1995 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

5-10-1995

Raytech v White

Precedential or Non-Precedential:

Docket 94-1347

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Recommended Citation

"Raytech v White" (1995). 1995 Decisions. Paper 128.

http://digitalcommons.law.villanova.edu/thirdcircuit_1995/128
 UNITED STATES COURT OF APPEALS 

 FOR THE THIRD CIRCUIT 

 ___________ 

 No. 94-1347 

 ___________ 

 RAYTECH CORPORATION, 

 Appellant, 

 vs. 

 EARL WHITE; YVONNE WHITE; PASQUALE DICINTIO; 

MARIE DICINTIO; LARRY BENZIE, EXECUTOR OF THE 

ESTATE OF EDWARD BENZIE; EUGENE 

KLINGENBERGER; MARGIE KLINGENBERGER; JOHN DOE 

& ALL OTHERS SIMILARLY SITUATED; 

 Appellees. 

 CREDITORS' COMMITTEE; OREGON CLAIMANTS, 

 (Intervenors in District Court) 

 ___________ 

 APPEAL FROM THE UNITED STATES DISTRICT COURT 

 FOR THE EASTERN DISTRICT OF PENNSYLVANIA 

 (D.C. Civil No. 92-cv-01451) 

 ___________ 

 ARGUED NOVEMBER 1, 1994 

 BEFORE: SCIRICA, LEWIS and RONEY,* Circuit Judges. 

 (Filed May 10, 1995) 

 

* Honorable Paul H. Roney, United States Circuit Judge for 

the Eleventh Circuit Court of Appeals, sitting by designation. 
 ___________ 

William N. Reed (ARGUED) 

Stuart G. Kruger 

Watkins, Ludlam & Stennis 

633 North State Street 

Post Office Box 427 

Jackson, MS 39205 

 Attorneys for Appellant

Timothy E. Eble (ARGUED) 

Ness, Motley, Loadholt, Richardson & Poole 

151 Meeting Street 

Suite 600 

Charleston, SC 29402 

 Attorney for Appellees, Earl White and Yvonne 

White, and Eugene Klingenberger and Margie 

Klingenberger

Jan D. Ginsberg 

Robert E. Sweeney, Jr. & Co. 

55 Public Square 

1500 Illuminating Building 

Cleveland, OH 44113 

 Attorney for Appellee, Larry Benzie, Executor 

of the Estate of Edward Benzie

Robert F. Carter (ARGUED) 

Donna Civitello 

Carter & Civitello 

One Bradley Road 

Suite 301 

Woodbridge, CT 06525 

David M. Lesser 

One Bradley Road 

Suite 302 

Woodbridge, CT 06525 

 Attorneys for Appellees, John Doe, and All 

Others Similarly Situated

Michael L. Temin (ARGUED) 

Wolf, Block, Schorr & Solis-Cohen 

S.E. Corner 15th and Chestnut Streets 

Packard Building, 12th Floor 

Philadelphia, PA 19102 

 Attorneys for Intervenors, Creditors' 

Committee

 ____________ 

 OPINION OF THE COURT 

 ____________ 

LEWIS, Circuit Judge. 

 In this case we must determine whether the appellant, 

Raytech Corporation ("Raytech"), a corporate offspring of Raymark 

Industries ("Raymark"), is precluded from relitigating the issue 

of its successor liability for Raymark's asbestos liabilities. 

We conclude that Raytech is collaterally estopped from 

relitigating this issue, and will, accordingly, affirm the 

district court's ruling to this effect. 

 I. FACTS 

 Beginning in the early 1970s, Raymark, known at that 

time as Raybestos-Manhattan, Inc., a manufacturer of asbestoscontaining products, was named as the defendant in thousands of 

personal injury complaints around the country.1 As a result of 

this burgeoning asbestos litigation, Raymark suffered a severe 

financial decline.2 In response to its financial woes, between 

 

1. By June 26, 1988, Raymark had been named as a defendant in 

more than 68,000 cases. 

2. In 1981, Raymark had a net worth of $112.4 million. By 

1985, the reported net worth had dropped to $3.6 million. 
1982 and 1988 Raymark reorganized its corporate structure. 

Pursuant to this restructuring, Raybestos-Manhattan became 

Raymark Industries and Raytech, and, significantly, Raytech 

obtained ownership of Raybestos-Manhattan's two historically 

lucrative businesses, but without the drain of the asbestosrelated litigation.3

 

3. The steps in the restructuring are described in graphic 

detail by the United States District Court for the District of 

Oregon in Schmoll v. ACandS, Inc., 703 F. Supp. 868, 870-71 (D. 

