Court Opinion

ID: 9496792
Source: CourtListenerOpinion
Date Created: 2023-08-05 16:35:23.262875+00
Date Added: 2024-06-11T17:57:47.965566
License: Public Domain

GARTH, Circuit Judge,
dissenting.
The majority of this panel has remanded Ms. Brzozowski’s case to the District Court for further inquiry into the timeliness of her attempt to amend her Complaint to add Prison as a defendant.5 I am pleased that the majority has seen fit to remand, but distressed that it has not affirmed in toto the District Court’s judgment which denied Ms. Brzozowski relief. I therefore respectfully dissent.
Considering (1) the equitable nature of the “successor doctrine,” (2) the prejudice that Prison would suffer if Ms. Brzozowski were allowed to amend her Complaint, and (3) the inescapable conclusion that Ms. Brzozowski’s desire to add Prison as a defendant represents the paradigm search for the deepest available pocket, it is evident to me that the District Court correctly denied Ms. Brzozowski’s motion to join Prison as an additional defendant and that Prison should prevail. The polestar of the “successor doctrine” is equity, and I suggest strongly that equity has not triumphed in the opinion of the majority.6
I.
“Equity” has been said to be “the body of principles constituting what is fair and right ... the recourse to principles of justice to correct or supplement the law as applied to particular circumstances.” Black’s Law Dictionary 560 (7th ed. 1999). As this Court has stated, successor liability is a doctrine derived from equitable principles, and the principle of fairness is the *183prime consideration in its application. Rego v. ARC Water Treatment Co. of Pa., 181 F.3d 396, 401 (3d Cir.1999). That doctrine, however, has necessarily been qualified. In Ed Peters Jewelry Co., Inc. v. C & J Jewelry Co., Inc., et al., 124 F.3d 252, 274 (1st Cir.1997), the First Circuit said that “the successor doctrine is derived from equity principles and it would be grossly unfair, except in the most exceptional circumstances, to impose successor liability on an innocent purchaser when the predecessor is fully capable of providing relief.”
The Seventh Circuit added to the equitable gloss of the successor liability doctrine when, using some of the same language, it stated:
the successor doctrine is derived from equity principles, and it would be grossly unfair, except in the most exceptional circumstances, to impose successor liability on an innocent purchaser when the predecessor is fully capable of providing relief or when the successor would not have the opportunity to protect itself.
Musikiwamba v. ESSI, Inc., 760 F.2d 740, 750 (7th Cir.1985). Other courts have chimed in to the same effect. See, e.g., Criswell v. Delta Air Lines, 868 F.2d 1093, 1094 (9th Cir.1989) (citing to Musikiwamba, 760 F.2d at 750).7
In Rego, where we adopted the doctrine of successor liability, we specified that the District Court should analyze a successor claim by considering three principal factors before making a successor liability determination: (1) continuity in operations and work force of the successor and predecessor employers; (2) notice to the successor employer of its predecessor’s legal obligation; and (3) ability of the predecessor to provide adequate relief directly. Rego, 181 F.3d at 402 (emphasis added).
To this extent and to this point, the majority opinion and I are in complete agreement. However, where we part company is in our analysis of the third prong of Rego. That is, could financially insolvent Correctional (the predecessor and Ms. Brzozowski’s original employer) provide adequate relief directly to Ms. Brzozowski? Is it fair and equitable to burden Prison with the obligation to provide relief to Ms. Brzozowski when that relief was the primary responsibility and charge of her original employer, Correctional? I answer these questions by concluding that the principles of justice— those principles which embrace fairness and rightful conduct — as applied to the particular circumstances of this case, require that the successor doctrine should not place Ms. Brzozowski in a better position than she was in before Prison entered the arena.
The majority dismisses this crucial principle, imbedded in the third prong of Rego's formula (i.e., the ability of the predecessor to provide relief directly), as undermining the rationale upon which the successor doctrine is based. See Maj. Op. at 178. I cannot agree. The majority fails to recognize the importance of Correctional’s initial responsibility to discharge Ms. Brzozowski’s claim if she were successful in her discrimination action, particularly in *184light of Correctional’s receipt of $14 million and the Umars’ receipt of $1 million. Moreover, Correctional had agreed with Prison that any liability that might arise out of Ms. Brzozowski’s claim was to be Correctional’s responsibility. The majority opinion’s position completely eliminates the third prong of this Court’s Rego doctrine, which looks first to the predecessor — here, Correctional — for relief.
