Opinions of the United 2004 Decisions States Court of Appeals for the Third Circuit
2-23-2004
Brzozowski v. Corr Phy Ser Inc Precedential or Non-Precedential: Precedential
Docket No. 02-3659
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UNITED STATES COURT OF Mundy APPEALS FOR THE 1845 Walnut Street, 20 th Floor THIRD CIRCUIT Philadelphia, PA 19103
Attorney for Appellant No. 02-3659
Andrew J. Rolfes, Esquire (ARGUED) NOREEN A. BRZOZOWSKI, Klett Rooney Lieber & Schorling Two Logan Square, 12 th floor Appellant Philadelphia, PA 19103-2756 v. Attorneys for Appellee Prison Health CORRECTIONAL PHYSICIAN Services, Inc. SERVICES, INC.; PRISON HEALTH SERVICES, INC.
____________ OPINION
APPEAL FROM THE UNITED STATES DISTRICT COURT FOR WEIS, Circuit Judge. THE EASTERN DISTRICT OF PENNSYLVANIA In this Title VII (D.C. Civ. No. 00-cv-02590) employment discrimination case, we District Judge: conclude that when an insolvent Honorable Mary A. McLaughlin employer sells a substantial portion of its ____________ assets to another corporation, that company may be subject to successor Argued October 2, 2003 liability. We also decide that because substantial portions of Title VII are Before: RENDELL, WEIS, and governed by laches, rather than a statute GARTH Circuit Judges. of limitations, the relation back provision of Federal Rule of Civil Procedure (Filed: February 23, 2004) 15(c)(3) does not apply to the joinder of ____________ the successor corporation as an additional defendant. Harold I. Goodman, Esquire (ARGUED) Plaintiff was employed by Raynes, McCarty, Binder, Ross &
1 defendant Correctional Services, Inc. each to Dr. Umar and his son. (“Correctional”), from 1991 until she According to the was discharged in 1996. Correctional deposition of Dr. Kenan Umar, the fund was a subchapter S corporation engaged was exhausted in August 2000. After in the business of supplying medical that time, however, it appears that Prison services to incarcerated inmates in paid some debts of Correctional in order several states. Dr. Kenan Umar and his to maintain credibility with the son Emre Umar each held 50% of the Commonwealth of Pennsylvania. The stock. contract between the Commonwealth and Alleging gender Correctional was one of the assets that discrimination, plaintiff exhausted EEOC had been sold to Prison. Other efforts at administrative requirements and then collection of receivables and payment of filed a complaint in the District Court in creditors were still underway at the time May 2000, asserting claims under Title of Dr. Umar’s deposition in February VII of the Civil Rights Act of 1964, 42 2001. Nonetheless, he stated that U.S.C. § 2000e, et. seq., and the Correctional was “financially defeated” Pennsylvania Human Rights Act, by that point, and that it owed more than (“PHRA”), 32 Pa. Cons. Stat. Ann. § it could collect. 951, et. seq. Unknown to plaintiff at the In December 2000, counsel time, Correctional had agreed in March who had been retained to defend 2000 to sell a substantial amount of its Correctional in this litigation filed a assets to Prison Health Services petition to withdraw his appearance, (“Prison”), an organization in a similar citing the inability of his client to pay its business. These assets consisted legal fees. Plaintiff asserts that this event primarily of contracts with various states was the first notice she received of the to provide medical services to prisoners. sale of assets and Correctional’s The sales agreement insolvency. After a hearing, the District disclaimed Prison’s potential liability for Court granted counsel’s withdrawal certain law suits and EEOC claims motion. pending against Correctional. Soon thereafter, on March Specifically mentioned were 14, 2001, plaintiff moved to join Prison discrimination claims brought by the as an additional defendant, alleging that plaintiff and two other individuals. The it was a successor to Correctional. The agreement also provided for the creation District Court sustained Prison’s of an “oversight committee,” which was objections and denied the motion on the to be responsible for disbursing the $14 ground that Prison should not be held million proceeds from the sale to responsible on a successor liability creditors of Correctional. The committee theory. was specifically directed to pay $500,000
2 After the District Court support appellate jurisdiction under 28 denied reconsideration or certification of U.S.C. § 1291. Lockett v. General Loan a controlling issue of law, Correctional Finance Co. of Downtown, 623 F.2d stipulated that judgment be entered 1128 (5 th Cir. 1980); 15B Charles Alan against it and in favor of plaintiff for Wright, Arthur R. Miller & Edward H. $150,000. In addition, it was agreed that Cooper, Federal Practice and Procedure § plaintiff would not sue or seek to collect 3914.18 (2d ed. 1991 ed.). Here, the judgment from Dr. Umar or any other however, the judgment against individual associated with Correctional. Correctional gives us jurisdiction. In accordance with the stipulation, the Although entered by consent, it is District Court entered judgment on unconditional, and will remain August 28, 2002. undisturbed no matter what our ruling on the interlocutory order denying the Plaintiff has appealed, joinder of Prison. See Bethel v. arguing that a Title VII claimant in McAllister Bros., 81 F.3d 376 (3d Cir. appropriate circumstances may be 1996). See also Kahn v. Chase entitled to the benefit of successor Manhattan Bank, 91 F.3d 385, 388 (2d liability. Prison maintains that Cir. 1996). Correctional was in a precarious financial position before March 2000 and Prison cites Federal Home the sale of assets had no real effect on the Loan Mortgage Corp. (“Freddie Mac”) v. plaintiff’s ability to recover money Scottsdale Ins. Co., 316 F.3d 431 (3d Cir. damages. Thus, Prison