2004 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

5-25-2004

Berg Chilling Sys v. Hull Corp

Precedential or Non-Precedential: Precedential

Docket No. 03-2977

Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_2004

This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova

University School of Law Digital Repository. It has been accepted for inclusion in 2004 Decisions by an authorized administrator of Villanova

University School of Law Digital Repository. For more information, please contact Benjamin.Carlson@law.villanova.edu.

Recommended Citation

"Berg Chilling Sys v. Hull Corp" (2004). 2004 Decisions. Paper 642.

http://digitalcommons.law.villanova.edu/thirdcircuit_2004/642
PRECEDENTIAL

UNITED STATES COURT OF 

APPEALS

FOR THE THIRD CIRCUIT

 

Nos. 03-2977 and 03-3020

 

BERG CHILLING SYSTEMS, INC.;

ACCEPTANCE INSURANCE 

COMPANY

v.

HULL CORPORATION;

SP INDUSTRIES, INC.,

d/b/a Hull Company,

Defendants/Third-Party

Plaintiffs

v.

VICARB, INC., ALFA LAVAL, INC.

ALFA LAVAL VICARB, JOHN L.

HULL,

LEWIS W. HULL,

Third Party Defendants

BERG CHILLING

SYSTEMS, INC.,

Appellant in No. 03-2977

BERG CHILLING SYSTEMS, INC.;

ACCEPTANCE INSURANCE

COMPANY

 v.

HULL CORPORATION;

SP INDUSTRIES, INC.,

d/b/a Hull Company,

Defendants/Third-Party 

Plaintiffs

v.

VICARB, INC., ALFA LAVAL, INC.

ALFA LAVAL VICARB, JOHN L.

HULL,

LEWIS W. HULL,

Third Party Defendants

SP INDUSTRIES, INC.,

Appellant in No. 03-3020

 

On Appeal from the United States 

District Court

for the Eastern District of Pennsylvania

(D.C. Civ. No. 00-05075)

Honorable Berle M. Schiller, 

District Judge

 

Argued April 21, 2004

BEFORE: SCIRICA, Chief Judge, and 

ROSENN and GREENBERG, 

Circuit Judges

(Filed: May 25, 2004)

John J. Soroko (argued)

Patrick J. Loftus

James H. Steigerwald
2

Duane Morris

1650 Market Street

One Liberty Place, 37th Floor

Philadelphia, PA 19103-7396

 Attorneys for Appellant-Appellee

 Berg Chilling Systems, Inc.

Michael O. Adelman (argued)

Rebecca S. Rimmer

Michael P. Daly

Drinker, Biddle & Reath

One Logan Square

18th & Cherry Streets

One Logan Square

Philadelphia, PA 19103-6996

 Attorneys for Appellee-Appellant SP 

 Industries, Inc.

 

OPINION OF THE COURT

 

GREENBERG, Circuit Judge.

I. FACTUAL AND PROCEDURAL 

HISTORY

This matter comes on before this

court on appeals by Berg Chilling

Systems, Inc. (“Berg”) and SP Industries,

Inc. (“SPI”) from an order for judgment

entered by the district court on June 11,

2003, following a four-day bench trial in

this breach of contract action. The

district court set forth its opinion in Berg

Chilling Systems, Inc. v. Hull Corp., No.

Civ. A. 00-5075, 2003 WL 21362805

(E.D. Pa. June 10, 2003) (“Berg”). The

case, which has an unusual international

character as it implicates entities from

four countries on three continents,

though not all as parties, arises from the

failure of a freeze drying system to

perform to specifications. Though there

were many factual disputes at the trial,

the basic circumstances of the case are

clear and we set forth the facts in the

light most supportive of the district

court’s result.1 

The origin of the case may be

traced to March 30, 1995, when Berg, a

Canadian Corporation,2 entered into a

contract with a Chinese Company named

Huadu Meat Products Company

(“Huadu”)3 to supply the food freeze

drying system (“Equipment Contract”) at

a cost of $2,800,000 in United States

 

1Certain of the various orders and

determinations to which we make

reference have not been appealed. The

parties’ attorneys took some of the

actions and wrote certain correspondence

that we attribute to the parties.

 

2Berg’s principal place of business is

in Toronto, Ontario.

 

3At various points in the record

reference is made to other Chinese

corporate entities related to Huadu, such

as the China National Overseas Trading

Corporation and the Beijing World Trade

Corporation. For simplicity’s sake we

will refer to the entities collectively as

Huadu. We also note that Huadu

sometimes is referred to as Hua Du.
3

dollars. The freeze drying system

contained several components which

Berg intended to acquire from

subcontractors and suppliers. Thus, prior

to entering into the Equipment Contract,

Berg ascertained which manufacturers

would produce the system’s various

component parts.4 

Berg approached the Hull

Corporation (“Hull”), a Pennsylvania

entity,5 and asked it to produce the freeze

dryers, a critical component for the

system. In the weeks prior to signing the

Equipment Contract with Huadu, Berg

was in constant contact with Hull

regarding the freezer dryers’ technical

specifications.6 On April 20, 1995, Berg

formally agreed to purchase two freeze

dryers from Hull for the Huadu freeze

drying system (“Purchase Order”). 

Under this Purchase Order, Hull assumed

responsibility for the design,

manufacture, start-up and testing of the

freeze dryers.7 The freeze dryers were

 

4Berg manufactured one component of

the freeze drying system, the blast

freezers. According to the arbitration

award we describe below, Huadu dealt

with a Canadian company to acquire the

freeze drying system in order to take

advantage of financing for the purchase

available through the Export

Development Corporation of Canada. 

Thus, in the transaction Berg largely was

a facilitator for financing and a

coordinator for the supply of other

companies’ products. This unusual role

in no way diminished Berg’s

responsibility to Huadu.

 

5Hull has its principal place of

business in Pennsylvania. Hull should

not be confused with the Hull Company

which we describe below. Hull is not

participating in this appeal.

 

6At trial Donald Berggren, the

president of Berg testified:

We would send preliminary

specifications off to Hull. 

They would work up a

quotation or specification –

a specification based on the

information that they

received. We would take

it, forward it off to our

customer, Huadu, and –

and then they would come

back to us and ask more

questions on what we had

previously supplied. We

then took that information,

forwarded it back, and so it

was a back-and-forth

process of negotiation.

JA at 77.

 

7The Purchase Order incorporated the

specifications of the freeze dryers set

forth in the Equipment Contract between

Berg and Huadu. That contract provided,

“[o]nce the units are mounted in place by

the end user, under supervision by the

Hull Service Engineer, Hull Corporation

will send a qualified engineer to check
4

required to be able to process a specified

volume of food at a high quality level

within a 24-hour period or, in industry

terms, to meet the “through-put”

specifications. 

After confirming the delivery date

with Hull, Berg entered into an amended

agreement with Huadu specifying a

delivery date of June 15, 1996, for the

freeze drying apparatus. Nevertheless,

the freeze dryers were not shipped until

October 1996 because one of their

component parts was not available. 

Once Hull completed manufacturing the

freeze dryers, their shipping to China

was delayed further when the vessel on

which they were to be shipped failed on

the way to pick up the equipment at the

port in Camden, New Jersey. Berg, who

was responsible for shipping the freeze

dryers, then made arrangements for their

transportation on trucks across North

America to Vancouver, British

Columbia, for shipment by sea to China. 

Unfortunately, one of the trucks, while

en route to Vancouver, was involved in

an accident in which one of the freeze

dryers was damaged.8 Berg did not

repair the damaged freeze dryer prior to

its shipment by sea to China. Rather,

after the freeze dryers were shipped to

China the damaged freeze dryer was

repaired at Huadu’s facility in Beijing. 

The equipment then was installed and

prepared for trial runs. 

In April 1997, at the direction of a

Hull service technician, preliminary

testing began on the freeze drying

system. This testing revealed several

deficiencies in the freeze drying

equipment which led Huadu in early May

1997 to send a list of concerns regarding

the functioning of the machinery to Berg

which, in turn, forwarded the list to Hull. 

Hull then responded to those concerns. 

Nevertheless the Hull service technician

returned to the United States prior to

conducting performance tests on the

machinery as required by the Equipment

Contract, an action leading Huadu to

refuse to accept the freeze drying system. 

According to Berg, during the

early summer of 1997 Hull refused to

cooperate with Berg and Huadu in

addressing the problems with the freeze

dryers.9 Huadu obviously was

out the systems, start up the units and

provide on site training for a total of 20

days.” JA at 854.

