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GREEN v. EQUITABLE POWDER MFG. CO.

January 27, 1951

GREEN
v.
EQUITABLE POWDER MFG. CO.



The opinion of the court was delivered by: John E. Miller, District Judge.

  In an opinion filed November 30, 1950, 94 F. Supp. 126, the court sustained a motion to dismiss the original complaint in so far as any recovery upon warranty was concerned and overruled the motion in so far as alleged liability on account of negligence was concerned. Green v. Equitable Powder Manufacturing Co., D.C.W.D.Ark., 94 F. Supp. 126.

Thereafter, with the permission of the court, plaintiff filed an amended complaint on December 20, 1950. By the amended complaint, plaintiff seeks to impose the liability of a manufacturer as well as that of a mere dealer upon the defendant, Equitable Powder Manufacturing Company, hereinafter referred to as Equitable. In this regard, plaintiff alleges:

"The defective electric blasting cap causing plaintiff's injury was manufactured by the Western Cartridge Company of East Alton, Illinois, a division of Olin Industries, Inc., a corporation duly and legally organized and existing under and by virtue of the laws of the State of Delaware but not authorized to do business in the State of Arkansas. The defendant is also a subsidiary of the said Olin Industries, having the same employees, directors, officers, and offices as the said Western Cartridge Company and Olin Industries, Inc. In the manufacture, sale and distribution of electrical blasting caps, the said three companies are associated and organized in a single common enterprise with the said Western Cartridge Company manufacturing said caps, the said Olin Industries, Inc., directing and co-ordinating the manufacture and sale of said caps, and the defendant, Equitable Powder Manufacturing Company, selling said caps in the State of Arkansas as well as elsewhere. The said caps are articles of an extremely hazardous and dangerous nature, sold and distributed solely in the State of Arkansas by the defendant as its own product, directing and controlling all advertising and sales endeavors in conjunction with public distribution.

"The said companies are so organized and controlled and their affairs and activities so conducted as to make each the agent of the others and constitute it a mere instrumentality or adjunct in the business enterprise of manufacturing and selling electrical blasting caps, and in reality are all one and the same corporation. The said corporations are so organized as to constitute a wrong and injustice to third persons as well as this plaintiff and as to contravene public policy. As a result thereof, the corporate identity of each has been lost in regard to the plaintiff's injury, and for the purposes herein are to be considered as one and the same legal entity. The defendant, Equitable Powder Manufacturing Company, is therefore liable to this plaintiff for any and all injuries proximately caused by any or all of the acts of negligence and for any and all breaches of implied and express warranties herein alleged resulting from either the manufacture or sale of said defective cap."

Plaintiff reasserts that he is entitled to recover for injuries suffered because of the delayed rather than instantaneous explosion of the dynamite by the allegedly defective dynamite cap upon a warranty theory; that even though the defendant was a dealer only and the merchandise was not sold to the plaintiff but to the plaintiff's employer that defendant should be held liable for the breach of the warranties of fitness of purpose and merchantability; and also for negligence on the allegation that the defendant owed him the duties of a manufacturer as well as of a dealer. In the latter respect the doctrine of res ipsa loquitur is alleged to be applicable.

Defendant has filed a motion to dismiss alleging (1) "under those allegations of the complaint * * * it is not shown or alleged that the three corporations * * * were incorporated and their identities separated for any wrongful purpose, and it is not alleged that by reason of the separate identities of said corporations the plaintiff has been damaged in any manner whatsoever or any wrong done him; or does the amended complaint contain any facts by which it is alleged that either of said corporations has done any act in contravention of public policy, or violated any statutory inhibitions or perpetrated any fraud or committed any wrong"; (2) that the defendant is not liable as the manufacturer for any breach of warranty; (3) that the defendant is not liable as a seller for any breach of warranty; (4) that defendant is not the manufacturer, but in any event the manufacturer is not liable to plaintiff on negligence theory because there was no privity between manufacturer and plaintiff; (5) that defendant is not liable to plaintiff under any theory of negligence because there was no privity of contract between plaintiff and defendant; and (6) that the doctrine of res ipsa loquitur has no application to the facts as pleaded in the amended complaint.

