1989 DES Case: Phillips v. Cooper Laboratories

Abstract

This case involves questions of corporate successor liability. Appellant Cooper Laboratories, Inc. (Cooper) appeals from an order of the San Francisco Superior Court holding it potentially responsible, as successor in interest, for all damages allegedly incurred by Sandra and Michael Phillips (Phillipses) as the result of Sandra’s exposure to diethylstilbestrol (DES) in utero. The Phillips cross-appeal from the court’s order holding that another corporation, the Nestle-LeMur Company, Inc. (Nestle), was not responsible, as successor in interest, for the damages they allegedly sustained. We reverse the trial court’s order holding Cooper potentially liable for the Phillipses’ injuries. We affirm the trial court’s order exonerating Nestle..

PHILLIPS v. COOPER LABORATORIES, Leagle, 19891863215CalApp3d1648_11856, November 29, 1989.

The Phillipses’ complaint filed November 1982 named over 150 defendants, apparently based upon the market share theory of liability enunciated in Sindell v. Abbott Laboratories. The complaint’s alleged causes of action were for negligence, “products liability,” “negligent manufacture,” breach of express warranty, fraud, “conscious disregard of others’ safety,” and loss of consortium.

By order of November 1984 on motion for summary adjudication of issues, the trial court found, inter alia, that Sandra was born May 23, 1959; and that her mother, during her pregnancy with Sandra, had received by prescription of her physician a drug trade-named Milestrol, which was DES manufactured by E.S. Miller Laboratories, Inc. (Miller). Miller did not exist as a corporate entity at the date of said order.

Following this order, Nestle and Cooper remained potentially liable as successors in interest to the liabilities of Miller; and in June 1986, Cooper successfully moved to bifurcate trial of the separate issue of successor liability from the remaining issues of the case. In November 1986, the successor liability issue was tried before the San Francisco Superior Court. At trial, the following facts were established.

Miller was incorporated in California in 1926. It manufactured and sold ethical pharmaceuticals, i.e., drugs for which a doctor’s prescription is required. Between 1942 and 1958, Miller marketed Milestrol.

In 1958, Nestle acquired three corporations which were involved in the manufacture and distribution of pharmaceuticals: the Carroll Dunham Smith Pharmacal Company (Smith), Miller, and the E.L. Patch Company (Patch). Each of these corporations was obtained through Nestle’s acquisition of all or substantially all of the stock of the acquired corporation.

Shortly after these acquisitions in 1958, Nestle formed a fourth corporation in the State of New York, Smith, Miller & Patch, Inc. (SMP-NY). The purpose of SMP-NY was to market the pharmaceutical products of the three newly acquired corporations.

Nestle, in 1958, began reorganization and consolidation of the functions of the various corporations which it had acquired. The raw materials and components in Miller’s laboratories and its product manufacturing functions were transferred to Smith; Smith thereafter produced Milestrol under another trade name. Miller’s product manufacture was, thus, transferred to Smith; Miller’s marketing and sales assets, including its good will, name, trademark “Milestrol,” sales force, retail lists for marketing purposes and old inventories of Milestrol were transferred to SMP-NY for an adequate consideration. By January 1959, Miller had ceased all production of Milestrol. From this point until its corporate existence ceased, Miller became solely a warehouse operation for the products developed and marketed by Smith, Patch, SMP-NY and Nestle. During this period, Miller was more profitable as a warehouse than it had been as a pharmaceutical operation.

In 1964, Patch was dissolved as a corporation. In 1968, Miller was also dissolved pursuant to a vote of its sole shareholder Nestle.

In 1970, Nestle created a second corporation called Smith, Miller & Patch in the State of New Jersey (SMP-NJ). Immediately after its creation, SMP-NJ acquired SMP-NY and Smith by exchanging all of its stock for all of the stock of those corporations which had been owned previously by Nestle. As part of this transaction, SMP-NJ expressly assumed all debts and liabilities of SMP-NY. Immediately after this transaction, SMP-NY dissolved. In March 1972, SMP-NJ merged into Cooper.

Based upon these facts, the court order held that Cooper was potentially liable to the Phillipses for their injuries as successor in interest to Miller. The court exonerated Nestle from any potential liability to the Phillipses. Cooper now appeals from the trial court’s order holding it potentially liable for the Phillipses’ injuries; the Phillipses cross-appeal from that portion of the trial court’s order exonerating Nestle.” …

…continue reading the full paper PHILLIPS v. COOPER LABORATORIES, on Leagle.

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