 

8The principle of Murphy’s Law seems

to have been at work here: what can go

wrong will go wrong.

 

9Berg’s president testified at trial:

We were having a very

tough time obtaining

cooperation [from Hull]. 

They didn’t seem to be

interested in working with

us on the project. They –

they were very

uncooperative, and at this

time, we felt that in order 
5

dissatisfied and thus threatened to send

the equipment back and cancel the

contract. As a result of Hull’s perceived

lack of cooperation during that time

period, Berg threatened to sue it. In late

August, however, Berg and Hull began

negotiating a compromise to solve the

difficulties with the machinery. These

negotiations culminated in the signing of

a modified agreement on October 8,

1997, among Huadu, Berg and Hull

designed to address the deficiencies in

the Hull freeze dryers (“Modified

Agreement”).10 The Modified

Agreement set forth performance-level

goals for the freeze dryers and the

required quality level of the product,

providing that “through a cooperative

effort, Hull and Berg will ensure” that

these standards would be met. JA at

1074. It established the end of March

1998 as the date by which the

modifications would be completed and

final acceptance would take place. JA at

1074.

While Hull, Berg and Huadu were

addressing the problems with the freeze

dryers, Hull, on August 27, 1997, entered

into an Asset Purchase Agreement with

SP Industries, Inc. (“SPI”), a New Jersey

Corporation,11 providing for SPI to

acquire Hull’s Food, Drug & Chemical

Division (“FDC division”) which had

designed and manufactured the freeze

dryers for the Huadu project. Article 1.2

of the Asset Purchase Agreement

between Hull and SPI listed the

purchased assets, which included “all

contracts and agreements, including,

without limitation, sales orders and sales

contracts.”12 JA at 1825-26. Under

Section 7.8, entitled Product Warranties,

the agreement provided that “[p]urchaser

does not hereby assume any liability to

any third party claimant.”13 JA at 1849. 

Section 10.6 of the Asset Purchase

Agreement stated, “[t]his agreement shall

be governed and controlled as to validity,

enforcement, interpretation, construction,

to satisfy our customer’s

concerns, that we were

going to have to be looking

at performing some of the

modifications or changes to

the equipment to try to

bring it to specification.

JA at 139.

 

10Berg’s president testified that its

threat to sue Hull became moot after the

signing of the Modified Agreement. 

 

11SPI has its principal place of

business in New Jersey.

 

12Section 1.3 of the Asset Purchase

Agreement listed assets excluded from

the agreement. The freeze dryers related

to the Equipment Contract were not

among these excluded assets. 

 

13However, Berg’s president testified

at trial that prior to the signing of the

Asset Purchase Agreement Hull’s

president informed Berg that any new

entity would assume the liabilities of the

entity being purchased. 
6

effect and in all other respects by the

internal laws of the State of New Jersey

applicable to contracts made in that

State.” JA at 1857.

Hull and SPI closed on the sale

provided for by the Asset Purchase

Agreement on October 15, 1997, exactly

one week after Huadu, Hull and Berg

had signed the Modified Agreement. At

the closing on the Asset Purchase

Agreement, as a result of concerns that

SPI raised about the costs of the

remaining work on the Huadu freeze

dryers, SPI and Hull entered into a side

letter agreement relating to the Huadu

project.14 The side letter agreement,

which the parties signed on the same day

as the closing on the Asset Purchase

Agreement, provided that SPI would

complete any needed design

modifications and repairs to the freeze

dryers. While SPI agreed to pay the outof-pocket costs for the repairs, Hull

agreed to reimburse SPI for a portion of

its expenses.15 The side letter agreement

provided that, “[e]xcept as amended

hereby, the terms and provisions of the

Asset Purchase Agreement shall remain

in full force and effect.” JA at 1890. 

Hull and SPI made various public

statements after signing the Asset

Purchase Agreement to the end that the

transaction constituted a merger of SPI

and Hull’s FDC division. Moreover,

Lewis Hull, president of the Hull

Corporation, sent a letter to Berg after

the Asset Purchase Agreement was

signed, but before the closing, stating

that “[i]f Hull’s freeze drying division

should be transferred to another entity,

Hull’s responsibility will of course be

assumed by the successor.” JA at 1020.

After the closing, the FDC

division of the Hull Corporation began

operating as a wholly-owned subsidiary

of SPI under the name Hull Company. 

Although SPI through the Hull Company

made various modifications to the freeze

dryers from late 1997 into early 1998, the

dryers, at least during this period and at

all times material to this litigation, did

not meet the specifications contained in

the Modified Agreement. Huadu, which

seems to have been quite

accommodating, agreed, however, to

extend the date set forth in the Modified

Agreement for acceptance of the freeze

dryers until April 27, 1998. When it

became clear that the freeze dryers would

not satisfy the specifications by that date,

SPI directly requested another extension

from Huadu. Huadu granted the request,

giving SPI until May 20, 1998, to

complete modification and testing of the

 

14Hull at no time during the

negotiations and closing with SPI

informed SPI that Berg had threatened to

file suit against it in connection with the

Huadu project. 

 

15Hull agreed to reimburse all of SPI’s

out-of-pocket costs, including payments

to suppliers and travel costs, while SPI

agree to absorb the normal payroll

expenses of the employees working to fix

the freeze dryers. 
7

freeze dryers with the understanding that

this would be the final extension. 

On May 13, 1998, Huadu sent a

facsimile to Berg with a carbon copy to

the Hull Corporation listing the freeze

dryers’ remaining problems. The

facsimile concluded that because the

freeze dryers still had “fatal

weakness[es]” that prevented them from

meeting the through-put requirements for

freeze drying food at the contracted

quality level, they were “not

acceptable.” 16 JA at 1113. Nevertheless,

neither Berg nor SPI made an attempt to

fix these problems or conduct

performance tests prior to the May 20,

1998 deadline. After it received this

letter from Huadu, SPI notified Berg for

the first time that, under Section 7.8 of

the Asset Purchase Agreement between

SPI and Hull, SPI had not assumed any

liability for any work done by Hull or

SPI pursuant to the Equipment Contract

or the Modified Agreement. 

In an effort to salvage the

situation after Huadu refused to accept

the equipment, Berg hired Walter Pebley,

who had relevant expertise, to go to

China and evaluate the problems with the

freeze dryers. The evidence at the trial

indicated that from June to December

1998, “there was a letter writing

campaign between [Berg] and Huadu, as

[Berg] tried to get Hull back in to do the

necessary changes that they felt were

required to show that the equipment

could work.” JA at 189-91. When

Huadu refused to give Hull another

opportunity to repair the equipment, Berg

sent a letter to Huadu in March 1999

purporting to end any obligation under

the various contracts. 

Pursuant to Section 11.2 of the

Equipment Contract, Huadu, on March

29, 1999, filed a request for arbitration of

 

16In a communication dated May 5,

1998, Huadu had informed Berg and the

Hull Corporation that if the freeze dryers

did not satisfy the specifications and

could not be accepted, “we will claim for

returning of goods and for our loss

caused by failure of this project.” JA at

1106. Section 8.8 of the Equipment

Contract provided:

If due to the Seller’s

responsibility the

performance tests cannot

reach one or several items

of guarantee figures in

Appendix No. 4 after three

repeated performance tests,

and in case no other mutual

agreement can be reached,

then the Buyer shall have

the right to terminate the

Contract partially or

wholly, relative to the

value of defective

equipment item as other

wise agree [sic].

JA at 786.
8

its claims against Berg with the

Arbitration Institute of the Stockholm,

Sweden, Chamber of Commerce. Huadu

did not attempt to make either Hull or

SPI a party to the arbitration.17 But after

it learned about the institution of the

arbitration proceedings, Berg notified

John Hull, the former vice chairman of

the Hull Corporation and a consultant to

the new Hull Company. Berg wanted

Hull to participate in the proceedings and

thus it sent a letter dated May 24, 2000,

to John Hull informing “Hull” that it was

obligated “to participate in the arbitration

and defend its equipment given that it is

a party to the Modified Agreement.” JA

at 1181. Berg requested Hull to engage

in a joint defense of Huadu’s claims. JA

at 194. The Berg letter stated that Hull

had refused to be added as a party to the

arbitration or to cooperate in the defense

of the arbitration. JA at 1182. As a

result, Berg informed Hull:

Accordingly, you

are hereby put on notice

that in the event Berg is

unsuccessful in defending

the arbitration Berg will be

looking to Hull, and any

successor company to Hull,

for full contribution and

indemnity with respect to

any damage award, as well

as its legal and other costs. 

