Raytech Corp. v. White
| Decision Date | 10 May 1995 |
| Docket Number | No. 94-1347,94-1347 |
| Citation | 54 F.3d 187 |
| Parties | RAYTECH CORPORATION, Appellant, v. Earl WHITE; Yvonne White; Pasquale Dicintio; Marie Dicintio; Larry Benzie, Executor of the Estate of Edward Benzie; Eugene Klingenberger; Margie Klingenberger; John Doe & All Others Similarly Situated; Appellees. Creditors' Committee; Oregon Claimants, (Intervenors in District Court). |
| Court | U.S. Court of Appeals — Third Circuit |
William N. Reed (argued), Stuart G. Kruger, Watkins, Ludlam & Stennis, Jackson, MS, for appellant.
Timothy E. Eble (argued), Ness, Motley, Loadholt, Richardson & Poole, Charleston, SC, for appellees, Earl White and Yvonne White, and Eugene Klingenberger and Margie Klingenberger.
Jan D. Ginsberg, Robert E. Sweeney, Jr. & Co., Cleveland, OH, for appellee, Larry Benzie, Executor of Estate of Edward Benzie.
Robert F. Carter (argued), Donna Civitello, Carter & Civitello, Woodbridge, CT, David M. Lesser, Woodbridge, CT, for appellees, John Doe, and All Others Similarly Situated.
Michael L. Temin (argued), Wolf, Block, Schorr & Solis-Cohen, Philadelphia, PA, for intervenors, creditors' committee.
Before SCIRICA, LEWIS and RONEY, * Circuit Judges.
In this case we must determine whether the appellant, Raytech Corporation ("Raytech"), a corporate offspring of Raymark Industries ("Raymark"), is precluded from relitigating the issue of its successor liability for Raymark's asbestos liabilities. We conclude that Raytech is collaterally estopped from relitigating this issue, and will, accordingly, affirm the district court's ruling to this effect.
Beginning in the early 1970s, Raymark, known at that time as Raybestos-Manhattan, Inc., a manufacturer of asbestos-containing products, was named as the defendant in thousands of personal injury complaints around the country. 1 As a result of this burgeoning asbestos litigation, Raymark suffered a severe financial decline. 2 In response to its financial woes, between 1982 and 1988 Raymark reorganized its corporate structure. Pursuant to this restructuring, Raybestos-Manhattan became Raymark Industries and Raytech, and, significantly, Raytech obtained ownership of Raybestos-Manhattan's two historically lucrative businesses, but without the drain of the asbestos-related litigation. 3
In 1988, Raymond Schmoll brought one of the many asbestos-related lawsuits brought against Raymark and Raytech. See Schmoll v. ACandS, Inc., 703 F.Supp. 868 (D.Or.1988). Mr. Schmoll sued Raymark and Raytech in the United States District Court for the District of Oregon, seeking damages for injuries allegedly caused by his inhalation of asbestos dust from products manufactured or sold by the defendants. Schmoll and Raymark/Raytech agreed to submit to the district court the question whether Raytech was a successor in liability to Raymark Industries. Following receipt of extensive briefing on the issue, the district court found that Raytech was a successor in liability to Raymark Industries for Raymark's production, sale and distribution of products containing asbestos, and that Raytech was legally responsible for Raymark's strict liability torts. Schmoll, 703 F.Supp. at 875.
In March of 1989, Raytech filed a petition under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Connecticut. Raytech then filed this adversary proceeding seeking a declaratory judgment that it is not liable for the asbestos-related torts of Raymark. At Raytech's behest, the adversary proceeding was transferred to the United States District Court for the District of Connecticut. The district court sought briefing on the question of the preclusive effect of the Schmoll decision upon Raytech's declaratory judgment action, and concluded in light of the arguments presented that Schmoll collaterally estopped Raytech from relitigating the issue of its successor liability for the asbestos-related torts of Raymark.
The case was then transferred, pursuant to 28 U.S.C. section 1412, to the United States District Court for the Eastern District of Pennsylvania. 4 In early 1994, the district court certified for immediate appeal the Connecticut district court's ruling that Raytech was estopped from denying successor liability.