Or. 1988). We recount these steps here. STEP 1: In 1982, 

Raybestos-Manhattan changed its name to Raymark Industries and 

created Raymark Corporation as a holding company for Raymark 

Industries. Raymark Corporation's only asset was the stock of 

Raymark Industries. In 1985 Raymark Industries' assets included 

an operating division, Wet Clutch & Brake, and the stock of a 

German subsidiary, Raybestos Industrie -- Products G.m.b.H. 

("RIPG") STEP 2: In June 1986, Raymark Corporation created 

Raytech as a wholly owned subsidiary. STEP 3: Raytech then 

created Raysub as a wholly owned subsidiary. Raytech and Raysub 

were created solely to carry out the merger described in STEP 4. 

See Schmoll, 703 F. Supp. at 870. STEP 4: In October 1986, 

Raymark Corporation merged into Raysub, with Raymark Corporation 

surviving as a wholly-owned subsidiary of Raytech. In this 

merger, each outstanding share of Raymark common stock was 

converted into one share of Raytech stock. Raytech, designated 

the "holding company," was entirely owned by the former 

shareholders of Raymark Corporation. As a result of this merger, 

Raytech, the parent of Raysub, became the parent of Raymark 

Corporation. Raytech then owned 100 percent of the stock of 

Raymark Corporation, which owned 100 percent of the stock of 

Raymark Industries. STEP 5: In 1987, Raytech purchased Raymark 

Industries' two most profitable assets, the Wet Clutch & Brake 

Division and the stock of RIPG. Raytech purchased the Wet Clutch 

& Brake Division for $76 million. Payment consisted of 

approximately $15 million in cash, $10 million worth of Raytech 

stock at closing with another $6 million in stock to be 

transferred later, and $46 million in unsecured notes. The Wet 

Clutch & Brake Division, the largest of Raymark Industries' 

business operations, had significant profit potential. Raytech 

purchased the RIPG stock owned by Raymark Industries for $8.2 

million. This sale included a cash payment of $3.9 million, with 

the balance financed by an unsecured note. Significantly, the 

asbestos claims against Raymark Industries did not arise from 

either the Wet Clutch & Brake Division or RIPG. See id. at 871 
 In 1988, Raymond Schmoll brought one of the many 

asbestos-related lawsuits brought against Raymark and Raytech. 

See Schmoll v. ACandS, Inc., 703 F. Supp. 868 (D. Or. 1988). Mr. 

Schmoll sued Raymark and Raytech in the United States District 

Court for the District of Oregon, seeking damages for injuries 

allegedly caused by his inhalation of asbestos dust from products 

manufactured or sold by the defendants. Schmoll and 

Raymark/Raytech agreed to submit to the district court the 

question whether Raytech was a successor in liability to Raymark 

Industries. Following receipt of extensive briefing on the 

issue, the district court found that Raytech was a successor in 

liability to Raymark Industries for Raymark's production, sale 

and distribution of products containing asbestos, and that 

Raytech was legally responsible for Raymark's strict liability 

torts. Schmoll, 703 F. Supp. at 875. 

 In March of 1989, Raytech filed a petition under 

Chapter 11 of the Bankruptcy Code in the United States Bankruptcy 

Court for the District of Connecticut. Raytech then filed this 

adversary proceeding seeking a declaratory judgment that it is 

not liable for the asbestos-related torts of Raymark. At 

Raytech's behest, the adversary proceeding was transferred to the 

(..continued) 

(footnotes omitted). STEP 6: In 1988, Raytech sold Raymark 

Corporation, and thus Raymark Industries, to Asbestos Litigation 

Management ("ALM"), a wholly-owned subsidiary of Litigation 

Control Corporation ("LCC"), whose business includes claims 

processing, document control and retention, and other services to 

companies involved in complex litigation, for $1 million. 

Asbestos Litigation Management paid $50,000 in cash and a 

$950,000 unsecured promissory note for all Raymark Corporation's 

assets and liabilities. 
United States District Court for the District of Connecticut. 

The district court sought briefing on the question of the 

preclusive effect of the Schmoll decision upon Raytech's 

declaratory judgment action, and concluded in light of the 

arguments presented that Schmoll collaterally estopped Raytech 

from relitigating the issue of its successor liability for the 

asbestos-related torts of Raymark. 