You are further put on

notice that Berg will rely

on Hull’s refusal to defend

the Claimants’ allegations

as precluding it from

subsequently raising any

such defence to the

allegations in any action

commenced by Berg

against Hull in the event

Berg is unsuccessful in

defending the arbitration.

JA at 1182.

The arbitration proceedings went

forward in Stockholm for approximately

one year before, on March 8, 2000, Berg

formally objected to the proceedings on

the basis of its assertion that the Hull

Corporation was a necessary and proper

party to the arbitration. However, the

arbitration proceedings continued

without any participation from Hull or

SPI.18 On December 7, 2000, the

 

17This omission is understandable as

Huadu’s contract providing for

arbitration was solely with Berg so there

was no way that Huadu could join Hull

or SPI in the arbitration.

 

18Berg formally informed SPI of the

arbitration by letter dated October 3,

2000, in which it stated that the letter, as

well as the previous letter of May 24,

2000, to John Hull, “constitutes written

notice of the Arbitration Proceeding.” 

JA at 1179. The letter further stated that

“Berg Chilling hereby requests that you

come in and defend the Arbitration

Proceeding. Should you not do so, you

will be bound in any action brought
9

Arbitration Institute issued its award in

favor of Huadu and against Berg for

$2,494,034.84, a sum that includes

interest. 

The arbitrators found that due to

the inability of the Hull freeze dryers to

function as required by the specifications

of the Equipment Contract and Modified

Agreement, Huadu was entitled to a

refund of the portion of the purchase

price in the Equipment Contract for the

freeze dryers but that Berg, upon

payment, could reclaim them. Although

the arbitrators recognized that the

remainder of the freeze drying system

was functional and the only deficiency

was in the Hull-manufactured freeze

dryers, it found that “Berg Chilling bears

full responsibility towards [Huadu] for

any breaches of contract with relation to

the Hull equipment. It is outside the

scope of this arbitration to determine

whether and to what extent Hull shall

answer for such breaches in relation to

Berg Chilling.” JA at 1206-07. In

defending itself in the arbitration Berg

incurred legal fees, including expert

witness fees and costs, of $454,115.26. 

At the time the arbitration

proceedings between Huadu and Berg

were pending, Berg, on October 6, 2000,

brought suit against the Hull Corporation

and SPI in the district court, asserting

claims for breach of contract, breach of

express warranty, breach of implied

warranty, and indemnity and

contribution. Hull then filed a crossclaim against SPI for indemnity or

contribution. SPI responded by filing a

counter-cross-claim against the Hull

Corporation for breach of representation

and warranty and breach of the

indemnification and defense provisions

of the Asset Purchase Agreement

between SPI and Hull.19

After the conclusion of the

arbitration proceedings and prior to trial

in the district court, Berg and Huadu on

June 10, 2002, entered into a Settlement

Contract resolving all claims between

them. In the Settlement Contract Berg

against you by Berg Chilling as to any

determination of fact made in the

Arbitration Proceeding common to the

two litigations.” JA at 1179.

 

19SPI also filed a third-party complaint

against the Hull Corporation’s corporate

officers John Hull and Lewis Hull for

breach of contract, fraud and

misrepresentation. John Hull and Lewis

Hull then filed a counterclaim against

SPI, maintaining that SPI had a duty to

defend and/or indemnify them in this

litigation. The district court entered

judgment in favor of John Hull and

Lewis Hull on SPI’s third-party

complaint against them and entered

judgment in favor of SPI and against

John Hull and Lewis Hull on John Hull

and Lewis Hulls’ third-party complaint

against SPI. These dispositions are not at

issue on this appeal and thus we do not

make further reference to them.
10

agreed to pay Huadu $1,000,000 and to

permit Huadu to retain ownership of the

freeze dryers which Huadu and Berg

agreed in their then current condition

were valued at $650,000. We refer to

this $650,000 as an “Equipment Credit.” 

Thus, Berg and Huadu valued the

settlement at $1,650,000. The Settlement

Contract provided that in the event that

Berg was successful in this litigation, it

would retain the first $1,650,000 of the

award, Huadu would be entitled to the

next $350,000, and Berg and Huadu

would share equally in any recovery in

excess of $2,000,000. The $1,650,000

figure clearly was predicated on the

payment that Berg made to Huadu in a

combination of cash and the waiver of

any claim by Berg to reclaim the

equipment. 

The litigation in the district court

proceeded to trial on January 13, 2003,

where the court at the bench trial heard

four days of testimony. In its

Memorandum and Order of June 11,

2003, the district court issued its findings

of fact and conclusions of law. The court

determined that the award issued on

December 7, 2000, by the Arbitration

Institute was not binding on Hull because

Berg failed to vouch it in properly. It

further held that SPI was not equitably or

judicially estopped from arguing that it

did not assume any liability to Berg for

the freeze dryers sold to Huadu. Berg

does not challenge these findings on this

appeal.20 The court further found that

under the terms of the Asset Purchase

Agreement between SPI and Hull, SPI

assumed Hull’s responsibilities for the

freeze dryers pursuant to the Purchase

Order, the Equipment Contract and the

Modified Agreement. 

Concluding that Berg, Hull and

SPI were equally at fault for the breach

of the various agreements to Huadu, the

court apportioned the $1,000,000

damages from the Settlement Contract

equally but separately among Berg, Hull

and SPI.21 The court, however, did not

hold Hull and SPI jointly and severally

liable to Berg. Moreover, the court

declined to grant Berg damages

predicated on the $650,000 Equipment

Credit for the freeze dryers which Huadu

had retained pursuant to the Settlement

Contract because, in the court’s view,

Berg had not established the value of the

equipment and did not demonstrate what

its costs would have been to retrieve the

equipment or find a purchaser for it if

Huadu had not retained it. 

 

20Berg does assert that the court’s

ruling with respect to vouching in was

erroneous but indicates that it became

moot when the court later found “that

SPI and Hull had committed a breach of

contract.” Berg br. at 52.

 

21The court entered separate judgments

in favor of Berg and against Hull and SPI

for $333,333. Thus, the court left Berg

with the loss for the remaining $333,334

paid on the Settlement Contract.
11

The district court rejected Berg’s

claim for attorneys’ fees and expert

witness fees in the arbitration

proceedings, finding that “[w]hile

ordinarily Berg Chilling might be entitled

to recover such fees, in this case such an

award would be unconscionable.” Berg,

2003 WL 21362805, at *11. In support

of this conclusion the court explained

that Berg had not represented Hull and

SPIs’ interests adequately in the

arbitration proceedings. The court also

stated that “since Berg Chilling was

equally liable with the Defendants

herein, each must bear its own costs and

counsel fees.” Id. The court further

found that the Hull Corporation had not

breached certain portions of the Asset

Purchase Agreement with SPI by failing

to inform SPI of Berg’s threat of

litigation during the summer of 1997. 

Additionally, it rejected SPI’s claim for

indemnification against Hull. These

appeals followed.22 In our opinion we

deal with the specific issues advanced by

the parties. The Hull Corporation is not

participating in this appeal.23

II. DISCUSSION

A. STANDARDS OF REVIEW

We exercise plenary review over

the district court’s legal determinations. 

Shire US Inc. v. Barr Labs. Inc., 329

F.3d 348, 352 (3d Cir. 2003). Our

standard of review is plenary with

respect to whether the district court

applied the appropriate measure of

contract damages in a legal sense. Scully

v. US WATS, Inc., 238 F.3d 497, 507

(3d Cir. 2001) (citing William B. Tanner

Co. v. WIOO, Inc., 528 F.2d 262, 271

(3d Cir. 1975)). We review the factual

determinations of the district court under

a clearly erroneous standard. Medtronic

Ave, Inc. v. Advanced Cardiovascular

Sys., Inc., 247 F.3d 44, 53 (3d Cir.

2001). A finding of fact is clearly

erroneous when it is “completely devoid

of minimum evidentiary support

displaying some hue of credibility or

bears no rational relationship to the

supportive evidentiary data.” Kool,

Mann, Coffee & Co. v. Coffey, 300 F.3d

340, 353 (3d Cir. 2002) (quoting Hoots

v. Pennsylvania, 703 F.2d 722, 725 (3d

Cir. 1983)).