asserts that 2003), and Verzilli v. Flexon, Inc., 295 successor liability should be inapplicable F.3d 421 (3d Cir. 2002), where we in this instance. Prison also contends concluded that a consent judgment was that this Court lacks jurisdiction because conditional and therefore not final. As the plaintiff consented to the judgment we observed in Verzilli, a party’s against Correctional and, in the standing to appeal a consent judgment alternative, that plaintiff’s claim is time- requires a reservation of that right. barred because the relation-back Verzilli, 295 F.3d at 423. The intention provision of Federal Rule of Civil to appeal was not included in the Procedure 15(c)(3) is not applicable. stipulation here, but it was made clear in the letter by plaintiff’s counsel to the I. District Court forwarding the stipulation We will first address the for approval and filing. contention that we lack appellate In the letter, counsel jurisdiction because the order of the explained that the consent judgment District Court refusing joinder of an would “permit Ms. Brzozowski to take additional party is interlocutory. an appeal of the final judgment to pursue Ordinarily, such an order does not her successor liability claim against
3 Prison Health Services, Inc.” Although it example, when a successor continues to would have been the better practice to operate the business without substantial add a statement to that effect in the change, the employees will assume that stipulation itself, we are satisfied that the their job situations will also remain the letter was adequate to establish the same and that past unfair labor practices plaintiff’s intent to appeal. We conclude, will be remedied. Failure to meet these therefore, that the objections to our expectations may well result in the labor jurisdiction must be denied. unrest which federal labor policies are designed to avoid. Id. at 425. II. Moreover, the avoidance of The substantive aspects of labor strife, prevention of a deterrent the plaintiff’s appeal challenge the effect on rights granted employees under District Court’s refusal to apply the the National Labor Relations Act, and successor liability doctrine. At common protection for victimized employees are law, where one corporation sells or important goals which can be achieved at transfers all or a substantial part of its minimal cost to a successor. The assets to another, the transferee does not expense resulting from successor liability become liable for the debts and can be considered in setting the price liabilities, including torts, of the paid for the business, or through the transferor. Poulis v. Clark Equipment inclusion of an indemnity clause in the Co., 802 F.2d 75 (3d Cir. 1986). There purchase agreement. Id. at 425. are certain exceptions to that general rule. A purchaser may be liable where it Similarly, in John Wiley & expressly assumes liability, the Sons, Inc. v. Livingston, 376 U.S. 543, transaction amounts to a consolidation or 549 (1964), the Court recognized that merger, the transaction is fraudulent and employees and their union generally do intended to escape liability, or the not take part in the negotiations resulting purchaser is a mere continuation of the in a change of corporate ownership and, seller. 15 Fletcher, Cyclopedia of the thus, are placed at a disadvantage. As a Law of Private Corporations, § 7122 result, the objectives of national labor (rev. perm. ed. 1983). policy must balance an employer’s option to rearrange its business with The Supreme Court has “some protection for employees from a expanded the common law rule in the sudden change in the employment field of labor relations. In Golden State relationship.” Id. at 549 Bottling Co. v. NLRB, 414 U.S. 168 (1973), the Court recited the general In EEOC v. MacMillan sucessorship principle but found that Bloedel Containers, Inc., 503 F.2d 1086 federal labor relations policy required (6 th Cir. 1974), the Court of Appeals consideration of additional factors. For noted that Title VII was molded to a
4 large degree on the National Labor predecessor to provide adequate relief Relations Act, including its relief directly.” Id. at 401. This Court has provisions. The Court specifically noted committed itself to recognizing “the emphasis that both Acts place on successorship liability in the appropriate extending protection to and providing Title VII context. 1 Although the relief for the victims of prohibited underpinnings of successor liability have practices,” and concluded that this been derived from equitable principles, federal policy is “sufficient, in our view, they are nonetheless legal considerations to warrant imposing liability on a which, when satisfied as they are here, corporate successor for Title VII warrant the application of the doctrine. violations of the predecessor company.” The plaintiff’s motion for Id. at 1091. However, liability in this permission to file an amended complaint context “must be determined on a case- alleges that each of the Rego tests is met. by-case basis.” Id. Notice is not an issue; the agreement of In Rego v. ARC Water sale between Prison and Correctional Treatment Co. of Pennsylvania, 181 F.3d specifically refers to the plaintiff’s claim. 