Court Opinion

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Opinions of the United
1994 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit

11-4-1994

Allegheny Int'l Inc. v. Allegheny Ludlum Steel Corp.
Precedential or Non-Precedential:

Docket 943-3177

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Recommended Citation
"Allegheny Int'l Inc. v. Allegheny Ludlum Steel Corp." (1994). 1994 Decisions. Paper 178.
http://digitalcommons.law.villanova.edu/thirdcircuit_1994/178

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        UNITED STATES COURT OF APPEALS
            FOR THE THIRD CIRCUIT

                      No. 94-3177

           ALLEGHENY INTERNATIONAL, INC.

                          v.

      ALLEGHENY LUDLUM STEEL CORPORATION

                           ALLEGHENY LUDLUM CORPORATION
                           (formerly known as Allegheny

                           Ludlum Steel Corporation)

                                            Appellant

On Appeal from the United States District Court
   for the Western District of Pennsylvania
           (D.C. Civil No. 91-01959)

             Argued September 21, 1994

 BEFORE:     GREENBERG and ROTH, Circuit Judges,
            and FULLAM, District Judge*

            (Filed:    November 4, 1994)

                           Dennis J. Lewis (argued)
                           Laura A. Meaden
                           Cohen & Grigsby
                           625 Liberty Avenue
                           2900 CNG Tower
                           Pittsburgh, Pa. 15222

                                Attorneys for Appellee
* Honorable John P. Fullam, Senior United States District Judge
for the Eastern District of Pennsylvania, sitting by
designation.

                                Jeffrey G. Brooks
                                Kevin P. Lucas (argued)
                                Manion, McDonough & Lucas
                                600 Grant Street
                                Suite 882
                                Pittsburgh, Pa. 15219

                                Robert L. Byer
                                Kirkpatrick & Lockhart
                                1500 Oliver Building
                                Pittsburgh, Pa. 15222

                                      Attorneys for Appellant

                      OPINION OF THE COURT

GREENBERG, Circuit Judge.

               I. FACTUAL AND PROCEDURAL HISTORY

                       A. Factual History

          Allegheny Ludlum Corporation (Allegheny Ludlum), a

company engaged in the business of designing, manufacturing and

selling specialty steel products, appeals from an order for

summary judgment entered against it in the district court.      The

appellee is Allegheny International, Inc. (Allegheny

International), a Pennsylvania corporation formerly named

Allegheny Ludlum Industries, Inc.   Until mid-1979, Allegheny

Ludlum was an operating division of Allegheny International but

between mid-1979 and late 1980 was its wholly-owned subsidiary.

At that time, Allegheny Ludlum was known as the Allegheny Ludlum

Steel Corporation (Allegheny Ludlum Steel).
          In late 1980, Allegheny International sold all of the

outstanding common stock in Allegheny Ludlum Steel to the LSC

Corporation, an entity formed by a group of Allegheny Ludlum

Steel's senior managers.   Following the sale, LSC Corporation was

merged into Allegheny Ludlum Steel, which then became known as

Allegheny Ludlum Corporation (Allegheny Ludlum).     This action

arises out of several agreements related to Allegheny

International's sale of Allegheny Ludlum Steel.

          To effectuate the sale of Allegheny Ludlum Steel,

Allegheny International and LSC entered into a stock purchase

agreement on November 26, 1980 (the 1980 stock purchase

agreement).1   See app. at 26-84.    Pursuant to the agreement, on

December 26, 1980, Allegheny International sold all of Allegheny

Ludlum Steel's common stock to LSC.     At the same time, Allegheny

International acquired all of Allegheny Ludlum Steel's $9.00

Participating Preferred Stock.      This controversy centers on two

provisions of this agreement: (1) paragraph 12(d) and (e)

regarding the disposition of any post-closing tax benefits or

detriments to Allegheny Ludlum for pre-closing tax periods; and

(2) paragraph 5(e) regarding certain post-closing insurance to be

maintained by Allegheny International on behalf of Allegheny

Ludlum.

1
 . As we have set forth above, Allegheny International formerly
was named Allegheny Ludlum Industries, Inc. Thus, the seller in
the stock sale agreement is Allegheny Ludlum Industries, Inc.
The purchaser is ALSCO Corporation rather than LSC Corporation,
but it appears that the stock was conveyed to LSC Corporation
which we thus will treat as the purchaser.
          Paragraph 12(d) provides that LSC, now known as

Allegheny Ludlum, would reimburse Allegheny International
          to the extent of any tax benefit received by
          [LSC] in taxable periods subsequent to the
          Closing Time as a result of the adjustment in
          the taxable income or other tax attributes of
          [Allegheny Ludlum Steel] or [Oklahoma Tubular
          Products Company] or as a result of over
          payment of taxes for periods through and
          including the Closing Time. The
          reimbursement required by this section shall
          be made at the time any such tax benefit is
          determined by the filing of a tax return,
          amended tax return or otherwise.

See app. at 77.2   Paragraph 12(e) provides that Allegheny

International will reimburse LSC for any tax detriment suffered

by LSC after the sale "as a result of any adjustments in the

taxable income or other tax attributes of [Allegheny Ludlum

Steel] or [Oklahoma Tubular Products Company] for periods through

and including the Closing Time."   Id. at 77-78.   Paragraph 5(e)

provides that Allegheny International

          will keep the insurance set forth in Exhibit
          H in full force and effect [until the closing
          time] and thereafter for a reasonable time at
          [LSC's] request provided that [LSC] shall pay
          its allocable portion of the premiums and any
          claims thereunder shall be subject to any
          deductible of [Allegheny International] (and
          if a deductible applies to such loss as well
          as to some other loss sustained by [Allegheny
          International], to an allocable portion of
          such deductible).

2
 . The parties do not discuss how Oklahoma Tubular Products
Company is related to Allegheny International and Allegheny
Ludlum in their briefs, and we thus conclude that the
relationship is not germane to this case.
See app. at 50.     Allegheny International had maintained property

and casualty insurance on behalf of Allegheny Ludlum Steel at

least since 1976.    Starting in 1976, these policies were written

by Liberty Mutual Insurance Company, which charged Allegheny

International for the cost of claims paid, an administrative cost

adjustment, and a tax adjustment.

           Following its acquisition by LSC, Allegheny Ludlum

acquired certain insurance coverage in its own name which became

effective July 1, 1981.    In a letter agreement dated August 10,

1981 (the 1981 insurance agreement), Allegheny International and

Allegheny Ludlum recognized that Allegheny Ludlum had

"established its own separate property and casualty insurance

program," but agreed that Allegheny International would continue

to provide Allegheny Ludlum with certain specified policies and

management services until December 31, 1981.    Id. at 86.   The

1981 insurance agreement also provided that Allegheny Ludlum

would be
           solely responsible for any insurance costs
           generated by or on behalf of [Allegheny
           Ludlum] under all previous programs
           established by [Allegheny International] for
           [Allegheny Ludlum]. Such costs would include
           but not be limited to audits, retrospective
           adjustments requiring additional premium
           payment, deductible payments or absorptions,
           renewals at the direction of [Allegheny
           Ludlum], etc.

Id.
           In a letter dated April 13, 1983, Allegheny

International informed Allegheny Ludlum that it had a net

operating loss during its 1982 tax year, and that as a result, it
had filed "carryback claims" for 1979 and 1980, years in which it

had deducted the 1982 loss from its taxable income.     Id. at 750.