 The case was then transferred, pursuant to 28 U.S.C. 

section 1412, to the United States District Court for the Eastern 

District of Pennsylvania.4 In early 1994, the district court 

certified for immediate appeal the Connecticut district court's 

ruling that Raytech was estopped from denying successor 

liability. 

II. 

 We review for abuse of discretion whether the district 

court properly applied the doctrine of collateral estoppel. 

McLendon v. Continental Can Co., 908 F.2d 1171, 1177 (3d Cir. 

1990) (citing Park Lane Hosiery Co. v. Shore, 439 U.S. 322, 331 

(1979)). Our standard of review is not affected by the fact that 

this case involves the application of offensive collateral 

estoppel.5 As the Supreme Court indicated in Park Lane Hosiery, 

 

4. 28 U.S.C. § 1412 provides: 

 A district court may transfer a case or 

proceeding under title 11 to a district court 

for another district, in the interest of 

justice or for the convenience of the 

parties. 

5. Offensive collateral estoppel occurs whenever a plaintiff 

seeks to estop a defendant from relitigating an issue which the 
the application of offensive collateral estoppel is also within 

the discretion of the trial court. Park Lane Hosiery, 439 U.S. 

at 331. Therefore, in reviewing the district court's decision to 

apply offensive collateral estoppel, we are bound by the abuse of 

discretion standard. Id. 

 Application of collateral estoppel requires 

consideration of a number of factors. Traditionally, courts have 

required the presence of four factors before collateral estoppel 

may be applied: (1) the identical issue was previously 

adjudicated; (2) the issue was actually litigated; (3) the 

previous determination was necessary to the decision; and (4) the 

party being precluded from relitigating the issue was fully 

represented in the prior action. United Industrial Workers v. 

Government of the Virgin Islands, 987 F.2d 162, 169 (3d Cir. 

1993). The Supreme Court has also recognized, however, that 

(..continued) 

defendant previously litigated and lost against another 

plaintiff. Park Lane Hosiery Co. v. Shore, 439 U.S. 322, 329 

(1979). In actuality, this case involves, as did Park Lane 

Hosiery, the use of offensive non-mutual collateral estoppel. 

The use of offensive collateral estoppel here is said to be "nonmutual" because Earl White and the other defendants in Raytech's 

declaratory judgment action -- present or future claimants 

against Raytech -- are seeking to bind Raytech to a judgment in a 

previous case -- Schmoll -- to which they themselves cannot be 

bound. See Id. at 327 n.7 (stating that it is a violation of due 

process for a judgment to be binding on a litigant who was not a 

party or a privy and therefore has never had an opportunity to be 

heard (citing Blonder-Tongue Laboratories, Inc. v. University of 

Illinois Foundation, 402 U.S. 313, 329 (1971))). For the sake of 

simplicity we will refer to the operative concept as "offensive 

collateral estoppel," though it is understood that every 

reference in this opinion to "offensive collateral estoppel" is 

actually a reference to "offensive non-mutual collateral 

estoppel." 
collateral estoppel is inappropriate if facts essential to the 

earlier litigated issue have changed. Montana v. United States, 

440 U.S. 147 (1979). Finally, in cases involving the offensive 

use of collateral estoppel, the Supreme Court has instructed that 

courts must take special care to ensure that its application does 

not work unfairness to party against whom estoppel is asserted. 

 Of the traditional four factors relevant to collateral 

estoppel, only one -- whether there is an identity of issues -- 

is pressed by Raytech in this appeal. Raytech also contends, 

however, that facts essential to the Schmoll decision have 

changed, and that the application of offensive collateral 

estoppel would inflict unfairness upon it. We will address each 

of these arguments in turn. 

