1988 DES Case: Maloney v. American Pharmaceutical Co.

ABSTRACT

This case presents a question of successor liability of a corporation for injuries allegedly caused by a prescription drug manufactured by a predecessor corporation, now defunct. We conclude that successor liability does not attach, and we affirm a summary judgment entered in favor of the defendant corporation.

Statement of Facts

MALONEY v. AMERICAN PHARMACEUTICAL CO., Leagle, 1988489207CalApp3d282_1471, December 21, 1988.

Declarations and deposition transcripts filed in the case at bar reveal the following uncontroverted facts. In 1950, while Mary Maloney was a fetus developing in Grace Beckley’s womb, Grace Beckley took a prescription drug, stilbestrol, also known as diethylstilbestrol (DES). The manufacturer of that drug was American Pharmaceutical Company, a Delaware corporation (APC I).

APC I went through a period of financial difficulty. In 1972, all of the then officers of APC I were fired and William Widerkehr was installed as APC I’s new president, at the behest of the principal stockholders and with the approval of the First Pennsylvania Banking and Trust Company (the bank), APC I’s sole secured creditor, to which APC I owed over $1 million. Widerkehr’s efforts failed to save APC I. The bank called its notes, APC I ceased doing business, and Widerkehr worked for the bank during the early part of 1973 liquidating the assets of APC I. The bank took over APC I’s accounts receivable. Except as noted below, the bank sold APC I’s machinery and equipment and other assets to Keith Machinery Company and to various other persons.

In August 1973, Widerkehr and two other men (who had not been associated with APC I) formed a new corporation called American Pharmaceutical Company (APC II), with Widerkehr as president. APC II was, and is, a New Jersey corporation. In September, 1973, the bank sold the leftover bottles, labels, packaging materials and finished goods which bore APC I’s logo, and were therefore of no use to other companies, to APC II. APC II paid the bank $32,500 for these items and paid $500 for the right to use APC I’s name, APC I’s goodwill, and APC I’s patents and trademarks (limited to nonprescription drugs). The assets of APC I which APC II acquired constituted about 10 percent of the total liquidated assets of APC I.

APC II acquired none of APC I’s machinery, equipment, buildings, inventory, stock, or accounts receivable. APC II never used any of the premises formerly occupied by APC I. APC II did not and does not make or sell prescription drugs, and has never made, sold, or owned any DES. APC II did not agree to assume any of the liabilities of APC I.

Procedural History

On January 12, 1982, Mary Maloney filed a complaint in Contra Costa County Superior Court in which she claimed that the DES which her mother had taken had caused Mary Maloney to suffer menstrual irregularities, cysts, ovarian and fallopian tube irregularities, and precancerous vaginal and cervical growths. The complaint further alleged that T.J. Maloney, Mary Maloney’s son, suffers from cerebral palsy as a result of Mary Maloney’s exposure to DES as a fetus. Mary Maloney sued in her own behalf and as guardian ad litem for her minor son. The defendants in this first complaint were four pharmaceutical companies and one hundred does. The defendants in a third amended complaint, filed December 8, 1982, were 171 companies and 250 does. The third amended complaint asserts the following theories of recovery: strict liability for a defective product, negligent manufacture, breach of implied warranty, breach of express warranty, and fraud.

On September 9, 1983, (defendant) APC II filed a motion for summary judgment, on the ground that APC II did not market or manufacture the DES which had allegedly caused plaintiffs’ injuries. (Indeed, as noted above, APC II never marketed or manufactured any DES at all.) Plaintiffs opposed the motion, on the ground that a triable issue of fact existed as to APC II’s successorship status. The trial court denied the motion on November 28, 1983. On February 18, 1986, APC II again moved for summary judgment, on the same ground as that asserted in its first summary judgment motion. The trial court decided to hear the motion anew, and granted APC II’s motion for summary judgment on April 17, 1986. A judgment of dismissal as to APC II was entered June 24, 1986. Plaintiffs appeal that judgment. ” …

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