Opinion ID: 3009926
Heading Depth: 3
Heading Rank: 2

Heading: Change in Facts Essential to Schmoll

Text: 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.