Judge: Deirdre Hill, Case: 22STCV03492, Date: 2022-10-18 Tentative Ruling

Case Number: 22STCV03492    Hearing Date: October 18, 2022    Dept: M

Hearing Date:                         October 18, 2022                   

Moving Parties:                      Defendant CST Industries, Inc.                     

Responding Party:                  Plaintiffs Emily Perez and Joe Perez

Demurrer to First Amended Complaint

            The court considered the moving, opposition, and reply papers.

RULING

            The demurrer is OVERRULED.

BACKGROUND

On January 28, 2022, plaintiffs Emily Perez and Joe Perez filed a complaint against defendants City of Los Angeles, CST Industries, Inc., CST Covers Industries, Inc., Kiewit Construction, Inc., and Does 1-30.

On April 13, 2022, plaintiffs filed an amendment designating Kiewit Infrastructure West Co. as Doe 11. defendant.

On April 20, 2022, CST Industries, Inc. filed a cross-complaint against Kiewit Infrastructure West Co. and Kiewit Construction Inc. for indemnification, apportionment of fault, and declaratory relief.

On April 21, 2022, CST Industries filed an amended cross-complaint adding City of Los Angeles.

On May 9, 2022, plaintiffs filed a FAC for wrongful death and survival causes of action based on (1) dangerous condition of public property as to City of Los Angeles, (2) strict products liability as to all defendants, and (3) negligence as to all defendants.  Plaintiffs, the children of decedent Jose Perez, bring this wrongful death and survival action after an accident at Hyperion Water Reclamation Plant in which decedent’s hand was caught in a folding hinged flap handle of a water tank cover, causing him to fall to his death.  Plaintiffs allege that these tank covers and folding hinged flap handles were designed, fabricated, manufactured, and sold by CST’s predecessor, Conservatek.          

LEGAL AUTHORITY

            When considering demurrers, courts read the allegations liberally and in context.  Taylor v. City of Los Angeles Dept. of Water and Power (2006) 144 Cal. App. 4th 1216, 1228.  “A demurrer tests the pleadings alone and not the evidence or other extrinsic matters.  Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed.”  SKF Farms v. Superior Court (1984) 153 Cal. App. 3d 902, 905.  “The only issue involved in a demurrer hearing is whether the complaint, as it stands, unconnected with extraneous matters, states a cause of action.”  Hahn v. Mirda (2007) 147 Cal. App. 4th 740, 747.

DISCUSSION

            Defendant CST Industries, Inc. demurs to the 2^nd and 3^rd causes of action in the FAC on the ground that they fail to state sufficient facts to constitute a cause of action against them.

Defendant argues that plaintiffs cannot meet the requirements to state a successor liability cause of action against them.

Defendant’s Request for Judicial Notice

            Judicial notice may be taken of records of (1) any court of this state or (2) any court of record of the United States or of any state of the United States.  Evid. Code § 452(d). Additionally, judicial notice may be taken of “[f]acts and propositions that are not reasonably subject to dispute and are capable of immediate and accurate determination by resort to sources of reasonably indisputable accuracy.”  Evid. Code § 452(h).  Further, the court shall take judicial notice of the above matters if a party “(a) Gives each adverse party sufficient notice of the request, through the pleadings or otherwise, to enable such adverse party to prepare to meet the request; and (b) Furnishes the court with sufficient information to enable it to take judicial notice of the matter.”  Evid. Code § 453.

Defendant requests the court take judicial notice of the following:  (1) a  California Secretary of State corporate record for Power Wind-Down Corp. of Defendant CST Covers Industries, Inc.’s merger with Conservatek (Exhibit A); (2) a California Secretary of State corporate record for Power Wind-Down Corp.’s name change (Exhibit B); (3) a voluntary petition for Non-Individuals Filing for Bankruptcy form (Exhibit C); (4) a California Secretary of State corporate record for Power Wind-Down Corp.’s name change (Exhibit D); (5) a California Secretary of State corporate record for Power Wind-Down Corp.’s certificate of dissolution (Exhibit E); (6) a certified copy of the Order filed in United States Bankruptcy Court (Exhibit F); (7) a certified Delaware Secretary of State corporate record for New CST’s incorporation (Exhibit G); (8) a certified Delaware Secretary of State corporate record for New CST’s name change (Exhibit H); (9) a verified publication of the notice of sale in the national edition of USA Today (Exhibit I); and (10) a certified copy of the dismissal order for Power Wind-Down Corp (Exhibit J).