B. FAULT AND THE EQUAL 

 

22The district court exercised diversity

jurisdiction pursuant to 28 U.S.C. § 1332

and we have jurisdiction under 28 U.S.C.

§ 1291.

 

23It appears that the Hull Corporation

is in financial distress and thus,

according to Berg, the judgment against

it is not collectible. We are aware,

however, that Hull is seeking insurance

indemnification and consequently it is

possible that ultimately a judgment

against it would be satisfied. See Berg

Chilling Sys. Inc. v. Hull Corp., 70 Fed.

Appx. 620 (3d Cir. 2003).
12

APPORTIONMENT OF

DAMAGES AMONG BERG,

HULL AND SPI

Berg challenges the district

court’s action in allocating damages to it. 

The court found that under S.J. Groves &

Sons Co. v. Warner Co., 576 F.2d 524,

527-58 (3d Cir. 1978), it had the

authority to apportion damages according

to the relative fault of the three parties,

Berg, Hull and SPI. We conclude,

however, that it had no basis on which to

find Berg at fault for the breach of the

Equipment Contract and Modified

Agreement, and thus the court erred in

apportioning any damages to Berg.

The court found that Berg, Hull

and SPI were equally at fault for the

breach of contract in failing to make a

timely shipment of a working freeze

drying system to Huadu. In finding that

Berg was partly to blame for the breach

of contract the court rejected Berg’s

argument that it was a mere

“middleman” between Huadu and Hull.24

Berg, 2003 WL 21362805, at *11. The

court found that Berg was responsible for

the late shipment of the machinery and

the damage to one of the freeze dryers

during shipment. The court further

emphasized that, “[m]ore importantly,

Berg Chilling, like Hull Corporation and

SPI, took part in the design and/or

approval of the design of the freeze

dryers and modification thereto.” Id. In

support of this finding, the court cited the

testimony of Donald Berggren, the

president of Berg. At the trial, Berggren

testified as to the process of negotiation

with Huadu and Hull prior to Berg

entering into the contract with Huadu to

provide the freeze drying system,

indicating that “[w]e would send

preliminary specifications off to Hull.” 

JA at 77. 

Though it is unclear from the

foregoing portion of Berggren’s

testimony whether Huadu or Berg

developed the specifications, review of

his testimony as a whole makes it clear

that Berg did not develop the

specifications for the freeze dryers, but

merely forwarded the specifications

requested by Huadu to Hull during the

negotiations.25 On direct examination,

Berggren was asked “[i]n the back and

forth that you described with Huadu, did

Berg Chilling provide technical input on

the freeze dryers.” JA at 82. He

responded “[w]e weren’t capable of

 

24In essence this conclusion rejected

the view of the Arbitration Institute.

 

25Berggren testified, “Huadu read

through the quote, and there was usually

generated more – more questions. Every

time we’d send off technical

specifications, it generated more

questions that we would in turn send off

to the various suppliers that – that we

had.” JA at 81. Berggren’s testimony is

corroborated by the testimony of Wayne

Hinton, the sales manager at Berg who

worked on the Huadu project. 
13

providing technical input. We relied on

Hull for that.” JA at 82.

Berg maintains that the finding by

the district court that Berg “took part in

the design and/or approval of the design

of the freeze dryers and modification

thereto,” was clearly erroneous. We

agree. Neither the court nor SPI points

to evidence supporting a conclusion that

Berg played any role other than relaying

information back and forth between

Huadu and Hull regarding the

specifications of the freeze dryers. In

arguing that we should affirm the district

court on this point SPI cites to the

portion of the trial transcript on which

the district court relied. However, as

stated above, Berggren made clear that

Berg did not approve the design of the

freeze dryers in the sense of judging its

efficacy, but only forwarded the

specifications requested by its customer,

Huadu, to its supplier, Hull, and

attempted to put together an agreement

relying on other entities’ capabilities. All

of the testimony at the trial established

that Hull designed the freeze dryers and

attempted to install them successfully in

China. Furthermore, after the closing of

the Asset Purchase Agreement, SPI

performed all of the obligations of Hull

under the Modified Agreement.26

Indeed, the court recognized that “SPI

performed all work under the Modified

Agreement, including the flawed

engineering of the modified freezedryers, the unsuccessful preliminary

testing of the equipment, and the start-up

activities at the Huadu facility.” Berg,

2003 WL 21362805, at *11.

Berg disputes the district court’s

findings as to its culpability for the

breach of the Equipment Contract with

Huadu in other respects as well. The

court found that Berg was partially

responsible for the breach of contract

because it delivered the freeze dryers late

to China and one of the dryers was

damaged while being transported to

Vancouver for shipment. While we

agree that Berg’s late shipment of the

machinery qualified as a breach of

contract, this approximately one-month

delay was not the reason that Huadu

ultimately refused to accept the

equipment. The record is clear that

Hull’s difficulty in obtaining a

component of the freeze dryers caused

most of the delay prior to shipment. 

Furthermore, any delay prior to the

 

26In its brief, SPI cites to a memo

written by Berg’s president to John Hull

of the Hull Corporation dated September

29, 1997. As a means of reaching a

compromise solution in the face of the

initial failure of the freeze dryers, Berg

offered to “provide on-site labor to make

the necessary refrigeration piping

changes to accommodate the new

condensers.” JA at 2015. But SPI did

not offer evidence that any Berg

personnel ever undertook any design or

modification work pursuant to the

Modified Agreement.
14

signing of the Modified Agreement

which extended the deadlines for the

completion of the project is irrelevant

because Huadu did not refuse to accept

the freeze drying machinery in May 1998

on account of the late delivery in 1997. 

Rather, it refused to accept the

equipment because, even after the

various modifications, the freeze dryers

failed to perform to specifications. 

Therefore, any breach of the delivery

dates by Berg set forth in the original

Equipment Contract should not have

been a basis for finding Berg in any way

responsible for the failure of the freeze

drying apparatus to function properly.

Moreover there is no evidence

that the damage during the accident

while the equipment was being

transported to Vancouver caused the

problems with the freeze dryers. In fact,

only one of the freeze dryers was

involved in the accident but the record

clearly shows that the freeze dryer

problems related to both dryers. Thus,

Huadu declined to accept the freeze

dryers because neither could satisfy the

through-put requirements in the

Equipment Contract by reason of a

design defect in both pieces of

machinery. Clearly, the design of the

freeze dryers by Hull rather than the

accident was the cause of the

equipment’s failure to function as

promised.27 Overall, we are constrained

to conclude that the factual findings of

the district court with respect to Berg’s

fault for the breach of the Equipment

Contract and the Modified Agreement

lack evidentiary support and thus are

clearly erroneous. 

We recognize that, as the

Arbitration Institute found, while Berg

was certainly liable to Huadu as a

signatory to the Equipment Contract and

Modified Agreement for the failure of

the freeze dryers to function as required

by those agreements, such liability was

imposed merely because it did not

comply with the contract. But Berg’s

liability differs in nature from that of

Hull which was culpable because of its

technological failures and which as

between Berg and Hull was responsible

for the freeze dryers not functioning as

required by the specifications in the

Equipment Contract. Moreover, if, on

the remand we are ordering, SPI is held

liable on a theory that it is Hull’s

successor SPI will be in the same

position as Hull. Overall, therefore, it is

clear that among Berg, Hull and SPI no

damages should have been assessed

against Berg. Thus, the district court

clearly erred in apportioning any

 

27The district court implicitly

recognized that the deficiency with the

freeze dryers related to design defects

rather than the accident. The court stated

that “[w]ithout remedying the problem

associated with the diameter of the pipe,

the freeze dryers could not have met the

through-put requirements.” Berg, 2003

WL 21362805, at *7.
15

damages to Berg. We therefore will

reverse the judgment of the district court

to the extent that it allocated any

damages to Berg and will remand the

case to the district court with instructions

that it vacate that portion of its order for

judgment holding Berg responsible for

Huadu’s damages.28

C. THE LIABILITY AND 

INDEMNIFICATION TERMS

OF THE ASSET PURCHASE 

AGREEMENT

1. Liability

The next issue we deal with

concerns SPI’s challenge to the order for

judgment assessing damages against it

pursuant to the Asset Purchase

Agreement. Section 7.8 of the Asset

Purchase Agreement states that:

Purchaser will, as

appropriate, agree to repair

(at the Real Estate or as

necessary, at the location

of the customer) or accept

returns of products of the

Business shipped by Seller

on and prior to the Closing

Date . . . which are

defective or which fail to

conform to the customer’s

order in accordance with

the following provisions

(but Purchaser does not

hereby assume any liability

to any third party claimant.