Originally, Allegheny International had offset a certain portion

of its taxable income in 1979 and 1980 with investment tax

credits generated by Allegheny Ludlum Steel's acquisition of

equipment.   However, because Allegheny International's subsequent

net operating losses eliminated its taxable income for the tax

years 1979 and 1980, it no longer needed the investment tax

credits.   It thus informed Allegheny Ludlum that the investment

tax credits in those years should be used by Allegheny Ludlum to

reduce its taxable income in 1981.   Id.    The investment tax

credits were not available directly to Allegheny International,

because they had been generated exclusively by Allegheny Ludlum

Steel (Allegheny Ludlum's predecessor) when it was a wholly owned

subsidiary of Allegheny International.     Id. at 750 (letter from

Allegheny International to Allegheny Ludlum); id. at 1312

(Allegheny Ludlum's amended income tax return for 1981 tax year).

           Thus, in its April 1983 letter to Allegheny Ludlum,

Allegheny International requested that Allegheny Ludlum use the

newly available investment tax credits (previously used by

Allegheny International for tax years 1979 and 1980) to file a

claim for a refund for the 1981 tax year.     Id. at 750.   Allegheny

International also requested that pursuant to paragraph 12(d) of

the 1980 stock purchase agreement, Allegheny Ludlum reimburse it
for the value of the investment tax credits and any interest

received.     Id.3

            Allegheny Ludlum promptly filed these claims.   Id. at

1311.   Moreover, in a letter dated April 22, 1983, Allegheny

Ludlum responded to Allegheny International's April 13th letter,

and stated that "[Allegheny Ludlum] will pay any reimbursement

due to Allegheny International, Inc. (AI) resulting from the

carryover of [the] 1979 and 1980 investment and foreign tax

credits to 1981 as soon as possible after [Allegheny Ludlum]

receives its refund check from the Internal Revenue Service."

Id. at 752.

            It was not until March 1989, three years after the

execution of the 1986 agreement we discuss below, that the

Internal Revenue Service (IRS) finally approved Allegheny

International's reduction of its taxable income in 1979 and 1980

by the use of later net operating losses.     Accordingly, only then

did the IRS notify Allegheny Ludlum that its refund claim would

be allowed.     Id. at 1035.   In July 1989, the IRS sent Allegheny

Ludlum a check in the amount of $5,490,363.86, reflecting the

amount of the tax refund ($2,233,059.75) plus interest at the

statutory rate under the Internal Revenue Code to the date of the

payment of the refund.     Id. at 1636 (pretrial stipulations), id.
at 801 (check).4     The IRS sent Allegheny Ludlum a second check in

3
 . The letter cites Section 12(e) but we believe that Allegheny
International meant section 12(d).
4
 . Allegheny International's brief states that the IRS sent
Allegheny Ludlum checks in the amount of $5,787,665.38,
reflecting the amount of the tax refund ($2,479,317) plus
December 1989 for $307,301.52, which included the balance of the

refund, $246,257.25, plus additional interest.   Id. at 1636

(pretrial stipulations), id. at 802 (check).   Thus, Allegheny

Ludlum received a total refund with interest of $5,797,665.38.5

          Before Allegheny Ludlum obtained the refund, Allegheny

International had filed a voluntary petition under Chapter 11 of

the Bankruptcy Code in the United States Bankruptcy Court for the

Western District of Pennsylvania on February 20, 1988.   On May

27, 1988, Allegheny Ludlum filed a claim against Allegheny

International for reimbursement of certain tax costs pursuant to

paragraph 12(e) of the 1980 stock purchase agreement.    Allegheny

Ludlum and Allegheny International settled this claim with a

stipulation dated February 27, 1989, which was approved by the

bankruptcy court.   The stipulation fixed the value of Allegheny

Ludlum's claim against Allegheny International and provided that

it was subject to a setoff of any amounts owed by Allegheny

Ludlum to Allegheny International pursuant to the 1980 stock

purchase agreement.   See id. at 1674-76.

          On August 9, 1989, Allegheny Ludlum informed Allegheny

International that, based on its construction of a February 18,

1986 settlement agreement resolving numerous disputes between the

parties, including a dispute over insurance matters, it intended

(..continued)
interest at the statutory rate under the Internal Revenue Code to
the date of the payment of the refund. See br. at 8.
5
 . Allegheny International's brief states that the total of
$5,797,665.38 included $362.93 for an unrelated item. See br. at
12.
to retain the refund the IRS sent it in July 1989.   Id. at 804.

In particular, in 1985 Allegheny International had filed suit

against Allegheny Ludlum in a Pennsylvania state court, the Court

of Common Pleas of Allegheny County, to recover insurance costs

that it claimed Allegheny Ludlum owed it.    In the February 18,

1986 agreement, Allegheny International stated that it would

"withdraw and cause to be dismissed with prejudice as to all

parties all legal proceedings" it initiated against Allegheny

Ludlum, including this insurance matter.    See 1986 agreement, at

2 (Allegheny Ludlum br. Tab F).   The 1986 agreement provided in

return that Allegheny Ludlum would "purchase and redeem from

[Allegheny International] all of the 650,000 shares of issued and

outstanding shares of the $9.00 participating Preferred Stock . .

. of [Allegheny Ludlum] owned by [Allegheny International] for an

aggregate consideration of 37 million dollars."    Id. at 1.    This

redemption agreement had the advantage of effectuating a clean

break between the corporations including the termination of

Allegheny International's representation on the Allegheny Ludlum

board of directors.

            Finally, the 1986 agreement stated that Allegheny

International would release Allegheny Ludlum from certain claims.

Pursuant to the agreement, on February 28, 1986, Allegheny

International delivered a release to Allegheny Ludlum.    The first

clause of this document contains broad language seemingly

releasing Ludlum from any and all claims arising before February

19, 1986.   The second clause, however, qualifies the first by
excepting certain obligations under the November 26, 1980

agreement.

           The language of this release is virtually identical to

the language which the 1986 agreement prescribed for the release.

See app. at 109-10.   While the release refers to the agreement

having been dated February 19, 1986, rather than February 18,

1986, that one-day difference is not significant, as it simply

reflects the fact that Allegheny International's acceptance of

the agreement was dated February 19, 1986.6     The resolution of

this action turns in large part on the construction of this

release.

                        B. Procedural History

             Allegheny International initiated this action for

breach of contract and unjust enrichment against Allegheny Ludlum

on November 28, 1989.    However, pursuant to reorganization

proceedings in the bankruptcy court, Sunbeam-Oster Company, Inc.

has acquired Allegheny International's assets and thus it is

prosecuting this action for Allegheny International, which

nevertheless remains the named plaintiff.     Notwithstanding

Sunbeam-Oster's asset acquisition, it appears that Allegheny

International's corporate existence has not been terminated, as

the Pennsylvania Department of State certified on July 12, 1993,

that it is an existing Pennsylvania corporation.