 A. Identity of Issues

 Raytech concedes that the only element of the four-part 

collateral estoppel test at issue in this appeal is whether the 

issue before the court in Schmoll is identical to the issue 

raised by Raytech in its declaratory judgment action before the 

district court in Connecticut. To defeat a finding of identity 

of the issues for preclusion purposes, the difference in the 

applicable legal standards must be "substantial." See 1B Moore's 

Federal Practice ¶ .443[2] at 572 ("To avoid collateral estoppel 

on the ground that the facts found in the first action have a 

different legal significance in the second suit, it is necessary 

to show that the difference in significance is substantial."); 

accord Jim Beam Brands Co. v. Beamish & Crawford Ltd., 937 F.2d 

729, 734 (2d Cir. 1991) ("Issues that may bear the same label are 
nonetheless not identical if the standards governing them are 

significantly different."); James Talcott, Inc. v. Allahabad 

Bank, Ltd., 444 F.2d 451, 459 n.8 (5th Cir. 1971) ("There are 

circumstances when the same historical factual circumstances may 

be involved in the two actions, but the legal significance of the 

fact differs in the two actions because different legal standards 

are simultaneously applicable to it. This is a very narrow 

exception to the rule with respect to identity of issues, 

however, and is applicable only when there is a demonstrable 

difference in the legal standards by which the facts are 

evaluated."). To resolve this issue, we must, of course, 

identify the precise question or questions at issue both in 

Schmoll and in this case. 

 In Schmoll, the court faced the issue "whether Raytech 

is liable as a successor for Raymark Industries' production, sale 

and distribution of products containing asbestos." Schmoll, 703 

F. Supp. at 869. This issue necessitated a determination of 

whether the transfers of corporate assets resulting in the 

formation of Raytech were designed to escape asbestos-related 

liability. See Schmoll, 703 F. Supp. at 872. In its complaint 

in this case, Raytech states that it seeks "a declaratory 

judgment that it is not liable for the asbestos-related personal 

injury claims asserted against Raymark Corporation and/or Raymark 

Industries, Inc." Raytech's complaint further specifies that it 

seeks a declaration that "[u]nder the applicable law, neither 

Raytech nor any non-filing subsidiary is a successor in interest" 

to either Raymark Corporation or Raymark Industries. 
 At first blush, the issues presented by the two cases 

appear identical. And while we believe them to be identical in 

the final analysis, we acknowledge that the question of their 

identity is more difficult than it might at first seem. 

 In Schmoll, the court sought to determine whether under 

Oregon law, Raytech was liable as a successor for Raymark's 

asbestos-related liability. See Schmoll, 703 F. Supp. at 872 

n.6. In this case, the district court faced the question 

whether, under some undetermined "applicable law," Raytech is 

liable as a successor for Raymark's asbestos-related liability. 

According to Raytech, in all jurisdictions except the state of 

Oregon, fraudulent conduct in connection with a corporate sale of 

assets must be found before successor liability may be imposed. 

Thus, Raytech contends, in Schmoll, a case decided under Oregon 

law, the court did not decide the very issue presented by this 

case, namely, whether the transactions creating Raytech were 

carried out fraudulently in order to escape liability. "Any fair 

reading of the Schmoll opinion," Raytech argues, "reveals 

immediately that the Court not only did not decide the fraud 

issue, it obviously did not consider fraud to be an element of 

the `fraudulent transaction' exception under Oregon law."

 Raytech's arguments to the contrary notwithstanding, 

Oregon's law of successor liability is neither substantially nor 

even demonstrably different from the law of successor liability 

applicable in other jurisdictions. An examination of court's 

analysis in Schmoll reveals that the issue presented and 

determined in Schmoll is identical to the issue presented for 
determination in this case. In Schmoll the court began its 

analysis by stating that "Oregon courts reject transfers of 

corporate assets designed to escape liability." Schmoll, 703 F. 

Supp. at 872. The court proceeded to assess the effects of the 

asset transfer involved in the creation of Raytech: 

 Raymark Industries had valuable assets, RIPG 

and Wet Clutch & Brake. It conveyed these 

assets to Raytech, which was owned by Raymark 

Industries' former shareholders. This 

transaction left Raymark Industries with 

staggering asbestos liabilities, unprofitable 

operations, unsecured notes, and stock which 

could not be sold in large blocks without a 

deep discount. 

 Present and future asbestos tort 

claimants, as Raymark Industries' potential 

creditors, were likewise left with little in 

the transaction. The money Raytech paid for 

Raymark Industries' profit-generating assets 

will not adequately compensate present and 

future claimants. If Raytech escapes 

liability for Raymark Industries' torts, 

these creditors will no longer have access to 

Raymark Industries' valuable assets or to the 

potential stream of profits generated by 

these assets. 

