JACOB P. HART, United States Magistrate Judge.
On March 31, 2010, the United States Court of Appeals for the Third Circuit granted in part the appeal of plaintiff Darren Johnson, remanding this case to the District Court to consider Johnson's previously denied motion to reinstate Prison Health Services ("PHS") as a defendant in this matter.
The orders appealed from were issued by the Honorable Bruce W. Kauffman, to whom the ease was assigned at that time. Later, the case was referred to the undersigned, pursuant to 28 U.S.C. § 636(c) and Fed. R. Civ. Pr. 73. By the time the case was remanded by the Court of Appeals, Judge Kauffman was no longer sitting on this court. Therefore, I have considered the remanded issue. For the reasons set forth below, I will not reinstate PHS as a defendant.
In this action, brought under 42 U.S.C. § 1983, Johnson alleges that his rights under the Eight and Fourteenth Amendments to the United States Constitution were violated with respect to the treatment of a knee injury he sustained in 1999 while an inmate at Graterford Prison. He argues that proper treatment was wrongfully delayed, resulting in permanent injury which would not have occurred if he had received timely treatment. Although Johnson began this action in February, 2000, by filing a Motion to Proceed in Forma Pauperis, his complaint was filed on December 13, 2000, Docket at Documents 1 and 15.
Among other defendants, Johnson named Correctional Physician Services, Inc., ("CPS"), which was, at the time of his injury, the private entity employed by the Commonwealth of Pennsylvania Department of Corrections to provide medical care to its inmates at facilities including Graterford. He also sued PHS as a successor in interest to CPS, which stopped providing medical care at Graterford in March, 2000.
Memorandum And Order of January 19, 2005, docketed as Document 123.
Nevertheless, a year later, Judge Kauffman permitted Johnson to obtain discovery from PHS. Order of January 31, 2006, docketed as Document 133. On March 1, 2006, Johnson filed a Motion for Relief from Judgment under Fed. R. Civ. Pr. 60(b)(2), seeking the reversal of Judge Kauffman's order granting summary judgment to PHS. Motion, Docketed as Document 135. In it, he stated that he had finally received in discovery a copy of the Asset Purchase Agreement ("Agreement") between CPS and PHS, dated March 29, 2000, and discovered that, under the Agreement, PHS assumed liability for eases such as his. Id.
In an order dated October 5, 2006, however, Judge Kauffman denied Johnson's motion as untimely, writing that Rule 60(b) required it to have been filed within one year of the entry of the judgment at issue. Order, docketed as Document 142. Judge Kauffman also addressed the merits of the motion in a footnote:
Id.
By April 12, 2007, CPS was the only defendant remaining in the case. Judge Kauffman scheduled trial for September 17, 2007. Order, docketed as Document 144. On September 6, 2007, however, counsel for CPS moved to withdraw on the basis that his client no longer existed as a functioning business, and did not have sufficient funds to pay him. Motion to Withdraw, docketed as Document 155. Judge Kauffman granted the motion, and gave CPS 30 days to find substitute counsel. Order, docketed as Document 160.
No new counsel appeared, and on March 31, 2008, Judge Kauffman granted Johnson's motion for a default judgment against CPS. Order, docketed as Document 165. Judge Kauffman then referred the case to me for a trial on the issue of damages. Order, docketed as Document 167.
On April 30, 2008, I entered an order scheduling a bench trial for May 28, 2008. Order, docketed as Document 170. Copies of this order were served upon CPS principles
Johnson appealed to the Court of Appeals for the Third Circuit. Among other bases for appeal, he argued that Judge Kauffman had erred in granting summary judgment in favor of PHS, and in refusing to consider Johnson's motion to reconsider that ruling.
On April 22, 2010, the Court of Appeals for the Third Circuit issued its decision. Johnson v. Stempler, 373 Fed.Appx. 151 (3d Cir.2010). The Court of Appeals agreed with Johnson that Judge Kauffman should not have dismissed Johnson's March 1, 2006, motion for reconsideration as untimely. It wrote: "Rule 60(b) applies only to final judgments and the one-year time limitation imposed by the Rule does not apply to situations where the order in question was not properly appealable in the first place." Id. at 156, It added that Judge Kauffman's order dismissing PHS was not a final order because it did not dispose of all issues as to all parties. Id. For this reason, it was not properly appealable under Rule 60. The Third Circuit remanded the case for consideration of the merits of Johnson's argument regarding PHS's liability under the Agreement. Such consideration is now appropriate since a final judgment has been entered.
