 11 A.3d 924, 942 (Pa. 2011). It was first adopted by the Pennsylvania Superior Court in
Dawejko v. Jorgensen Steel Co., 290 Pa. Super. 15, 23-26, 434 A.2d 106, 110-11 (Pa. Super. Ct.
1981). The Dawejko Court relied on California and New Jersey case law to determine the various
factors that were pertinent in determining whether to apply the exception. 434 A.2d at 110-11.
Known as the Ray factors, there are three main elements to consider in a product line analysis:
(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.
Schmidt, 608 Pa. at 338-39 (quoting Ray v. Alad Corp., 19 Cal.3d 22, 31, 136 Cal. Rptr. 574, 580,
560 P.2d 3, 8-9 (1977)). Although considerable confusion has arisen over the various factors to
consider since Dawejko, the Pennsylvania Supreme Court clarified that none of the Ray factors are
mandatory, although it noted that a number of courts have prioritized an examination of the first
factor. See, e.g., Conway, 885 F.2d at 95-96 (collecting cases).
The Pennsylvania Supreme Court also noted that the exception is equitable in nature, and
would it therefore be more appropriate for the product line exception to be applied by a judge.
Schmidt, 608 Pa. at 363. This Court agrees and finds such an inquiry is a question of law. See
Dawejko, 434 A.2d at 111. The product line exception applies only to strict liability claims. See
Phila. Elec. Co., 762 F.2d at 311.
In the instant case, the Plaintiffs fail to put forth sufficient evidence by which a reasonable
jury could find the Moving Defendants liable under the product line exception. The Court
concludes that the undisputed facts in the record establish that the first Ray factor does not apply
here. “[T]he plain language of the first Ray factor, as enunciated by the Supreme Court of
California in Ray, and as adopted by the Superior Court of Pennsylvania … and by the Third
Circuit Court of Appeals … warrants the adoption of the causation requirement.” Dale, 252 F.
Supp. 2d at 192.
Portland entered into bankruptcy in December 2008 and entered into receivership a few
days later. Soon after, the trustees and receivers for the company held auctions for Portland’s
assets. Based on the record, it is undisputed that Portland’s bankruptcy not only proceeded the
asset sale, but triggered it. This is in stark contrast to Indem. Ins. Co. of N. Am. v. Gross-Given
Mafg. Co., No. 08-cv-3, 2009 WL 2959825, at *4 (E.D. Pa. Sept. 16, 2009), where the defendant
acquired the product line from the predecessor manufacturer prior to that manufacturer’s
bankruptcy. There, the district court held that the asset sale caused the bankruptcy, a conclusion
that cannot be drawn from the facts of the instant case. See, e.g., id. (“As a result of the asset
divestment, [the manufacturer] entered into bankruptcy shortly after the asset purchase. The Asset
Purchase Agreement was the contributing force behind the dissolution of [the manufacturer].”
(internal citations omitted)).
Further, the evidence contradicts the notion that the Agreement was consummated to
remove M-Cor’s liability. Rocco’s M-Cor implant failed in 2012 and the only other evidence the
Plaintiffs presented of additional failures indicates one in November 2011 and another in August
2013. See Affidavit of Joseph D’Angelo, ¶¶ 3, 7. The record before the Court does not indicate
that either Portland or the Moving Defendants had any knowledge of implant failures at the time
of the Agreement. Therefore, the Court concludes that based on the undisputed facts, the
Agreement cannot be said to have caused the destruction of the Plaintiffs’ remedies against
Portland, the original manufacturer. Schmidt, 608 Pa. at 338.
The inability to satisfy the first Ray factor has been held to preclude the application of the
product line exception by many Third Circuit courts. See, e.g., Conway, 855 F.2d at 95. However,
even if the Court were to review the various factors holistically, with an emphasis on the first Ray
factor, as directed by the Pennsylvania Supreme Court in Schmidt, the record before the Court still
counsels against applying the product line exception.