6
 . Sections 12(a)(ii) and (iii) relate to inspection of records
and certain post-closing undertakings not germane to this
litigation.
           Relying on the 1980 stock purchase agreement, Allegheny

International seeks to recover the value of the refund received

by Allegheny Ludlum and certain insurance costs incurred by

Allegheny International after March 1, 1986.   Allegheny

International began the case as an adversary proceeding in the

bankruptcy reorganization of In re: Allegheny Int'l, Inc., et

al., Case No. 88-00448 (Bankr. W.D. Pa.).   After Allegheny

International filed its complaint, Allegheny Ludlum filed an

answer, demanded a jury trial, made a motion for judgment on the

pleadings based on the 1986 settlement agreement, and made a

motion to transfer Allegheny International's action to the

district court.   See Allegheny Int'l, Inc. v. Allegheny Ludlum

Steel Corp., 920 F.2d 1127, 1130 (3d Cir. 1990).   The bankruptcy

court denied Allegheny Ludlum's motion to transfer the case to

district court.   Id. at 1128-30.   The district court then

dismissed Allegheny Ludlum's appeal from that decision.    Id. at

1131.   The district court also denied Allegheny Ludlum's motion

for withdrawal of reference of the adversary action.   Id.    On

further appeal, we dismissed for lack of jurisdiction Allegheny

Ludlum's appeals from: (1) the district court's dismissal of

Allegheny Ludlum's appeal of the bankruptcy court's refusal to

transfer the case; and (2) the district court's denial of

Allegheny Ludlum's motion for withdrawal of reference of the

adversary proceeding.   Id. at 1129.
           One year later, in November 1991, before the bankruptcy

court ruled on Allegheny's motion for judgment on the pleadings,

the district court withdrew the reference to the bankruptcy
court, and referred the case to a magistrate judge for pretrial

proceedings.    In its motion for judgment on the pleadings,

Allegheny Ludlum asserted that the 1986 settlement agreement and

the resulting release executed by Allegheny International barred

Allegheny International's claims against Allegheny Ludlum for the

tax refund and for insurance costs.    See app. at 1379-83 (motion

for judgment on the pleadings).     In addition, Allegheny Ludlum

maintained that Allegheny International's claim for insurance

costs was "barred by reason of principles of res

judicata/collateral estoppel" because, pursuant to the 1986

agreement between the parties, the state court entered an order

dismissing with prejudice Allegheny International's 1985

insurance costs claim.     Id. at 1383-84.   Allegheny Ludlum argued

that the claim for insurance costs was precluded, because in the

1985 action which the state court dismissed with prejudice,

Allegheny International had sought a declaratory judgment holding

Allegheny Ludlum liable for future insurance claims.

             On April 28, 1992, the magistrate judge recommended

that the district court deny Allegheny Ludlum's motion for

judgment on the pleadings and allow the case to proceed to

discovery.    See report (Allegheny Ludlum br. Tab C).    Though

Allegheny Ludlum filed objections to the report, on May 13, 1992,

the district court issued a memorandum order denying Allegheny

Ludlum's motion and adopting the magistrate's report as its

opinion.   See May 13, 1992 district court order (Allegheny Ludlum

br. Tab D).     The magistrate judge's report concludes that

Allegheny Ludlum was not entitled to judgment on the pleadings
based on the release because: (1) the release does not cover

"claim[s] based on Allegheny Ludlum's failure to perform in the

future under any earlier contract"; (2) "[i]n applying this

language [in the release], the court or a trier of fact, must

determine when plaintiff's claims accrued"; and (3) this question

could not be resolved "solely on the basis of the pleadings."

See report, at 7 (Allegheny Ludlum br. Tab C).   The report also

concluded that the dismissal with prejudice of Allegheny

International's 1985 state court suit for insurance costs did not

entitle Allegheny Ludlum to judgment on the pleadings with regard

to Allegheny International's insurance costs claim.   The

magistrate judge relied on Allegheny International's contention

that it was seeking reimbursement only for insurance costs it

incurred on Allegheny Ludlum's behalf "in and after 1989" which

"thus were not part of that state law action."   Id. at 10.7

According to the magistrate judge's report, this allegation

raised a question of material fact which precluded the court from

granting Allegheny Ludlum's motion for judgment on the pleadings.

Id.

          Allegheny Ludlum then expanded its defense to Allegheny

International's complaint, as it filed a motion for summary

judgment with supporting affidavits on June 14, 1993, alleging

that it was entitled to summary judgment based on the 1986

agreement, the resulting release executed by Allegheny

7
 . The 1989 date is incorrect as Allegheny International is
seeking reimbursement for costs since 1986.
International, and the state court's entry of an order dismissing

with prejudice Allegheny International's 1985 insurance costs

claim.   See app. at 131-43.   On June 28, 1993, Allegheny Ludlum

filed a second, separate "Motion for Summary Judgment Challenging

Sunbeam-Oster Company, Inc.'s Right to Prosecute This Action,"

asserting that Sunbeam-Oster Company, Inc., which alleged that it

was Allegheny International's successor in interest, had not

established that it was the legal owner of the claims asserted

against Allegheny Ludlum.   Id. at 427-30.   Also on June 28, 1993,

Allegheny International filed a motion for summary judgment with

supporting affidavits and other documents.    Id. at 238-40.

          On April 7, 1994, the district court issued a judgment

order and memorandum opinion denying both of Allegheny Ludlum's

motions for summary judgment, granting Allegheny International's

motion for summary judgment, and awarding Allegheny International

the damages it requested plus prejudgment interest and

declaratory relief with respect to future tax benefits received

by Allegheny Ludlum and insurance costs Allegheny Ludlum incurred

on its behalf.   See Allegheny Int'l, Inc. v. Allegheny Ludlum
Steel Corp., No. 91-1959, slip op. (W.D. Pa. April 7, 1994)

[hereinafter Allegheny Int'l, Inc., slip op.].8   The district

court based its decision on the law of the case because it viewed

its earlier decision denying Allegheny Ludlum's motion for

judgment on the pleadings as already resolving the meaning of the

8
 . The district court also denied Allegheny Ludlum's motion for
sanctions and Allegheny International's motion for leave to file
an amended pretrial statement.
release language and the res judicata effect of Allegheny

International's 1985 state court suit for insurance costs.

Accordingly, the district court would not revisit these issues

absent "extraordinary circumstances."      See Allegheny Int'l, Inc.,

slip op. at 16.

             In its earlier decision, the district court had

concluded as a matter of law that the language of the release was

unambiguous and that it excluded claims based on Allegheny

Ludlum's "failure to perform . . . after February 1986, under any

earlier contract."     Id. at 14.   The district court adhered to its

earlier construction of the release "as the law of the case"

because: (1) it already had interpreted it as a matter of law;

and (2) Allegheny Ludlum did not allege that the 1986 agreement

and the release were ambiguous, "but rather that [the magistrate

judge], and this Court, misunderstood the clear and unambiguous

import of these instruments."       Id. at 20.

             The district court concluded that although it had not

expressly decided the res judicata effect of the dismissal of the

1985 state court suit, it had done so "by necessary implication."

Id. at 15.    The district court reasoned that "[t]he materiality

of the disputed factual issue . . . precluding the granting of

defendant's motion for judgment on the pleadings [was]

necessarily grounded [on the] legal conclusion that res judicata

will not bar an insurance claim based on insurance payments not

forming part of the dismissed state court action."      Id. at 15

(citations omitted).     The district court adhered to this earlier
decision because it concluded that the decision was not "clearly

erroneous."   Id. at 24.

           Thus, the district court concluded that based on its

earlier decision, Allegheny International's claims were not

barred.   Then, applying the legal conclusions it had reached in

its earlier decision, the district court held that because

Allegheny International's tax claim accrued after February 1986

and its insurance costs were incurred after March 1, 1986,

Allegheny International was entitled to recover the tax benefits

and insurance costs it claimed under the 1980 stock purchase

agreement and the 1981 insurance agreement, respectively.     Id. at

28-29.