396 (3d Cir. 1999), we recognized that, Prison assertedly has continued in employment discrimination cases, “the Correctional’s operations and work doctrine of successor liability applies force. Correctional’s financial debacle where the assets of the defendant- makes it unable to satisfy the plaintiff’s employer are transferred to another monetary claims and it cannot reinstate entity.” Rego, 181 F.3d at 401. An her. aggrieved employee may enforce a claim We cannot discern any or judgment against a successor that undue prejudice to the imposition of would have been valid against the successor liability should plaintiff be predecessor. The doctrine is “derived from equitable principles, and fairness is the prime consideration in its application 1 . . .” Id. at 401. Other Courts of Appeals have articulated a similar view. See, e.g., Citing Criswell v. Delta Rojas v. TK Communications, Inc., 87 Airlines, Inc., 868 F.2d 1093, 1094 (9 th F.3d 745 (5 th Cir. 1996) (discussing Cir. 1989), Rego listed three principal successor liability in the Title VII factors applicable to successor liability in context); EEOC v. G-K-G, Inc., 39 F.3d the employment discrimination field: 740 (7 th Cir. 1994) (same); Slack v. “(1) continuity in operations and work Havens, 522 F.2d 1091 (9 th Cir. 1975) force of the successor and predecessor (same); Trujillo v. Longhorn Mfg. Co., employers; (2) notice to the successor- Inc., 694 F.2d 221 (10 th Cir. 1982) employer of its predecessor’s legal (same); In re Nat’l Airlines, Inc., 700 obligation; and (3) ability of the F.2d 695 (11th Cir. 1983) (same).
5 able to establish the validity of her claim. Relying on the opinion of And, because the potential for this the Court of Appeals for the Seventh obligation has been well-established in Circuit in Musikiwamba v. Essi, Inc., the law for some time, there is nothing 760 F.2d 740 (7 th Cir. 1985), the District unfair about its application at this Court concluded that enforcing successor juncture. We note that Prison included liability in the case before us would be an indemnity clause in the agreement of unfair. In Musikiwamba the Court of sale. Realistically, it is probably of no Appeals stated that, “[u]nless value now, but the existence of such a extraordinary circumstances exist, an provision was cited in Golden State injured employee should not be made Bottling Co. as a factor supporting worse off by a change in the business. successor liability. Prison might have But neither should an injured employee made provisions for meeting be made better off.” Id. at 750. The Correctional’s obligation to plaintiff District Court reasoned that here through a lower price or an escrow “successor liability should not be arrangement. On the other hand, the imposed if the predecessor was in plaintiff had no knowledge of the asset financial ruin prior to, and not as a result sale and no opportunity to protect her of, a sudden sale of assets.” The Court claim. The fact that Prison did not take believed that giving an employee the appropriate steps to insulate itself does right to pursue a claim against the not serve to make application of successor in this situation does not successor liability unfair in the protect preexisting rights, “but instead circumstances. Prison had means at its creates new rights.” disposal to anticipate such a situation and Preliminarily, we note that offset expected costs associated with a the Court of Appeals for the Seventh potential claim like that of the Plaintiff. Circuit in a later opinion substantially We are struck by the weakened the comment it made in agreement’s provision for establishment Musikiwamba. In EEOC v. Vucitech, of an interim committee to oversee the 842 F.2d 936, 946 (7 th Cir. 1988), the distribution of the $14 million sale Court wrote, “[w]e do not understand proceeds. This arrangement provided an these decisions to have imposed an opportunity for Prison to guard itself to ironclad requirement in all cases of some extent from claims like that of successor liability.” Rather, emphasis plaintiff. In this connection, too, a should be on balancing the interest in reasonable person might question the “sanctioning unlawful conduct and the payment of $1 million to Dr. Umar and interest in facilitating the market in his son, the two stockholders of corporate and other productive assets.” Correctional, without any consideration Id. Moreover, no other court has adopted of the plaintiff’s claim. an expanded view of successor liability
6 similar to the one espoused by establishment of liability for the alleged Musikiwamba. wrongful act. In that setting, a plaintiff’s claim should not be weakened or Concededly, the language improved by presenting it against the in Musikiwamba is somewhat confusing, successor rather than the guilty at least when read as an assertion that it predecessor whose wrongdoing underlies is somehow unfair to provide a plaintiff the claim. with a better chance of recovering damages in a Title VII case from a We conclude that the successor rather than a penniless District Court erred in refusing to allow predecessor. To the extent that the joinder of Prison as an additional plaintiff gains another source for defendant. The plaintiff should be given satisfaction of her claim, of course, she is the opportunity to establish her claim of better off than the claimant whose only successor liability. We caution, recourse is against a defunct or insolvent however, that should the cause continue defendant. However, the mere to the merits, the plaintiff may not simply substitution of a responsible defendant rely on the consent judgment arranged for an insolvent one is not a basis for with Correctional. Prison was not a party denying successor liability. to the stipulation for a judgment and must be afforded the opportunity to The notion that successor defend itself against the claim de novo. liability cannot be invoked where it would leave the creditor “better off”is a III. curious one. The doctrine of successor Prison contends that as a liability is premised on the idea that the separate and independent ground the creditor cannot obtain satisfaction from District Court should be affirmed the predecessor. To read this factor, or because the plaintiff’s effort to add to impose a new one to require a court to Prison as a defendant was untimely and look at whether the creditor is better off, the claim would not relate back to the seems to undermine the basic rationale date of the original complaint under underlying the doctrine. Moreover, we Federal Rule of Civil Procedure 15(c)(3). note that, as a factual matter, there was Conceding that the original complaint money available here for creditors that was filed against Correctional within the was disbursed without regard to the 90-day “limitations period” set out in 42 possibility that the plaintiff might U.S.C. § 2000(e)-5(f)(1),2 Prison argues, succeed in her claim. Although we do not agree 2 with the District Court’s application of The relevant portion of Musikiwamba, there is an area where it that statute states that “if a charge filed might have some relevance: the with the Commission ... is dismissed by the Commission, or if within one