The third Ray factor also tips in favor of the Moving Defendants and weighs against
applying the exception primarily because the Agreement explicitly excluded the assumption of
Portland’s liabilities and the acquisition of Portland’s goodwill. Although the Agreement granted
the buyer a license to use the Portland name, it could only do so for one year. It further specified
that “[t]he Buyer must not represent or hold itself out as acting for or representing Portland.”
The Plaintiffs argue that by continuing the same manufacturing operations as Portland,
which was required by the FDA, the exception applies. However, the only case cited in support,
Gucciardi v. Bonide Products, Inc., 28 F. Supp. 3d 383 (E.D. Pa. 2014), is a district court case
where the court denied summary judgment because “a question remains as to what rights and
liabilities passed between [the buyer and the seller] in connection with the Product at issue.” Id.
at 398. No such question precludes summary judgment here. The record demonstrates that the
Agreement explicitly excluded Portland’s goodwill as well as its related liabilities. Fairness
counsels against “requiring the successor to assume a responsibility for defective products.”
Dawejko, 434 A.2d at 109. Consequently, even if Pennsylvania state law governed and even
assuming that Pennsylvania adopted the product-line exception, the record reveals that it is
Finally, the Court finds as a matter of law, that the product line exception cannot apply to
Maxx Health and Maxx Ortho. As another district court in this Circuit ruled in a similar case
involving the M-Cor implant product line, the product line exception only applies to
manufacturers. “Because this doctrine requires that the putative successor manufacture products
… the [plaintiffs] cannot show that the defendants are liable under Pennsylvania law.” Edie v.
Portland Orthopaedics Ltd., No. 14-cv-7350, 2016 WL 1178718, at *3 (S.D.N.Y. Mar. 22, 2016)
(collecting cases). As the Edie Court noted, although there have been a handful of Pennsylvania
federal district courts who have applied the exception to distributors, these cases lack an
explanation and tend to predate more recent, apposite examples. Id. Further, neither the Edie
Court nor this Court is aware of any Pennsylvania state case that includes distributors or any other
non-manufacturing business in the exception. “The Dawejko court adopted a formulation of the
product-line doctrine that referred specifically to manufacturers,” id. at 3, which was affirmed by
the Pennsylvania Supreme Court in Schmidt. The Court implements such a limitation on the
product line exception and declines to extend the product line exception to include Maxx Health
and Maxx Ortho, who were never involved in manufacturing M-Cor. As such, even under
Pennsylvania state law, Maxx Health and Maxx Ortho are not liable under successor liability
3. The Plaintiffs’ Rule 56(d) Request
In response to the Defendants’ motion for summary judgment, the Plaintiffs allege that
Mipro US should be treated as the alter ego of Mipro Ortho Pte., Ltd. in their analysis of successor
liability. To that end, the Plaintiffs claim that facts remain to be discovered which they have been
unable to procure. Specifically, the Plaintiffs request that they be permitted to conduct discovery
regarding Mipro US financials as well as its corporate officers. It is within the district court’s
discretion to determine if relief is warranted under Rule 56(d). Alphonse Hotel Corp. v. Tran, 828
F.3d 146, 151 (2d Cir. 2016).
The Court denies the Plaintiffs’ request as procedurally improper. The Delucas were
required to submit an affidavit or declaration showing “that, for specified reasons, [they] cannot
present facts essential to justify [their] opposition[.]” FED. R. CIV. P. 56(d). There are four
requirements that must be demonstrated by affidavit in order for the Plaintiffs to avoid summary
judgment based on Rule 56(d): “(1) what facts are sought [to resist the motion] and how they are
to be obtained, (2) how those facts are reasonably expected to create a genuine issue of material
fact, (3) what effort affiant has made to obtain them, and (4) why the affiant was unsuccessful in
those efforts.” Miller v. Wolpoff & Abramson, L.L.P., 321 F.3d 292, 303 (2d Cir. 2003) (quoting
Gurary v. Winehouse, 190 F.3d 37, 43 (2d Cir. 1999)). The Delucas failed to file an affidavit
under Rule 56(d) and instead requested further discovery in their memorandum. “A reference to
Rule 56([d]) and to the need for additional discovery in a memorandum of law in opposition to a
motion for summary judgment is not an adequate substitute for a Rule 56([d]) affidavit … and the
failure to file an affidavit under Rule 56([d]) is itself sufficient grounds to reject a claim that the
opportunity for discovery was inadequate.” Paddington Partners v. Bouchard, 34 F.3d 1132, 1137
(2d Cir. 1994) (collecting cases).
