Penny L. Springer, Plaintiff-Appellant,
Nohl Electric Products Corporation, General Refractories Company, Dana Sealing Products, LLC, John Crane, Inc., Union Carbide Corporation, Rockbestos Surprenant Cable Corporation a/k/a Rockbestos Products Corp and RSCC Wire & Cable, Inc., Garlock Sealing Technologies LLC, Anchor Packing Company, Inc., Gaskets, Inc., Cincinnati Valve Company, Leslie Controls, Inc. and Trac Regulator Company, Inc., Defendants, Powers Holdings, Inc. and Fire Brick Engineers Company, Inc., Defendants-Respondents-Petitioners, Secure Horizons by United Health Care Insurance Company, Subrogated Defendant.
Submitted on Briefs: oral argument: October 2, 2017
Circuit court Jefferson county No. 2010CV622 William F. Hue
OF A DECISION OF THE COURT OF APPEALS Reported at 370 Wis.2d
787, 882 N.W.2d 870
the defendants-respondents-petitioners, there were
briefs by George S. Peek, Eric D. Carlson,
Benjamin A. Sparks, and Crivello Carlson, S.C., Milwaukee.
There was an oral argument by Eric D. Carlson.
the plaintiff-appellant, there was a brief by Kathryn A.
Keppel and Gimbel, Reilly, Guerin & Brown LLP, Milwaukee,
with whom on the brief was Ronald G. Lays and Lays Law
Office, Milwaukee. There was an oral argument by Ronald G.
Dissented: ABRAHAMSON, J., dissents, joined by A.W.
When one company purchases the assets of another, our law
normally does not make the former responsible for the
latter's liabilities. There are exceptions to that rule,
however, such as when the parties use the transaction to
fraudulently escape responsibility for those liabilities.
Notwithstanding the great age of this common-law exception to
successor non-liability, we have had scant occasion to
provide guidance on how to recognize such transactions. We
take the opportunity to do so today. Specifically, we conclude
that the Wisconsin Uniform Fraudulent Transfer Act does not
govern the "fraudulent transaction" exception to
the rule of successor non-liability, and so we reverse the
court of appeals. I. BACKGROUND
Penny Springer's husband died in 2007 from mesothelioma.
She believes his exposure to asbestos-containing products
during his employment between 1963 and 1969 contributed to
his sickness and eventual death. She sued several companies,
including Fire Brick Engineers Company, Inc. and Powers
Holdings, Inc., alleging they were negligent in mining,
merchandising, manufacturing, supplying, installing,
distributing, or selling the asbestos products to which Mr.
Springer was exposed.
The complaint identified Powers Holdings, Inc. as the
successor to Fire Brick Engineers Company, Inc. But the
relevant history of these companies actually goes back much
further. In the 1940s, Harry J. Schofield formed a company
that came to be known as Fire Brick Engineers Company. The
business manufactured and distributed, inter alia,
asbestos-containing refractory and foundry supplies. Several
successors to this company contained some variation of
"Fire Brick Engineers" in their names, so we will
refer to the original as "FBE1." In 1983, a group
of investors (including attorneys who had previously provided
legal representation to FBE1) formed a company that would
come to be known as Fire Brick Engineers Company, Inc.
("FBE2") for the purpose of acquiring FBEl's
assets. FBE2 accepted some, but not all, of FBEl's
liabilities. Several years later, FBE2 merged with Curtis
Industries, Inc., and adopted the name Powers Holdings, Inc.
Powers Holdings, Inc. currently does business under the name
"Fire Brick Engineers Company, " but to avoid
confusion, we will refer to it only as "Powers."
And because FBE2 was merged into Curtis, and therefore no
longer exists as a separate entity, our references to
"Powers" will include FBE2 unless we indicate
The record does not reflect that either FBE2 or Powers has
ever manufactured or distributed asbestos-containing
products. FBE2 acquired FBE1 via an asset purchase agreement
(the "Agreement"), which is a common method of
acquiring a business while limiting exposure to its
liabilities. The Agreement provided that the only
liabilities FBE2 would assume in the transaction would be a
promissory note, trade accounts-payable, open inventory
purchase orders, loans against certain life insurance
policies, and FBEl's lease obligations with respect to
two properties. The Agreement disclaimed the assumption of
any other liabilities: "Buyer [FBE2] does not, by this
Agreement or otherwise, assume or agree to pay or perform any
other liabilities or obligations of Seller [FBE1] of any
kind, whether or not related to the Subjects' Business,
all of which liabilities and obligations remain the sole
responsibility of Seller."