At the request of the parties, I permitted PHS to file a supplemental response to Johnson's March 1, 2006, motion for reconsideration. Order of April 26, 2010, docketed as Document 191. This was filed on May 11, 2010. Johnson filed a reply memorandum on June 4, 2010. Docketed as Documents 192 and 196. On June 10, 2010, I scheduled oral argument on the motion. Order, docketed as Document 197. This argument was held on June 29, 2010. Minute Ordered, docketed as Document 198.
II. Legal Standard
As explained by the Court of Appeals for the Third Circuit, Johnson's motion challenging the dismissal of PHS as a defendant in this lawsuit is now properly considered under Rule 60(b), since a final judgment has been entered in this case. Under this rule, a court may grant relief from judgment based on newly discovered evidence, such as the Asset Purchase Agreement, if the evidence (1) is material and not merely cumulative; (2) could not have been discovered prior to trial (or, in this case, prior to Judge Kauffman's summary judgment order) through the exercise of reasonable diligence; and (3) would probably have changed the outcome of the trial. Bohus v. Beloff, 950 F.2d 919, 930 (3d Cir.1991); and see Colyer v. Consolidated Rail Corp., 114 Fed.Appx. 473, 480 (3d Cir.2004).
A. The Asset Purchase Agreement
This motion presents a question of contract interpretation. Johnson argues that, in the Agreement, PHS assumed liability for actions such as his own. He points to ¶ 3.1 of the Agreement, which reads:
Asset Purchase Agreement, attached to Document 134 as Exhibit A. [Emphasis supplied].
PHS maintains that this paragraph cannot apply here, since the medical treatment given to Johnson took place in 1999, well before the Closing Date. Clearly, this was also Judge Kauffman's view, as expressed in the footnote to his October 5, 2006, order.
Johnson, however, argues that no actual "liability" arose with respect to Johnson's medical treatment in 1999, because no one at that time was adjudged liable. He offers the Black's Law Dictionary definition of "liability" as "the quality or state of being legally obligated or accountable." Johnson also cites United States v. Hughes Properties, Inc., 476 U.S. 593, 600, 106 S.Ct. 2092, 90 L.Ed.2d 569 (1986), where the United States Supreme court said that a liability "does not accrue as long as it remains contingent." On the basis of this authority, Johnson's counsel asserts that the relevant liability arose only when judgment was entered in this case. Obviously, this is after the Closing Date.
In addition to arguing that ¶ 3.1, does not apply, however, PHS also maintains that ¶ 3.3 of the Agreement explicitly excludes liability:
Id.
Again, as to ¶ 3.3, the parties disagree on the meaning of the language used. Johnson again argues that, in a legal sense, no "liability or obligation" had "accrued" with respect to his treatment as of March 29, 2000, the date of the Agreement. Johnson also maintains that the entire paragraph is modified by its first words; "Except for the Assumed Liabilities", which, he argues, includes this case.
In Pennsylvania, the paramount goal of contract interpretation is to determine the intent of the parties. Nova Chemicals, Inc. v. Sekisui Plastics Co., Ltd., 579 F.3d 319, 323 (3d Cir.2009), citing Garden State Tanning, Inc. v. Mitchell Manufacturing Group, Inc., 273 F.3d 332, 335 (3d Cir.2001), citing Meeting House Lane, Ltd. v. Melso, 427 Pa.Super. 118, 628 A.2d 854,
Language in a contract is normally given its ordinary meaning. Nova Chemicals, supra, citing Light v. Miller, 303 Pa.Super. 527, 450 A.2d 51, 53 (1982). However, contract language is ambiguous if it is reasonably susceptible of different constructions and capable of being understood in more than one sense. Nova Chemicals, supra, quoting Madison Construction Co. v. Harleysville Mutual Ins. Co., 557 Pa. 595, 735 A.2d 100 (1999).
Merriam-Webster's Dictionary defines liability as "the quality or state of being liable", and "liable" as "obligated according to law or equity: responsible." Http:// www.merriam-webster.com/dictionary/ liability and liable. This is a broader definition than the Black's Law Dictionary definition offered by Johnson. It suggests that an actor is responsible under law or equity at the time he acts wrongfully, which in this case would mean the time that Johnson's medical treatment took place.
Moreover, if the word "liability" in the Agreement is given its Black's Law Dictionary meaning, the result is untenable. As PHS pointed out at trial, if ¶ 3.1 assumes liability only for judgments arising after the Closing Date, then PHS could be named as a defendant in a lawsuit addressing actions taken by CPS before the closing date—but only in a separate action, filed after the entry of a first judgment. The first trial would be completely useless. CPS would probably (as here) permit a default entry against it, and PHS, as a non-party, would not be able to assert a defense on the merits of the case. A double trial would always be necessary.
