Brzozowski v. Corr Phy Ser Inc

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Precedential or Non-Precedential: Precedential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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PRECEDENTIAL
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
18