Volume I, Issue 2 Spring 2008 TRENDS IN NEW JERSEY ENVIRONMENTAL AND TOXIC TORT LITIGATION Liabilities of a Dissolved Corporation By: Dawn Dezii, Esquire One issue which continually arises in litigation involving latent diseases or long-tail exposures is the ability to sue a company which may no longer be in business, ceased business operations, or a company wherein the owners merely closed the doors and retired. There are various questions which immediately leap forward and difficulties encountered when defending or attempting to defend a company which is no longer in business. The Defendant could be a mom and pop supply house sued in asbestos litigation or a small construction company sued for benzene exposure or a trucking company which hauled hazardous waste to a landfill site long closed. distributed in kind to its shareholders; (c) Paying, satisfying, and discharging its debts and other liabilities; and (d) Doing all other acts required to liquidate its business and affairs... (2) Subject to the provisions of subsection 14A:12-9(1) and except as otherwise provided by court order, the corporation, its officers, directors and shareholders shall continue to function in the same manner as if dissolution had not occurred. In particular and without limiting the generality of the foregoing... New Jersey has very specific laws addressing how a corporation must be dissolved. Thus a client faced with any possibility of a latent tort claim should always consult with corporate counsel when winding down business affairs. The question then becomes if and for how long does the dissolved corporation s liability continue? New Jersey s Business Corporation Act, N.J.S.A. 14:A:1-1 et seq. provides as follows: (1) Except as a court may otherwise direct, a dissolved corporation shall continue its corporate existence but shall carry on no business except for the purpose of winding up its affairs by (a) (b) Collecting its assets; Conveying for cash or upon deferred payments with or without security, such of its assets as are not to be (c) (f) The corporation may sue and be sued in its corporate name and process may issue by and against the corporation in the same manner as if dissolution had not occurred;... No action brought against any corporation prior to its dissolution shall abate by reason of such dissolution. Thus, the focus must be directed upon the manner in which the dissolved corporation ended its business affairs and distributed its assets. Additionally, service of process is an issue which must be addressed. While it is clear that a dissolved corporation cannot be sued in perpetuity, the question then becomes when or how does the dissolved corporation s liability end? Global Landfill Agreement Dawn Dezii, Esquire Jeanine D. Clark, Esquire Direct Dial: 856-869-6705 Direct Dial: 856-869-6734 E-mail: ddezii@margolisedelstein.com E-mail: jclark@margolisedelstein.com Margolis Edelstein Sentry Office Plaza Phone: 856-858-7200 Attorneys At Law 216 Haddon Avenue, 2nd Floor Fax : 856-858-1017 www.margolisedelstein.com P.O. Box 92222 W estmont, NJ 08108 Offices in Delaware, New Jersey and throughout Pennsylvania Ms. Dezii and Ms. Clark are members of the Margolis Edelstein Toxic Tort and Asbestos Department. Any cases cited are available upon request.
Group v. 280 Development Corp., 992 F. Supp. 692 (1998). There is nothing in New Jersey s case law or Dissolution Statute which provides a specific time frame within which a party s ability to bring suit against a dissolved corporation is limited. However, publication of the dissolution must be done over the course of several months to provide sufficient notice to the public. The law also looks to the manner in which the corporation ended its affairs, the nature of the liability alleged and the existence of available corporate assets. One of the obligations of the dissolving corporation is that it must provide notice to its creditors before it can lawfully dissolve and insulate itself from further liability. N.J.S.A. 14A:12-12. Additionally, all of the corporation s assets must be distributed. In situations where there are insurance polices which are not exhausted, it can be argued that corporate assets remain. But see, AM Properties Corp. v. GTE Products, 844 F. Supp. 1007 (USDC 1994) Thus, the corporation s liability arguably continues until the coverage is exhausted. In the matter of the Estate of John N. Carew, 125 N.J. Super. 373 (App. Div. 1973); Minter v. Lights 18, Inc., 140 N.J. 573 (1995). The argument is similar as in bankruptcy where insurance policies are considered an asset of the bankrupt s estate. The bankruptcy stay can be lifted and suit proceed to the extent of available insurance coverage limits. Again looking to the notice requirement, N.J.S.A. 14A:12-13 provides that when sufficient notice is given all creditors are forever barred from bringing suit, except in the case of a creditor who can demonstrate good cause for not previously filing his or her claim. In the latent disease or environmental claim, the Plaintiff may be able to show good cause. The plaintiff normally did not, nor could not have known of a potential cause of action until diagnosis of the disease or the issuance of a governmental directive. For instance, in the case of an individual exposed to asbestos who alleges that the asbestos-containing products to which he or she was exposed were supplied by a corporation which dissolved five or 10 years ago, but wherein diagnosis of the disease was made thereafter, that person may argue that he or she could not have filed suit while the corporation was winding down its affairs. This may satisfy the good cause requirement. In cases where there is insurance coverage, the argument may become even stronger as there are undistributed assets which may be available to satisfy a judgment. Lastly, the issue of service of process must be considered. While the Act does