For successor liability to attach, we have provided in Rego, supra, and I have emphasized, that the Court must look to the “ability of the predecessor to provide adequate relief directly.” This is a mandate of our jurisprudence. Yet the majority opinion, without recognition of this standard, provides “... the mere substitution of a responsible defendant [Prison] for an insolvent one [Correctional] is not a basis for denying successor liability.” Maj. Op. at 179. I suggest that a rewriting of an established formula adopted by this Court can be accomplished only by an en banc Court. See 3d Cir. Internal Operating Procedures § 9.1 (“... [N]o subsequent panel overrules the holding in a prece-dential opinion of a previous panel. Court en banc consideration is required to do so.”).
II.
Judge Swygert, writing in Musikiwamba,8 held that while an employee injured by her original employer (here Correctional) should not be made worse off after the employer’s successor (here Prison) took over, neither should she profit and be better off with a successor who was “better heeled.”
[A]n injured employee should not be made worse off by a change in the business. But neither should an injured employee be made better off ... Imposing liability on a successor when a predecessor could have provided no relief whatsoever is likely to severely inhibit the reorganization or transfer of assets of a failing business. A company on the verge of bankruptcy may find itself deluged with meretricious claims for employment discrimination as employees see the prospect of a deep-pocket to provide relief.
Musikiwamba v. ESSI, Inc., 760 F.2d 740, 750-51 (7th Cir.1985) (emphasis added). Accord EEOC v. Vucitech, 842 F.2d 936, 945 (7th Cir.1988) (J. Posner).
Because the successor inquiry is fact-specific, and because its prime consideration is fairness to the parties, see Rego, 181 F.3d at 401, 403, it is clear to me that the equities here counsel against holding Prison liable as a successor. I believe that consideration of the following uncontro-verted evidence renders a liability determination against Prison thoroughly inequitable — indeed, utterly unconscionable:
1. Correctional, Ms. Brzozowski’s original employer, was a failing company and had no assets with which to respond to her claim of discrimination.
2. The District Court found that the financial troubles experienced by the predecessor, Correctional, existed before Correctional sold its assets to the successor, Prison. Because Correctional could not provide any recovery to Ms. Brzozowski before the sale transaction took place, she was *185not adversely impacted by the sale of assets.
3. The sale of assets did not cause Correctional’s inability to provide relief to Ms. Brzozowski, and Correctional’s poor financial status remained unchanged after the sale of its assets to Prison.
4. Although Prison paid $14 million as part of the asset purchase, Correctional made no provision to respond to Ms. Brzozowski’s claim of discrimination out of those funds.
5. The principals of Correctional, Dr. Kenan Umar and Emre Umar, each received $500,000 from the purchase price of Correctional’s assets, but neither of them made any provision out of these monies to respond to Ms. Brzozowski’s claim, although the discrimination which Ms. Brzozowski charges occurred during their tenure at Correctional.
6. Astonishingly, Ms. Brzozowski never sought to obtain relief from either of the principals (who were charged with corporate misconduct in state court) by piercing the Correctional corporate veil in order to recover under her claim.
7. Compounding her desire to forego relief from her original employer out of the monies which Correctional received from Prison, was Ms. Brzo-zowski’s agreement not to pursue either Correctional or its principals. Rather, after consenting to a judgment in the sum of $150,000 against Correctional — a judgment which she knew was uncollectible — she agreed to limit collection of this judgment against Correctional alone and to forego seeking collection of the judgment against Dr. Kenan Umar or any other individual associated with Correctional. She did so, knowing at the time that Correctional was judgment-proof.
8.These actions were taken by Ms. Brzozowski, Correctional and the Umars, despite the fact that the asset purchase agreement specified that Prison would not be responsible for Ms. Brzozowski’s discrimination claim. Indeed, Prison, through the agreement, expressly excluded itself from liability for her claim at the time that it paid Correctional $14 million for its assets.9
III.