. . .) 

JA at 1848-49 (emphasis added). The

district court concluded that Section 7.8

of the Asset Purchase Agreement,

entitled Product Warranties, did not

apply because Huadu never accepted the

freeze dryers and therefore any work SPI

did was not warranty work governed by

Section 7.8. The court stated:

At various points

during the trial and in

related briefing, certain

parties have referred to the

work performed on the

Huadu Project as

‘warranty’ work. Because

‘warranty’ work would

have begun only after

Huadu’s final acceptance

of the freeze dryers (Ex. P20, Section 7.4) and final

acceptance never actually

 

28We realize that the order for

judgment in terms did not hold Berg at

fault but in substance it did exactly that

as the court only assessed against Hull

and SPI two-thirds of the $1,000,000

paid pursuant to the Settlement Contract

by Berg to Huadu. In fact, the entire

$1,000,000 plus, as will be seen,

$650,000 for the Equipment Credit,

should be assessed against Hull. 

Whether these also should have been

assessed against SPI will have to await

determination on the remand with respect

to its possible successor liability. 
16

occurred, no ‘warranty’

work was performed. SPI

argues that the work

performed after the closing

of the Asset Purchase

Agreement is warranty

work within the meaning of

Section 7.8 of the Asset

Purchase Agreement. 

Section 7.8, however, is

inconsistent with Section

1.2(i) and the side letter

(Ex. P-186), and, therefore,

does not support SPI’s

contentions.

Berg, 2003 WL 21362805, at *10 n.10. 

Section 1.2 lists the purchased assets, and

subsection (i) includes, in relevant part,

“all contracts and agreements.”29 JA at

1825-26.

We reject the district court’s

interpretation of the Asset Purchase

Agreement as it is clearly erroneous. See

Medtronic, 247 F.3d at 53 n.2.30 There is

no inconsistency between Sections 7.8

and 1.2(i) of the agreement. Even

assuming that the Equipment Contract

and Modified Agreement constitute

purchased assets under the Asset

Purchase Agreement, it does not follow

that SPI could not limit its liability to

third parties with respect to those assets. 

Furthermore, the district court’s analysis

is flawed because in interpreting the

Asset Purchase Agreement it looked to

Section 7.4 of the Equipment Contract

between Huadu and Berg. That

provision specifies that if the freeze

dryers satisfy the requirements set forth

in that agreement, “[t]his shall be the

Acceptance of the Equipment by the

Buyer and shall be considered [the] start

of the warranty period.” JA at 782. 

Therefore, the court concluded that the

warranty period on the freeze dryers had

not started because Huadu never

“accepted” them and as a result Section

7.8 of the Asset Purchase Agreement

could not apply. 

The district court did not address

the obvious differences between the

Asset Purchase Agreement and the

Equipment Contract. For purposes of

determining whether SPI assumed

liability for the Huadu Project, it was

irrelevant whether Huadu had “accepted”

the freeze dryers in accordance with

 

29The district court concluded that

Section 1.2 of the Asset Purchase

Agreement was unambiguous and

therefore the agreement between Berg

and Hull to provide two freeze dryers to

Huadu qualified as a purchased asset. 

Furthermore, Section 1.3 did not list the

Huadu Equipment Contract or Modified

Agreement as excluded assets.

 

30SPI regards the Section 7.8 issue as

being a matter of contractual

construction subject to plenary review. 

In light of our result we need not

consider this contention as the district

court’s conclusions cannot survive even

deferential review.
17

Section 7.4 of the Equipment Contract. 

The relevant provision was Section 7.8

of the Asset Purchase Agreement which

made clear that the limitation of liability

to third parties applied to “products of

the Business shipped by Seller on and

prior to the Closing Date.” JA at 1848-

49. It is undisputed that the freeze dryers

were shipped to Huadu prior to the

closing of the Asset Purchase Agreement

on October 15, 1997. Therefore, Section

7.8 of the Asset Purchase Agreement

clearly applies to the dispute between

SPI and third-party claimant Berg. 

Nevertheless the district court

held that because “SPI acquired the Hull

Purchase Order and Modified

Agreement” it was “liable for the work it

performed under those contracts.” JA at

24 n.13. Clearly this conclusion was

incorrect as the plain language of the

Asset Purchase Agreement precludes a

finding of liability against SPI and in

favor of Berg on the basis articulated by

the district court, i.e. that SPI assumed

Hull’s responsibilities by entering into

the Asset Purchase Agreement. 

Moreover, the fact that SPI did not

adequately modify the equipment does

not matter as Hull shipped the equipment

before the Hull-SPI closing date and thus

SPI could not be liable to Berg under the

Asset Purchase Agreement. 

Accordingly, we will reverse the

judgment of the district court to the

extent that it imposes liability on SPI.31

In considering this point we have

not overlooked Berg’s contention “that

any purported disclaimer of liability

under Section 7.8 would [not] be binding

on non-parties to the Hull-SPI

Agreement, such as Berg.” Berg’s reply

br. at 24. Rather, we reject that argument

for if, as is the case, Berg seeks to

impose liability on SPI on the basis of

the Asset Purchase Agreement it cannot

pick and choose which of its provisions

are applicable. Thus, the exculpatory

language of Section 7.8 binds Berg. 

Our conclusion, however, does

not necessarily free SPI from liability on

a different theory inasmuch as the district

court explained that “[b]ecause SPI’s

liability is established on this [i.e.

contractual] basis, it is not necessary to

reach Berg Chilling’s arguments related

to successor liability under the de facto

merger and continuation doctrines.” 

Berg, 2003 WL 21362805, at *10 n.13. 

On appeal, Berg renews its argument that

even if SPI is not liable under the terms

of the Asset Purchase Agreement, it

should be held liable under these

alternate theories. In view of the

 

31Berg maintains that Section 7.8 is

void as against public policy. Inasmuch

as the district court incorrectly

interpreted that provision it never

reached this issue. On remand, the

district court should address Berg’s

argument in the first instance.
18

circumstance that the district court did

not address the applicability of successor

liability under the de facto merger and

continuation doctrines, we will remand

this claim to the district court for an

analysis of SPI’s possible liability on the

applicability of these doctrines.32

2. Indemnification

SPI challenges the district court’s

refusal to grant it indemnification from

Hull. Section 8.2 of the Asset Purchase

Agreement provides as follows:

8.2 Indemnification

Obligations of Seller. 

Subject to Section 8.3

hereof, Seller shall defend,

indemnify, save and keep

harmless Purchaser, its

Affiliates and their

respective successors and

permitted assigns . . .

against and from all

Damages sustained or

incurred by any of them

resulting from or arising

out of or by virtue of:

. . . 

(c) the failure to

discharge when due any

liability or obligation of

Seller other than the

Assumed Liabilities, or any

claim against Purchaser

with respect to any such

liability or obligation or

alleged liability or

obligation;

(d) any claims by

parties other than

Purchaser to the extent

caused by acts or omissions

of Seller on or prior to the

Closing Date, including,

without limitation, claims

for Damages which arise or

arose out of Seller’s

operation of the Business

or by virtue of Seller’s

ownership of the Purchased

Assets on or prior to the

Closing Date[.]

JA at 1852.33 Section 8.5 of the Asset

 

32The district court also should

determine whether to apply New Jersey

or Pennsylvania law to Berg’s successor

liability claims against SPI, though it

may not need to make a choice if the law

of the states is the same or the result

would be the same under either state’s

law.

 

33The execution of the side letter

agreement between Hull and SPI in

relation to the Huadu Project did not alter

SPI’s rights under the Asset Purchase

Agreement as that letter provided that:

Except as amended hereby, 
19

Purchase Agreement sets forth a

procedure by which SPI is required to

notify Hull of any third-party claim

lodged against SPI. As required by this

provision, after receiving a copy of the

summons and complaint in this action,

SPI on November 9, 2000, wrote a letter

to Hull stating:

Pursuant to Section 8.5 of

the Agreement34

the terms and provisions of

the Asset Purchase

Agreement shall remain in

full force and effect, it

being understood that the

execution of this letter

agreement, and any actions

taken pursuant hereto, shall

in no way limit, or

otherwise constitute a

waiver of any of the rights

to which Purchaser is

entitled pursuant to the

Asset Purchase Agreement

including, without

limitation, those provided

for under Article VIII

thereof.