Schmoll, 703 F. Supp. at 873. Based largely upon these indicia 

of bad intent, the court concluded that although the corporate 

restructuring met the technical formalities of corporate form, 

because they were "designed with the improper purpose of escaping 

asbestos-related liabilities," there was "no just reason to 

respect the integrity of the transactions." Id. at 874. Raymark 

had made substantial profits from the production of asbestoscontaining products, and the Schmoll court was not going to let 

it avoid liability by transferring its profitable assets while 
leaving of itself "no more than a corporate shell unable to 

satisfy its asbestos-related obligations." Id. 

 As already noted, Raytech has sought to distinguish 

Schmoll's successor liability analysis from the successor 

liability analysis required in "every other jurisdiction" 

principally by pointing out Schmoll's failure to make an explicit 

finding that the transactions giving rise to Raytech involved 

"fraudulent" conduct. Again, according to Raytech, in every 

jurisdiction but Oregon, the law requires a specific finding of 

fraud before successor liability may be imposed. This simply is 

not the case.6 To impose liability on the successor corporation, 

the law in every jurisdiction, including Oregon, requires a 

finding that the corporate transfer of assets "is for the 

fraudulent purpose of escaping liability." Fletcher Cyclopedia 

of the Law of Private Corporations § 7122 at 232. The word 

 

6. It is a "well-settled rule of corporate law [that] where 

one company sells or transfers all of its assets to another, the 

second entity does not become liable for the debts and 

liabilities, including torts, of the transferor." Polius v. 

Clark Equipment Co., 802 F.2d 75, 77 (3d Cir. 1986). This then 

is the general rule of successor liability, recognized in all 

jurisdictions: when a corporation purchases all or most of the 

assets of another corporation, the purchasing corporation does 

not assume the debts and liabilities of the selling corporation. 

See 15 Fletcher Cyclopedia of the Law of Private Corporations

§ 7122 at 232. There are four widely recognized exceptions to 

this general rule. The successor corporation does inherit 

liability where (1) the purchaser expressly or implicitly agrees 

to assume liability, (2) the purchase is a de facto consolidation 

or merger, (3) the purchaser is a mere continuation of the 

seller, or (4) the transfer of assets is for the "fraudulent 

purpose of escaping liability." Id. The parties dispute neither 

the nation-wide applicability of the general rule nor the 

presence in every jurisdiction of the four exceptions. 
"fraudulent," as it appears in Fletcher's Cyclopedia, the very 

source cited by Raytech as setting forth the four exceptions to 

successor non-liability "recognized in all jurisdictions" (see

n.6 supra), characterizes or modifies not the actual means of the 

transfer of assets or the conduct undertaken in furtherance 

thereof, but rather the purpose of such transfer. Under 

Fletcher's articulation of the exception, transferring corporate 

assets for the purpose, or with the intention, of escaping 

liability is, by definition, a transfer of assets with fraudulent 

purpose. 

 As the district court observed, implicit in Schmoll is 

the finding that the transfer of corporate assets giving rise to 

Raytech, undertaken for the purpose or with the intent of 

escaping liability, was a transfer undertaken with fraudulent 

purpose or intent. Even though the court in Schmoll omitted the 

word "fraudulent" in the course of its successor liability 

analysis, the indicia of improper purpose upon which the Schmoll

court largely relied are the same factors that Raytech itself 

acknowledges are generally considered by courts when determining 

whether a transfer of corporate assets was undertaken for the 

fraudulent purpose of escaping liability. Thus, the issue 

addressed and resolved by Schmoll is "in substance the same" 

issue Raytech has raised in this case; accordingly, we conclude 

that the collateral estoppel doctrine's identity of issues 

requirement is satisfied in these circumstances. See Montana v. 

United States, 440 U.S. 147, 155 (1979) (the identity of issues 
requirement is fulfilled where the issues in the current case are 

"in substance the same" as those previously resolved).7

 B. Change in Facts Essential to Schmoll

 As noted above, even if all four requirements of 

collateral estoppel are met, changes in "controlling" facts, that 

is, facts "essential to a judgment" will render collateral 

estoppel inapplicable in a subsequent action raising the same 

issues. Montana, 440 U.S. at 155, 159. Raytech contends that 

facts essential to the judgment in Schmoll have changed and that 

it should not be collaterally estopped from raising the successor 

liability issue again in this case. 