7 however, that the time had expired as to Prison is contending that the 90-day derivative claims that could be brought period is a statute of limitations for Title against it as a successor. VII claims, and plaintiff’s failure to comply with Rule 15(c)(3) bars relation Federal Rule of Civil back. Procedure 15(c)(3) provides that an amendment to a complaint relates back to The basic flaw in Prison’s the date of the original pleading when (1) argument is that Title VII does not permitted by the statue of limitations contain a statute of limitations applicable applicable to the action; (2) the claim or to joinder in the situation here. defense arose out of the occurrence set Title VII sets a 300-day forth in the original pleading; or (3) the time limit after the discriminatory action amendment changes a party and the occurred to present a claim to the EEOC, foregoing (2) is satisfied. When and a 90-day period for filing suit in the “relation-back” is based on (3), the new District Court after receipt of a notice of party must also have received notice of right-to-sue letter from the agency. The the suit within the period set under Rule Act does not address the question 4(m), must not be prejudiced in presented here – whether an additional maintaining a defense, and should have defendant may be joined after the 90-day known that, but for a mistake in identity, period has expired. the suit would have been brought against it. Generally, in federal litigation, if Congress does not provide a Prison asserts that it had no limitations period , courts look to notice of the lawsuit within the 120-day analogous state statutes for the period under Rule 4(m). In essence, appropriate time within which a suit must be brought. 3 Title VII is an exception to that policy. In Occidental Life Ins. Co. hundred and eighty days from the filing v. EEOC, 432 U.S. 355 (1977), the Court of such charge ... the Commission has held that absorption of state limitations not filed a civil action under this section,... [or] has not entered into a 3 conciliation agreement to which the In 1990, Congress person aggrieved is a party, the enacted 28 U.S.C. § 1658 providing that Commission ... shall so notify the person except as otherwise provided by law, a aggrieved and within ninety days after four-year statute of limitations would the giving of such notice a civil action apply to the civil actions commenced may be brought against the respondent thereafter. It was amended in 2002 with named in the charge ... by the person respect to securities litigation. The claiming to be aggrieved...” 42 U.S.C. statute has no application to Title VII, 2000(e)-5(f)(1). which was enacted before 1990.
8 would be inconsistent with the Those cases involved situations in which congressional intent underlying Title VII. the plaintiff did not file a proper That case was not a suit by an individual, complaint within the 90-day period and but by the EEOC which is not bound by are thus distinguishable from the the 90-day limitation of Title VII. litigation here where the original Nevertheless, the refusal to look to state complaint was timely filed. statutes of limitations has been cited in Generally, when no individual suits as well. See, e.g., Burgh specified or analogous statute of v. Borough Council of the Borough of limitations applies to a cause of action, Montrose, 251 F.3d 465 (3d Cir. 2001); laches must be considered. A Title VII Cleveland Newspaper Guild, Local 1 v. defendant who has been prejudiced Plain Dealer Publishing Co., 839 F.2d because of a delay in the administrative 1147 (6 th Cir. 1988) (en banc). process does have the right to invoke the Just as MacMillan Bloedel equitable defense of laches. “In addition held that a plaintiff need not repeat the to other equitable defenses . . . an administrative process for the benefit of employer may raise a laches defense, a successor corporation, we see no which bars a plaintiff from maintaining a reason why the 90-day restriction must suit if he unreasonably delays in filing a be applicable to a defendant joined after suit and as a result harms the defendant.” the plaintiff has timely filed suit against National Railroad Passenger Corp. v. the original employer. See MacMillan Morgan, 536 U.S. 101, 121 (2002). This Bloedel, 503 F.2d at 1093. The plaintiff Court, along with a number of other here “name[d] those who were known to Courts of Appeals, has cited that [her] and could have been charged principle in cases where the EEOC has during the period of limitations,” and unduly delayed an individual claimant’s requiring more could encourage evasion law suit before issuing a right-to-sue through corporate transfers and would letter. Waddell v. Small Tube Produce frustrate the equitable power of the Court Products, Inc., 799 F.2d 69 (3d Cir. to make plaintiff whole. Id. 1986). 4 Courts have strictly construed the 90-day limitations period 4 Other cases of against plaintiffs who either misnamed administrative delay invoking laches the appropriate party in their complaint, with differing results are Bernard v. Gulf see e.g., Williams v. Army & Air Force Oil Co., 596 F.2d 1249 (5 th Cir. 1979); Exchange Serv., 830 F.2d 27 (3d Cir. Cleveland Newspaper Guild, Local 1 v. 1987), or have otherwise entirely failed The Plain Dealer Pub. Co., 839 F.2d to meet the filing requirements in the 1147 (6 th Cir. 1988); Jeffries v. Chicago statute. See Baldwin Co. Welcome Transit Authority, 770 F.2d 676 (7 th Cir. Center v. Brown, 466 U.S. 147 (1984). 1985); Brown v. Continental Can Co.,