JA at 1890.

 

34Section 8.5 of the Asset Purchase

Agreement provides, in pertinent part:

No failure by an

Indemnifying Party to

acknowledge in writing its

indemnification obligations

under this Article VIII shall

relieve it of such

obligations to the extent

they exist. If an

Indemnified Party is

entitled to indemnification

against a Third Party

Claim, and the

Indemnifying Party fails to

accept a tender of, or

assume, the defense of a

Third Party Claim pursuant

to this Section 8.5 . . . the

Indemnified Party shall

have the right, without

prejudice to its right to

indemnification hereunder,

in its discretion exercised

in good faith and upon

advice of counsel, to

contest, defend and litigate

such Third Party Claim . . .

. If, pursuant to this

Section 8.5, the

Indemnified Party so

contests, defends, litigates

or settles a Third Party

Claim for which it is

entitled to indemnification

hereunder as hereinabove

provided, the Indemnified

Party shall be reimbursed

by the Indemnifying Party

for the reasonable

attorneys’ fees and other

expenses of defending,

contesting, litigating and/or

settling the Third Party 
20

you are hereby put on

notice of the above

captioned matter. 

Purchaser hereby tenders

the defense of the above

captioned matter to Seller

together with Purchaser’s

demand for

indemnification. Pursuant

to Section 8.5 of the

Agreement, please

acknowledge your

indemnification and

defense obligations

promptly and in writing.

JA at 1184. Hull responded on

December 5, 2000, that “it does not have

an obligation to tender a defense on

behalf of SP Industries, Inc.” in this

matter. JA at 1185.

The district court rejected SPI’s

indemnification claim, stating that “SPI’s

argument is unpersuasive because SPI is

liable . . . for its own post-closing

conduct.” Berg, 2003 WL 21362805, at

*12. The court relied on Section 8.2(d)

of the Asset Purchase Agreement, which

provided for indemnification by Hull for

actions brought by third parties related to

conduct “prior to the Closing Date.” JA

at 1852. Therefore, the district court

concluded that the actions taken by SPI

in attempting to repair the freeze dryers

after the closing of the Asset Purchase

Agreement were not subject to the

indemnification provision of that

agreement. 

The district court reached its

conclusion as a consequence of its

misinterpretation of Section 7.8, which,

as explained above, expressly provided

that SPI “does not hereby assume any

liability to any third party claimant” for

any items shipped prior to the closing of

the Asset Purchase Agreement. JA at

1849. Under Section 8.2(c) Hull was

obligated to defend and indemnify SPI as

to any “liability or obligation of Seller.” 

JA at 1852. Therefore, pursuant to

Section 7.8, the Huadu freeze dryers

qualified as a “liability or obligation” of

Hull. We do not see why SPI’s inability

to overcome Hull’s earlier failure to

produce a system complying with the

specifications of the Equipment Contract

should impair SPI’s indemnification

claim. In this regard we point out that

SPI’s inability to modify the equipment

to comply with the specifications was at

most a contractual failure. We see no

reason why Hull and SPI should not have

been free to place the losses from the

failure as between themselves as they

saw fit and that is what they did in

Claim[s] which are

incurred from time to time,

forthwith following the

presentation to the

Indemnifying Party of

itemized bills for said

attorneys’ fees and other

expenses.

JA at 1854.
21

Section 7.8. 

Accordingly, we will reverse the

order for judgment entered by the district

court against SPI and in favor of Hull

denying SPI’s indemnification claim and

will remand SPI’s indemnification claim

to the district court with instructions to

grant judgment in favor of SPI and

against Hull on this claim. The district

court then must make an award pursuant

to Section 8.5 of the Asset Purchase

Agreement in favor of SPI and against

Hull as to SPI’s “reasonable attorneys’

fees and other expenses of defending,

contesting, [and] litigating,” this action. 

JA at 1854.

D. BERG’S INDEMNIFICATION

CLAIM AGAINST HULL AND

SPI

1. Indemnification

The district court did not directly

address Berg’s claim for indemnification

against Hull and SPI, although by finding

that Berg was partially at fault for the

breach of contract to Huadu, it implicitly

rejected it. Therefore, the district court

did not analyze whether Pennsylvania or

New Jersey law applies to this claim. At

the beginning of the breach of contract

section of its opinion, the district court

indicated that “[i]n a previous

memorandum addressing the parties’

motions for summary judgment, I

determined that New Jersey law governs

this action.” Berg, 2003 WL 21362805,

at *10. However, in its prior opinion the

court only held that as to any claims

between Hull and SPI related to the

Asset Purchase Agreement the choice of

law provision in that agreement

providing that New Jersey law applies

governed. Berg Chilling Sys., Inc. v.

Hull Corp., No. CIV. A. 00-5075, 2002

WL 31681955, at *5 (E.D. Pa. Nov. 26,

2002). Therefore, rather than addressing

whether Berg’s indemnification claim

against both Hull and SPI also should be

governed by New Jersey law, the district

court merely assumed that it should be.35 

On remand the district court must

address Berg’s indemnification claim

against SPI in the first instance, though

 

35In any event, there is no conflict

between Pennsylvania or New Jersey law

with respect to the indemnification issue. 

See Duall Bldg. Restoration, Inc. v. 1143

East Jersey Ave. Assoc., Inc., 652 A.2d

1225, 1233-34 (N.J. Super. Ct. App. Div.

1995) (affirming trial court holding that

paint manufacturer had duty to indemnify

builder who used manufacturer’s paint

on a building when the paint peeled off);

Moscatiello v. Pittsburgh Contractors

Equip. Co., 595 A.2d 1198, 1201-02 (Pa.

Super. Ct. 1991) (affirming decision that

seller of concrete paving equipment was

entitled to indemnification for damage

award in underlying breach of contract

action from manufacturer of machinery

because seller was “mere conduit”). In

fact Duall cited Moscatiello and followed

it.
22

based on our analysis of both

Pennsylvania and New Jersey law, we

hold that Berg is entitled to

indemnification against Hull as the

manufacturer of the freeze drying

equipment. As explained earlier, Berg

primarily served as the distributor of the

equipment and negotiated the agreement

with Huadu. Hull designed the freeze

dryers and shouldered the responsibility

to install them. Furthermore, under the

Equipment Contract and the Modified

Agreement, Hull was required to conduct

testing to ascertain the functionality of

the equipment.

The determination of the viability

of Berg’s claim for indemnification from

SPI must await the conclusions of the

district court on remand. If the district

court decides that SPI is liable as a

successor to Hull under the de facto

merger or continuation doctrines, the

court then will have to analyze whether

Berg is entitled to common law

indemnification from SPI. However, if

the district court rejects the successor

liability claim then there will be no basis

upon which Berg can assert an

indemnification claim against SPI

because Section 7.8 of the Asset

Purchase Agreement negates the

possibility of SPI assuming Hull’s

liability by reason of the failure of the

freeze dryers which had been shipped to

Huadu.36

2. Attorneys’ fees and costs

Berg sought to recover its

attorneys’ fees and expert witness fees

from Hull and SPI in connection with the

defense of the arbitration proceedings in

Sweden. The district court rejected this

claim, stating that:

While ordinarily Berg

Chilling might be entitled

to recover such fees, in this

case such an award would

be unconscionable. As

discussed above, Berg

Chilling did not adequately

represent the interests of

Hull Corporation, or, by

extension, SPI, and for this

reason it cannot recover its

fees. Moreover, since Berg

Chilling was equally liable

with the Defendants herein,

each must bear its own

costs and counsel fees.

Berg, 2003 WL 21362805, at *11. The

district court previously had noted that in

the arbitration proceedings Berg offered

the testimony of its expert, Walter

Pebley, that the freeze dryers “could

produce quality product but at

significantly lower through-puts.” JA at

519-20; see also JA at 489 (stating that

he testified at the arbitration proceeding

that “the equipment would function but

not at the through-put rates in the

 

36In any event, under Section 8.2 of the

Asset Purchase Agreement SPI would be entitled to indemnification from Hull.
23

contract specifications”). The court

characterized this as testimony offered by

Berg “that the freeze dryers were

improperly designed.” Berg, 2003 WL

21362805, at *8. The court then

concluded that “[s]uch testimony did not

represent the interests of Hull

Corporation.” 