           Accordingly, the district court entered judgment in

favor of Allegheny International in the amount of $7,476,499.97

with respect to its tax refund claim and $508,073.70 with respect

to its insurance cost claim.   See April 7, 1994 district court

order (Allegheny Ludlum Br. Tab A).   The former amount was the

sum of five figures: (1) $5,490,363.86 (the IRS check dated

7/20/89); (2) $1,317,687.20 (interest on that amount from 8/1/89

to 7/31/93); (3) $307,301.52 (the IRS check dated 12/11/89 minus

$362.93 for an unrelated amount paid to Allegheny Ludlum by the

IRS); (4) $66,022.39 (interest on this sum from 1/1/90 to

7/31/93); and (5) $295,125 (interest from 8/1/93 to 4/7/94).      The

latter amount was the sum of $500,505 in insurance costs incurred

by Allegheny International on behalf of Allegheny Ludlum and

$7,568.70 in administrative fees and taxes incurred by Allegheny

International on behalf of Allegheny Ludlum.   Id.   The district
court also ordered that: (1) future tax benefits received by

Allegheny Ludlum "which relate to tax periods prior to [its sale]

are to be refunded to [Allegheny International] pursuant to the

terms of the November 26, 1980 Stock Purchase Agreement"; and (2)

"all future insurance costs incurred by [Allegheny International]

which are attributable to [Allegheny Ludlum's] operations and

which relate to incidents, claims or facts arising or occurring

between 1976 and July 1, 1981, are to be paid by [Allegheny

Ludlum] under the terms of the August 10, 1981 Insurance

Agreement."   Id.

          The district court denied Allegheny Ludlum's motion for

summary judgment challenging Sunbeam-Oster Company, Inc.'s right

to prosecute the case because the court concluded that "by

bringing [the motion] as late in the litigation as it [did,]

[Allegheny Ludlum] waived any such defense."   Allegheny Int'l,

Inc., slip op. at 31 (citing 6A Charles A. Wright, et al.,

Federal Practice and Procedure § 1554, at 406-07 (1990)).

Finally, the district court denied Allegheny Ludlum's motion for

the imposition of sanctions on Allegheny International due to its

alleged failure to allow meaningful discovery, noting "[i]n

particular" that Allegheny Ludlum "failed to establish any

prejudice in its defense against the insurance cost claim as a

result of [Allegheny International's] alleged discovery

shortcomings."   Id. at 34-35.   Allegheny Ludlum then appealed.

The district court had jurisdiction pursuant to 28 U.S.C. §§

1334(a) and 157(d), and we have jurisdiction under 28 U.S.C. §

1291.
                          II. DISCUSSION

                          A.   The Release

           Allegheny International claims that the 1980 stock

purchase agreement entitled it to reimbursement for the tax

refund received by Allegheny Ludlum in 1989, and that both the

1980 stock purchase agreement and the 1981 insurance agreement

entitled it to reimbursement for the insurance costs it has

incurred on Allegheny Ludlum's behalf since March 1, 1986.

Allegheny Ludlum bases one of its defenses to these claims on the

release executed by Allegheny International in February 1986

pursuant to the 1986 stock redemption agreement.     According to

Allegheny Ludlum, the release "includes all claims for Allegheny

Ludlum's breach of any contractual obligation that was to be

performed after February 19, 1986."    See Allegheny Ludlum br. at

24.   Allegheny Ludlum argues that it was not obligated to

reimburse Allegheny International for the tax refund until the

IRS made the refund in 1989 and that it was not obligated to

reimburse Allegheny International for insurance costs incurred

after March 1, 1986, as that date is after February 19, 1986.

Id. at 24-25.   Thus, it is Allegheny Ludlum's position that the

release bars both Allegheny International's tax refund claim and

its insurance costs claim.

           We exercise plenary review over the district court's

grant of summary judgment.     See Petruzzi's IGA Supermarkets, Inc.
v. Darling-Delaware Co., 998 F.2d 1224, 1230 (3d Cir.), cert.
denied, 114 S. Ct. 554 (1993).    Therefore, we must determine

whether "the pleadings, depositions, answers to interrogatories,

and admissions on file, together with the affidavits, if any,

show that there is no genuine issue as to any material fact and

that [Allegheny International] is entitled to a judgment as a

matter of law." Fed. R. Civ. P. 56(c).
          'The moving party has the initial burden of
          identifying the evidence that demonstrates
          the absence of a genuine issue of material
          fact, [but] the respondent (the "non-movant")
          must establish the existence of each element
          on which it bears the burden of proof.'

FDIC v. Bathgate, 27 F.3d 850, 860 (3d Cir. 1994) (quoting J.F.

Feeser, Inc. v. Serv-A-Portion, Inc., 909 F.2d 1524, 1531 (3d

Cir. 1990), cert. denied, 499 U.S. 921, 111 S. Ct. 1313 (1991)).

"[I]n applying this standard, 'all inferences must be drawn

against the movant, . . . and in favor of the nonmovant.'"      Id.

at 860 (quoting Erie Telecommunications, Inc. v. City of Erie,

853 F.2d 1084, 1093 (3d Cir. 1988)).   However, "'where the movant

has produced evidence in support of its motion for summary
judgment, the nonmovant cannot rest on the allegations of

pleadings and must do more than create some metaphysical doubt.'"

Id. (quoting Petruzzi's IGA, 998 F.2d at 1230).

          The 1980 stock purchase agreement states that it "shall

be governed by and construed in accordance with the laws of the

Commonwealth of Pennsylvania."   See app. at 83.   Although the

1981 insurance agreement, the 1986 agreement, and the release do

not identify the governing law, the parties have briefed the case
under Pennsylvania law, which we thus apply.   See Langer v.

Monarch Life Ins. Co., 879 F.2d 75, 80 (3d Cir. 1989).9

          "Under Pennsylvania law, ambiguous writings are

interpreted by the fact finder and unambiguous writings are

interpreted by the court as a question of law."    Mellon Bank,

N.A. v. Aetna Business Credit, Inc., 619 F.2d 1001, 1011 n.10 (3d

Cir. 1980) (applying Pennsylvania law) (citing Broker Title Co.

v. St. Paul Fire and Marine Ins. Co., 610 F.2d 1174 (3d Cir.

1979)).   Thus, the first question "[c]ourts are left with [is]

the difficult issue of determining as a matter of law which

category written contract terms fall into - clear or ambiguous."

Id. at 1011 (citing United Refining Co. v. Jenkins, 189 A.2d 574,

580 (Pa. 1963); O'Farrell v. Steel City Piping Co., 403 A.2d 1319

(Pa. Super. Ct. 1979)).   If the court determines that a contract

is clear, or unambiguous, then it construes the contract as a

matter of law.   Id. at 1011 n.10.   See also Kroblin Refrigerated

Xpress, Inc. v. Pitterich, 805 F.2d 96, 101 (3d Cir. 1986) ("It

is well settled that unambiguous writings are construed as a

matter of law.") (applying Pennsylvania law) (citing Ram
Construction Co. v. American States Ins. Co., 749 F.2d 1049, 1052

(3d Cir. 1984); Mellon, 619 F.2d at 1011 n.10).   Therefore,

because the district court determined that the release was

9
 . It is difficult to understand how any other law could apply,
as Allegheny International, Allegheny Ludlum, and the ALSCO
Corporation, which was the purchaser named in the November 26,
1980 agreement, are Pennsylvania corporations and the
transactions involved in this case all took place in
Pennsylvania. See n.1, infra.
unambiguous, the court construed it as a matter of law.     See

Allegheny Int'l, Inc., slip op. at 13-14, n.9, & 20.     See also

USX Corp. v. Prime Leasing Inc., 988 F.2d 433, 436-37 (3d Cir.