9 The application of laches is emphasized that there must be more than in accord with Title VII, which “vests inexcusable delay. Plaintiff must also District Courts with broad discretion to show that the delay caused a award ‘appropriate equitable relief to disadvantage in establishing and remedy unlawful discrimination.’” Local asserting a defense. 28 of the Sheet Metal Workers’ Int’l v. The relation back EEOC, 478 U.S. 421, 446 (1986). The provisions of Rule 15 are primarily Courts are empowered to order “such concerned with alleviating unfair affirmative action as may be appropriate, prejudice in circumstances involving which may include, but is not limited to, statutes of limitations. It has no reinstatement or hiring of employees . . . controlling force where, as here, a or any other relief as the court deems defendant’s remedy is provided by the appropriate. 42 U.S.C. § 2002(e)- equitable doctrine of laches. (5)(g).” Id. at 466. In this case, the timeliness Prison is not left without a issue in terms of the 90-day period in the defense. When laches applies, a plaintiff context of a statute of limitations was may not be entitled to relief if her raised in the District Court, but it was not conduct of the case has improperly and ruled upon. On remand, the parties may substantially prejudiced the other party. bring the issue to the court’s attention. See Albermarle Paper Co. v. Moody, 422 As we observed in Waddell, the decision U.S. 405, 424 (1975). In Jeffries v. to consider a laches defense is within the Chicago Transit Authority, 770 F.2d 676 sound discretion of the trial court which, (7 th Cir. 1985), the Court held that the of course, must make the requisite plaintiff had inexcusably failed to prod findings. The District Court must the excessively slow administrative consider whether the plaintiff’s conduct proceedings and the delay materially was unreasonable and whether the prejudiced the defendant. Accordingly, defendant was materially prejudiced. the plaintiff was found guilty of laches. In National Assn. of Gov’t Employees v. Accordingly, the order City Public Serv. Board, 40 F.3d 698 (5 th denying plaintiff the right to join Prison Cir. 1994), on the other hand, the Court as an additional defendant is reversed, and the case is remanded to the District Court for further proceedings consistent 765 F.2d 810 (9 th Cir. 1985); Brown- with this Opinion. Mitchell v. Kansas City Power & Light Co., 267 F.3d 825 (8 th Cir. 2001); Howard v. Roadway Express, Inc., 726 F.2d 1529 (11th Cir. 1984); Rozen v. District of Columbia, 702 F.2d 1202 (D.C. Cir. 1983).
10 Garth, Circuit Judge, dissenting: of the majority.6 I. The majority of this panel “Equity” has been said to has remanded M s. Brzozowski’s case to be “the body of principles constituting the District Court for further inquiry into what is fair and right . . . the recourse to the timeliness of her attempt to amend principles of justice to correct or her Complaint to add Prison as a supplement the law as applied to defendant.5 I am pleased that the particular circumstances.” Black’s Law majority has seen fit to remand, but Dictionary 560 (7th ed. 1999). As this distressed that it has not affirmed in toto Court has stated, successor liability is a the District Court’s judgment which doctrine derived from equitable denied M s. Brzozowski relief. I principles, and the principle of fairness is therefore respectfully dissent. the prime consideration in its application. Rego v. ARC Water Considering (1) the Treatment Co. of Pa., 181 F.3d 396, 401 equitable nature of the “successor (3d Cir. 1999). That doctrine, however, doctrine,” (2) the prejudice that Prison has necessarily been qualified. In Ed would suffer if M s. Brzozowski were allowed to amend her Complaint, and (3) the inescapable conclusion that Ms. 6 Brzozowski’s desire to add Prison as a The policy underlying the successor doctrine is designed to protect an defendant represents the paradigm search employee when the ownership of his for the deepest available pocket, it is employer suddenly changes. See, e.g., Rojas evident to me that the District Court v. TK Communications, Inc., 87 F.3d 745, correctly denied Ms. Brzozowski’s 750 (5th Cir. 1996) (“Although developed in motion to join Prison as an additional the context of labor relations, the doctrine of defendant and that Prison should prevail. successor liability has been extended to The polestar of the “successor doctrine” claims asserted under Title VII and related is equity, and I suggest strongly that statutes. . . . [T]he successor doctrine arises equity has not triumphed in the opinion in the context of discrimination cases in situations where the assets of a defendant employer are transferred to another entity. Thus, the purpose of the doctrine is to ensure that an employee’s statutory rights are not 5 The majority’s opinion has “vitiated by the mere fact of a sudden referred to CPS, Ms. Brzozowski’s original change in the employer’s business.””). But employer and the seller of assets, as by the same token, while an employee’s “Correctional.” It has also referred to the right should not be diminished, neither defendant-successor as “Prison.” For ease should it be enhanced. Musikiwamba v. of reference, I have adopted the same ESSI, Inc., 760 F.2d 740, 750 (7th Cir. 1985) nomenclature.