This motion is before the court for determination, and will be disposed of upon a consideration of the points of defendant's motion in the order set forth therein. The court must proceed under the well established rule "that there is no justification for dismissing a complaint for insufficiency of statement unless it appears to a certainty that the plaintiff would be entitled to no relief under any state of facts which could be proved in support of the claim. Dennis v. Village of Tonka Bay, 8 Cir., 151 F.2d 411, 412.

As a general rule courts will respect the separate corporate existence of corporations, but there are instances where the ends of justice require that separate existence be disregarded. As expressed in Nichols & Co. v. Secretary of Agriculture, 1 Cir., 131 F.2d 651, 655, quoting from Owl Fumigating Corp. v. California Cyanide Co., 3 Cir., 30 F.2d 812, 813: "When, as against the general rule that two separately incorporated companies are separate and distinct entities, it is charged that one is a mere agency or department of the other and is used as an instrumentality to perpetrate fraud, justify wrong, avoid litigation or render it more difficult, or generally to escape liability for what are in substance its own acts, courts will put aside the screen and, looking upon the situation through the group of negative rules, determine affirmatively the truth and place responsibility where it actually belongs."

And, in Darling Stores Corp. v. Young Realty Co., 8 Cir., 121 F.2d 112, 116, the court said: "And courts will ignore the fiction of corporate legal entity when the circumstances justify it, and when it is used as a subterfuge to defeat public convenience, justify wrong, or perpetrate a fraud."

The rule is the same in Arkansas. In Rounds & Porter Lbr. Co. v. Burns, 216 Ark. 288, 290, 225 S.W.2d 1, 2, the court, in disregarding corporate entities to fix liability on the controlling corporation, said: "Now of course a parent corporation is not liable for the debts of its subsidiary merely because the parent holds the controlling interest or because the two are managed by the same officers. Lange v. Burke, 69 Ark. 85, 61 S.W. 165; Powell, Parent and Subsidiary Corporations, § 6 (a, b). It is only when the privilege of transacting business in corporate form has been illegally abused to the injury of a third person that the corporate entities should be disregarded."

Disregarding corporate entities is the exception rather than the rule, and the plaintiff must shoulder the burden of establishing facts justifying this action. In attempting to discharge this burden, the plaintiff should bear in mind: "The law which it invoked and applied to the facts is familiar and not open to dispute. It consists of rules which from the nature of the questions to which they apply are in the abstract, and are mainly negative in character. For instance, these rules declare that similarity or identity of corporate names does not alone disturb or bring together distinct corporate entities; that ownership of capital stock of one corporation by another does not alone create identity of interests or the relation of principal and agent between the two; that identity of officers does not alone establish identity of corporations and make one liable for the torts of the other; that the mere loan of money even in large amounts by one corporation to another does not alone make the borrower the agent of the lender or make the lender liable for the acts of the borrower; that participation by the lender in the management of the borrower's business for the purpose of protecting its debts does not make the lender liable for the borrower's debts." Nichols & Co. v. Secretary of Agriculture, supra, 131 F.2d at page 655.

Thus, it may well be that on the question of liability the difference between the duties owed by a manufacturer and seller will be extremely important and perhaps even decisive. The importance to the plaintiff of disregarding corporate entities is obvious, because if this cannot be done, he can proceed against Equitable as a seller only. When the manufacturer and seller are in truth and fact one and the same organization, at least in so far as the claim of the plaintiff is concerned, it would be an interference with the public convenience, a wrong and a fraud to deny the plaintiff the right to proceed against the defendant as both seller and manufacturer. It appears that the problem is presented here because Western Cartridge Company may not be subject to service of process in this State. It is no answer to say that plaintiff could go to Illinois to bring his suit, for he has the right to proceed here, where he lives and the explosion occurred, in accordance with the real status of defendant in the organization.

And, even though the facts do not justify disregarding corporate entities, if defendant Equitable put out the caps as its own product, as alleged, it will be subject to the same liability as though it were the actual manufacturer. ...


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