Therefore, Powers' answer to the complaint affirmatively
asserted that Mrs. Springer had sued the wrong company:
"[T]he Plaintiff has brought an action against the wrong
entity insofar as Powers Holdings, Inc. is not liable for the
torts of its predecessor corporations based upon corporate
successor liability defenses." Neither the original nor
the amended complaint named FBE1 as a party. Nothing in the
pleadings recognized that FBE2 had been created long after
the period of time during which Mrs. Springer says her
husband was exposed to asbestos products, or that Powers has
never commercially dealt with asbestos-containing products.
And the pleadings asserted no facts or legal theories by
which FBE2 or Powers could be held responsible for FBEl's
Powers eventually moved for summary judgment. It argued, in
part, that "there is no basis to impose liability on
Powers Holding, Inc. as a successor to Fire Brick Engineers
Company [FBE1]." Mrs. Springer responded that Powers is
liable to her as successor to FBE1 under the "mere
continuation" and "de facto merger" exceptions
to the successor non-liability rule. The circuit court
suspended summary judgment proceedings so the parties could
engage in further discovery. Powers then amended its motion,
in response to which Mrs. Springer asserted, for the first
time, that the "fraudulent transaction" exception
to the successor non-liability rule should apply. The circuit
court, the Honorable William F. Hue presiding, granted
Powers' motion and dismissed FBE2 and Powers from the
Mrs. Springer appealed. Her primary argument was that
undisputed evidence proved the Agreement between FBE1 and
FBE2 had the purpose of fraudulently escaping liability for
FBEl's obligations. She also argued that the circuit
court erred in granting summary judgment because there was a
genuine factual dispute as to whether the "mere
continuation" and "de facto merger" exceptions
to the rule of successor non-liability applied to Powers. The
court of appeals addressed only the "fraudulent
transaction" exception. Although it noted that Mrs.
Springer did not adequately explain how a court is supposed
to determine whether there has been such a fraudulent
transaction, it concluded that "the question of whether
a transfer transaction was entered into fraudulently must be
answered in the context of Wisconsin's Uniform Fraudulent
Transfer Act [Wis. Stat. ch. 242]." Springer v. Nohl
Elec. Prods. Corp., No. 2015AP829, unpublished slip op.,
¶16 (Wis. Ct. App. June 23, 2016) (per curiam) . So the
court of appeals reversed and remanded the cause to the
circuit court for a trial in which the jury would apply the
"badges of fraud" contained in Wis.Stat. §
242.04 (2015-16) to determine whether Powers should be held
responsible for the liabilities of its predecessor company,
We granted Powers' petition for review, and now reverse
the court of appeals.
STANDARD OF REVIEW
We review the disposition of a motion for summary judgment de
novo, applying the same methodology the circuit courts apply.
Green Spring Farms v. Kersten, 136 Wis.2d 304, 315,
401 N.W.2d 816 (1987); Borek Cranberry Marsh, Inc. v.
Jackson Cty., 2010 WI 95, ¶11, 328 Wis.2d 613, 785
N.W.2d 615 ("We review the grant of a motion for summary
judgment de novo . . . . ") .
"The first step of that methodology requires the court
to examine the pleadings to determine whether a claim for
relief has been stated." Green Spring Farms,
136 Wis.2d at 315. "In testing the sufficiency of a
complaint, we take all facts pleaded by plaintiff and all
inferences which can reasonably be derived from those facts
as true." Id. at 317. And we liberally construe
pleadings "with a view toward substantial justice to the
parties." Id. (citing Wis.Stat. §
802.02(6)). "The complaint should be dismissed as
legally insufficient only if it is quite clear that under no
circumstances can plaintiff recover." Id.
Under the second step of this methodology, "[i]f a claim
for relief has been stated, the inquiry then shifts to
whether any factual issues exist." Id. at 315.
Summary judgment is appropriate only "if the pleadings,
depositions, answers to interrogatories, and admissions on
file, together with the affidavits, if any, show that there
is no genuine issue as to any material fact and that the
moving party is entitled to judgment as a matter of
law." Wis.Stat. § 802.08(2); see also Columbia
Propane, L.P. v. Wis. Gas Co., 2003 WI 38, ¶11, 261
Wis.2d 70, 661 N.W.2d 776');">661 N.W.2d 776 (citing and applying Wis.Stat.
§ 802.08(2)) .
