369 F.3d 745 | 3rd Cir. | 2004
LEWIS W. HULL, District Judge
Third Party Defendants Argued April 21, 2004
BERG CHILLING
SYSTEMS, INC., BEFORE: SCIRICA, Chief Judge, and
ROSENN and GREENBERG, Appellant in No. 03-2977 Circuit Judges (Filed: May 25, 2004)
BERG CHILLING SYSTEMS, INC.;
ACCEPTANCE INSURANCE John J. Soroko (argued) COMPANY Patrick J. Loftus James H. Steigerwald Duane M orris case, which has an unusual international 1650 Market Street character as it implicates entities from One Liberty Place, 37th Floor four countries on three continents, Philadelphia, PA 19103-7396 though not all as parties, arises from the
failure of a freeze drying system to Attorneys for Appellant-Appellee perform to specifications. Though there Berg Chilling Systems, Inc. were many factual disputes at the trial,
the basic circumstances of the case are Michael O. Adelman (argued) clear and we set forth the facts in the Rebecca S. Rimmer light most supportive of the district court’s result. [1] Michael P. Daly Drinker, Biddle & Reath One Logan Square The origin of the case may be 18th & Cherry Streets traced to March 30, 1995, when Berg, a Canadian Corporation, [2] entered into a One Logan Square Philadelphia, PA 19103-6996 contract with a Chinese Company named
Huadu Meat Products Company (“Huadu”) [3] to supply the food freeze Attorneys for Appellee-Appellant SP Industries, Inc. drying system (“Equipment Contract”) at
a cost of $2,800,000 in United States OPINION OF THE COURT [1] Certain of the various orders and determinations to which we make reference have not been appealed. The
GREENBERG, Circuit Judge. parties’ attorneys took some of the actions and wrote certain correspondence I. FACTUAL AND PROCEDURAL that we attribute to the parties. HISTORY This matter comes on before this [2] Berg’s principal place of business is court on appeals by Berg Chilling in Toronto, Ontario. Systems, Inc. (“Berg”) and SP Industries, [3] At various points in the record Inc. (“SPI”) from an order for judgment reference is made to other Chinese entered by the district court on June 11, 2003, following a four-day bench trial in corporate entities related to Huadu, such this breach of contract action. The as the China National Overseas Trading Corporation and the Beijing World Trade district court set forth its opinion in Berg Chilling Systems, Inc. v. Hull Corp., No. Corporation. For simplicity’s sake we Civ. A. 00-5075, 2003 WL 21362805 will refer to the entities collectively as Huadu. We also note that Huadu (E.D. Pa. June 10, 2003) (“Berg”). The
sometimes is referred to as Hua Du. specifications. [6] On April 20, 1995, Berg dollars. The freeze drying system contained several components which formally agreed to purchase two freeze Berg intended to acquire from dryers from Hull for the Huadu freeze subcontractors and suppliers. Thus, prior drying system (“Purchase Order”). to entering into the Equipment Contract, Under this Purchase Order, Hull assumed Berg ascertained which manufacturers responsibility for the design, would produce the system’s various manufacture, start-up and testing of the component parts. [4] freeze dryers. [7] The freeze dryers were
Berg approached the Hull [6] At trial Donald Berggren, the Corporation (“Hull”), a Pennsylvania president of Berg testified: entity, [5] and asked it to produce the freeze dryers, a critical component for the
We would send preliminary system. In the weeks prior to signing the specifications off to Hull. Equipment Contract with Huadu, Berg They would work up a was in constant contact with Hull quotation or specification – regarding the freezer dryers’ technical a specification based on the information that they received. We would take [4] Berg manufactured one component of it, forward it off to our the freeze drying system, the blast customer, Huadu, and – freezers. According to the arbitration and then they would come award we describe below, Huadu dealt back to us and ask more with a Canadian company to acquire the questions on what we had freeze drying system in order to take previously supplied. We advantage of financing for the purchase then took that information, available through the Export forwarded it back, and so it Development Corporation of Canada. was a back-and-forth Thus, in the transaction Berg largely was process of negotiation. a facilitator for financing and a coordinator for the supply of other JA at 77. companies’ products. This unusual role [7] The Purchase Order incorporated the in no way diminished Berg’s specifications of the freeze dryers set responsibility to Huadu. forth in the Equipment Contract between [5] Hull has its principal place of Berg and Huadu. That contract provided, business in Pennsylvania. Hull should “[o]nce the units are mounted in place by not be confused with the Hull Company the end user, under supervision by the which we describe below. Hull is not Hull Service Engineer, Hull Corporation participating in this appeal. will send a qualified engineer to check required to be able to process a specified China the damaged freeze dryer was volume of food at a high quality level repaired at Huadu’s facility in Beijing. within a 24-hour period or, in industry The equipment then was installed and terms, to meet the “through-put” prepared for trial runs. specifications.