provide that the corporation may be sued in its corporate name, often, the principals are no longer in the state, or the facility where service of process may be made is no longer in existence or was sold. New Jersey does provide for substituted service in cases were the Plaintiff can show that after the exercise of due diligence he or she is unable to locate the Defendant in order to effectuate service. In those situations, upon the filing of a motion and for good cause shown, the court will permit the Plaintiff to serve the Defendant s insurance company directly. Defending any company or individual in a latent tort case is difficult. In asbestos, silica, benzene and other toxic exposure cases, the alleged exposure may have occurred 40 or more years ago. Witnesses are no longer available, documents were lawfully destroyed, and memories faded. Defending the dissolved corporation is made even more complicated as the owners or principals, if still alive, may be difficult to locate, may have moved away from the state, and no access to the company s records, personnel files, or customer lists is non existent. Unfortunately, as cases continue to be filed, and the viable Defendant group shrinks, Plaintiffs will begin looking for new sources of recovery which they may have ignored in the past. Due to the hurdles encountered in locating and then serving the dissolved corporation, this may be one source the Plaintiff s Bar ignored. The issue may also arise for an existing client which decides to retire or close up shop. The defense will be essentially one of protecting insurance policy assets and may involve having no living client or witness with which to defend the claim. In instances where an attorney is representing a client which is contemplating ending its business affairs, the attorney must direct the client to appropriate corporate counsel in order to ensure that the obligations of the dissolution statute are satisfied. It is highly recommended that at this juncture, the involved attorney consider preserving all available corporate records, personnel files, customer lists, distributor lists, insurance policies, etc. Additionally, it may be in the best interests of the client with ongoing litigation, to consider preserving the principle corporate witness testimony through the use of a de bene esse or videotape deposition. Intersection of the Government Contractor Defense and Heeding Presumption in Failure to Warn Product Liability Actions By: Jeanine D. Clark, Esquire Defendants in a product liability failure to warn action are confronted with the often insurmountable heeding presumption. The heeding presumption eliminates plaintiff s burden of production on the issue of whether
he or she would have followed a warning if one was provided. The plaintiff always retains the burden of persuasion, however. The relationship between the heeding presumption and any government contractor defense surfaces in asbestos actions, particularly those where plaintiff alleges exposure to asbestos in connection with his military service. The applicability of the government contractor defense to asbestos personal injury actions in New Jersey has not been fully litigated, particularly in the context of the heeding presumption. The heeding presumption was first definitively applied in the context of product defect failure to warn claim in Coffman v. Keene Corp., 133 N.J. 581 (1993). The Coffman case is a companion to Theer v. Philip Carey Co., 133 N.J. 610 (1993), which was decided by New Jersey s Supreme Court on the same day. In Coffman plaintiff developed an asbestos-related disease in connection, in part, with his work as a former Navy electrician. The Coffman Court succinctly summarized a plaintiff s burden in establishing a cause of action in a strict liability product defect claim as follows: A plaintiff must prove that the defect existed when the product left the defendant s control and that the defect caused the injury to a reasonably foreseeable user... In a failure to warn case, the alleged product defect is not a flaw in the structure or design of the product itself. Rather, the defect is the absence of a warning to unsuspecting users that the product can potentially cause injury. Id. at 593, 594. In holding that the heeding presumption should be applied in a strict liability failure to warn action, the Court relied largely upon public policy. The trial judge should rule on the issue as a matter of law. Ordinarily, plaintiff is entitled to a rebuttal presumption in a failure to warn action that, if a warning or instruction has been given, such warning or instruction would have been heeded by the plaintiff. Model Civil Jury Charge 5.40C, note 11. The presumption may be rebutted, however. Where the presumption is rebutted, the jury is permitted to make a determination as to whether a plaintiff would have followed a warning if one were provided and further, whether the absence of a warning was a proximate cause of the plaintiff s harm. In order for evidence offered to rebut the heeding presumption to be admissible, it must meet two requirements. The substance of the evidence must be habit related to a specific situation as opposed to a simple character trait. The plaintiff s conduct must be shown to be more than a mere tendency but akin to semi-automatic in nature. Sharpe v. Bestop, 34 N.J. Super. 