Felipe Ruiz v. Blentech Corporation
35 Fed. R. Serv. 3d 1053, 89 F.3d 320, 1996 U.S. App. LEXIS 15460 (1996)
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Rule of Law:
In a choice-of-law analysis, the characterization of a legal rule (e.g., as tort law or corporate law) is determined by the law of the state that created the rule, which in turn dictates which state's law applies based on the principle of dépeçage.
Facts:
- In 1983, Custom Stainless Equipment, a California corporation, manufactured a screw conveyor.
- In 1986, Custom Stainless dissolved after selling all its assets for cash to Blentech, another California corporation.
- Blentech continued to manufacture Custom Stainless's product lines using the same product designs, factory, management, and employees.
- On June 16, 1992, Felipe Ruiz, an Illinois citizen, was severely injured and paralyzed while operating the screw conveyor at his workplace in Schiller Park, Illinois.
Procedural Posture:
- Felipe Ruiz filed a lawsuit in an Illinois state court bringing claims of strict products liability and negligence.
- The case was removed to the U.S. District Court for the Northern District of Illinois based on diversity jurisdiction.
- Blentech filed a motion for summary judgment, arguing it was not liable as a successor corporation.
- The district court granted summary judgment for Blentech, concluding that Illinois law governed all issues and that Illinois law does not recognize the 'product line' exception for successor liability.
- Ruiz (appellant) appealed the entry of summary judgment to the U.S. Court of Appeals for the Seventh Circuit.
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Issue:
In a diversity action, does Illinois law, which rejects the 'product line' exception to successor non-liability, or California law, which accepts it, govern a successor liability claim for an injury that occurred in Illinois caused by a product manufactured by a California predecessor corporation?
Opinions:
Majority - Cudahy, Circuit Judge
No, California's law does not govern the successor liability claim because its 'product line' exception is a rule of tort law, and Illinois has the most significant relationship to the tort. The court's choice-of-law analysis must follow the rules of the forum state, Illinois, which has adopted the Restatement (Second) of Conflicts of Law. This approach requires dépeçage—a separate choice-of-law analysis for each distinct issue. Here, there are two issues: the corporate asset transfer and the tort injury. California law governs the corporate issue, as the sale was between two California corporations. Illinois law governs the tort issue, as the injury occurred in Illinois to an Illinois resident. The dispositive question is whether California's 'product line' exception is a rule of corporate law or tort law. Looking to California's own jurisprudence, the court concluded that California established the exception as a rule of products liability (tort) law, designed to advance the cost-shifting goals of its strict liability regime. Because Illinois law governs the tort aspects of this case, and Illinois has explicitly rejected the 'product line' exception, the exception cannot be applied. Therefore, Blentech cannot be held liable as a successor corporation.
Analysis:
This decision provides a critical illustration of the principle of dépeçage in modern choice-of-law analysis. It establishes that before applying the 'most significant relationship' test, a court must first characterize the specific legal rule in dispute. The case sets a precedent that this characterization is not determined by the forum state, but by the state that created the rule. This holding clarifies that a plaintiff cannot simply import a favorable foreign rule; the rule must correspond to the correct substantive area of law whose choice-of-law analysis points to that foreign state.
