Rego v. ARC Water Treatment , 181 F.3d 396 ( 1999 )

Opinions of the United
1999 Decisions States Court of Appeals
for the Third Circuit
6-24-1999
Rego v. ARC Water Treatment
Precedential or Non-Precedential:
Docket 98-1386,98-1616
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Recommended Citation
"Rego v. ARC Water Treatment" (1999). 1999 Decisions. Paper 164.
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Filed June 24, 1999
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
Nos. 98-1386 and 98-1616
MICHAEL REGO,
Appellant in No. 98-1386
v.
ARC WATER TREATMENT COMPANY OF PA.,
a/k/a ARC WATER TREATMENT COMPANY,
a/k/a ARC COMPANY; ARC WATER TREATMENT
COMPANY OF MARYLAND, INC.
MICHAEL REGO
v.
ARC WATER TREATMENT COMPANY OF PA.,
a/k/a ARC WATER TREATMENT COMPANY,
a/k/a ARC COMPANY; ARC WATER TREATMENT
COMPANY OF MARYLAND, INC.
Arc Water Treatment Company
of Maryland, Inc.,
Appellant in No. 98-1616
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Civ. No. 94-03734)
District Judge: Honorable Clifford Scott Green
Argued May 24, 1999
BEFORE: GREENBERG and ALITO, Circuit Judges ,
and ACKERMAN,* District Judge
(Filed: June 24, 1999)
Patricia V. Pierce
Catherine M. Reisman (argued)
Willig, Williams & Davidson
1845 Walnut Street
24th Floor
Philadelphia, PA 19103
Attorneys for Michael Rego
Anthony R. Sherr (argued)
Mayers, Mennies & Sherr
3031 Walton Road
P.O. Box 1547, Suite 330
Blue Bell, PA 19422
Attorneys for ARC Water Treatment
Company of Maryland, Inc.
OPINION OF THE COURT
GREENBERG, Circuit Judge.
I. INTRODUCTION
This matter is before this court on Michael Rego's appeal
from a final judgment entered on April 10, 1998, in favor of
ARC Water Treatment Company of Maryland, Inc. ("ARC-
MD") on liability and on ARC-MD's appeal from an order
entered on June 23, 1998, denying its petition for
attorney's fees in this hostile working environment and
constructive discharge case under Title VII of the Civil
Rights Act of 1964, 42 U.S.C. SS 2000e et seq., and the
Pennsylvania Human Relations Act, 43 Pa. Cons. Stat. Ann.
_________________________________________________________________
* Honorable Harold A. Ackerman, Senior Judge of the United States
District Court for the District of New Jersey, sitting by designation.
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SS 951 et seq. (West 1991). The district court had
jurisdiction over Rego's Title VII claims under 28 U.S.C.
SS 1331 and 1343(a)(4) and 42 U.S.C. S 2000e-5(f)(3), and
had supplemental jurisdiction over Rego's PHRA claims
under 28 U.S.C. S 1367(a). We have jurisdiction under 28
U.S.C. S 1291.
The germane facts viewed in the light most favorable to
Rego are as follows. On October 12, 1987, Rego began
working at ARC Water Treatment Company ("ARC"), a
predecessor to ARC-MD. At that time, ARC consisted of a
Pennsylvania division with an office in Philadelphia, and a
Maryland division with an office in Beltsville, Maryland.
Joseph Cohen, the vice-president of ARC, essentially
operated the Pennsylvania division, and Edwin Goldstein,
the president of ARC, essentially operated the Maryland
division. Goldstein, however, visited the Philadelphia office
about once a week.
Rego, a man of Italian descent, worked as a serviceman
in ARC's Philadelphia office but ARC never employed him in
the Beltsville office. From the beginning of Rego's
employment, his immediate supervisor, Warren Brooks,
used derogatory ethnic slurs toward him and wrote him
demeaning notes. In the spring of 1988, after Rego
complained about Brooks' conduct, a meeting was held
among Rego, Brooks, Goldstein, and Cohen to discuss the
situation. Nevertheless, even after the meeting Brooks
continued using ethnic slurs and sending Rego demeaning
notes.