331 (App. Div. 1998) (citing, Simplex, Inc. v. Diversified Energy Systems, th Inc. 847 F.2d 1290, 1293 (7 Cir. 1988)). Rebuttal evidence must also be sufficiently similar in character and quality to establish the likelihood of a similar response. Id. at 332. There is an additional requirement where the exposure to the allegedly defective product occurs in the context of the plaintiff s employment. A defendant must then demonstrate that the plaintiff had a meaningful choice as to whether to follow the warning. Conversely, where the conduct of the plaintiff s employer can be shown to have prevented the employee from following a warning if one were provided, the absence of a warning may not be a proximate cause of the plaintiff s alleged harm. The Court in Coffman discussed the employer s role in the context of a failure to warn a claim: To overcome the heeding presumption in a failure-to-warn case involving products used in the workplace, the manufacturer must prove that had an adequate warning been provided, the plaintiffemployee with meaningful choice would not have heeded the warning. Alternatively, to overcome the heeding presumption, the manufacturer must show that had an adequate warning been provided, the employer itself would not have heeded the warning by taking reasonable precautions for the safety of its employees and would not have allowed its employees to take measures to avoid or minimize the harm from their use or exposure to the dangerous product. Coffman v. Keene Corp.,133 N.J. at 609. Thus, particularly in the military setting, the unique nature of the control exerted over the worker by the military and the detailed specifications which government contractors must satisfy has the potential to significantly undercut the scope of the heeding presumption. The leading case on the government contractor defense is Boyle v. United Technologies Corp., 487 U.S.500 (1998). Anzalone at 263, citing, Boyle v. United Technologies Corp., 487 U.S. 500, 512 (1988). Although the Court in Anzalone v. WesTech Gear Corp., 141 N.J. 256 (1995) concluded that the defendant could have complied with both its contractual obligations to the government and the duty to the plaintiff, and was thus not entitled to a government contractor defense, which succinctly set
forth the rationale for the defense. In summarizing the utility of the doctrine, the Court in Anzalone added: Federal government contracting is an area that is clearly committed to federal control and raises special federal considerations... a military contractor fulfilling a procurement contract is similar to a federal official performing governmental duties because both obviously implicate... the same interest in getting the government s work done. Hence, a suit against a private party involving a military contract raises two uniquely federal interests : the civil liability of the federal officials for actions taken in the course of their duties and the government s rights and obligations under its contracts. Id. The doctrine will not provide an absolute bar to liability, however. It is necessary to have a significant conflict between State law and Federal policy. Accordingly, the Courts fashioned the threepart Boyle test: Liability for design defects in military equipment cannot be imposed, pursuant to state law, when (1) the United States approved reasonably precise specifications; (2) the equipment conformed to their specifications; and (3) the supplier warned the United States about the dangers in the use of the equipment that were known to the supplier but not to the United States. Particularly in asbestos actions involving Naval exposure, evidence can often be developed through use of an expert to establish that the government s knowledge of the alleged hazards of asbestos was equal or greater to that of the government contractor. HEADLINES IN TOXIC TORT LITIGATION Bergen County, New Jersey Jury Awards Decedent s Family $30,000,000 in Mesothelioma Claim. In the recent trial involving claims of decedent, Mark Butitta, the jury awarded plaintiffs approximately $30,000,000. Mr. Butitta allegedly developed malignant mesothelioma as a result of fairly limited exposure to asbestos. Mr. Butitta s estate was awarded $8,000,000 for pain and suffering and loss of enjoyment sustained by Mr. Butitta prior to his death. $2,000,000 was awarded for loss of consortium. The survivors were awarded in excess of $9,000,000 in lost earnings, over $2,000,000 in loss of services as well as $3,000,000 in loss of advice, guidance and counsel for each of the decedent s three surviving children. Philadelphia Malignant Mesothelioma Trial Results in Damages of $25,000,000 Including Punitive Damages. Philadelphia County asbestos actions do not provide for the award of punitive damages. However, after two defendants successfully argued that Kentucky Law should apply to the personal injury wrongful death action, the Court determined that Kentucky Law which also provides for an award of punitive damages required the issue of punitive damages to be submitted to the jury. Thereafter an award of $11,900,000 in punitive damages was entered against Crane Company and $6,300,000 as to Yarway. Plaintiffs Asbestos Firms Continue to Resist Discovery of Filing with Bankrupt Trusts. Following the ruling of the Honorable Ann G. McCormick, J.S.C. s rulings in the Superior Court of New Jersey, Middlesex County holding that it is necessary for defendants to establish that a plaintiff filed claims with bankrupt trusts before she would consider allowing the trust to appear on the verdict sheet even where trust provisions seemingly permit the entity to appear on the verdict sheet for apportionment, ways in which to obtain the information have come to the forefront. Plaintiffs firms have resisted answering written discovery identifying the trusts, if any, from which their clients have sought compensation. In recent months increased issuance of subpoenas by defense firms resulted in one plaintiff s firm filing a series of motions to quash and requesting that the Special Master implement a streamlined process whereby defendants ability to seek the information by way of subpoena would be limited. The motions are presently returnable in Middlesex County on April 25, 2008. Information contained within this newsletter is for informational purposes only and should not be construed as legal advice. This newsletter does not create an attorney-client relationship.