The recitation of these uncontroverted facts inexorably leads to the conclusion that it would be inequitable and unfair to hold Prison liable as a successor to Correctional simply in order to enhance Ms. Brzozowski’s ability to collect a money judgment. It is obvious that Ms. Brzozow-ski, realizing this, decided to amend her *186complaint to add a deep pocket defendant — in this case, Prison. It is clear to me, as it should be to everyone, that the sale of Correctional’s assets to Prison did not and would not have harmed Ms. Brzo-zowski, and it certainly did not offend Rego because it would not make Ms. Brzo-zowski worse off. And, there is no doubt that Ms. Brzozowski, under her interpretation of successor liability which has been acceded to by the majority of the Court here, will be far better off if Prison’s resources are made available to her.
It is also clear that before Correctional (and the Umars) received $14 million from Prison, Correctional had no ability to provide an adequate legal remedy for Ms. Brzozowski because, as the District Court held, Correctional was completely unable to satisfy any judgment that Ms. Brzozow-ski obtained against it. Accordingly, as the District Court stated and as I agree, the equitable principle — the third prong of Rego—which underlies the successor liability doctrine, i.e. protecting employees when the ownership of their employer changes, is not implicated in this case. It should be remembered that Correctional retained liability for Ms. Brzozowski’s claim in the asset purchase agreement, but it simply could not and did not provide for any recovery made by Ms. Brzozowski before the sale transaction took place, although it could well have done so after its sale of assets. This fact alone is the critical factor in determining whether successor liability may be imposed.
Dr. Umar testified that Correctional’s poor financial status was one of the motivating factors behind the sale of assets to Prison. When the subsequent actions of Ms. Brzozowski, the Umars and Correctional are considered in light of the financially insolvent condition of Correctional (and I have listed those actions above), it is apparent that Ms. Brzozowski now seeks a right which the successor liability doctrine has not afforded her, and to which she is not entitled. She has no right to assess Prison for monetary damages when she could not under any circumstances have received them from her employer, which was the responsible party for any discriminatory acts she suffered.10
IV.
I note that Ms. Brzozowski, in her motion to join Prison as an additional defendant, relied upon Fed.R.Civ.P. 20, “Permissive Joinder of Parties.” Instead, Fed. R.Civ.P. 15, ‘Amended and Supplemental Pleadings,” would have been the appropriate Rule under which to proceed in this *187instance. That Rule, however, requires that the newly added defendant has received notice and will not be prejudiced. In this case, there is no question that Prison had received notice of Ms. Brzozow-ski’s claim because Prison had expressly disclaimed responsibility for it in the sales agreement. By doing so, Prison did not have to reserve monies for that claim, and consequently did not reduce its $14 million purchase price. See note 5, supra.
I make mention of this here not because I make an issue of the manner in which, or the Rule by which, Ms. Brzozowski has sought to join Prison as a defendant in this action. Rather, I do so because Rule 15(c)(3) and the “successor doctrine” ’s application here to Prison, which was rejected by the District Court and by me, emphasize that there should be no prejudice to the defendant who is joined. Here, as I have pointed out, Prison had no part in any discriminatory actions claimed by Ms. Brzozowski. In addition, Prison recognized that she had brought a claim against Correctional, and therefore sought to relieve itself of any obligation to her. In such a situation, it is quite understandable why the District Court Judge, acknowledging the prejudice which Prison would suffer, refused to add Prison as a defendant. How can one say she abused her discretion? I, for one, cannot.
In light of the uncontested facts which I have related, it is apparent that by failing to consider these circumstances, the majority has inequitably ordered Prison to respond, to its detriment and prejudice, to Ms. Brzozowski despite the third prong of the Rego successor liability analysis. If the successor liability doctrine is rooted in equitable principles, as it is, then it is evident to me that the equities all lie in Prison’s favor, and none lie in favor of Ms. Brzozowski or her original employer, Correctional.
I therefore respectfully dissent from the majority’s judgment, which would hold Prison liable, subject only to a further analysis concerning the relevance of laches or the statute of limitations — an analysis in which I do not engage, as I see no need for it.

