Gerhart v. Henry Disston and Sons, Inc.

• Decision Date: 28 April 1961
• Docket Number: 13243.,No. 13242,13242
• Citation: 290 F.2d 778
• Parties: Clarence D. GERHART et al., v. HENRY DISSTON AND SONS, INC., Appellant, v. H. K. PORTER COMPANY, Inc., and H. K. Porter Company, Inc. of Pittsburgh. K. KNUDTSON et al., v. HENRY DISSTON AND SONS, INC., Appellant, v. H. K. PORTER COMPANY, Inc., and H. K. Porter Company, Inc. of Pittsburgh.
• Court: U.S. Court of Appeals — Third Circuit

290 F.2d 778 (1961)

Clarence D. GERHART et al., v. HENRY DISSTON AND SONS, INC., Appellant, v. H. K. PORTER COMPANY, Inc., and H. K. Porter Company, Inc. of Pittsburgh. K. KNUDTSON et al., v. HENRY DISSTON AND SONS, INC., Appellant, v. H. K. PORTER COMPANY, Inc., and H. K. Porter Company, Inc. of Pittsburgh.

Nos. 13242, 13243.

United States Court of Appeals Third Circuit.

Argued November 29, 1960.

Decided April 28, 1961.

Rehearing Denied June 16, 1961.

Daniel Mungall, Jr., Philadelphia, Pa. (S. Gordon Elkins, Stradley, Ronon, Stevens & Young, Philadelphia, Pa., on the brief), for appellant.

Philip H. Strubing, Philadelphia, Pa. (William R. Klaus, K. Robert Conrad, Pepper, Hamilton & Scheetz, Philadelphia, Pa., on the brief), for appellee.

Before McLAUGHLIN and HASTIE, Circuit Judges, and FORMAN, Senior Circuit Judge.

FORMAN, Senior Circuit Judge.

This is an appeal in consolidated third party actions by Henry Disston and Sons, Inc., (Disston) against H. K. Porter Company, Inc., and H. K. Porter Company, Inc. of Pittsburgh (Porter).¹ Two suits in the nature of class actions had been brought against Disston by former employees. In the first, Clarence D. Gerhart, et al. (No. 13,242) were plaintiffs and in the other the plaintiffs were K. Knudtson, et al. (No. 13,243). In each, recovery was sought for alleged pension rights and in each Disston made Porter third party defendant, claiming that if it were liable to the employee-plaintiffs Porter had assumed the liability.

On October 15, 1955, Disston and Porter entered into a written agreement known as an "Agreement and Plan of Reorganization" (referred to hereinafter as the Agreement)² in which Porter agreed to purchase all of Disston's assets in return for shares of its then authorized but unissued cumulative preferred stock.

The Agreement was supplemented by two letters, each bearing the same date with it — October 15, 1955 — signed by Porter, undertaking additional obligations to those mentioned in the Agreement.³

On November 16, 1955, the date set for the closing, on or before which the transactions contemplated by the Agreement were completed, Porter signed an additional document entitled "Assumption of Liabilities"⁴ in which, among other things, it disclaimed any assumption of liability for dissenting or objecting stockholders of Disston arising by reason of Disston entering into the Agreement.

In December of 1955 or January of 1956 two groups of non-union employees who had worked for Disston and were then working for Porter made claims against Disston for pension benefits.⁵ On May 6, 1956, these claims culminated in the two class actions mentioned above. The complaints in them were based primarily on a pamphlet entitled "New Group Insurance Benefits and Revised Pension Plan" which had been issued to the non-union employees on or about September 1, 1950 in the form of a revision of an earlier pension plan. Both complaints alleged that on November 21, 1955 Disston's Board of Directors passed a resolution purporting "to discharge all of the company's employees and to terminate all pension and other rights of the employees." At the time of the sale of the Disston business to Porter, the first group of employees (Gerhart, et al., No. 13,242) had met both the age and service requirements set forth in the pamphlet but were still at work. They were 65 years of age or over, with 25 or more years of continuous service, or they were 60 years of age with 30 or more years of continuous service. The second group (Knudtson, et al., No. 13,243) had met the service requirement of twenty five years but not the age requirement.

The employees claimed that the pensions were contractual and therefore obligatory. Disston resisted the claims alleging that the pension plan was voluntary, non-contractual and could be terminated at its pleasure without incurring any liability. It also contended that the second group of employees could not recover in any event because its members had not attained the age set forth in the pension pamphlet.