On June 28, 1991, or promptly thereafter, ARC was
dissolved. On that date, pursuant to a comprehensive
written agreement, its Pennsylvania assets and liabilities
were transferred to a newly-formed corporation known as
ARC Water Treatment Company of Pennsylvania ("ARC-PA")
and its Maryland assets and liabilities were transferred to
ARC-MD, a separate also newly-formed corporation. Cohen
became the president of ARC-PA and Goldstein became the
president of ARC-MD. Thus, the successor companies
employed each of these executive officers at the location at
which he had worked before ARC's dissolution. From June
28, 1991, until he resigned on March 12, 1992, Rego
worked for ARC-PA out of its office in Philadelphia. Rego
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never worked out of ARC's Maryland office or for ARC-MD.
Apparently neither ARC-MD nor ARC-PA prospered because
both ultimately filed Chapter 11 bankruptcy petitions.
On June 16, 1994, Rego filed his complaint under Title
VII and the PHRA against ARC, ARC-PA, and ARC-MD,
alleging damages from a hostile working environment and
asserting that the defendants had constructively discharged
him because of his national origin. Rego demanded a jury
trial in his complaint. ARC-MD, however, requested a non-
jury trial on Rego's PHRA claims, as well as on any Title VII
claims based on actions that occurred prior to November
21, 1991, the date Congress amended Title VII to provide
for jury trials in certain cases. See 42 U.S.C. S 1981a(c)(1).
The district court granted ARC-MD's request and thus the
parties tried the case both to the jury and the court.
At the close of Rego's case, ARC-MD moved for a
judgment on partial findings under Fed. R. Civ. P. 52(c) or
for a judgment as a matter of law under Fed. R. Civ. P.
50(a). ARC-MD argued that it could not be liable because
(1) it never was Rego's employer, and (2) it was not a
successor to ARC for purposes of liability to Rego. The
district court granted ARC-MD's motion as it determined
that ARC-MD had not employed Rego or discriminated
against him, and that ARC-MD could not be liable under a
successor liability theory.
The jury subsequently returned a verdict in favor of Rego
against ARC and ARC-PA, and found that Rego suffered
general damages of $25,000 for the period from October 12,
1987 to June 28, 1991, although the court found that he
suffered no damages during that period. The jury's other
awards were for back pay, front pay, general damages from
June 29, 1991, until November 21, 1991, and general
damages from November 21, 1991, into the future. The
district court thereafter entered judgment on the verdict
against ARC and ARC-PA for $265,000 and, in the same
order, the district court entered judgment in favor of ARC-
MD. Rego appeals from the judgment in favor of ARC-MD,
but neither ARC nor ARC-PA has appealed. Neither ARC
nor ARC-PA has satisfied the judgment.
After the court entered judgment in its favor, ARC-MD
filed a motion for attorney's fees as a prevailing defendant
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under the PHRA. The district court found that Rego did not
act in bad faith in naming ARC-MD as a defendant, and
thus denied the motion. ARC-MD appeals from that order.
II. DISCUSSION
The parties disagree as to the standard of review that we
should employ in reviewing the district court's order
granting judgment in favor of ARC-MD. Rego urges us to
conduct a plenary review, but ARC-MD maintains that the
order is reversible only if clearly erroneous. This dispute
stems from Rego's assertion that the district court wrongly
denied him a jury trial on his PHRA claims. He argues that
if the court allowed him a jury trial it could have entered a
judgment in favor of ARC-MD only under Fed. R. Civ. P.
50(a). On the other hand, if the district court properly held
a non-jury trial on Rego's PHRA claims, judgment in favor
of ARC-MD could have been entered under Fed. R. Civ. P.
52(c).