1993).   We exercise plenary review over these legal

determinations.

            "A contract is ambiguous if it is reasonably

susceptible of different constructions and capable of being

understood in more than one sense."   Hutchison v. Sunbeam Coal

Corp., 519 A.2d 385, 390 (Pa. 1986) (citations omitted).      See

also Hullett v. Towers, Perrin, Forster & Crosby, Inc., No. 94-

1517, slip op. at 6 (3d Cir. Oct. 28, 1994); Langer, 879 F.2d at

80 (quoting Hutchison's definition of ambiguity).      The Supreme

Court of Pennsylvania has identified two types of ambiguity: (1)

patent ambiguity, and (2) latent ambiguity, and has defined them

as follows:
          '[a] patent ambiguity is that which appears
          on the face of the instrument, and arises
          from the defective, obscure, or insensible
          language used.' Black's Law Dictionary 105
          (rev. 4th ed. 1968). In contrast, a latent
          ambiguity arises from extraneous or
          collateral facts which make the meaning of a
          written agreement uncertain although the
          language thereof, on its face, appears clear
          and unambiguous. Easton v. Washington County
          Ins. Co., 391 Pa. 28, 137 A.2d 332 (1957).

Steuart v. McChesney, 444 A.2d 659, 663 (Pa. 1982).

          Thus, we will begin by examining the language of the

release to determine whether it contains a patent ambiguity.        The

release states the following:
          [Allegheny International] hereby releases
          [Allegheny Ludlum] from any and all claims
          and causes of action (including the
          litigation referred to in Section 3(b) of the
          aforesaid letter agreement dated as of
          February 19, 1986) attributable to events or
          agreements occurring prior to February 19,
          1986, whether or not arising out of the
          agreement dated November 26, 1980, pursuant
          to which [Allegheny Ludlum] was purchased
          from [Allegheny International,] provided;
          however, that the release shall not release
          any claim or cause of action based on the
          failure of [Allegheny Ludlum] [or] LSC
          Corporation ("LSC") . . . to perform any
          obligation which [Allegheny Ludlum] [or] LSC
          . . . has to [Allegheny International] under
          said agreement dated November 26, 1980 (other
          than obligations under Sections 12(a)(ii) and
          (iii) thereof) or under any other written
          obligation to [Allegheny International] which
          was to have been performed by [Allegheny
          Ludlum] [or] LSC . . . at or prior to
          February 19, 1986.

See release, at 1-2 (Allegheny Ludlum br. Tab G).

          As the district court recognized, the release consists

of two clauses.   The first clause contains broad language

releasing Allegheny Ludlum from:
          any and all claims and causes of action
          [including Allegheny International's 1985
          insurance cost suit] attributable to events
          or agreements occurring prior to February 19,
          1986, whether or not arising out of the [1980
          stock purchase agreement], pursuant to which
          [Allegheny Ludlum] was purchased from
          [Allegheny International].

See Allegheny Ludlum br. Tab G, at 1.   This language in itself is

unambiguous and, if it stood alone, we would conclude it covers

both Allegheny International's tax refund claim and its insurance
cost claim, as these claims arise from "agreements occurring

prior to February 19, 1986."10

          However, the second clause of the release contains

"language which limits the apparent carte blanche release"

contained in the first clause.   See magistrate judge's report at

7 (Allegheny Ludlum's br. Tab C).   The second clause provides

that
          the release shall not release any claim or
          cause of action based on the failure of
          [Allegheny Ludlum] to perform any obligation
          which [Allegheny Ludlum] has to [Allegheny
          International] under said agreement dated
          November 26, 1980 (other than obligations
          under Sections 12(a)(ii) and (iii) thereof)
          or under any other written obligation to
          [Allegheny International] which was to have
          been performed by [Allegheny Ludlum] at or
          prior to February 19, 1986.

See release, at 1-2 (Allegheny Ludlum br. Tab G).   As we noted

above, the district court held that this clause excluded from the

10
 . It is undisputed that Allegheny International's claims are
based on the 1980 stock purchase agreement and the 1981 insurance
agreement. Allegheny International argues that the first clause
of the release does not bar its claims because it contains "no
clear and unequivocal expression of an intent" to release claims
based on a failure to perform in the future obligations which
arise out of agreements reached prior to February 19, 1986. See
Allegheny International br. at 22. We disagree. As Allegheny
Ludlum points out, the first clause of the release "clearly
demonstrates the parties' intention that plaintiff released
Allegheny Ludlum from 'any and all claims and causes of action,'
regardless when they arose or when performance [was] due, so long
as those claims 'were attributable to events or agreements
occurring prior to February 19, 1986.'" See Allegheny Ludlum
reply br. at 4. Our conclusion is consistent with the magistrate
judge's report, which the district court adopted, which stated
that if the first clause "were the full extent of the release
[Allegheny Ludlum's] claims would be well-founded." See report,
at 7 (Allegheny Ludlum br. Tab C).
release claims based on Allegheny Ludlum's "failure to perform .

. . after February 1986, under any earlier contract."      See

Allegheny Int'l, Inc., slip op. at 14 (emphasis added);

magistrate judge's report, at 7 (Allegheny Ludlum br. Tab C)

("Specifically, the release excludes from coverage any claim

based on Allegheny Ludlum's failure to perform in the future

under any earlier contract.").

          The district court's construction of the second clause

in the release is inconsistent with the constructions advanced by

both Allegheny International and Allegheny Ludlum.   See Allegheny

Ludlum reply br. at 8.   Moreover, the district court's

construction of the second clause is inconsistent with language

in the clause, namely the phrase: "which was to have been

performed by [Allegheny Ludlum] at or prior to February 19,

1986."   See release, at 1-2 (Allegheny Ludlum br. Tab G).

Allegheny International takes the position that this phrase

modifies only the phrase which immediately precedes it, namely,

"any other written obligation to [Allegheny International]," and

not obligations under the 1980 stock purchase agreement.         See

Allegheny International br. at 23, 26.   Thus, Allegheny

International maintains that the second clause exempts from the

release any claim based on Allegheny Ludlum's failure to perform

in the future (i.e. subsequent to the February 1986 execution of
the release) any obligation under the 1980 stock purchase

agreement, but does not adopt the district court's view that the

second clause exempts from the release any claim based on

Allegheny Ludlum's "failure to perform . . . after February 1986,
under any earlier contract."    See Allegheny Int'l, Inc., slip op.

at 14 (emphasis added); magistrate judge's report, at 7

(Allegheny Ludlum br. Tab C).

            In fact, Allegheny International indicates that the

release bars claims based on Allegheny Ludlum's failure to

perform after February 1986 under written obligations other than

the 1980 stock purchase agreement, and that the second clause of

the release only preserves claims arising out of such other

written obligations if they accrued "prior to the date of the

Release."   See Allegheny International br. at 23 ("The second

part of the proviso relates to [Allegheny Ludlum's] obligations

under agreements other than the [1980 stock purchase

agreement]").    Nonetheless, Allegheny International argues that

the district court reached the correct result because: (1) the

second clause exempts from the release any claim based on

Allegheny Ludlum's failure to perform in the future (i.e.,

subsequent to the February 1986 execution of the release) any

obligation under the 1980 stock purchase agreement, id. at 22-24;

and (2) thus its claims based on Allegheny Ludlum's failure to

reimburse it for the 1989 tax refund and the insurance costs

Allegheny International incurred after March 1, 1986, are not

barred by the release.