In April 1997, at the direction of a After confirming the delivery date Hull service technician, preliminary with Hull, Berg entered into an amended testing began on the freeze drying agreement with Huadu specifying a system. This testing revealed several delivery date of June 15, 1996, for the deficiencies in the freeze drying freeze drying apparatus. Nevertheless, equipment which led Huadu in early May the freeze dryers were not shipped until 1997 to send a list of concerns regarding October 1996 because one of their the functioning of the machinery to Berg component parts was not available. which, in turn, forwarded the list to Hull. Once Hull completed manufacturing the Hull then responded to those concerns. freeze dryers, their shipping to China Nevertheless the Hull service technician was delayed further when the vessel on returned to the United States prior to which they were to be shipped failed on conducting performance tests on the the way to pick up the equipment at the machinery as required by the Equipment port in Camden, New Jersey. Berg, who Contract, an action leading Huadu to was responsible for shipping the freeze refuse to accept the freeze drying system. dryers, then made arrangements for their transportation on trucks across North According to Berg, during the America to Vancouver, British early summer of 1997 Hull refused to Columbia, for shipment by sea to China. cooperate with Berg and Huadu in Unfortunately, one of the trucks, while addressing the problems with the freeze
dryers. [9] Huadu obviously was en route to Vancouver, was involved in an accident in which one of the freeze dryers was damaged. [8] Berg did not repair the damaged freeze dryer prior to [9] Berg’s president testified at trial: its shipment by sea to China. Rather, after the freeze dryers were shipped to
We were having a very tough time obtaining cooperation [from Hull].
out the systems, start up the units and They didn’t seem to be provide on site training for a total of 20 interested in working with days.” JA at 854. us on the project. They – [8] The principle of Murphy’s Law seems they were very to have been at work here: what can go uncooperative, and at this wrong will go wrong. time, we felt that in order dissatisfied and thus threatened to send While Hull, Berg and Huadu were the equipment back and cancel the addressing the problems with the freeze contract. As a result of Hull’s perceived dryers, Hull, on August 27, 1997, entered lack of cooperation during that time into an Asset Purchase Agreement with period, Berg threatened to sue it. In late SP Industries, Inc. (“SPI”), a New Jersey Corporation, [11] providing for SPI to August, however, Berg and Hull began negotiating a compromise to solve the acquire Hull’s Food, Drug & Chemical difficulties with the machinery. These Division (“FDC division”) which had negotiations culminated in the signing of designed and manufactured the freeze a modified agreement on October 8, dryers for the Huadu project. Article 1.2 1997, among Huadu, Berg and Hull of the Asset Purchase Agreement designed to address the deficiencies in between Hull and SPI listed the the Hull freeze dryers (“Modified purchased assets, which included “all Agreement”). [10] The Modified contracts and agreements, including, Agreement set forth performance-level without limitation, sales orders and sales contracts.” [12] JA at 1825-26. Under goals for the freeze dryers and the required quality level of the product, Section 7.8, entitled Product Warranties, providing that “through a cooperative the agreement provided that “[p]urchaser effort, Hull and Berg will ensure” that does not hereby assume any liability to any third party claimant.” [13] JA at 1849. these standards would be met. JA at 1074. It established the end of March Section 10.6 of the Asset Purchase 1998 as the date by which the Agreement stated, “[t]his agreement shall modifications would be completed and be governed and controlled as to validity, final acceptance would take place. JA at enforcement, interpretation, construction, 1074. effect and in all other respects by the hereby, the terms and provisions of the internal laws of the State of New Jersey Asset Purchase Agreement shall remain applicable to contracts made in that in full force and effect.” JA at 1890. State.” JA at 1857.