In cases in which a district court enters a judgment
under Rule 52(c), the district court can resolve disputed
factual questions. Thus, in a Rule 52(c) case, a court of
appeals reviews a district court's findings of fact for clear
error, see Newark Branch, NAACP v. City of Bayonne, 134
F.3d 113, 119-20 (3d Cir. 1998) (Rule 52(a) case), and its
conclusions of law de novo, MacDraw, Inc. v. CIT Group
Equip. Fin., Inc., 157 F.3d 956, 960 (2d Cir. 1998). On the
other hand, if the district court enters judgment as a
matter of law under Rule 50(a), a court of appeals' review
is plenary. See Shade v. Great Lakes Dredge & Dock Co.,
154 F.3d 143, 149 (3d Cir. 1998). Rule 50(a) provides that
a court may grant judgment as a matter of law in a jury
trial at the close of the evidence if it determines that there
is no legally sufficient evidentiary basis for a reasonable
jury to find for a party on an issue. See Delli Santi v. CNA
Ins. Cos., 88 F.3d 192, 203 (3d Cir. 1996). Consequently, a
court of appeals must view the evidence on an appeal from
a judgment as a matter of law under Rule 50(a) in a light
most favorable to the non-moving party and must give the
non-moving party the benefit of all reasonable inferences
that can be drawn in its favor. See Lightning Lube, Inc. v.
Witco Corp., 4 F.3d 1153, 1166 (3d Cir. 1993). For reasons
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that we set forth below, we are exercising plenary review of
the judgment in favor of ARC-MD, the standard Rego urges
that we adopt.
We review the district court's denial of ARC-MD's motion
for attorney's fees under the PHRA for an abuse of
discretion. See EEOC v. L.B. Foster Co., 123 F.3d 746, 750
(3d Cir. 1997) (reviewing attorney's fee award under Title
VII); Hoy v. Angelone, 720 A.2d 745, 752 (Pa. 1998)
(reviewing attorney's fee award under the PHRA). Thus, we
defer to the district court's decision not to award attorney's
fees "unless it has erred legally, or the facts on which the
determination rests are clearly erroneous." L.B. Foster Co.,
123 F.3d at 750.
As we noted above, at the close of Rego's case, ARC-MD
moved for a judgment under Rule 52(c) or for a directed
verdict under Rule 50(a). The district court found that Rego
"had not produced evidence to show that either (1) ARC-MD
had employed [Rego] or engaged in any discriminatory
conduct towards [him]; or (2) ARC was liable to [him] such
that ARC-MD could be liable under a successor liability
theory." Accordingly, the court entered judgment in favor of
ARC-MD.
While in view of the district court's determination with
respect to the issues to be tried without a jury, it would
have been logical for the court to have been ruling under
Rule 52(c) with respect to Rego's PHRA claims and to his
Title VII claims for the period prior to November 21, 1991,
and Rule 50(a) for Title VII claims after that date, the court
did not specify whether it was ruling under Rule 52(c) or
Rule 50(a). Indeed, at one point the court indicated that
ARC-MD was seeking summary judgment. In asserting that
the district court had to have granted judgment, if at all, in
favor of ARC-MD under Rule 50(a), and not Rule 52(c), Rego
reasons that the district court denied him his Seventh
Amendment right to a jury trial on his PHRA claims and
that if there had been a jury trial the court could not have
granted judgment in favor of ARC-MD under Rule 52(c) as
that rule is applicable only in non-jury trials. Rather, Rule
50(a) would have applied, and he contends that ARC-MD
failed to meet the standard to obtain a judgment under that
rule. Obviously, a court properly might enter a judgment for
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a party under Rule 52(c) that could not be justified under
Rule 50(a), as the court may resolve disputed factual
questions under Rule 52(c) but not Rule 50(a).
Rego is correct that Rule 50(a) applies in jury trials and
Rule 52(c) applies in non-jury trials. Thus, it might be
thought that we have to determine whether the district
court correctly denied Rego's Seventh Amendment claim to
a jury trial on his PHRA claim, so that we can decide
whether to exercise a deferential standard of review. Yet, as
we shall explain, we have no need to make that
determination because we conclude that even at a jury trial
ARC-MD would have been entitled to a judgment as a
matter of law under Rule 50(a). It therefore follows that
even if the district court erred in denying Rego a jury trial
on his PHRA claims, the error "is harmless [because a
judgment as a matter of law] would have been warranted."