 Raytech argues that central to the Schmoll court's 

successor liability analysis was its view that Raymark would not 

realize the full benefit of the sale to Raytech of RIPG and Wet 

Clutch & Brake. Indeed, the Schmoll court observed that at the 

time of the sale of these assets to Raytech, Raymark received the 

 

7. Entangled within its argument that Oregon law is outside 

the realm of traditional successor liability law is Raytech's 

argument that Schmoll was simply wrongly decided. However, we 

need not dwell on this contention. Any argument that the 

successor liability issue was erroneously decided in Schmoll is 

wholly without relevance to our collateral estoppel inquiry. "A 

judgment merely voidable because based on an erroneous view of 

the law is not open to collateral attack." Federated Department 

Stores, Inc. v. Moitie, 452 U.S. 394, 398 (1981). Not only is 

the argument that Schmoll was wrongly decided irrelevant, it is 

brought before a tribunal thousands of miles from whence it 

arose. The remedy for a wrongly decided district court case from 

the District of Oregon is, of course, appeal to the Ninth Circuit 

and possible review by the Supreme Court. Raytech did in fact 

appeal Schmoll to our sister court of appeals -- and lost. See

Schmoll v. ACandS, Inc., 977 F.2d 499 (9th Cir. 1992). Raytech 

apparently did not seek Supreme Court review. 
lion's share of the purchase price in the form of unsecured notes 

and Raytech stock that could not be sold in large blocks without 

a deep discount. See Schmoll, 703 F. Supp. at 873. According to 

Raytech, the facts regarding Raytech's payment for the assets 

purchased from Raymark have changed dramatically since Schmoll

was decided. Raytech argues that the evidence available now, 

which was not and could not have been presented to the court in 

Schmoll, establishes that all notes made payable to Raymark by 

Raytech are current and all stock payments have been made in cash 

in lieu of stock at Raymark's request. Raytech further notes 

that of the $85.1 million Raytech agreed to pay for the assets in 

question, Raytech has paid in excess of $63 million to date. 

Thus, Raytech argues, with these new facts in hand, facts which 

it considers "essential to the judgement" for purposes of 

assessing the applicability of collateral estoppel, the court in 

Schmoll would not have imposed successor liability upon it. 

 We begin by parsing an old, familiar source to acquire 

a sense of what "essential" encompasses in this context. That 

which is indispensably necessary or requisite is commonly 

referred to as "essential." See Blacks Law Dictionary 490 (5th 

ed. 1979). Under the generally accepted meaning of the term, a 

fact may be deemed essential to a judgment where, without that 

fact, the judgment would lack factual support sufficient to 

sustain it. See id. ("[t]hat which is required for the continued 

existence of a thing" is essential). What facts were essential 

to the Schmoll decision, is, of course, the question. To answer 

this question, we turn again to the Schmoll opinion. 
 In deciding to impose successor liability upon Raytech, 

the court in Schmoll relied in part upon the presence of direct 

evidence of intent to avoid liability. For example, the court 

relied upon statements made by participants in the suspect 

transactions indicating that the elaborate transfer of assets had 

been designed specifically to effect the avoidance of liability. 

Schmoll, 703 F. Supp. at 873-74. The court noted Raymark's 1985 

annual report, in which the company articulated its long term 

strategy: 

 to protect and enhance shareholder 

investment, to maximize the amounts available 

for deserving asbestos-injured claimants and 

to limit exposure for asbestos claims only to 

businesses currently threatened, thus 

enabling our other businesses and any new 

business opportunities to grow, unshadowed by 

the cloud of asbestos liability. 

Schmoll, 703 F. Supp. at 873-74. The court also noted the 

statements of John Kutzler and Craig Smith, holders of various 

high-level positions at both Raymark and Raytech. Mr. Kutzler 

had stated that the intention of the restructuring "`was to 

remove an asset through different ownership from the exposure of 

the asbestos litigation.'" Id. at 874. Mr. Smith testified that 

the restructuring had been designed to insulate Raytech from 

Raymark's liabilities. Id. 

 The court also examined the overall context of the 

corporate restructuring, finding that it smacked of dubious 

intent. 

 Raymark Corporation changed from the parent 

of Raymark Industries to the subsidiary of 

Raytech to the subsidiary of ALM. Raytech 

purchased Raymark Corporation's two valuable 
assets and then sold the remainder to ALM for 

$1 million. It is inconceivable that in an 

arms-length corporate transaction, a buyer 

would have purchased an entity [i.e., Raymark 

Corporation] so lacking in assets and laden 

with liabilities. 