Plaintiff does not object to these requests.

The court grants defendant’s request for judicial notice submitted in support of their motion to demurrer in its entirety, pursuant to Evid. Code §§ 452(d)(h), 453.  However, “[t]aking judicial notice of a document is not the same as accepting the truth of its contents[.]”  Herrera v. Deutsche Bank National Trust Co. (2011) 196 Cal. App. 4th 1366, 1375.

Plaintiff’s Request for Judicial Notice

Plaintiff requests the court to take judicial notice of the following:  (1) Defendant CST Industries, Inc.’s website, History (http://www.cstindustries.com/history/) (Exhibit A); (2) California Secretary of State filings – Old CST Certificate of Surrender and “New” CST’s Statement and Designation by Foreign Corporation (Exhibit B); (3) CST Industries, Inc.’s website, Leadership (http://www.cstindustries.com/leadership) (Exhibit C); (4) LinkedIn profile, Tim Carpenter showing Mr. Carpenter served as President/CEO of both “Old” CST and “New” CST (Exhibit D); (5) Defendant’s verified responses to plaintiffs’ Requests for Admission in this action (Exhibit E); (6) Defendant’s verified response to Form Interrogatory 4.1 (Exhibit F); and (7) Motion of CST Industries, Inc. for Entry of an Order in the United States Bankruptcy Court of the District of Delaware (Exhibit G).

Defendant does not object to these requests.

The court grants plaintiff’s request for judicial notice submitted in support of their opposition in its entirety pursuant to Evid. Code §§ 452(d)(h), 453.  The “[t]aking [of] judicial notice of a document is not the same as accepting the truth of its contents[.]”  Herrera v. Deutsche Bank National Trust Co. (2011) 196 Cal. App. 4th 1366, 1375.  Additionally, the court may choose not to take judicial notice of the truth of the contents of a website because they are “plainly subject to interpretation.”  L.B. Research & Education Foundation v. UCLA Foundation (2005) 130 Cal. App. 4^th 171, 180.  The court notes that “[w]hen a party places material (or authorizes it to be placed) in its website, it makes an ‘admission’ of whatever the material says.  The fact that it is on the party’s website makes it self-authenticating (as an admission), at least prima facie.”  Wegner, Fairbank, Epstein & Chernow, Cal. Prac. Guide: Civil Trials & Evidence (The Rutter Group 2021), ¶8:359.6 at pp. 8C-33-34.

            Plaintiffs allege that defendant CST Industries, Inc. (“New CST”) is a successor to Conservatek Industries, Inc.  Conservatek was contracted by the City of Los Angeles to manufacture, fabricate, design, sell, and otherwise produce and provide to the City equipment including the tank covers lids and folding hinged flap handles involved in this action.  FAC ¶3.  In 2008, CST Industries, Inc., a now dissolved Delaware corporation then qualified to do business in California (“Old CST”) acquired Conservatek.  In 2011, Old CST combined Conservatek with another of its divisions to form defendant CST Covers Industries, Inc.  Defendant CST Covers became successor by merger to Conservatek and assumed all of Conservatek’s debts and liabilities.  Effective 2013, CST Covers changed its name to CST Power and Construction, Inc., then in 2018 to Power Wind-Down Corp, and then was dissolved in 2019.  Id., ¶4.  As a result of a 2017 bankruptcy sale, defendant CST Industries (“New CST”) acquired the assets of debtors Old CST, CST Power and Construction, Inc., and related entities.  New CST’s acquisition also involved acquisition of refunds of certain insurance premiums paid by debtors for policies that may have provided coverage for plaintiffs’ claims in this action.  The foregoing caused or substantially contributed to the predecessors’ absence from the recovery pool for product liability plaintiffs, and otherwise curtailed or virtually destroyed plaintiffs’ remedies or other recourse against the product’s original manufacturer and its pre-bankruptcy asset sale successors.  As a result of the acquisition, defendant New CST continues its predecessors’ overall producing and marketing enterprise.  New CST is a mere continuation of the sellers, continuing to use the sellers’ names, facilities, and locations, and enjoying their good will in the continued operation of the business.   New CST continues an overall producing and marketing enterprise that generates $100 million in annual revenue from continuation of the predecessors’ business and product line.  It is thus fair and equitable to impose successor liability upon New CST for plaintiffs’ injuries and damages.  Id., ¶5.  In 2021, the accident occurred which caused Jose Perez’s death.  Id., ¶13.