Hull and SPI made various public Hull and SPI closed on the sale statements after signing the Asset provided for by the Asset Purchase Purchase Agreement to the end that the Agreement on October 15, 1997, exactly transaction constituted a merger of SPI one week after Huadu, Hull and Berg and Hull’s FDC division. Moreover, had signed the Modified Agreement. At Lewis Hull, president of the Hull the closing on the Asset Purchase Corporation, sent a letter to Berg after Agreement, as a result of concerns that the Asset Purchase Agreement was SPI raised about the costs of the signed, but before the closing, stating remaining work on the Huadu freeze that “[i]f Hull’s freeze drying division dryers, SPI and Hull entered into a side should be transferred to another entity, letter agreement relating to the Huadu Hull’s responsibility will of course be project. [14] The side letter agreement, assumed by the successor.” JA at 1020. which the parties signed on the same day as the closing on the Asset Purchase After the closing, the FDC Agreement, provided that SPI would division of the Hull Corporation began complete any needed design operating as a wholly-owned subsidiary modifications and repairs to the freeze of SPI under the name Hull Company. dryers. While SPI agreed to pay the out- Although SPI through the Hull Company of-pocket costs for the repairs, Hull made various modifications to the freeze agreed to reimburse SPI for a portion of dryers from late 1997 into early 1998, the its expenses. [15] The side letter agreement dryers, at least during this period and at provided that, “[e]xcept as amended all times material to this litigation, did
not meet the specifications contained in the Modified Agreement. Huadu, which [14] Hull at no time during the seems to have been quite negotiations and closing with SPI accommodating, agreed, however, to informed SPI that Berg had threatened to extend the date set forth in the Modified file suit against it in connection with the Agreement for acceptance of the freeze Huadu project. dryers until April 27, 1998. When it became clear that the freeze dryers would [15] Hull agreed to reimburse all of SPI’s not satisfy the specifications by that date, out-of-pocket costs, including payments SPI directly requested another extension to suppliers and travel costs, while SPI from Huadu. Huadu granted the request, agree to absorb the normal payroll giving SPI until May 20, 1998, to expenses of the employees working to fix complete modification and testing of the the freeze dryers. freeze dryers with the understanding that neither Berg nor SPI made an attempt to this would be the final extension. fix these problems or conduct
performance tests prior to the May 20, On May 13, 1998, Huadu sent a 1998 deadline. After it received this facsimile to Berg with a carbon copy to letter from Huadu, SPI notified Berg for the Hull Corporation listing the freeze the first time that, under Section 7.8 of dryers’ remaining problems. The the Asset Purchase Agreement between facsimile concluded that because the SPI and Hull, SPI had not assumed any freeze dryers still had “fatal liability for any work done by Hull or weakness[es]” that prevented them from SPI pursuant to the Equipment Contract meeting the through-put requirements for or the Modified Agreement. freeze drying food at the contracted quality level, they were “not In an effort to salvage the acceptable.” [16] JA at 1113. Nevertheless, situation after Huadu refused to accept
the equipment, Berg hired Walter Pebley, who had relevant expertise, to go to China and evaluate the problems with the [16] In a communication dated May 5, freeze dryers. The evidence at the trial 1998, Huadu had informed Berg and the indicated that from June to December Hull Corporation that if the freeze dryers 1998, “there was a letter writing did not satisfy the specifications and campaign between [Berg] and Huadu, as could not be accepted, “we will claim for [Berg] tried to get Hull back in to do the returning of goods and for our loss necessary changes that they felt were caused by failure of this project.” JA at required to show that the equipment 1106. Section 8.8 of the Equipment could work.” JA at 189-91. When Contract provided: Huadu refused to give Hull another opportunity to repair the equipment, Berg
If due to the Seller’s sent a letter to Huadu in March 1999 responsibility the purporting to end any obligation under performance tests cannot the various contracts. reach one or several items of guarantee figures in
Pursuant to Section 11.2 of the Appendix No. 4 after three Equipment Contract, Huadu, on March repeated performance tests, 29, 1999, filed a request for arbitration of and in case no other mutual agreement can be reached, then the Buyer shall have the right to terminate the equipment item as other Contract partially or wise agree [sic]. wholly, relative to the value of defective JA at 786.