In its answer to Disston's third party complaint Porter denied any liability and counterclaimed, alleging a breach of the representations and warranties contained in paragraphs 3(b) and (c) of the Agreement. (See note 2, supra).

Early in 1958 Disston settled the suits of both groups of employees by agreeing to pay $365,000. The agreement of settlement also provided that Disston would be obligated to pay to the employees all amounts over $50,000 up to a maximum of $60,000 out of moneys which it might recover from Porter.

Following the agreement of settlement both groups of employees filed a petition with the court pursuant to Rule 23(c), Federal Rules of Civil Procedure, 28 U.S. C.A., to approve the settlement and the distribution of the funds, which was granted on September 17, 1958 and the employee-plaintiffs' actions were dismissed with prejudice.

The two third party actions were then consolidated for trial. At the close of Disston's evidence, Porter moved to dismiss. The motion was denied. Following the close of all the evidence, Porter moved for a directed verdict on the grounds that Disston had failed to produce sufficient evidence and that under Rule 41, Federal Rules of Civil Procedure, Porter being an adverse party in the actions and the dismissal of the employee-plaintiffs' actions having been "with prejudice", it operated as an adjudication on the merits as if Disston had obtained a judgment against the original plaintiffs. The decision on this motion was reserved and the district court found that the disposition of it was made unnecessary by the verdict of the jury in favor of Porter. Following the entry of judgment Disston moved for a new trial based on errors in the admission of evidence and in the charge. The motions were denied and these appeals followed.

The two basic issues raised at the trial were:

(1) At the time of the closing with Porter, was Disston under any legal obligation to pay pensions to the two groups of non-union employees whose claims it later settled?

(2) If it was so liable, did Porter assume that liability under the Agreement? On this second issue the trial court permitted, over Disston's objection, the introduction of parol evidence. It was and is Disston's position that the documents into which the parties entered (the Agreement, supplementary letters and Assumption of Liabilities)

"are unambiguous and that the court was obliged to declare Porter liable to Disston as a matter of law if the jury found that Disston was liable to its non-union employees for pensions."

In support of its position that the language of the documents is unambiguous Disston argues that the warranty clauses of the Agreement are not inconsistent with, and do not qualify or limit the scope of the Assumption of Liabilities; that had the parties intended to limit the Assumption of Liabilities to those stated in the balance sheet it should have been so provided, and that to limit Porter's assumption of liabilities to those disclosed on the Disston balance sheet makes the other warranty clauses surplusage.

Disston contends that the general nature of the transaction and the surrounding circumstances indicate an intention of the parties that Porter was to assume the responsibility for unknown and unforeseen liabilities which were not, and need not have been, under the terms of the various warranties, set forth in the Disston balance sheet. Here it states that if Disston should remain liable for all unknown and unforeseen liabilities existing at the time of the closing Porter could hardly have expected a prompt dissolution by Disston which Disston was obliged to effect pursuant to paragraph 5 of the Agreement, which reads:

"5. Promptly after the time of of closing, Disston will take appropriate steps in accordance with the Plan of Reorganization to effect its corporate dissolution and to distribute its then property to its stockholders."

Disston maintains that since Porter was taking over Disston as a going concern and Disston was to promptly dissolve Porter really could not have expected that it would turn out long time employees without any consideration to the payment of pensions to them but that it did know that these employees would have to be treated fairly and that it expected to do so. Disston notes that it was more reasonable to expect that Porter would, in continuing the business, in due time meet the obligation of the pensions rather than that Disston would take over the payment of the employment benefits long after it was out of the business and that the economic consequences would be favorable to Porter since it could benefit by income tax deductions thereby.

Disston further submits that the word "liabilities" is not ambiguous per se. It asserts that resort to parol evidence is permissible only when the meaning of the word remains truly ambiguous after the surrounding circumstances and all of the language of the documents have been considered.

As the final prop in support of its position that the Agreement was not ambiguous Disston contends that neither the two supplemental letters (See note 3, supra), made part of the Agreement, nor the qualifying clauses in the formal "Assumption of Liabilities" (see note 4, supra), do not indicate any intent to restrict Porter's assumption of liabilities. Rather it maintains that the matters dealt with in the letters indicate an attempt to avoid any possible breach of the warranties contained in the Agreement. Disston also notes that the formal "Assumption of Liabilities" expressly excluded any liability to dissenting shareholders. From this Disston concludes that if the Agreement only covered those liabilities stated in the balance sheet no such exclusion would have been necessary.

It is beyond dispute that Pennsylvania law governs the contract here and in Pennsylvania as elsewhere it is established that where a written instrument is ambiguous, either party may introduce...