Sheet Metal Workers Local 19 v. Keystone Heating & Air
Conditioning, 934 F.2d 35, 40 n.3 (3d Cir. 1991); see also
EEOC v. Corry Jamestown Corp., 719 F.2d 1219, 1225 (3d
Cir. 1983) (stating that "denial of a trial by jury is reversible
error unless a directed verdict would have been
appropriate"). Accordingly, we will exercise plenary review.
The district court based its judgment in favor of ARC-MD
on two distinct grounds. First, the district court concluded
that ARC-MD could not be liable because it never employed
Rego. The factual predicate for this finding is unassailable
as there is no contrary evidence. Indeed, Rego
acknowledges the point when he states that he is a former
employee of ARC and ARC-PA. The district court also found
that ARC-MD could not be liable under a theory of
successor liability, a conclusion that takes us to the pivotal
issue on this appeal.
In general, in the context of employment discrimination,
the doctrine of successor liability applies where the assets
of the defendant employer are transferred to another entity.
See Rojas v. TK Communications, Inc., 87 F.3d 745, 750
(5th Cir. 1996). The doctrine allows an aggrieved employee
to enforce against a successor employer a claim or
judgment he could have enforced against the predecessor.
See Musikiwamba v. Essi, Inc., 760 F.2d 740, 750 (7th Cir.
1985) (successor liability under 42 U.S.C. S 1981). The
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doctrine is derived from equitable principles, and fairness is
the prime consideration in application of the doctrine. See
Criswell v. Delta Air Lines, Inc., 868 F.2d 1093, 1094 (9th
Cir. 1989) (successor liability under the ADEA). The policy
underlying the doctrine is "to protect an employee when the
ownership of his employer suddenly changes." Rojas, 87
F.3d at 750.
Ordinarily, however, absent a contractual obligation to do
so, a successor corporation does not assume the liabilities
of its predecessor. In this case, ARC-MD did assume certain
of ARC's liabilities but its contractual assumption is not
germane, as the assumption of liability was only to the
Maryland operations and ARC employed Rego in
Pennsylvania. Thus, we look to less specific controlling legal
principles which recognize that the successor will be liable
if it is a "mere continuation" of its predecessor. B.F.
Goodrich v. Betkoski, 99 F.3d 505, 519 (2d Cir. 1996)
(successor liability under CERCLA). It has been said that in
an employment discrimination case, a court should
consider three principal factors before making a successor
liability determination: "(1) continuity in operations and
work force of the successor and predecessor employers; (2)
notice to the successor employer of its predecessor's legal
obligation; and (3) ability of the predecessor to provide
adequate relief directly." Criswell, 868 F.2d at 1094.
Rego argues that ARC-MD is liable for ARC's and ARC-
PA's acts both before and on or after June 28, 1991, the
date that ARC-MD and ARC-PA took over ARC's assets and
liabilities. But ARC-MD cannot be directly liable for any
discriminatory conduct that occurred on or after that date,
as Rego suffered his injuries at that time while in ARC-PA's
employ. Furthermore, ARC-MD is not a successor to ARC-
PA and thus cannot be liable in that capacity. Accordingly,
ARC-MD could be liable for discriminatory conduct on or
after June 28, 1991, only as a successor to ARC.
Similarly, ARC-MD cannot be directly liable for any
discriminatory conduct before June 28, 1991, as it did not
exist until that time. However, inasmuch as ARC-MD is a
successor to ARC, in some circumstances a court could
impose successor liability on ARC-MD for injuries Rego
suffered in ARC's employ prior to June 28, 1991.
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Accordingly, we focus on whether ARC-MD can be liable as
a successor to ARC for periods both before and after June
28, 1991, as it is only in that capacity that it could be
liable to Rego.
This case does not involve the usual situation in which a
predecessor employer transfers its assets to a single
successor. In that circumstance, fairness may require that
the successor be liable for its predecessor's discriminatory
acts, for otherwise the injured employee may be left without
a party against whom the employee may assert his claim.