            Successor Liability

            A corporation purchasing the principal assets of another corporation “does not assume the seller's liabilities unless (1) there is an express or implied agreement of assumption, (2) the transaction amounts to a consolidation or merger of the two corporations, (3) the purchasing corporation is a mere continuation of the seller, or (4) the transfer of assets to the purchaser is for the fraudulent purpose of escaping liability for the seller's debts.  Ray v. Alad Corp. (1977) 19 Cal.3d 22, 28.  Ray also created an additional exception (“Ray product line exception”) that imposes liability when all of the following are established:  (1) the plaintiff's remedies against the seller are virtually destroyed by the purchaser's acquisition of the business; (2) the purchaser has the ability to assume the seller's risk-spreading role; and (3) it is fair to require the purchaser to assume responsibility for the defective products as a burden necessarily attached to the seller's goodwill, which the purchaser enjoys in the continued operation of the business.  Hernandez v. Enterprise Rent-A-Car Co. (2019) 37 Cal. App. 5th 187, 193 (citing Ray, supra, 19 Cal.3d at 31).)

Defendant argues that plaintiff cannot state a claim of successor liability because the bankruptcy sale was non-collusive, in good faith, and the Sale Order contains paragraphs addressing how the sale of assets barred claims for products liability and successor liability. Defendant states that, because defendant acquired the assets of CST P&C’s assets through a fair and non-collusive bankruptcy proceeding, defendant does not assume the selling corporation’s liabilities.

            Defendant relies upon Nelson v. Tiffany Industries, Inc., a Ninth Circuit Court of Appeals case, to argue that Ray does not apply in this case because the chain of successor liability is broken by the filing of a bankruptcy.  Nelson v. Tiffany Industries, Inc. (9th Cir. 1985) 778 F.2d 533, 537.  However, Nelson does not state that Ray never applies when there is a bankruptcy proceeding, but rather that it would be difficult to find the causation necessary in the Ray product line exception because the plaintiff's remedies against the seller will not typically be “virtually destroyed by the purchaser's acquisition of the business,” but rather by the bankruptcy. Id.  The Nelson court further clarified that “if evidence shows that [defendant] induced [seller] to file for bankruptcy to avoid future tort liability, the Ray exception to the general rule would be applicable.”  Id. at 538.  The other cases defendant cites to also focus on the causation element of the Ray product line exception.  See Stewart v. Telex Communications, Inc. (1991) 1 Cal. App. 4th 190, 200; Kline v. Johns–Manville (9th Cir.1984) 745 F.2d 1217, 1219; Hernandez, supra, at 193; Lundell v. Sidney Machine Tool Co. (1987) 190 Cal. App. 3d 1546, 1553.

In opposition, plaintiffs contend that they have asserted three theories of successor liability: (1) that defendant is a mere continuation of CST P&C; (2) that defendant expressly or impliedly assumed liabilities of CST P&C arising after the closing date; and (3) the additional Ray product line exception.  Plaintiffs assert that even if the Ray product line exception does not apply, defendant fails to address these additional theories, and plaintiffs have alleged sufficient facts to survive a demurrer.

            Mere Continuation

            To establish that an acquiring corporation is a mere continuation of the seller, a plaintiff must “demonstrate (1) no adequate consideration was given for the predecessor corporation's assets and made available for meeting the claims of its unsecured creditors; [or] (2) one or more persons were officers directors, or stockholders of both corporations.”  CenterPoint Energy, Inc. v. Superior Court (2007) 157 Cal. App. 4th 1101, 1121.  “[E]ven when the same persons are officers or directors of the two corporations, liability is not imposed on the acquiring corporation when recourse to the debtor corporation is available and the two corporations have separate identities.” Beatrice Co. v. State Bd. of Equalization (1993) 6 Cal.4th 767, 778.    

The court finds that plaintiffs have sufficiently alleged successor liability through a mere continuation theory.  See FAC, ¶5.  Additionally, plaintiffs assert that the Old CST and New CST share the same officers:  Matt Gregg, Vice President, and Greg Henschel, Vice President, Global Engineering.  Plaintiff’s RJN, Ex. C.  They also assert that Tim Carpenter served as President/CEO of both Old and New CST before and after the bankruptcy sale order.  Id., Ex. D.  Additionally, in this case, plaintiffs allege recourse to the debtor corporation is not available and there are not two separate corporations with different identities because the entities operate under the same name, and CST P&C was dissolved in 2019, after the bankruptcy sale and prior to the accident.  See FAC ¶¶4, 5, 13.