            Unlike Allegheny International, Allegheny Ludlum takes

the position that the phrase "which was to have been performed by

[Allegheny Ludlum] at or prior to February 19, 1986," modifies

more than the phrase which immediately precedes it, namely, "any

other written obligation."     See Allegheny Ludlum br. at 23-24.
According to Allegheny Ludlum, it modifies the phrase "any

obligation which [Allegheny Ludlum] has to [Allegheny

International]" under the 1980 stock purchase agreement and its

obligations under "any other written obligation to [Allegheny

International]."   Id.   Thus, Allegheny Ludlum argues that the

second clause preserves only those claims based on obligations

which were to be performed on or before February 19, 1986.    Based

on this reading of the second clause of the release, the release

bars Allegheny International's claims based on Allegheny Ludlum's

failure to reimburse it for the 1989 tax refund and the insurance

costs Allegheny International incurred after March 1, 1986,

because these claims are not based on obligations that Allegheny

Ludlum was to have performed prior to February 19, 1986.11

          We acknowledge that the use of the conjunction "or" to

separate the phrase "under [the 1980 stock purchase agreement]"

from the phrase "under any other written obligation" could be

construed to indicate that the phrase "which was to have been

performed by [Allegheny Ludlum] at or prior to February 19, 1986"

modifies only the phrase "any other written obligation."

However, as the Pennsylvania Supreme Court stated in Dilks v.

Flohr Chevrolet, Inc., 192 A.2d 682, 685 (Pa. 1963),

11
 . As Allegheny Ludlum points out, "[i]t is undisputed that the
time for Allegheny Ludlum's performance with respect to the tax
refund claim was not until 1989 after it received the tax refund
from the Internal Revenue Service," and that "the time for
Allegheny Ludlum's performance of the insurance cost
reimbursement in question did not arise until those costs were
incurred at various times after March 1, 1986." See Allegheny
Ludlum br. at 24-25 (citing app. at 1422, 284-85, 1492).
            [w]ords and phrases on one side of the word
            'or' may, and often do, modify and apply to
            words and phrases on the other side of the
            word 'or' in the same sentence.

Moreover, in Hutchison, the court held that a paragraph in a

lease was ambiguous, because it was susceptible to both the

appellant's construction of the paragraph, which "rest[ed] wholly

on the use of the word 'or' to connect the series [of words],"

and the appellee's construction, which was "not totally

consistent with the use of the word 'or,' but seem[ed] more

natural."   Hutchison, 519 A.2d at 390.   In our view, it seems

unnatural to construe the second clause of the release to

preserve claims based on future obligations under one contract

between the parties and claims based on past obligations under

other contracts between the parties.    Thus, the mere use of the

conjunction "or" does not render the clause unambiguous, and we

conclude that the clause is susceptible to more than one meaning.

            Allegheny International makes two other arguments to

support its contention that the second clause of the release is

unambiguous.    First, it argues that the language of the second

clause of the release is not reasonably susceptible to Allegheny

Ludlum's construction because "[t]o read the phrase 'to have been

performed . . . at or prior to February 19, 1986' as referring to

[the 1980 stock purchase agreement] turns the first clause of the

proviso into mere surplusage" in violation of "standard rules of

contract construction."    See Allegheny International br. at 26.

We do not believe that this argument is determinative because
Allegheny International's construction of the second clause of

the release also seems to turn a portion of the first clause into

surplusage.

           Allegheny International next argues that the second

clause of the release is not reasonably susceptible to Allegheny

Ludlum's construction because "[u]nder [Allegheny] Ludlum's

construction, no contractual claims, including the insurance

claims which were in litigation at the time the Release was

executed, were released."   Id. at 25.   According to Allegheny

International, such a construction of the second clause of the

release "lead[s] to an absurdity" and thus should be rejected in

favor of its own interpretation which "'will effectuate the

reasonable result intended.'"   Id. at 25 (quoting Laudig v.

Laudig, 624 A.2d 651, 654 (Pa. Super. Ct.) appeal denied, 634

A.2d. 224 (Pa. 1993)).

           Allegheny International argues that Allegheny Ludlum's

construction "lead[s] to an absurdity," because it is

inconsistent with the express provision in the 1986 agreement

(also referenced in the first clause of the release), which

provides for the dismissal with prejudice of all proceedings

pending between the parties including the 1985 insurance costs

suit.   We agree that Allegheny Ludlum's construction is

inconsistent with the dismissal with prejudice of pending

insurance cost proceedings because such claims are based on

obligations under the 1980 stock purchase agreement which were

supposed to have been performed before February 19, 1986.     Under

Allegheny Ludlum's construction, the second clause of the release
preserves claims based on obligations under the 1980 stock

purchase agreement if these obligations were to be performed "at

or prior to February 19, 1986."

          This argument also is not determinative, however,

because Allegheny International's construction of the second

clause suffers from the same infirmity.   The insurance costs

proceedings pending when the 1986 agreement and release were

executed also were based on the 1981 insurance agreement.     Thus,

Allegheny International's construction of the second clause of

the release to preserve claims based on obligations under other

agreements if the obligations were supposed to be performed "at

or prior to February 19, 1986" also seems inconsistent with the

dismissal with prejudice of pending insurance cost proceedings.

          Overall, we conclude that the language of the second

clause of the release is "reasonably susceptible" to both

Allegheny International's construction and Allegheny Ludlum's

construction.   Hutchison v. Sunbeam Coal Corp., 519 A.2d at 390

(citations omitted).12   Thus, the release is patently ambiguous,

and we must reverse the district court's grant of summary

judgment in favor of Allegheny International on this basis.

          Because of our holding that the contract is patently

ambiguous, we do not reach the question of whether the contract

12
 . We reject Allegheny Ludlum's argument that its construction
of the second clause of the release is "the only plausible
reading," and that, therefore, the release is unambiguous. See
Allegheny Ludlum br. at 19.
is latently ambiguous as well.13   As a corollary, we also need

not decide the scope of extraneous evidence admissible under

Pennsylvania law to demonstrate that a contract is latently

ambiguous.   Of course, upon remand, the trier of fact must look

to extraneous evidence to determine the contracting parties'

intent.   The scope of extraneous evidence admissible to interpret

the meaning of an ambiguous contract (as distinguished from

determining whether or not the contract is in fact ambiguous) is

not before us on this appeal, and in the first instance should be

decided by the district court.

             Allegheny Ludlum urges that we should go further than

simply reversing the summary judgment in favor of Allegheny

International, as it argues that even if we conclude that the

release is ambiguous, we should grant its motion for summary

judgment because Allegheny International failed to meet its

burden to respond to Allegheny Ludlum's motion under Fed. R. Civ.

P. 56.    See Allegheny Ludlum br. at 21-22.   According to

Allegheny Ludlum, it is entitled to summary judgment because

Allegheny International failed to refute the evidence of the

parties' intent contained in affidavits it submitted which, if

accepted, would establish that the release bars this action.      Id.
However, we have no need to describe these affidavits in detail

because there is extrinsic evidence which tends to support a

13
 . In fact we cannot reach that point because an agreement is
latently ambiguous only when extraneous or collateral facts make
uncertain language which facially is clear and unambiguous.
Steuart v. McChesney, 444 A.2d at 663. Thus, by definition, an
agreement can be latently ambiguous only if it is patently clear.
conclusion that the release does not bar this action.    See, e.g.,

app. at 1325-26 (May 5, 1988 letter from Allegheny Ludlum to

Allegheny International recognizing that Allegheny International

primarily was responsible for protesting the IRS's initial

disallowance of the tax refund for which Allegheny International

now seeks reimbursement), id. at 1675 (February 1989 stipulation

recognizing that Allegheny Ludlum still may have obligations to

Allegheny International under the 1980 stock purchase agreement).