Even if the Court were to ignore the Plaintiffs procedural error, the request would still be
unjustified due to its conclusory nature and the lack of detail required by the Second Circuit. Rule
56(d) does not allow “‘fishing expedition[s]’ in the hope that [they] could come up with some
tenable cause of action.” Waldron v. Cities Serv. Co., 361 F.2d 671, 673 (2d Cir. 1966), aff’d sub
nom. First Nat’l Bank of Ariz. v. Cities Serv. Co., 391 U.S. 253, 88 S. Ct. 1575, 20 L. Ed. 2d 569
(1968). The Plaintiffs also failed to discuss any efforts they undertook to obtain the requested
discovery or why they were unsuccessful in doing so. Each of these failures is fatal to the
The Court denies the Plaintiffs’ request for additional discovery.
E. FAILURE TO WARN CLAIM
Finally, the Plaintiffs contend that the Defendants are liable for their failure to warn Rocco
of the potential defects and risks of M-Cor. The parties both assume that New York law applies
here and the Court agrees. See Cooney v. Osgood Mach., Inc., 81 N.Y.2d 66, 72, 612 N.E.2d 277
(N.Y. 1993). Under New York State law, “[a] manufacturer has a duty to warn against latent
dangers resulting from foreseeable uses of its product of which it knew or should have known.”
Liriano v. Hobart Corp., 92 N.Y.2d 232, 237, 700 N.E.2d 303 (N.Y. 1998) (internal citations
omitted). In Schumacher, the New York Court of Appeals held that “a successor corporation may
have an independent duty to warn under circumstances similar to those present [as a result of] the
relationship between the defendant ‘successor’ corporation and the customers of the predecessor
and the actual or potential economic advantage to the defendant successor corporation. Several
factors may be considered in determining whether there exists a sufficient link to create a duty to
warn, among them ‘succession to a predecessor’s service contracts, coverage of the particular
machine under a service contract, service of that machine by the purchaser corporation, and a
purchaser corporation’s knowledge of defects and of the location or owner of that machine.’” 59
N.Y.2d at 246, 248-49 (quoting Travis v. Harris Corp., 565 F.2d 443, 449 (7th Cir. 1977)).
Furthermore, the Schumacher court held that an independent duty to warn existed
regardless of whether the purchasing corporation was subject to successor liability under New
York State law. 59 N.Y.2d at 244-46. Typically, the question of whether a successor corporation
has an independent duty to warn is reserved for the jury. See id. at 248-49.
The Moving Defendants claim that “[t]he application of this doctrine to the issue currently
before the Court would be a dramatic increase in the scope of the law.” DE 78 at 8. Specifically,
they argue that in “virtually all of the reported decisions” involving a successor company found to
have a duty to warn, the product at issue is always a machine because a finding of a special
relationship between the successor company and the customers of the predecessor is required,
typically in the form of a service contract.
However, in Schumacher, the New York Court of Appeals held that a duty to warn may
exist even without a service contract. 59 N.Y.2d at 248-49. Further, in Colon v. Multi-Pak Corp.,
477 F. Supp. 2d 620, 625-28 (S.D.N.Y. 2007), the successor continued to provide service to the
plaintiff’s employer; there had been additional contact between the two; and there may have been
a service contract involved. This was sufficient to raise an issue of material fact and preclude
summary judgment. Id. at 628. However, in Goldman v. Packaging Indus., Inc., 144 A.D.2d 533,
534 N.Y.S.2d 388, 391-92 (2d Dep’t 1988), the Appellate Division ruled that no duty to warn
existed when the successor made only one service call to the plaintiff’s employer, no service
contract was in place and there were no systematic contacts. Finally, in Sullivan v. Joy Mfg. Co.,
70 N.Y.2d 806, 517 N.E.2d 1313, 1314 (N.Y. 1987) the New York Court of Appeals ruled that
one service call was insufficient to establish the special relationship required by New York law.