It is difficult to see how the parties could have intended this clumsy result, which benefits neither of them. It is much more likely that they did not use the word "liability" in its Black's Law Dictionary sense, but, rather in the broader, Merriam-Webster, sense referring to the time at which actions were taken resulting in a liability. This would lead to the more logical conclusion that PHS agreed to assume liability for services arising under the contract CPS had made with the Pennsylvania Department of Corrections, but only when PHS was actually involved in the behavior giving rise to the liability, i.e., after the closing date. Accordingly, I agree with Judge Kauffman that PHS is not liable regarding the medical care offered to Johnson because it occurred before the closing date.
My conclusion is bolstered by the fact that ¶ 3.3—although very awkwardly worded—apparently seeks to exclude liability for litigation in which CPS was factually involved. See Watson v. Prison Health Services, Inc., C.C.P. Somerset Cty., No. 399 Civil 2008 (Jan. 22, 2009), which interprets the same Agreement, and states at unnumbered page 9: "In the instant case, the [Agreement] between PHS and CPS includes a section entitled `Excluded Liabilities,' which specifies that PHS did not assume any of CPS's litigation or claims . . . ."
Johnson also argues that, regardless of what the Agreement may provide, PHS is the successor in interest to CPS under the doctrine of de facto merger. In a civil rights action, state common law is applied where the federal statute is deficient in a necessary provision. 42 U.S.C. § 1988. As the Court of Appeals for the Third Circuit once expressed it, 42
The general rule, under either Pennsylvania or federal common law, is that when one company sells all or substantially all of its assets to another company, the purchasing company is not liable as a successor. U.S. v. General Battery Corp., Inc., 423 F.3d 294, 305 (3d Cir. 2005); Continental Insurance. Co. v. Schneider, Inc., 582 Pa. 591, 873 A.2d 1286, 1291 (2005), cited to Greenway Center, Inc. v. Essex Insurance Co., 369 Fed. Appx. 348, 352 (3d Cir.2010). One exception to this rule is a de facto merger, which occurs when the purchasing company is "merely a continuation of the selling corporation." General Battery Corp., supra; Continental, supra.
Under either federal or Pennsylvania law, a court is to consider the following factors in deciding whether a de facto merger has occurred: (1) continuity of ownership; (2) cessation of the ordinary business by, and dissolution of, the predecessor as soon as practicable; (3) assumption by the successor of liabilities ordinarily necessary for uninterrupted continuation of the business; and (4) continuity of the management, personnel, physical location, and the general business operation. General Battery Corp., supra; Continental v. Schneider, 810 A.2d 127, 134-135 (Pa.Super.2002); Berg Chilling Systems, Inc. v. Hull Corp., 435 F.3d 455 at 468-469 (3d Cir.2006), and see Greenway, supra.
The major difference between federal and state law is that, under current Pennsylvania law, continuity of ownership is crucial; without it, no de facto merger can be found. In Fizzano Brothers Concrete Products, Inc. v. XLN, Inc., 973 A.2d 1016 (Pa.Super.2009), the Pennsylvania Superior Court wrote:
973 A.3d at 1020.
On May 19, 2010, the Pennsylvania Supreme Court granted allocatur in Fizzano Brothers, 994 A.2d 1081 (Pa.2010). Therefore, the Fizzano rule is not yet final. Nevertheless, the Superior Court's reasoning is compelling, and it represents Pennsylvania law as it now stands.
There is no holding similar to Fizzano under federal common law, making continuity of ownership essential. Nevertheless, it remains a very significant factor in this circuit under federal common law. General Battery Corp., supra (de facto merger found where the seller obtained mostly cash, but also a small amount of stock, since it represented an "ongoing interest in their assets"); Einhorn v. M.L. Ruberton Construction Co., 665 F.Supp.2d 463, 476 (D.N.J.2009) (no de facto merger found in an ERISA case where continuity of ownership did not exist, calling continuity of ownership "often critical"); U.S. v.
Even in the few cases from other states where continuity of ownership was not required for a finding of de facto merger, the courts looked for something similar. In Kennedy v. City of Zanesville, OH, 505 F.Supp.2d 456, 479 (S.D.Ohio 2007), the United States District Court for the District of Ohio applied the Ohio law of de facto merger in a § 1983 case. Kennedy, unlike this case, involved two municipal entities, rather than privately owned corporations. There were no shareholders involved in either entity. Nevertheless, the court did not skip the "continuity of ownership" factor. Rather, it found that the merger and subsequent dissolution of the entities resulted in a relationship between them that was similar to a continuity of shareholders.