Thus, a dispute of fact remains.   Accordingly, we will affirm the

denial of Allegheny Ludlum's motion for summary judgment on

Allegheny International's tax refund claim, and unless we

determine that the dismissal with prejudice of Allegheny

International's 1985 suit for insurance costs precludes the

insurance costs claim, we also will affirm the denial of

Allegheny Ludlum's motion for summary judgment on that claim.

                B.   Dismissal of the State Case

          As we have indicated, in 1985 Allegheny International

filed suit to recover insurance costs that it claimed Allegheny

Ludlum owed it under the 1980 stock purchase agreement and the

1981 insurance agreement.   However, in the 1986 agreement,

Allegheny International stated that it would "withdraw and cause

to be dismissed with prejudice as to all parties all legal

proceedings" pending between Allegheny International and

Allegheny Ludlum including its insurance claim.    See 1986
agreement, at 2 (Allegheny Ludlum br. Tab F).   Subsequently, on

February 28, 1986, the state court issued an order approving a
stipulation by the parties dismissing the 1985 suit with

prejudice.   See app. at 425.   Allegheny International's 1985 suit

sought reimbursement for insurance costs it already had incurred

on behalf of Allegheny Ludlum as well as a declaratory judgment

entitling it to reimbursement for insurance costs it would incur

on Allegheny Ludlum's behalf in the future.   Id. at 155-64.    In

its present insurance costs claim, Allegheny International seeks

reimbursement for the insurance costs it has incurred on

Allegheny Ludlum's behalf since March 1, 1986.    Id. at 1647-50

(Allegheny International's Third Amended Pretrial Statement).

          The magistrate judge concluded that the dismissal with

prejudice of Allegheny International's 1985 state court suit for

insurance costs did not entitle Allegheny Ludlum to judgment on

the pleadings because Allegheny International sought

reimbursement only for insurance payments it made on Allegheny

Ludlum's behalf "in and after 1989" which "thus were not part of

that state law action."14   See magistrate judge's report, at 10

(Allegheny Ludlum br. Tab C).   According to the magistrate's

report, this allegation raised a question of material fact which

precluded granting a judgment on the pleadings.    Id.
          Allegheny Ludlum argues that the district court "erred

in ruling, as a matter of law, that the dismissal with prejudice

of the 1985 Insurance Lawsuit did not bar relitigation of

[Allegheny International's] insurance cost claim."   See Allegheny

14
 . We are confident that the magistrate judge intended to
indicate 1986.
Ludlum br. at 37.   Allegheny Ludlum concedes that Allegheny

International's present insurance costs claim does not seek

reimbursement for any costs it incurred on behalf of Allegheny

Ludlum prior to the dismissal of its 1985 suit.    Id. at 39.

However, according to Allegheny Ludlum, the dismissal of the 1985

suit bars Allegheny International's present insurance costs suit

because the 1985 suit sought not only reimbursement for insurance

costs Allegheny International already had incurred, but also a

judgment declaring that all future claims costs it would incur on

Allegheny Ludlum's behalf were to be paid pursuant to the 1981

insurance agreement.   Id.; see app. at 163.   Our review of the

district court's conclusion is plenary.

          Federal courts must "give the same preclusive effect to

state court judgments that those judgments would be given in the

courts of the State from which the judgments emerged."   Kremer v.

Chemical Constr. Corp., 456 U.S. 461, 466, 102 S. Ct. 1883, 1889

(1982) (citing 28 U.S.C. § 1738) (footnote omitted); see also

Davis v. United States Steel Supply, 688 F.2d 166, 170 (3d Cir.

1982), cert. denied, 460 U.S. 1014, 103 S. Ct. 1256 (1983).      This

principle is embodied in 28 U.S.C. § 1738, which provides that

state court judgments:
          shall have the same full faith and credit in
          every court within the United States and its
          Territories and Possessions as they have by
          law or usage in the courts of such State.

          Under Pennsylvania law, the doctrine of res judicata
holds that "'a final valid judgment upon the merits by a court of

competent jurisdiction bars any future suit between the parties
or their privies, on the same cause of action.'" Keystone Bldg.

Corp. v. Lincoln Sav. and Loan Ass'n, 360 A.2d 191, 194 (Pa.

1976) (citations omitted).
          Application of the doctrine of res judicata
          requires the concurrence of four elements.
          They are: (1) identity of the thing sued for;
          (2) identity of the cause of action; (3)
          identity of persons and parties to the
          action; [and] (4) identity of the quality in
          the persons for or against whom the claim is
          made.

City of Pittsburgh v. Zoning Bd. of Adjustment, 559 A.2d 896, 901
(Pa. 1989) (citations omitted); see also Davis v. United States

Steel Supply, 688 F.2d at 170-71 (applying Pennsylvania law).

Moreover, "'[i]t is well settled, as a general proposition, that

a judgment or decree, though entered by consent or agreement of

the parties, is res judicata to the same extent as if entered

after contest.'"    Keystone, 360 A.2d at 194 n.6 (citation

omitted).   See also Gambocz v. Yelencsics, 468 F.2d 837, 840 (3d

Cir. 1972) ("[d]ismissal with prejudice constitutes an

adjudication of the merits as fully and completely as if the

order had been entered after trial") (citing Lawlor v. National

Screen Serv. Corp., 349 U.S. 322, 327, 75 S. Ct. 865, 868 (1955)).

Thus, the fact that the dismissal with prejudice of the 1985 suit

was based upon a stipulation by the parties is irrelevant.

            Nonetheless, we conclude that the dismissal with

prejudice of the 1985 suit is not res judicata in Allegheny

International's present suit for insurance costs.    Although the

suits involve the same parties, they do not involve the same

causes of action.    In its present insurance costs claim,
Allegheny International is suing for reimbursement of expenses it

had not even incurred at the time that its 1985 suit was

dismissed with prejudice.   The fact that Allegheny

International's 1985 suit included a claim for declaratory

judgment regarding its rights to the reimbursement of future

insurance expenses it would incur on behalf of Allegheny Ludlum

should not bar Allegheny International's present claim for

expenses incurred subsequent to the dismissal of the 1985 suit.15

15
 . Allegheny Ludlum cites Exner v. Exner, 407 A.2d 1342 (Pa.
Super. Ct. 1979), and Mintz v. Carlton House Partners, Ltd., 595
A.2d 1240 (Pa. Super. Ct. 1991) in support of its argument that
the dismissal with prejudice bars Allegheny International's
present claim for costs incurred subsequent to the dismissal of
the earlier action. But these cases are distinguishable.

          The plaintiff in Exner first filed actions in assumpsit
alleging breaches of a separation agreement and then filed an
action in equity alleging breaches of the separation agreement
and seeking specific performance of the separation agreement.
The court in Exner entered judgment in the equitable action and
ordered specific performance of the separation agreement.
Subsequently, the plaintiff filed a motion for summary judgment
in the consolidated assumpsit actions alleging breaches of the
separation agreement. The Exner court held that the assumpsit
actions were barred by the judgment in the equitable action based
in part on the fact that "[t]he complaint in equity recited all
prior defaults, including those alleged in the prior assumpsit
actions . . . [and thus,] the causes of action alleged in the
consolidated assumpsit actions were included among the breaches
of contract averred and decided in the equity action." Exner,
407 A.2d at 1344. Thus, this case is distinguishable as
Allegheny International's previous complaint did not and could
not allege the "defaults" alleged in the complaint before us.