. The majority's opinion has referred to CPS, Ms. Brzozowski’s original employer and the seller of assets, as "Correctional.” It has also referred to the defendant-successor as "Prison.” For ease of reference, I have adopted the same nomenclature.

. The policy underlying the successor doctrine is designed to protect an employee when the ownership of his employer suddenly changes. See, e.g., Rojas v. TK Communications, Inc., 87 F.3d 745, 750 (5th Cir.1996) ("Although developed in the context of labor relations, the doctrine of successor liability has been extended to claims asserted under Title VII and related statutes.... [Tjlie successor doctrine arises in the context of discrimination cases in situations where the assets of a defendant employer are transferred to another entity. Thus, the purpose of the doctrine is to ensure that an employee’s statutory rights are not 'vitiated by the mere fact of a sudden change in the employer's business.' ”). But by the same token, while an employee's right should not be diminished, neither should it be enhanced. Musikiwamba v. ESSI, Inc., 760 F.2d 740, 750 (7th Cir.1985)

. The majority acknowledges that the successor doctrine has equitable "underpinnings,” but asserts that the factors employed in making a successor liability determination are not equitable but "legal determinations.” Maj. Op. at 178. These legal considerations are not defined, and it is unclear from whence they are derived or why they overrule, or allow the majority to overlook, the inherent inequity of the result reached here.
Moreover, as the majority opinion points out, because of the equitable nature of the successor doctrine, it is laches, and not the statute of limitations, which must be applied in cases such as this one, which seek equitable relief.

. The majority opines that EEOC v. Vucitech, 842 F.2d 936, 946 (7th Cir.1988), weakened the doctrine of Musikiwamba when it emphasized that a balancing test should gloss the Musikiwamba successor doctrine. See Maj. Op. at 179. While I do not read Vucitech in the same illiberal manner as the majority does, I suggest that under any balancing standard, the balance ends up in favor of Prison under the circumstances which I outline here.

. It is beyond per adventure that Prison would have paid substantially less than the $14 million purchase price for Correctional's assets, had Prison been obliged to respond to Ms. Brzozwski’s discrimination claim. The $14 million purchase price was agreed to only after Ms. Brzozowski’s suit was specifically excluded in the sales agreement, thereby leaving any judgment obtained by Ms. Brzozowski tó be satisfied by Correctional. The majority's assertion that Prison should have anticipated it would be held liable as a successor therefore makes no sense, and leaves no successor entity' — a purchaser — with any customary means to exclude claims in a contract of sale with the seller. The majority cites Golden State Bottling Co., Inc. v. N.L.R.B., 414 U.S. 168, 187, 94 S.Ct. 414, 38 L.Ed.2d 388 (1973), as stating, “the expense resulting from successor liability can be considered in setting the price for the business, or through the inclusion of an indemnity clause in the purchase agreement.” Maj. Op. at 177. However, an indemnity agreement with Correctional would have been senseless in light of the financial condition of that company.

. I have difficulty understanding the emphasis that the majority places on "corporate tools at its disposal to effectively anticipate such a situation and offset expected costs associated with a potential claim like that of Ms. Brzozowski.” In this case, the parties did utilize their "corporate tools” — did anticipate the Brzozowski situation — did adjust the purchase price because they anticipated that situation, and Prison took every step that it could to ensure that Ms. Brzozowski's claim against the employer which allegedly discriminated against her would be discharged by the discriminating entity. Moreover, it was Correctional that improperly appropriated and distributed the monies that were paid, and it was because both Correctional and its principals "improperly appropriated” the $14 million purchase price (including the $500,000 paid to each of the Umars) that resulted in an inability to satisfy Ms. Brzozowski’s claim.
The third prong of Re-go provides, as I have stated, that before a successor can be liable, it must be shown that there was an "ability of the predecessor [in this case, Correctional] to provide adequate relief directly.” The majority opinion appears to abandon this third factor when it inappropriately analyzes the facts of this case where there is no speculation whatsoever that Brzozowski would be better off by ignoring the predatory conduct of Correctional and its principals and pursuing Prison.