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10/14/94 AMERICAN NONWOVENS v. NON WOVENS

October 14, 1994

AMERICAN NONWOVENS, INC.
v.
NON WOVENS ENGINEERING, S.R.L., ET AL.



(CV-91-B-0623-J). Sharon Lovelace Blackburn, TRIAL JUDGE. Certified Question from the United States District Court for the NorthernDistrict of Alabama, Jasper Division

Released for Publication January 17, 1995.

Maddox, Hornsby, C.j., and Shores, Houston, Steagall, Kennedy, and Ingram, JJ., concur.

The opinion of the court was delivered by: Maddox

MADDOX, JUSTICE.

United States District Judge Sharon Lovelace Blackburn has certified to this Court the following question, pursuant to Rule 18, Ala.R.App. P.:

"The plaintiff in this case, American Nonwovens, Inc. ('ANW'), an Alabama corporation with its place of business in Vernon, Alabama, has asserted claims against two different Italian corporations: Non Wovens Engineering, S.R.L. ('NWE') and Non Wovens Technology, S.p.A. ('NWT'). ANW's claims against NWE are largely based upon a November 30, 1988, contract between ANW and NWE pursuant to which NWE was to sell to and assemble for ANW a large piece of machinery at ANW's place of business in Vernon, Alabama. Briefly, ANW claims that the machinery has not performed as promised. ANW's contract claims against NWT are based on the theory that NWT is the corporate successor to NWE. Both NWE and NWT are Italian corporations. In May 1990, NWT purchased assets, patents and other rights from NWE. The transaction between NWT and NWE took place entirely in Italy. The issue to be certified is whether Italian or Alabama law governs the corporate successorship issue.

"Stated another way, should the court apply Italian or Alabama law to determine whether NWT is the corporate successor to NWE? The Alabama Supreme Court expressly left this issue unresolved in Watts v. TI, Inc., 561 So. 2d 1057, 1059 (Ala. 1990)."

In late November or early December 1988, American Nonwovens, Inc. ("ANW"), an Alabama corporation, entered into a contract with Non Wovens Engineering, S.R.L. ("NWE"), a corporation incorporated under the laws of the Republic of Italy. Under the contract, NWE agreed to sell to ANW certain machinery, specifically a 3.2 meter spunbonded nonwovens production line. *fn1 The contract stated that it was to be governed by Alabama law. Over the course of 1989, NWE shipped the production line machinery to ANW's plant in Alabama and began to assemble it. ANW claims that the machinery has failed to perform as promised.

In May 1990, Non Wovens Technology, S.p.A. ("NWT") was incorporated in the Republic of Italy. Later that month, NWT purchased NWE's technology, patent rights, and certain information concerning nonwovens spunbonded technology, including methods of manufacturing the machinery, technological processes, equipment design, and machinery design. In June 1990, the 51% majority shareholder of NWE purchased the remaining 49% from NWE's only other shareholder, Claudio Governale. Governale also owns 40% of NWT.

On March 27, 1991, ANW sued NWE in the United States District Court for the Northern District of Alabama. On April 19, 1991, the complaint was amended to add NWT as a defendant. The complaint was amended a second time on February 21, 1992. As amended, it alleges breach of contract and breach of express and implied warranties. ANW's contract claims against NWT are based on its contention that NWT is liable as the corporate successor to NWE.

The question before us is whether Alabama law or Italian law should be applied to determine if NWT is the corporate successor to NWE for the purposes of liability on ANW's contract claims. We limit our answer to the contract claims, because the certified question relates only to those claims. *fn2

ANW argues that the principle of lex loci contractus requires that the law of Italy be applied to the corporate succession issue. ANW is correct that the choice of law rule followed by Alabama provides that the law of the state wherein the contract was executed governs questions regarding the validity and interpretation of the contract. Harrison v. Insurance Co. of N. America, 294 Ala. 387, 391, 318 So. 2d 253, 257 (1975); Macey v. Crum, 249 Ala. 249, 252, 30 So. 2d 666, 669 (1947); Furst & Thomas v. Sandlin, 208 Ala. 490, 492, 94 So. 740, 742 (1922). However, we do not agree with ANW that this rule requires the application of Italian law here. The contract that is the subject of this action is the contract between ANW and NWE. The case does not involve any dispute over the interpretation or validity of the agreements between NWT and NWE. Italian law would govern a lawsuit between NWT and NWE over the interpretation of the contract between them, because it was executed in Italy. Here, ANW is asserting claims against NWE under Alabama law, based on a contract executed in Alabama and expressly stating that Alabama law is to apply, and the federal court must decide whether NWT can be held liable on those claims as NWE's corporate successor. The issue is the effect of the transaction between NWE and NWT in the context of ANW's contract claims under Alabama law. In Macey v. Crum, 249 Ala. 249, 252, 30 So. 2d 666, 669 (1947), this Court stated, "The lex loci controls the validity and construction of the contract but the lex fori operates on the remedy to enforce it." Macey involved a direct action against an insurance company to collect a judgment against its insured. The insurance contract was made outside Alabama, and neither the insurer nor the insured was a resident of Alabama. Macey, 249 Ala. at 251, 30 So. 2d at 667. Nevertheless, this Court applied Alabama law to determine whether the plaintiff had a remedy against the insurance company. See also, Fleming v. Pan American Fire & Casualty Co., 495 F.2d 535, 539-41 (5th Cir. 1974) (discussing and applying Macey). Similarly, in this case we have a direct action against an alleged corporate successor to collect on a claim against another corporation. *fn3 Consequently, we conclude that Alabama law should be applied to determine whether NWT is the corporate successor or, in other words, whether there is a remedy available to ANW against NWT.

ANW contends that the general rule that internal corporate affairs are governed by the state where incorporation occurs requires that Italian law govern the question whether NWT is the corporate successor to NWE, because NWT and NWE were incorporated in the Republic of Italy. ANW cites § 10-2A-226, Ala. Code 1975, as reflecting the principle of lex incorporationis. Section 10-2A-226 states, in part:

"A foreign corporation shall not be denied a certificate of authority [to transact business in this state] by reason of the fact that the laws of the state or country under which such corporation is organized governing its organization and internal affairs differ from the laws of this state, and nothing in this chapter contained shall be construed to ...


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