Schmoll, 703 F. Supp. at 874. The court was also deeply troubled 

by the fact that Raytech was entirely owned by the former 

shareholders of Raymark Industries, so that the exact same 

shareholders who once owned a company, i.e., Raymark Industries, 

possessing both profitable assets and staggering asbestos 

liabilities, now owned a company, i.e., Raytech, possessing 

profitable assets and no asbestos liability. The ownership of 

ALM, the entity upon which Raytech foisted Raymark's asbestos 

liabilities, also factored into the court's decision to impose 

successor liability. ALM was a wholly owned subsidiary of the 

Litigation Control Corporation. Craig Smith was a division 

president at Raymark Corporation from 1980 to 1985. In 1985, 

Smith became president and chief executive officer of Raymark. 

By the time Schmoll was decided, Smith had become president and 

chief executive officer of Raytech, and had established the 

Litigation Control Corporation. Moreover, at the time Schmoll

was decided, Smith owned 45 percent of the shares of the 

Litigation Control Corporation, with his son owning another 15 

percent. This is precisely why the court doubted the bona fides

of the sale of Raymark to ALM following the purchase by Raytech 

of Raymark's profitable assets. While the court also placed some 

emphasis upon the facts that Raytech had passed unsecured notes 

and Raytech stock of questionable value to Raymark as part of the 
purchase price for RIPG and Wet Clutch & Brake, the court appears 

to have been equally troubled by the fact that the restructuring 

left Raymark's creditors without access to the potential stream 

of profits generated by RIPG and Wet Clutch & Brake. See

Schmoll, 703 F. Supp. at 873. This latter concern would have 

been warranted regardless of the value of the consideration 

passed by Raytech to Raymark. 

 Based upon all of these considerations, the Schmoll

court imposed successor liability upon Raytech. And for the 

following reasons, we believe the court would have done so even 

if it had known of Raytech's continued payments of its note and 

stock obligations. 

 First, Raytech's contention in this appeal that 

"essential facts" have changed is in fact an updated version of a 

similar argument it made on appeal of the Schmoll decision before 

the Court of Appeals for the Ninth Circuit. In its brief filed 

in the Ninth Circuit, Raytech urged (with citations to the trial 

court record) that the court consider that "[a]s of the time of 

trial, Raytech had paid Raymark each of the note and stock 

payments required by the contracts for the purchase and sale of 

GmbH and WC&B." Thus, while Raytech has paid substantially more 

of its note and stock obligations since the time of the Schmoll

trial, and in that sense, certain facts have changed, it cannot 

be argued that the basic fact of Raytech's payment on the notes 

was unknown to the Schmoll court when it imposed successor 

liability. 
 We also note that it was not the failure or the 

inadequacy of consideration proffered by Raytech for the purchase 

of Raymark's profitable assets that so deeply troubled the court 

in Schmoll; instead the court viewed the transaction as rife with 

improper intent, due in part to the type of consideration passed. 

Whether Raytech paid on the unsecured notes or not, the notes 

remained unsecured. And while the Schmoll court relied upon the 

unsecured status of the notes to confirm its view that the 

transaction was not an arm's-length deal, it never per se 

addressed the collectibility of the notes, or the prospect of 

payments being made pursuant to them. We agree with the 

Committee of Unsecured Creditors of Raytech Corporation: had the 

Schmoll court compared the value of the consideration paid by 

Raytech to Raymark to the value of the assets transferred, and 

had it found the value of the former significantly less than the 

latter because of doubts as to the ability or willingness of 

Raytech to honor its obligations, then Raytech's "changed 

essential facts" argument might have force. Supplemental Brief 

of Appellees Committee of Unsecured Creditors of Raytech 

Corporation at 7. But that is not what happened. The Schmoll

court did not address the likelihood that the notes given by 

Raytech would not be paid. 

 In light of the fact that evidence of payment on the 

notes during the one year preceding the Schmoll trial was placed 

before both the Schmoll court and the Ninth Circuit, coupled with 

the fact that neither the district court in Schmoll nor the Ninth 

Circuit on Raytech's appeal were particularly impressed by the 
fact of Raytech's payments, we conclude that Raytech's evidence 

of additional payments on the notes and stock obligations does 

not establish a change in facts essential to the Schmoll

judgment. 