11 Peters Jewelry Co., Inc. v. C&J Jewelry In Rego, where we adopted Co., Inc., et al, 124 F.3d 252, 274 (1st the doctrine of successor liability, we Cir. 1997), the First Circuit said that “the specified that the District Court should successor doctrine is derived from equity analyze a successor claim by considering principles and it would be grossly unfair, three principal factors before making a except in the most exceptional successor liability determination: (1) circumstances, to impose successor continuity in operations and work force liability on an innocent purchaser when of the successor and predecessor the predecessor is fully capable of employers; (2) notice to the successor providing relief.” employer of its predecessor’s legal obligation; and (3) ability of the The Seventh Circuit added predecessor to provide adequate relief to the equitable gloss of the successor directly. Rego, 181 F.3d at 402 liability doctrine when, using some of (emphasis added). the same language, it stated: To this extent and to this the successor doctrine is point, the majority opinion and I are in derived f r o m e q u ity complete agreement. However, where principles, and it would be we part company is in our analysis of the grossly unfair, except in the third prong of Rego. That is, could most exceptional financially insolvent Correctional (the circumstances, to impose predecessor and Ms. Brzozowski’s successor liability on an original employer) provide adequate innocent purchaser when relief directly to Ms. Brzozowski? Is it the predecessor is fully fair and equitable to burden Prison with capable of providing relief the obligation to provide relief to Ms. or when the successor Brzozowski when that relief was the would not have the opportunity to protect itself. Musikiwamba v. ESSI, Inc., 760 F.2d determination are not equitable but “legal 740, 750 (7th Cir. 1985). Other courts determinations.” Maj. Op. at 11. These have chimed in to the same effect. See, legal considerations are not defined, and it is e.g., Criswell v. Delta Air Lines, 868 unclear from whence they are derived or F.2d 1093, 1094 (9th Cir. 1989) (citing why they overrule, or allow the majority to overlook, the inherent inequity of the result to Musikiwamba, 760 F.2d at 750).7 reached here. Moreover, as the majority opinion points out, because of the equitable 7 The majority acknowledges nature of the successor doctrine, it is laches, that the successor doctrine has equitable and not the statute of limitations, which “underpinnings,” but asserts that the factors must be applied in cases such as this one, employed in making a successor liability which seek equitable relief.
12 primary responsibility and charge of her predecessor to provide adequate relief original employer, Correctional? I directly.” This is a mandate of our answer these questions by concluding jurisprudence. Yet the majority opinion, that the principles of justice – those without recognition of this standard, principles which embrace fairness and provides “. . . the mere substitution of a rightful conduct – as applied to the responsible defendant [Prison] for an particular circumstances of this case, insolvent one [Correctional] is not a require that the successor doctrine basis for denying successor liability.” should not place Ms. Brzozowski in a Maj. Op. at 15. I suggest that a re- better position than she was in before writing of an established formula Prison entered the arena. adopted by this Court can be accomplished only by an en banc Court. The majority dismisses this See 3d Cir. Internal Operating crucial principle, imbedded in the third Procedures § 9.1 (“. . . [N]o subsequent prong of Rego’s formula (i.e., the ability panel overrules the holding in a of the predecessor to provide relief precedential opinion of a previous panel. directly), as undermining the rationale Court en banc consideration is required upon which the successor doctrine is to do so.”). based. See Maj. Op. at 15. I cannot agree. The majority fails to recognize II. the importance of Correctional’s initial Judge Swygert, writing in responsibility to discharge Ms. Musikiwamba,8 held that while an Brzozowski’s claim if she were employee injured by her original successful in her discrimination action, employer (here Correctional) should not particularly in light of Correctional’s be made worse off after the employer’s receipt of $14 million and the Umars’ successor (here Prison) took over, receipt of $1 million. Moreover, neither should she profit and be better Correctional had agreed with Prison that any liability that might arise out of Ms. Brzozowski’s claim was to be 8 Correctional’s responsibility. The The majority opines that majority opinion’s position completely EEOC v. Vucitech, 842 F.2d 936, 946 (7th eliminates the third prong of this Court’s Cir. 1988), weakened the doctrine of Rego doctrine, which looks first to the Musikiwamba when it emphasized that a balancing test should gloss the predecessor – here, Correctional – for Musikiwamba successor doctrine. See Maj. relief. Op. at 14. While I do not read Vucitech in For successor liability to the same illiberal manner as the majority attach, we have provided in Rego, supra, does, I suggest that under any balancing and I have emphasized, that the Court standard, the balance ends up in favor of Prison under the circumstances which I must look to the “ability of the outline here.