The question before us is a narrow one, to wit, whether the
Wisconsin Uniform Fraudulent Transfer Act governs the
"fraudulent transaction" exception to the rule of
successor non-liability. After resolving that question, we
will then determine whether further proceedings in this case
Rule of Successor Non-Liability
In determining whether the fraudulent transaction exception
to the rule of successor non-liability should apply in this
case, the court of appeals relied on the Wisconsin Uniform
Fraudulent Transfer Act (Wis. Stat. ch. 242 (the
"WUFTA")) for the standard by which to identify
fraud in the transfer of assets from FBE1 to FBE2. We hold
today that the WUFTA does not control the analysis of the
fraudulent transaction exception. Our opinion will first
address the basic principles undergirding the rule of
successor non-liability. Then, we will explain why the WUFTA
does not control the disposition of this case. 1. The Basics
of Successor Non-Liability
Our common law provides that "a corporation which
purchases the assets of another corporation does not succeed
to the liabilities of the selling corporation." Fish
v. Amsted Indus., Inc., 126 Wis.2d 293, 298, 376 N.W.2d
820 (1985) (quoting Leannais v. Cincinnati, Inc.,
565 F.2d 437, 439 (7th Cir. 1977)) . In Wisconsin, this rule
dates back to the late nineteenth century. See Wright v.
Milwaukee & St. Paul Ry. Co., 25 Wis. 46, 52 (1869)
(stating that a corporation does not "by selling a
portion of its property, or even the whole of it, impose upon
the purchaser any liability for its general debts").
There are very practical justifications for this rule. It
"protect[s] a bona fide purchaser from liabilities
caused by a predecessor corporation of which the bona fide
purchaser was unaware at the time of acquisition."
Columbia Propane, L.P., 261 Wis.2d 70, ¶23
(quoting Eva M. Fromm, Allocating Environmental
Liabilities in Acquisitions, 22 J. Corp. L. 429, 441
(1997)). Without such a rule, assets would become
If the liabilities always went with the assets, it would be
difficult to sell assets because the purchaser would not know
what he was getting. He might be "buying" a lawsuit
the expected cost of which exceeded the value of the asset
purchased, yet it would be too late for him to back out of
the sale or renegotiate the price.
Chaveriat v. Williams Pipe Line Co., 11 F.3d 1420,
1424 (7th Cir. 1993) (applying Illinois law). This is no less
true in the context of products liability cases, such as this
one. Here's why:
[T]he successor corporation did not create the risk nor did
it directly profit from the predecessor's sale of the
defective product; it did not solicit the use of the
defective product nor make any representations as to its
safety; nor is it able to enhance the safety of a product
that is already on the market[.]
Fish, 126 Wis.2d at 307 (citing Bernard v. Kee
Mfg. Co., 409 So.2d 1047, 1050 (Fla. 1982); Domine
v. Fulton Iron Works, 395 N.E.2d 19, 23 (111. App. Ct.
1979); Jones v. Johnson Mach. & Press Co. of
Elkhart, Ind., 320 N.W.2d 481, 484 (Neb. 1982);
Ostrowski v. Hydra-Tool Corp., 479 A.2d 126, 127
But this rule of successor non-liability is not absolute;
there are four well-recognized circumstances in which it does
(1) when the purchasing corporation expressly or impliedly
agreed to assume the selling corporation's liability; (2)
when the transaction amounts to a consolidation or merger of
the purchaser and seller corporations; (3) when the purchaser
corporation is merely a continuation of the seller
corporation; or (4) when the transaction is entered into
fraudulently to escape liability for such obligations.
Fish, 126 Wis.2d at 298 (quoting Leannais,
565 F.2d at 439).
We are interested here in the fourth exception. Even though
it is over a century old, it has received only sporadic
attention. "There are few cases under the fraud
exception, . . . partly because creditors prefer to cast
these cases as suits to set aside a fraudulent
conveyance." Chaveriat, 11 F.3d at 1425. The
scarcity is particularly evident when the claim sounds in
tort. See, e.g., Restatement (Third) of Torts:
Products Liability § 12 cmt. e (Am. Law Inst. 1998)
(stating that the fraudulent transfer exception "has
rarely been used to impose successor liability for products
liability claims"); Timothy J. Murphy, Comment, A
Policy Analysis of a Successor Corporation's
Liability for its Predecessor's Defective Products When
the Successor Has Acquired the Predecessor's Assets
for Cash, 71 Marq. L. Rev. 815, 819 (1988) (stating that
"the fraudulent transaction exception is usually not
successfully invoked by products liability plaintiffs")
We learn from the few available cases that the justification
for the fraudulent transfer exception is that such