Monarch Bay II v. Professional Service Industries, Inc.

Opinion

SILLS, P. J. This appeal invites us to extend the so-called product line exception, which allows the imposition of strict liability for a defective product on the purchaser of the manufacturer’s assets, to claims for mere negligence. We decline the invitation.

Monarch Bay II (MBII) is the owner of an apartment complex in Laguna Niguel that was severely damaged by a landslide. Alleging negligence on the part of the geotechnical engineering firms that certified the building site, MBII sought to recover from Professional Service Industries, Inc. (PSI), which purchased all of one engineering firm’s assets. The trial court granted summary judgment against MBII, finding it could not recover from PSI because the asset purchase did not fall within the exceptions to nonliability enumerated in Ray v. Alad Corp. (1977) 19 Cal.3d 22 [136 Cal.Rptr. 574, 560 P.2d 3]. We affirm.

Background

In the 1980’s, a 450-unit luxury apartment complex was developed on the bluffs of Laguna Niguel. South Coast Geologic Services, Inc., provided soils engineering services on the project from 1986 to 1989, issuing a final compaction report and certifying the sites for the construction of three of the apartment buildings. After the buildings were built and occupied, PSI purchased all the assets of South Coast, including goodwill. PSI assumed South Coast’s equipment and building leases and hired South Coast’s two shareholders and principal geotechnical professionals, Maire Thornton and Carl Schrenk, as well as the rest of its employees. Thornton and Schrenk were told to encourage South Coast’s customers to do business with PSI, and both signed a covenant not to compete for a two-year period.

In 1992, the hillside under the project gave way, damaging two buildings and forcing their evacuation. By this time, MBII had acquired the project [1216]from the previous owner. It brought suit against all parties involved in the geological investigation and construction of the project, and named PSI as South Coast’s successor based on Ray v. Alad Corp., supra, 19 Cal.3d 22. The trial court granted PSI’s motion for summary judgment, finding the Ray exception to the nonliability of an asset purchaser for the liabilities of its predecessor applies only to claims based on strict products liability.

Discussion

In Ray v. Alad Corp., supra, 19 Cal.3d 22, the plaintiff was injured by a defective ladder manufactured by Alad Corporation (Alad I), which had been dissolved by the time of the injury. A successor corporation (Alad II) purchased Alad I’s plant, trade name, inventory, and goodwill, and “continued to manufacture the same line of ladders under the ‘Alad’ name, using the same equipment, designs, and personnel, and soliciting Alad I’s customers through the same sales representatives with no outward indication of any change in the ownership of the business.” (Id. at p. 25.) The plaintiff asserted strict products liability against Alad II.