13 off with a successor who was “better utterly unconscionable: heeled.” [A]n injured employee 1. Correctional, Ms. should not be made worse Brzozowski’s original off by a change in the employer, was a failing business. But neither company and had no assets should an injured employee with which to respond to be made better off... her claim of Imposing liability on a discrimination. suc c e s so r w h e n a predecessor could have provided no relief 2. The District Court found whatsoever is likely to that the financial troubles s e v e r e l y in h i b i t t h e experienced by the reorganization or transfer of predecessor, Correctional, assets of a failing business. existed before Correctional A company on the verge of sold its assets to the bankruptcy may find itself successor, Prison. Because deluged with meretricious Correctional could not claims for employment provide any recovery to discrimination as employees Ms. Brzozowski before the see the prospect of a deep- sale transaction took place, pocket to provide relief. she was not adversely Musikiwamba v. ESSI, Inc., 760 F.2d impacted by the sale of 740, 750-51 (7th Cir. 1985) (emphasis assets. added). Accord EEOC v. Vucitech, 842 F.2d 3. The sale of assets did not 936, 945 (7th Cir. 1988) (J. Posner). cause Correctional’s Because the successor inability to provide relief to inquiry is fact-specific, and because its Ms. Brzozowski, and prime consideration is fairness to the Correctional’s poor parties, see Rego, 181 F.3d at 401, 403, financial status remained it is clear to me that the equities here unchanged after the sale of counsel against holding Prison liable as a its assets to Prison. successor. I believe that consideration of the following uncontroverted evidence renders a liability determination against 4. Although Prison paid $14 Prison thoroughly inequitable – indeed, million as part of the asset
14 purchase, Correctional the monies which made no provision to Correctional received from respond to Ms. Prison, was Ms. Brzozowski’s claim of Brzozowski’s agreement discrimination out of those not to pursue either funds. Correctional or its principals. Rather, after consenting to a judgment 5. The principals of in the sum of $150,000 Correctional, Dr. Kenan against Correctional – a Umar and Emre Umar, judgment which she knew each received $500,000 was uncollectible – she from the purchase price of agreed to limit collection of Correctional’s assets, but this judgment against neither of them made any Correctional alone and to provision out of these forego seeking collection monies to respond to Ms. of the judgment against Brzozowski’s claim, Dr. Kenan Umar or any although the discrimination other individual associated which Ms. Brzozowski with Correctional. She did charges occurred during so, knowing at the time their tenure at that Correctional was Correctional. judgment-proof.
6. Astonishingly, Ms. 8. These actions were taken Brzozowski never sought by Ms. Brzozowski, to obtain relief from either Correctional and the of the principals (who were Umars, despite the fact that charged with corporate the asset purchase misconduct in state court) agreement specified that by piercing the Prison would not be Correctional corporate veil responsible for Ms. in order to recover under Brzozowski’s her claim. discrimination claim. Indeed, Prison, through the agreement, expressly 7. Compounding her desire to excluded itself from forego relief from her liability for her claim at the original employer out of time that it paid
15 Correctional $14 million Brzozowski’s ability to collect a money for its assets.9 judgment. It is obvious that Ms. Brzozowski, realizing this, decided to amend her complaint to add a deep III. pocket defendant – in this case, Prison. It is clear to me, as it should be to The recitation of these everyone, that the sale of Correctional’s uncontroverted facts inexorably leads to assets to Prison did not and would not the conclusion that it would be have harmed Ms. Brzozowski, and it inequitable and unfair to hold Prison certainly did not offend Rego because it liable as a successor to Correctional would not make Ms. Brzozowski worse simply in order to enhance Ms. off. And, there is no doubt that Ms. Brzozowski, under her interpretation of 9 successor liability which has been It is beyond per adventure acceded to by the majority of the Court that Prison would have paid substantially here, will be far better off if Prison’s less than the $14 million purchase price for resources are made available to her. Correctional’s assets, had Prison been obliged to respond to Ms. Brzozwski’s It is also clear that before discrimination claim. The $14 million Correctional (and the Umars) received purchase price was agreed to only after Ms. $14 million from Prison, Correctional Brzozowski’s suit was specifically excluded had no ability to provide an adequate in the sales agreement, thereby leaving any legal remedy for Ms. Brzozowski judgment obtained by Ms. Brzozowski to be satisfied by Correctional. The majority’s because, as the District Court held, assertion that Prison should have anticipated Correctional was completely unable to it would be held liable as a successor satisfy any judgment that Ms. therefore makes no sense, and leaves no Brzozowski obtained against it. successor entity – a purchaser – with any Accordingly, as the District Court stated customary means to exclude claims in a and as I agree, the equitable principle – contract of sale with the seller. The majority the