Here, however, the predecessor, ARC, was a single
corporation with two separate divisions which became two
separate entities one of which, ARC-PA, became Rego's
employer and has been adjudged to be liable. Thus, even if
ARC-MD is not liable as a successor, Rego has not been left
without a legally responsible party, although Rego will not
be able to obtain satisfaction of his judgment from ARC-PA.
Moreover, as far as Rego's employment is concerned,
ARC-MD is not a continuation of ARC. This point is
important because a lack of continuity in the operations
and work force of the predecessor and the successor weighs
against imposing successor liability. Criswell, 868 F.2d at
1094. We emphasize that prior to June 28, 1991, ARC was
a single corporation with a Pennsylvania division in
Philadelphia and a Maryland division in Beltsville,
Maryland. After that date, ARC-PA took over the
Pennsylvania operations and before and after that date ARC
and then ARC-PA employed Rego in Pennsylvania. Thus,
whatever might be true with respect to other claimants, an
objective analysis demonstrates that as to Rego there is no
continuity between ARC and ARC-MD. In this regard, we
see no reason why successor liability must be imposed on
an all-or-nothing basis with respect to a predecessor's
creditors.
It is important to recognize that there are other unusual
circumstances in this case which militate against imposing
successor liability on ARC-MD. After June 28, 1991, ARC-
PA employed Rego until he resigned on March 12, 1992.
Thus, for a period of more than eight months ARC-MD was
powerless to take steps by altering Rego's working
conditions to forestall this litigation. Rather, it was ARC's
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other successor, ARC-PA, that could have taken these
steps. Conceivably, remedial measures during that eight-
month period might have been successful because however
odious Rego's working conditions may have been prior to
June 28, 1991, it was not until March 12, 1992, that he
resigned and it was only thereafter that he initiated these
proceedings.
We acknowledge that a reasonable jury could have
concluded that ARC-MD had notice of ARC's legal
obligations to Rego, as Rego complained to Goldstein in the
spring of 1988 about Brooks' conduct. But this factor
standing alone would not be a basis to deny ARC-MD
judgment as a matter of law, particularly inasmuch as Rego
does not contend that prior to June 28, 1991, he hadfiled
any administrative or judicial proceeding against ARC.
Furthermore, there is no basis to conclude that ARC was
divided into two corporations for the purpose of impeding
Rego's ability to recover for any wrong done to him.
Significantly, Rego seeks to hold ARC-MD liable on the
entire judgment for $265,000 entered on the jury verdict
even though, according to the jury, his damages were only
$25,000 prior to June 28, 1991. Thus, Rego seeks to
recover the bulk of his judgment from ARC-MD on a
successor liability theory for damages he suffered after
rather than before ARC-MD became a successor to ARC.
Therefore, this case differs from the usual situation in
which an employee seeks to impose liability on a successor
for damages he suffered before the succession. While in
some situations it might be appropriate to allow a recovery
against a successor for damages assessed against a
predecessor for a period following the succession, at the
very least a court should pause before imposing such
liability.
Overall, based on the totality of the unusual
circumstances, we are satisfied that as a matter of law
ARC-MD cannot be liable to Rego, and that even at a jury
trial ARC-MD would have been entitled to a judgment as a
matter of law on Rego's claims against it under Rule 50(a).
In reaching our conclusion, we emphasize that each
successor liability "case must be determined on its own
facts," Musikiwamba, 760 F.2d at 750, and we have done
10
exactly that. Consequently, we need not consider whether
the district court erred in denying Rego a jury trial under
the PHRA as any error in doing so was harmless.
We have considered ARC-MD's cross-appeal and find it to
be without merit. Under the PHRA, a court may award a
prevailing defendant attorney's fees and costs if the plaintiff
brought the complaint in bad faith. See 43 Pa. Cons. Stat.
Ann. S 962(c.3) (West Supp. 1999). We cannot say that the
district court abused its discretion in holding that that
standard was not met. We will not fault Rego for not having
made prior to this litigation the intricate substantive
analysis we make in this opinion.
III. CONCLUSION
For the foregoing reasons we will affirm the orders of
April 10, 1998, and June 23, 1998. The parties will bear
their own costs on this appeal.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
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