Berg argues that the adequacy of

its representation efforts in the arbitration

are irrelevant in determining whether it is

entitled to attorneys’ fees. Inasmuch as

Berg was not primarily the cause of

Huadu suffering damage and Hull and

SPI did not overcome the equipment’s

deficiencies as contemplated by the

Modified Agreement, Berg contends that

the district court should have awarded it

all damages flowing from that failure,

including reasonable attorneys’ fees and

costs. Berg further maintains that the

court’s rejection of Berg’s claims was

anomalous because “[t]he court

disallowed as part of Berg’s damages its

litigation expenses in the Arbitration

based on the very same testimony which

the court itself later found to be true and

conclusive and the basis for holding

defendants liable in the instant case!” 

Berg’s br. at 55. Berg stresses that due

to the clear defects in the freeze dryers, it

defended the machinery at the arbitration

“as best we could.” JA at 200.

SPI counters that because the

district court found Berg to be at fault in

part, it was not entitled to attorneys’ fees

and costs. SPI argues, alternatively, that

in the absence of a relevant statutory or

contractual provision providing for

attorneys’ fees, Berg cannot prevail on

this claim.

As with Berg’s indemnification

claim against Hull and SPI, the district

court did not state whether it was

applying Pennsylvania or New Jersey law

on the attorneys’ fees and costs issue. In

their briefs in this court neither Berg nor

SPI directly addresses which law should

apply. However, Berg relies solely upon

Pennsylvania law in arguing for

attorneys’ fees and costs while SPI points

to both New Jersey and Pennsylvania law

on the indemnification issue. See Fleck

v. KDI Sylvan Pools, Inc., 981 F.2d 107,

117 (3d Cir. 1992) (finding that under

Pennsylvania law “an indemnitee may

recover attorney’s fees and costs incurred

in defense of the liability indemnified

against from the indemnitor”); McAdam

v. Dean Witter Reynolds, Inc., 896 F.2d

750, 777 (3d Cir. 1990) (finding that

New Jersey law requires a stronger

showing than other states in order to

overcome the presumption in New Jersey

that “attorneys’ fees are not a recoverable

item of damages”).

Inasmuch as the district court

based its denial of attorneys’ fees in part

on its finding the Berg was partially at

fault for the breach of the Equipment

Contract and Modified Agreement with

Huadu, we must remand this claim to

that court for further consideration in

light of our rejection of this finding. 

First, the court should address whether

Pennsylvania or New Jersey law applies
24

to Berg’s claim for attorneys’ fees and

costs incurred in the arbitration

proceedings, though the choice may not

be necessary if the court concludes that

they are the same or that regardless of

which state’s law applies its result would

be the same. The court also should

address the issue of successor liability

with respect to SPI to determine whether

it might have any liability for attorneys’

fees if Berg is entitled to them under

either Pennsylvania or New Jersey law. 

As stated above, if SPI is not liable as a

successor to Hull under either the de

facto merger or continuation doctrines,

then Section 7.8 of the Asset Purchase

Agreement bars any liability against it,

including liability for attorneys’ fees and

costs. 

As for the claim of attorneys’ fees

against Hull (and SPI should the district

court find it liable as a successor to

Hull), the district court erred in stating

that “since Berg Chilling was equally

liable with the Defendants herein, each

must bear its own costs and counsel

fees.” Berg, 2003 WL 21362805, at *11. 

Berg had not brought a motion for

attorneys’ fees incurred in the present

action. Rather, it sought attorneys’ fees

and costs from the arbitration

proceedings which arose out of the

dispute involving the freeze drying

equipment. As explained above, if on

remand the district court determines that

either Hull or SPI has a duty to

indemnify Berg, such indemnification

should include the reasonable attorneys’

fees and expert witness fees incurred in

the arbitration proceedings.

The district court found that Berg

was not entitled to attorneys’ fees

because it failed to represent Hull and

SPIs’ interests adequately in the

arbitration.37 We reject this basis for

denying Berg’s claim for attorneys’ fees. 

Berg’s entitlement vel non for attorneys’

fees from Hull and SPI is grounded on its

claim for indemnification. If Berg is

entitled to indemnification from Hull,

SPI or both, then the district court must

analyze whether, under New Jersey or

Pennsylvania law, such indemnification

includes the attorneys’ fees and expert

witness fees incurred by Berg in the

arbitration proceedings. Any

consideration of the adequacy of Berg’s

representation of Hull and SPI in the

arbitration proceedings is irrelevant. 

 

37We question the district court’s

conclusion that inasmuch as Berg’s

testimony was “that the freeze dryers

were improperly designed [the]

testimony did not represent the interests

of Hull Corporation.” While the court’s

view of the testimony may be accurate,

we do not believe that the viability of an

indemnification claim for fees and costs

should depend on the indemnitee

disregarding the facts in the applicable

proceeding. In short, if, as clearly was

the case, Hull improperly designed the

equipment then Berg was not required to

fabricate a defense in the arbitration

proceedings to justify its claim for

indemnification.
25

Moreover, it is significant that

even though Hull and SPI had received

notice of the arbitration proceedings,

both stood on the sidelines during them

requiring Berg to defend the equipment.38

Now Hull and SPI have engaged in

Monday morning quarterbacking in

assailing the defense provided by Berg. 

The record clearly shows that given the

circumstances in which it found itself

Berg defended the deficient machinery as

best it could. The district court should

not have rewarded Hull and SPI for their

lack of participation in the arbitration

proceedings.

SPI further contends that the

attorneys’ fees and costs which Berg

expended were unreasonable. If the

machinery was as deficient as Berg

claimed before the district court, then, in

SPI’s view, Berg spent an unreasonable

amount of money defending machinery

that according to Berg was indefensible. 

Should the district court find that Berg is

entitled to attorneys’ fees, it must

determine the appropriate amount to

award. The district court should conduct

a thorough analysis of the attorneys’ fees

and costs expended by Berg in the

arbitration proceeding to determine

whether they were reasonable and to

issue an appropriate award.

E. JOINT AND SEVERAL

LIABILITY

Berg maintains that the district

court erred in failing to hold Hull and

SPI jointly and severally liable for the

$333,000 each party was required to pay

to Berg. In its Memorandum and Order,

the district court stated that “Berg

Chilling has not provided any persuasive

authority for holding defendants jointly

and severally liable in a breach of

contract action when the plaintiff has

also been shown to have been at fault.”39

Berg, 2003 WL 21362805, at *11 n.16. 

Therefore, the district court entered

judgment in favor of Berg and against

Hull in the amount of $333,333 and in

favor of Berg and against SPI for the

same amount.

We need not address this issue at

this time because we hold that under

Section 7.8 of the Asset Purchase

Agreement SPI is not liable for the

defective freeze drying machinery and

the issue of joint and several or only

several liability ultimately may not be

material in this case. As stated above, on

remand the district court must address

Berg’s claim that SPI is liable as a

successor to Hull under the de facto

 

38However, at one point SPI did write

a letter to Berg putting forth various

arguments that it should use in defending

the freeze dryers during the arbitration

proceedings. Berg’s president testified at

trial that Berg did in fact assert some of

these defenses in the arbitration. 

 

39As explained above, the district court

erred in finding Berg partially at fault.
26

merger and continuation doctrines. If,

after conducting this analysis the court

finds that SPI is liable, it should make

detailed findings of fact and conclusions

of law as to whether SPI and Hull should

be held jointly and severally liable.40 On

the other hand, if the district court finds

that SPI is not liable to Berg as a

successor to Hull under either the de

facto merger or continuation doctrines,

then SPI would have no liability and the

issue of joint and several liability would

be moot.

F. THE EQUIPMENT CREDIT

As stated above, when Berg

entered into a Settlement Contract with

Huadu, in addition to making a payment

of $1,000,000, it agreed to permit Huadu

to retain the freeze drying equipment. In

the Settlement Contract Berg and Huadu

agreed that in their current condition the

freeze dryers should be valued at

$650,000. The court rejected Berg’s

claim for damages predicated on the

$650,000 Equipment Credit, stating that

Berg “has not established that this

amount accurately reflects the value of

the equipment. In addition, even if the

$650,000 figure were accurate, it does

not take into account the costs Berg

Chilling would have incurred in

retrieving the equipment and/or finding

another purchaser for the equipment.” 

Berg, 2003 WL 21362805, at *11.