third prong of Rego – which cites Golden State Bottling Co., Inc. v. underlies the successor liability doctrine, N.L.R.B., 414 U.S. 168, 187 (1973), as i.e. protecting employees when the stating, “the expense resulting from ownership of their employer changes, is successor liability can be considered in not implicated in this case. It should be setting the price for the business, or through remembered that Correctional retained the inclusion of an indemnity clause in the purchase agreement.” Maj. Op. at 9. liability for Ms. Brzozowski’s claim in However, an indemnity agreement with the asset purchase agreement, but it Correctional would have been senseless in simply could not and did not provide for light of the financial condition of that any recovery made by Ms. Brzozowski company. before the sale transaction took place,
16 although it could well have done so after IV. its sale of assets. This fact alone is the I note that Ms. critical factor in determining whether Brzozowski, in her motion to join Prison successor liability may be imposed. as an additional defendant, relied upon Dr. Umar testified that Fed. R. Civ. P. 20, “Permissive Joinder Correctional’s poor financial status was of Parties.” Instead, Fed. R. Civ. P. 15, one of the motivating factors behind the “Amended and Supplemental sale of assets to Prison. When the Pleadings,” would have been the subsequent actions of Ms. Brzozowski, appropriate Rule under which to proceed the Umars and Correctional are in this instance. That Rule, however, considered in light of the financially requires that the newly added defendant insolvent condition of Correctional (and has received notice and will not be I have listed those actions above), it is prejudiced. In this case, there is no apparent that Ms. Brzozowski now seeks question that Prison had received notice a right which the successor liability of Ms. Brzozowski’s claim because doctrine has not afforded her, and to Prison had expressly disclaimed which she is not entitled. She has no responsibility for it in the sales right to assess Prison for monetary agreement. By doing so, Prison did not damages when she could not under any have to reserve monies for that claim, circumstances have received them from her employer, which was the responsible party for any discriminatory acts she improperly appropriated and distributed the suffered.10 monies that were paid, and it was because both Correctional and its principals “improperly appropriated” the $14 million 10 I have difficulty purchase price (including the $500,000 paid understanding the emphasis that the majority to each of the Umars) that resulted in an places on “corporate tools at its disposal to inability to satisfy Ms. Brzozowski’s claim. effectively anticipate such a situation and The third prong of Rego offset expected costs associated with a provides, as I have stated, that before a potential claim like that of Ms. successor can be liable, it must be shown Brzozowski.” In this case, the parties did that there was an “ability of the predecessor utilize their “corporate tools” – did [in this case, Correctional] to provide anticipate the Brzozowski situation – did adequate relief directly.” The majority adjust the purchase price because they opinion appears to abandon this third factor anticipated that situation, and Prison took when it inappropriately analyzes the facts of every step that it could to ensure that Ms. this case where there is no speculation Brzozowski’s claim against the employer whatsoever that Brzozowski would be better which allegedly discriminated against her off by ignoring the predatory conduct of would be discharged by the discriminating Correctional and its principals and pursuing entity. Moreover, it was Correctional that Prison.
17 and consequently did not reduce its $14 Ms. Brzozowski or her original million purchase price. See note 5, employer, Correctional. supra. I therefore respectfully I make mention of this here dissent from the majority’s judgment, not because I make an issue of the which would hold Prison liable, subject manner in which, or the Rule by which, only to a further analysis concerning the Ms. Brzozowski has sought to join relevance of laches or the statute of Prison as a defendant in this action. limitations – an analysis in which I do Rather, I do so because Rule 15(c)(3) not engage, as I see no need for it. and the “successor doctrine”’s application here to Prison, which was rejected by the District Court and by me, emphasize that there should be no prejudice to the defendant who is joined. Here, as I have pointed out, Prison had no part in any discriminatory actions claimed by Ms. Brzozowski. In addition, Prison recognized that she had brought a claim against Correctional, and therefore sought to relieve itself of any obligation to her. In such a situation, it is quite understandable why the District Court Judge, acknowledging the prejudice which Prison would suffer, refused to add Prison as a defendant. How can one say she abused her discretion? I, for one, cannot. In light of the uncontested facts which I have related, it is apparent that by failing to consider these circumstances, the majority has inequitably ordered Prison to respond, to its detriment and prejudice, to Ms. Brzozowski despite the third prong of the Rego successor liability analysis. If the successor liability doctrine is rooted in equitable principles, as it is, then it is evident to me that the equities all lie in Prison’s favor, and none lie in favor of