          In Mintz, the court held that the plaintiffs' claims
alleging that the defendant breached their lease agreement
already had been fully discharged by the bankruptcy court's entry
of an order confirming the defendant's plan of reorganization.
The court based its determination that the doctrine of res
judicata barred plaintiffs' claims in part on the finding that
although plaintiffs may have incurred damages subsequent to the
confirmation of defendant's plan of reorganization, the alleged
          As the United States Supreme Court held in Lawlor v.

National Screen Serv. Corp., 349 U.S. 322, 328, 75 S. Ct. 865, 868

(1955), while a "judgment precludes recovery on claims arising

prior to its entry, it cannot be given the effect of

extinguishing claims which did not even then exist and which

could not possibly have been sued upon in the previous case."16

The plaintiffs in Lawlor had brought an antitrust action seeking,

in part, injunctive relief, that was dismissed with prejudice in

1943 pursuant to a settlement agreement.   Subsequently, they

brought a second action alleging antitrust violations based on

conduct subsequent to the 1943 judgment, and the court held that

the earlier judgment did not bar the action.   Moreover, the court

noted that its conclusion was "unaffected by the circumstance

that the 1942 complaint sought, in addition to treble damages,

injunctive relief which, if granted, would have prevented the

illegal acts now complained of."   Id. at 328, 75 S.Ct. at 869.

(..continued)
breach occurred prior to the confirmation of defendant's plan of
reorganization. Mintz, 595 A.2d at 1244. Thus, Mintz is
distinguishable because the breaches on which Allegheny
International bases its present suit occurred after the entry of
judgment in the 1985 suit.
16
 . See also Federated Dep't. Stores, Inc. v. Moitie, 452 U.S.
394, 398, 101 S. Ct. 2424, 2428 (1981) ("[a] final judgment on the
merits of an action precludes the parties or their privies from
relitigating issues that were or could have been raised in that
action.") (citations omitted) (emphasis added); Alexander &
Alexander, Inc. v. Van Impe, 787 F.2d 163, 166 (3d Cir. 1986)
(res judicata "applies only to claims arising prior to the entry
of judgment. It does not bar claims arising subsequent to the
entry of judgment and which did not then exist or could not have
been sued upon in the prior action.") (citation omitted).
            We think that the Pennsylvania Supreme Court would

follow the logic of Lawlor in the situation before us.     In

reaching this conclusion, we recognize that when declaratory

relief is sought it may be possible to sue on a claim which could

be regarded as not yet existing.    Yet we think that it is

reasonable to consider that when both damages for past conduct

and declaratory relief governing future events are sought, the

parties naturally would focus their attention on the existing

monetary claims.    Indeed, we believe that a court should be

cautious in according res judicata effect to the dismissal of the

declaratory judgment aspects of a combination damages and

declaratory judgment action, lest a settlement leading to a

dismissal with prejudice could have unintended consequences.     For

example, a delinquent defendant with an ongoing relationship with

a plaintiff, by making its account current, might obtain a

dismissal of an action against it for the overdue payments and

for declaratory relief that it will be liable for future

payments.   In such a situation it would be remarkable if the

defendant could use the dismissal of the action as a defense in a

later case if it failed to make the future payments as its

obligation to make them matured.

            Furthermore, in a technical sense it is questionable

whether a voluntary dismissal with prejudice of a claim for

declaratory relief should be regarded as extinguishing the

anticipated substantive claim underlying the declaratory judgment

action, for such a dismissal is in terms simply a disposition of

a claim for declaratory relief.    Accordingly, it seems
unreasonable to regard the disposition as the equivalent of a

disposition of the plaintiff's substantive claims for monetary

relief as the claims mature.   Indeed, at a time when the claim

for declaratory relief is dismissed, the circumstances on which

future liability later may be predicated will not even exist.

Overall, we are convinced that whatever might be true in other

contexts, for res judicata purposes a cause of action for

declaratory relief with respect to a party's obligation to make

payments in the future should not be regarded as a cause of

action for the recovery of the payments as they become due.     In

these circumstances, we conclude that the Allegheny

International's present claim for insurance costs should not be

regarded as stating the same cause of action asserted in the

state litigation.   Consequently, we apply Pennsylvania law to

hold that the dismissal of Allegheny International's 1985 suit

does not bar its present claim.17

17
 . Of course, when there is an actual adjudication of an issue
in a declaratory judgment action regarding a debt not due, the
adjudication may be preclusive under collateral estoppel
principles as to that issue in a later action to recover the
debt. Thus, our result in no way undermines the effectiveness of
a declaratory judgment. But collateral estoppel does not apply
here because the dismissal with prejudice of the 1985 suit did
not actually "decide" or "adjudicate" any issues. See City of
Pittsburgh, 559 A.2d at 901 ("[c]ollateral estoppel applies if
(1) the issue decided in the prior case is identical to one
presented in the later case; (2) there was a final judgment on
the merits; (3) the party against whom the plea is asserted was a
party or in privity with a party in the prior case; (4) the party
or person privy to the party against whom the doctrine is
asserted had a full and fair opportunity to litigate the issue in
the prior proceeding and (5) the determination in the prior
proceeding was essential to the judgment.") (citations omitted).
                     C.   Sunbeam-Oster's standing

           In a second and separate motion for summary judgment,

Allegheny Ludlum challenged Sunbeam-Oster Company's right to

prosecute this action on behalf of Allegheny International

because Sunbeam-Oster did not file a motion to amend the caption

of the case or otherwise substitute itself for Allegheny

International as plaintiff.       See Allegheny Int'l, Inc., slip op.

at 30.   The district court denied Allegheny Ludlum's motion,

holding that Allegheny Ludlum had waived any defense it might

have had to Sunbeam-Oster's prosecution of this action by raising

it "as late in the litigation as it has."       Id. at 31 (citing 6A

Charles A. Wright, et al., Federal Practice and Procedure § 1554,

at 406-07 (1990)).    We agree.    Any objection alleging that the

plaintiff is not the real party in interest "should be done with

reasonable promptness."     See 6A Charles A. Wright, et al.,

Federal Practice and Procedure § 1554, at 407 (1990).

"Otherwise, the court may conclude that the point has been waived

by the delay and exercise its discretion to deny motions on the

ground of potential prejudice."       Id. at 407-08.   See also Gogolin

& Stelter v. Karn's Auto Imports, Inc., 886 F.2d 100, 102-03 (5th

Cir. 1989) (holding that defendant waived real-party-in-interest

defense by "untimely assertion," where defendant raised it for

the first time in a motion for directed verdict), cert. denied,

494 U.S. 1031, 110 S. Ct. 1480 (1990).18

18
 . In light of our decision, we need not reach an argument
advanced by Allegheny Ludlum that the district court erred in
                        III.    CONCLUSION

          In view of the aforesaid, we will reverse the district

court's order of summary judgment of April 7, 1994, in favor of

Allegheny International, but we will affirm its denial of

Allegheny Ludlum's motions for summary judgment.   We will remand

the matter to the district court for further proceedings

consistent with this opinion.   The parties will bear their own

costs on this appeal.

(..continued)
determining as a matter of law that Allegheny International was
entitled to the interest the IRS paid on the refund as a tax
benefit, and Allegheny Ludlum's further argument that the court
should not have awarded Allegheny International prejudgment
interest for certain litigation delay.