In the instant case, Dr. Joseph D’Angelo’s affidavit presents evidence that a sales
representative purporting to represent Mipro US (1) continues to provide replacement parts for MCor products; (2) observed medical procedures during which failed M-Cor products were
removed; (3) asked to take possession of failed M-Cor products; and (4) represented to Dr.
D’Angelo that “nothing was wrong.”
The Moving Defendants argue that Dr. D’Angelo’s affidavit is inadmissible. However,
Dr. D’Aneglo’s affidavit is, in the Court’s opinion, is a sworn statement about events that the
affiant witnessed. It is therefore not inadmissible hearsay. See Scott v. Coughlin, 344 F.3d 282,
289 (2d Cir. 2003) (“These sworn statements are more than mere conclusory allegations subject to
disregard; they are specific and detailed allegations of fact, made under penalty of perjury, and
should be treated as evidence in deciding a summary judgment motion.” (internal citations
omitted)). This evidence is sufficient to create a genuine dispute of material fact as to whether,
under New York State law, the Moving Defendants had a duty to warn.
The Moving Defendants further argue that they are entitled to summary judgment on the
Plaintiffs’ duty to warn claim based on the learned intermediary defense. New York law provides
that a manufacturer has a duty to warn the physician or relevant medical professional of the risks
of a prescription drug or medical device. See, e.g., Prohaska v. Sofamor, S.N.C., 138 F. Supp. 2d
422, 444 (W.D.N.Y. 2011). Put simply, “[i]f the doctor is sufficiently warned, the product is not
defective.” Fane v. Zimmer, Inc., 927 F.2d 124, 129 (2d Cir. 1991). In support of this claim, the
Moving Defendants submit the Instructions for Use that accompanied Portland’s hip replacement
systems, including the M-Cor. See Affidavit of Nach Dave, Exhibit 1. The Instructions for Use
include warnings to surgeons to advise patients on “[l]oosening, cracking or fracture of implants”
and other related issues. Id. This document is submitted along with the affidavit of Nach Dave, a
consultant for Mipro US. Mr. Dave asserts that the Instructions for Use “were in effect at the time
of Mr. Deluca’s hip replacement surgery in January, 2009” and that he understood that they “were
provided to users of [M-Cor] before Mipro US acquired the M-Cor product line in April, 2009.”
Id. ¶ 2.
However, at this point there has yet to be discovery related to this issue. It is unclear if
Rocco’s physician received the Instruction for Use and whether it is sufficient to warn of the risks
present in Rocco’s case. To date, discovery has been limited as to two issues: (1) successor
liability; and (2) the manufacturing practices of the Defendants in comparison to the manufacturing
practices of Portland. See DE 44, 49. This limited discovery schedule, ordered by Magistrate
Judge A. Kathleen Tomlinson was the result of a request by the Defendants to “file early summary
judgment motions…or in the alternative… respectfully request that the Court order a period of
Fact Discovery which is limited to the issue of whether any of the appearing Defendants are
culpable as a liable successor.” DE 40.
Without further discovery, summary judgment is premature. Viewing this evidence in the
light most favorable to the non-moving party, the Moving Defendants’ learned intermediary
defense is not ripe for summary judgment and indicates the existence of a genuine issue of material
fact. As such, the Moving Defendants’ motion for summary judgment is denied with respect to
the Plaintiffs’ failure to warn claim.
For the reasons set forth above, the Moving Defendants’ motion for summary judgment
pursuant to Rule 56, is granted as to Counts II, III, IV, and V of the Plaintiffs’ complaint and is
denied with respect to Count I.
It is SO ORDERED:
Dated: Central Islip, New York
December 2, 2017
__/s/ Arthur D. Spatt__
ARTHUR D. SPATT
United States District Judge
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