            Although defendant puts forth a Sale Order in their RJN that “New CST shall not be deemed to . . . be a mere continuation or substantial continuation of the Debtor. . .”, the court does not take judicial notice of the truth of the matters within the documents, nor is a demurrer the appropriate procedure for determining the truth of disputed facts or what inferences should be drawn where competing inferences are possible.  Ramsden v. Western Union (1977) 71 Cal. App. 3d 873, 879.

Accordingly, the court finds that plaintiffs have sufficiently alleged facts to state a cause of action for successor liability by alleging that defendant New CST is a mere continuation of CST P&C, which had merged with Conservatek.

Express or Implied Liability

            Plaintiffs additionally allege that there was an express or implied agreement.

The FAC alleges that defendant “acquired assets of a predecessor corporation that was subject to California jurisdiction on the causes of action herein sued upon, by reason of expressly or impliedly assuming the liabilities of the predecessor corporation.”  FAC ¶ 10.  Plaintiffs contend in their opposition that Section 1.04 of defendant’s Sale Order implies that the accident that occurred three years after the bankruptcy organization was not one of the “excluded liabilities” and thus, an implied liability.  This section in part states, “Excluded Liabilities (g) all Liabilities arising from . . . the Business’ products . . . prior to the Closing Date, including any Liability relating to design or manufacturing defects and any warranty, product liability. . . .” Defendant’s RJN, Ex. J (emphasis added).

Defendants argue that the terms of the Sale Order did not confirm an express or implied agreement, but rather suggested that “the Buyer shall not have any successor, transferee, derivative, or vicarious liabilities to any kind or character for any claims, including, without limitation, under any theory of successor or transferee liability, de facto merger or continuity . . . products . . . liability[.]”  Id. at Ex. F.

            A dispute as to the terms of the Sale Order is not a matter to be resolved at the demurrer stage.

The court finds that plaintiffs have alleged sufficient facts to assert a claim of successor liability.

            Ray Product Line Exception

In their FAC, plaintiffs allege that successor liability applies to defendants under the Ray product line exception because: (1) “[t]he sellers effectively ceased to exist, defendant acquired the insurance premiums paid by debtors for policies causing or contributing to the predecessors’ absence from the recovery pool for product liability plaintiffs, and otherwise curtailed or virtually destroyed plaintiffs’ remedies or other recourse against the product’s original manufacturer”; (2) “Defendant New CST is able to assume the original manufacturer’s riskspreading role because it is in the position of continuing (and does continue) the predecessor business or product line, or is benefiting from the predecessors’ product line, or was or is in the position of obtaining insurance or assignment of prior insurance policies”; and (3) “Defendant New CST, taking advantage of its predecessors’ good will and other corporate assets and facilities to inject the same product line into the stream of commerce, continues an overall producing and marketing enterprise that generates $100 million in annual revenue from continuation of the predecessors’ business and product line.  It is thus fair and equitable to impose successor liability upon New CST for plaintiffs’ injuries and damages complained of herein because it is marketing the same products under the same names with the use of its predecessors’ goodwill.”  FAC, ¶5.

The cases cited by defendant, supra, illustrate the necessity of showing causation between defendant’s purchase of the seller’s assets and the destruction of the remedies, and indicate that, typically, bankruptcy destroys the remedies, rather than the sale.  The cases cited also indicate that “if evidence shows that [defendant] induced [seller] to file for bankruptcy to avoid future tort liability, the Ray exception to the general rule would be applicable.”  Nelson, supra, at 538. 

Here, although plaintiffs do not allege that the bankruptcy was undertaken to deprive potential plaintiffs of their remedies, they allege that the purchase of the assets included the defendant acquiring insurance premiums for policies that may have provided coverage for plaintiffs.  FAC, ¶ 5.  Defendant argues that the Sale Order stated that “the Purchased Assets shall not include any insurance policies.”  However, this dispute as to the terms of the sale is not appropriate at the demurrer stage.  By stating the insurance premiums were acquired at the time of the sale, along with the facts addressing the riskspreading and fairness elements, the court finds that plaintiffs have alleged sufficient facts to show successor liability even under the Ray product line exception.  Further, the cases cited supra, including Hernandez, Ray, Nelson, Stewart, and Lundell are summary judgment cases.

            Accordingly, the demurrer is OVERRULED.

Plaintiffs are ordered to give notice of ruling.