We review for abuse of discretion whether the district court properly applied the doctrine of collateral estoppel. McLendon v. Continental Can Co., 908 F.2d 1171, 1177 (3d Cir.1990) (citing ParkLane Hosiery Co. v. Shore, 439 U.S. 322, 331, 99 S.Ct. 645, 651, 58 L.Ed.2d 552 (1979)). Our standard of review is not affected by the fact that this case involves the application of offensive collateral estoppel. 5 As the Supreme Court indicated in ParkLane Hosiery, the application of offensive collateral estoppel is also within the discretion of the trial court. ParkLane Hosiery, 439 U.S. at 331, 99 S.Ct. at 651. Therefore, in reviewing the district court's decision to apply offensive collateral estoppel, we are bound by the abuse of discretion standard. Id.
Application of collateral estoppel requires consideration of a number of factors. Traditionally, courts have required the presence of four factors before collateral estoppel may be applied: (1) the identical issue was previously adjudicated; (2) the issue was actually litigated; (3) the previous determination was necessary to the decision; and (4) the party being precluded from relitigating the issue was fully represented in the prior action. United Industrial Workers v. Government of the Virgin Islands, 987 F.2d 162, 169 (3d Cir.1993). The Supreme Court has also recognized, however, that collateral estoppel is inappropriate if facts essential to the earlier litigated issue have changed. Montana v. United States, 440 U.S. 147, 99 S.Ct. 970, 59 L.Ed.2d 210 (1979). Finally, in cases involving the offensive use of collateral estoppel, the Supreme Court has instructed that courts must take special care to ensure that its application does not work unfairness to party against whom estoppel is asserted.
Of the traditional four factors relevant to collateral estoppel, only one--whether there is an identity of issues--is pressed by Raytech in this appeal. Raytech also contends, however, that facts essential to the Schmoll decision have changed, and that the application of offensive collateral estoppel would inflict unfairness upon it. We will address each of these arguments in turn.
Raytech concedes that the only element of the four-part collateral estoppel test at issue in this appeal is whether the issue before the court in Schmoll is identical to the issue raised by Raytech in its declaratory judgment action before the district court in Connecticut. To defeat a finding of identity of the issues for preclusion purposes, the difference in the applicable legal standards must be "substantial." See 1B Moore's Federal Practice p .443 at 572 (); accord Jim Beam Brands Co. v. Beamish & Crawford Ltd., 937 F.2d 729, 734 (2d Cir.1991) (); James Talcott, Inc. v. Allahabad Bank, Ltd., 444 F.2d 451, 459 n. 8 (5th Cir.1971) ( ). To resolve this issue, we must, of course, identify the precise question or questions at issue both in Schmoll and in this case.
In Schmoll, the court faced the issue "whether Raytech is liable as a successor for Raymark Industries' production, sale and distribution of products containing asbestos." Schmoll, 703 F.Supp. at 869. This issue necessitated a determination of whether the transfers of corporate assets resulting in the formation of Raytech were designed to escape asbestos-related liability. See Schmoll, 703 F.Supp. at 872. In its complaint in this case, Raytech states that it seeks "a declaratory judgment that it is not liable for the asbestos-related personal injury claims asserted against Raymark Corporation and/or Raymark Industries, Inc." Raytech's complaint further specifies that it seeks a declaration that "[u]nder the applicable law, neither Raytech nor any non-filing subsidiary is a successor in interest" to either Raymark Corporation or Raymark Industries.
At first blush, the issues presented by the two cases appear identical. And while we believe them to be identical in the final analysis, we acknowledge that the question of their identity is more difficult than it might at first seem.
In Schmoll, the court sought to determine whether under Oregon law, Raytech was liable as a successor for Raymark's asbestos-related liability. See Schmoll, 703 F.Supp. at 872 n. 6. In this case, the district court faced the question whether, under some undetermined "applicable law," Raytech is liable as a successor for Raymark's asbestos-related liability. According to Raytech, in all jurisdictions except the state of Oregon, fraudulent conduct in connection with a corporate sale of assets must be found before successor liability may be imposed. Thus, Raytech contends, in Schmoll, a case decided under Oregon law, the court did not decide the very issue presented by this case, namely, whether the transactions creating Raytech were carried out fraudulently in order to escape liability....
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