Also, in Woodrick v. Jack Burke Real Estate, Inc., 306 N.J.Super. 61, 703 A.2d 306, 314 (1997), a New Jersey state court found a de facto merger even though there was no continuity of stock ownership. There, however, the court emphasized the fact that a principal of the seller became an officer of the buyer and assumed management of the assets which were sold. Id.
Under the Agreement in this case, PHS paid $14 million in cash for the assets of CPS. Agreement at ¶ 2.1. There was no continuity of stock ownership. Apparently, CPS's owners, Kenan and Emre Umar, entered consulting agreements with PHS. Agreement, at vi (Table of Schedules) at 6.1.14(c) and (d). However, there is no evidence that either of them became a PHS officer, as in Woodrick, or assumed management of PHS.
Under either Pennsylvania or federal common law, therefore, I conclude that the lack of continuity of ownership is fatal to Johnson's claim of a de facto merger between CPS and PHS. It is difficult to see how two entities can be said to merge when the selling entity no longer has an interest in the business.
Finally, Johnson has pointed to the case of Brzozowski v. Correctional Physician Services, Inc., 360 F.3d 173 (3d Cir.2004). In this Title VII employment discrimination case, the Court of Appeals for the Third Circuit interpreted the very asset purchase agreement at issue here— the March 29, 2000 Agreement between CPS and PHS—and found that the plaintiff should have been permitted to amend her claim to name PHS as a successor in interest to CPS.
The Brzozowski court did not apply the test for de facto merger, as described above. Instead, it employed a test earlier developed for use in employment discrimination cases, requiring only "(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) the ability of the predecessor to provide adequate relief directly." 360 F.3d at 178, citing Rego v.
Johnson recognizes that Brzozowski is not a § 1983 case such as this, but he argues that equitable factors compel a similar treatment in the context of a civil rights action. He argues that he should also have the benefit of using the Rego test, rather than the usual test for successor liability.
This argument is not properly considered here. This is because Rule 60(b)(2) permits a motion seeking relief based on the existence of newly discovered evidence which could not have been discovered by the exercise of due diligence in enough time to move for a new trial under Fed. R. Civ. Pr. 59(b). The Brzozowski case is not such evidence. It was filed on February 23, 2004, several months before Johnson filed his response to PHS's motion for summary judgment on April 20, 2004. Docket at Document No. 101. In any event, Brzozowski did not make new law, as it used the test formulated in Rego, a Third Circuit case decided in 1999. The argument could, therefore, have been raised in Johnson's response to PHS's motion for summary judgment, and does not rely on new evidence, as required by Rule 60(b)(2).
Moreover, it is by no means clear that Johnson's argument could succeed. The Brzozowski court did not base its decision on a consideration unique to civil rights plaintiffs. Instead, its decision was based upon principles of labor and employment law. The court noted that "Title VII was molded to a large degree on the National Labor Relations Act, including its relief provisions." 360 F.3d at 177. It declined to apply the traditional de facto merger test because "the Supreme Court has expanded the common law rule in the field of labor relations." Id., citing Golden State Bottling Co., v. NLRB, 414 U.S. 168, 94 S.Ct. 414, 38 L.Ed.2d 388 (1973). Rego, the origin of the three-point test set forth above, was an employment discrimination case.
Further, the other Court of Appeals cases to which the Brzozowski court looked involved employment discrimination, 360 F.3d at 178, n. 10, citing Rojas v. TK Communications, Inc., 87 F.3d 745 (5th Cir.1996) (racial discrimination); EEOC v. G-K-G, Inc., 39 F.3d 740 (7th Cir.1994) (age discrimination); Slack v. Havens, 522 F.2d 1091 (9th Cir.1975) (race discrimination).
Thus, the Brzozowski decision was founded on a well-established rule permitting a finding of liability against a successor in interest in employment liability cases, including those brought under Title VII. For this reason, it is not persuasive in a § 1983 case such as this, where there is very little applicable precedent, and certainly none suggesting that anything other than a common-law rule of successor liability should be applied.
For the reasons set forth above, I find that the discovery of the Asset Purchase Agreement would not have changed the outcome of trial under Rule 60. Accordingly, Plaintiff's Motion for Relief from.