 C. Fairness Considerations

 The Supreme Court has granted district courts "broad 

discretion" to determine when a plaintiff who has met the 

requisites for the application of collateral estoppel may employ 

that doctrine offensively. See Park Lane Hosiery Co. v. Shore, 

439 U.S. 322 (1979). In an attempt to provide general guidance 

as to the exercise of that discretion, the Court explained that: 

 If a defendant in the first action is sued 

for small or nominal damages, he [or she] may 

have little incentive to defend vigorously, 

particularly if future suits are not 

foreseeable. Allowing offensive collateral 

estoppel may also be unfair to a defendant if 

the judgment relied upon as a basis for the 

estoppel is itself inconsistent with one or 

more previous judgments in favor of the 

defendant. Still another situation where it 

might be unfair to apply offensive estoppel 

is where a second action affords the 

defendant procedural opportunities 

unavailable in the first action that could 

readily cause a different result . . . . The 

general rule should be that in cases where a 

plaintiff could easily have joined in the 

earlier action or where, either for the 

reasons discussed above or for other reasons, 

the application of offensive estoppel would 

be unfair to a defendant, a trial judge 

should not allow the use of offensive 

collateral estoppel. 
Id. at 330-31 (citations and footnotes omitted). A finding of 

fairness to the defendant is thus a necessary premise to the 

application of offensive collateral estoppel.8 

 In arguing that it would be unfairly penalized if 

collaterally estopped from relitigating the successor liability 

issue, Raytech places principal reliance, again, upon its 

argument that critical facts have changed.9 As should be clear 

from our prior discussion, we do not agree that facts essential

to the Schmoll decision have changed. But it is also beyond 

debate that certain facts have changed. In the aftermath of the 

Schmoll decision, for instance, Raytech has paid over to Raymark 

considerable additional sums of money.10 The question is, do the 

 

8. This notion of fairness reflects the equitable nature of 

issue preclusion generally. See Jack Faucett Associates v. 

American Tel. & Tel., 744 F.2d 118, 125 (D.C. Cir. 1984). The 

Court of Appeals for the Fifth Circuit has commented that 

offensive collateral estoppel is "even a cut above [collateral 

estoppel] in the scale of equitable values." Nathans v. Sun Oil 

Co. (Delaware), 705 F.2d 742, 744 (5th Cir. 1983). 

9. Most of the other points Raytech makes in support of its 

fairness argument are, in actuality, attempts by Raytech to 

challenge the Schmoll opinion on the merits. As for Raytech's 

argument that it could not have foreseen the import of the 

Schmoll case at the time the case was litigated, we agree with 

the district court that the record only serves to belie this 

position and suggests instead that Raytech was well aware of the 

stakes involved in Schmoll. The Schmoll court itself observed 

that the parties submitted thousands of pages of documents and 

deposition transcripts for its consideration regarding the 

successor liability issue. See Schmoll, 703 F. Supp. at 869. 

10. According to Raytech, Raytech has paid Raymark over 

$63 million to date for the sale of RIPG and Wet Clutch & Brake. 

While we do not know how much of this money Raytech has paid 

since the handing down of the Schmoll decision, we think it safe 

to conjecture that Raytech has paid over to Raymark several tens 

of millions of dollars since Schmoll was decided. 
factual changes that have occurred render the application of 

collateral estoppel unfair to Raytech? We do not think so. 

 In the wake of Schmoll, Raytech has had every incentive 

to act in a manner so as to fortify its argument that it should 

not be collaterally estopped from relitigating the issue of its 

successor liability. Moreover, equitable appearances have, no 

doubt, been shaded to Raytech's advantage as a result of its 

continued payments on the unsecured notes. However, while we 

fully understand that it would be unfortunate from Raytech's 

perspective were the district court's application of collateral 

estoppel allowed to stand, we fail to see how such an eventuality 

might be deemed "unfair" to Raytech as that term is utilized in 

Park Lane Hosiery. We have already concluded that the Schmoll

court would reach the same result were it now presented with the 

issue of Raytech's successor liability, changes in facts 

notwithstanding. The necessary implication of this conclusion is 

that Raytech will suffer absolutely no unfairness should the 

district court's application of collateral estoppel stand. 

 III. CONCLUSION 

 Having found the requisite identity of issues, and 

having concluded that essential facts have not changed between 

the time Schmoll was decided and the time the district court 

applied the doctrine of collateral estoppel in this case, we 

cannot but conclude that the district court did not abuse its 
discretion in barring the relitigation of Raytech's successor 

liability. We will, therefore, affirm. 

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