Berg maintains that this finding

was clearly erroneous. In support of this

argument, Berg contends that the best

evidence of the value of the equipment

was the $650,000 value agreed to by it

and Huadu in their arms-length

negotiation. Berg contends that Huadu

had an incentive to set the lowest

possible value for the equipment because

it was entitled to receive additional

moneys from Berg only if Berg was

successful in this action and made a

recovery in excess of $1,650,000, a

figure representing Berg’s payment to it

in cash and Huadu’s right to retain the

equipment. Thus, if the value had been

less Huadu would have been more likely

to share in a recovery in this action as its

threshold for participation would have

been reduced pro tanto. Berg further

argues that because the freeze dryers

were purchased from Hull for

$1,150,000, and they could produce

quality product at lower through-puts,

$650,000 was a reasonable value for the

equipment. Finally, Berg points to the

fact that neither Hull nor SPI offered any

 

40In denying Berg’s claim that SPI and

Hull should be held jointly and severally

liable the district court did not address

whether Pennsylvania or New Jersey law

applies. Furthermore, the court did not

analyze the prevailing case law or

explain the reasons for denying relief to

Berg. On remand it will have an

opportunity to conduct such an analysis

and reach a conclusion in accordance

with our instructions if the issue is

germane and its resolution is necessary.
27

evidence to refute the $650,000 figure

and that their position at trial was that the

equipment complied with the contract

specifications. 

As might be expected, SPI

contends that the district court’s denial of

the $650,000 claim for damages was not

clearly erroneous. It argues that Berg

failed to proffer sufficient evidence as to

the value of the equipment and as a result

the district court correctly declined to

engage in “guess work.” SPI’s br. at 49.

We recognize that damages must

be proven to a reasonable degree of

certainty, Pugh v. Holmes, 405 A.2d 897,

909-10 (Pa. 1979); William B. Tanner

Co., 528 F.2d at 271-72, though absolute

precision is not required. Bigelow v.

RKO Radio Pictures Inc., 327 U.S. 251,

264, 66 S.Ct. 574, 579-80 (1946). 

Considering the governing legal

principles and the evidence presented at

trial, we conclude that the district court’s

denial of the $650,000 in damages was

clearly erroneous. While it is true that

Berg did not supply evidence with

respect to the value of the equipment

apart from the figure it negotiated with

Huadu for the Settlement Contract, still

in the unusual circumstances here in

which it was clearly in Huadu’s interest

to value the equipment at the lowest

possible value in order to enhance its

chances of sharing in a possible district

court recovery in this case the district

court should have had confidence in that

figure. Furthermore, if the methodology

for computation of damages is accepted,

i.e. damages in the amount of the agreed

valuation of the equipment, then

damages were established with precision.

We have not lost sight of the

reality that it undoubtedly would have

been expensive for Berg to recover the

equipment, a point SPI advances.41

Nevertheless we think that it would

prove too much to deny Berg a recovery

by reason of that circumstance. After all,

any time that an entity makes a payment

in kind it relieves itself of expenses

relating to the item involved. For

example, if an entity settles a dispute by

conveying real estate the entity will

relieve itself of expenses for taxes,

maintenance and insurance. But still it is

fair to say that the value of the real estate

reflects the amount of the settlement. 

Thus, we will not deny Berg the

$650,000 recovery on the theory that it

saved money by leaving the equipment

with Huadu.42

 

41SPI contends that except for Huadu’s

retention of the equipment Berg would

“have been contractually required to

remove the freeze dryers from Huadu’s

facilities.” SPI’s br. at 49. SPI,

however, does not refer to the contractual

provision that imposes this duty. But

even if it is correct our result would be

the same.

 

42Berg points out that Huadu and Berg

were aware that Berg avoided costs by

not having to take possession of the

equipment and this factor “presumably

[was] considered by [them] in their arms-
28

Overall, we are satisfied that

inasmuch as there was no valid reason to

reject the claim for damages predicated

on the value of the equipment, the district

court’s decision rejecting damages

predicated on the Equipment Credit was

“completely devoid of minimum

evidentiary support displaying some hue

of credibility or bears no rational

relationship to the supportive evidentiary

data.” Kool, 300 F.3d at 353 (citation

omitted). Thus, we will reverse it.43

III. CONCLUSION

We will reverse the order of the

district court entered June 11, 2003, to

the extent that we have explained and

will remand the matter to the district

court for further proceedings. The court

erred in finding Berg equally at fault

with Hull and SPI and indeed at fault at

all. We therefore will remand this case

for the district court to vacate that

portion of its decision holding Berg

equally at fault for Huadu’s damages or

at fault at all. Inasmuch as the district

court’s denial of attorneys’ fees to Berg

was based in part on its faulty finding

that Berg was partially culpable for the

defective freeze dryers, we must remand

that claim as well for further

consideration in light of our opinion.

The district court also erred in its

interpretation of Section 7.8 of the Asset

length negotiations in which they arrived

at the market value of $650,000.” Berg’s

br. at 62.

 

43Actually there is another possible

basis to reject Berg’s claim. Berg asserts

that it had “rights to [the] equipment”

and relinquished them to Huadu as a

portion of the settlement. See, e.g.,

Berg’s reply br. at 43. It squarely bases

this right on its “payment of the

[arbitration] award.” Berg’s br. at 3. 

While it is true that under the arbitration

award if Berg had paid Huadu the cash

awarded it could have taken the freeze

dryers back, this recapture merely would

have lessened the value of Huadu’s

recovery. Yet when Berg settled by

paying the $1,000,000 and allowing

Huadu to retain the equipment, it is not

clear that it gave up anything it had a

right to reclaim as it appears that Huadu

had paid 97% of the purchase price

specified in the Equipment Contract and

thus we do not understand why Berg

under the contract could have reclaimed

the equipment. Of course, once the

settlement was reached the parties’ rights

under the arbitration award were

superseded. Viewed from this

perspective by giving up the equipment

Berg suffered no damage and thus, other

than for its expenses its damages were

only $1,000,000 not $1,650,000. But we

make no ruling on this point for while

SPI contends that Berg did not show that

it was entitled to the $650,000 in

damages related to the Equipment Credit,

SPI predicates this contention on a theory

relating to the possible value of the

equipment and not on the theory we

advance.
29

Purchase Agreement between Hull and

SPI, and as a result incorrectly held SPI

liable for breach of the Equipment

Contract and Modified Agreement.44

Under Section 7.8 of the Asset Purchase

Agreement, SPI did not agree to assume

any liability as to third-party claimants

such as Berg for any machinery shipped

prior to the closing of the agreement. 

Because the district court made this

finding, it did not address Berg’s claims

that SPI was liable as a successor to Hull

under the de facto merger and

continuation doctrines. Accordingly, we

will remand this matter for the court to

consider SPI’s successor liability on

these theories and, if it is liable, also to

consider Berg’s claim that Hull and SPI

should be held jointly and severally liable

to it.

The court also erred in denying

SPI’s claim for indemnification from

Hull and we accordingly will reverse the

order for judgment to the extent it did so. 

Under Section 8.2(c) of the Asset

Purchase Agreement, Hull was obligated

to defend and indemnify SPI as to any

“liability or obligation of Seller.” On

remand, the district court should vacate

the order denying indemnification and

should enter judgment in favor of SPI

and against Hull on SPI’s

indemnification claim. The district court

in entering the judgment should

determine the reasonable attorneys’ fees

and costs which SPI expended in

defending this litigation and issue an

award pursuant to Section 8.5 of the

Asset Purchase Agreement in its favor

and against Hull.

We also find that Berg is entitled

to indemnification from Hull and we will

reverse the order for judgment to the

extent that it denied that claim and will

remand the matter to the district court to

enter a judgment for indemnification. 

But Berg’s claim for indemnification

from SPI must await the determination of

the district court on remand on Berg’s

successor liability arguments under the

de facto merger and continuation

doctrines. Finally, we will reverse the

judgment to the extent that it denied Berg

recovery of damages based on the

$650,000 Equipment Credit and will

reverse the order of the district court to

the extent that it denied these damages.

As between themselves Berg and

SPI shall bear their own costs on this

appeal but costs shall be taxed in favor of

each of them against the Hull

Corporation.

 

44Berg maintains that Section 7.8 is

void as against public policy. Inasmuch

as the district court incorrectly

interpreted that provision it never

reached this issue. On remand, the

district court should address Berg’s

argument.