its claims against Berg with the any damage award, as well Arbitration Institute of the Stockholm, as its legal and other costs. Sweden, Chamber of Commerce. Huadu You are further put on did not attempt to make either Hull or notice that Berg will rely SPI a party to the arbitration. [17] But after on Hull’s refusal to defend it learned about the institution of the the Claimants’ allegations arbitration proceedings, Berg notified as precluding it from John Hull, the former vice chairman of subsequently raising any the Hull Corporation and a consultant to such defence to the the new Hull Company. Berg wanted allegations in any action Hull to participate in the proceedings and commenced by Berg thus it sent a letter dated May 24, 2000, against Hull in the event to John Hull informing “Hull” that it was Berg is unsuccessful in obligated “to participate in the arbitration defending the arbitration. and defend its equipment given that it is a party to the Modified Agreement.” JA JA at 1182. at 1181. Berg requested Hull to engage in a joint defense of Huadu’s claims. JA The arbitration proceedings went at 194. The Berg letter stated that Hull forward in Stockholm for approximately had refused to be added as a party to the one year before, on March 8, 2000, Berg arbitration or to cooperate in the defense formally objected to the proceedings on of the arbitration. JA at 1182. As a the basis of its assertion that the Hull result, Berg informed Hull: Corporation was a necessary and proper
party to the arbitration. However, the Accordingly, you arbitration proceedings continued are hereby put on notice without any participation from Hull or SPI. [18] On December 7, 2000, the that in the event Berg is unsuccessful in defending the arbitration Berg will be looking to Hull, and any [18] Berg formally informed SPI of the successor company to Hull, arbitration by letter dated October 3, for full contribution and 2000, in which it stated that the letter, as indemnity with respect to well as the previous letter of May 24, 2000, to John Hull, “constitutes written notice of the Arbitration Proceeding.” [17] This omission is understandable as JA at 1179. The letter further stated that Huadu’s contract providing for “Berg Chilling hereby requests that you arbitration was solely with Berg so there come in and defend the Arbitration was no way that Huadu could join Hull Proceeding. Should you not do so, you or SPI in the arbitration. will be bound in any action brought Arbitration Institute issued its award in and SPI in the district court, asserting favor of Huadu and against Berg for claims for breach of contract, breach of $2,494,034.84, a sum that includes express warranty, breach of implied interest. warranty, and indemnity and
contribution. Hull then filed a cross- The arbitrators found that due to claim against SPI for indemnity or the inability of the Hull freeze dryers to contribution. SPI responded by filing a function as required by the specifications counter-cross-claim against the Hull of the Equipment Contract and Modified Corporation for breach of representation Agreement, Huadu was entitled to a and warranty and breach of the refund of the portion of the purchase indemnification and defense provisions price in the Equipment Contract for the of the Asset Purchase Agreement
between SPI and Hull. [19] freeze dryers but that Berg, upon payment, could reclaim them. Although the arbitrators recognized that the After the conclusion of the remainder of the freeze drying system arbitration proceedings and prior to trial was functional and the only deficiency in the district court, Berg and Huadu on was in the Hull-manufactured freeze June 10, 2002, entered into a Settlement dryers, it found that “Berg Chilling bears Contract resolving all claims between full responsibility towards [Huadu] for them. In the Settlement Contract Berg any breaches of contract with relation to the Hull equipment. It is outside the scope of this arbitration to determine [19] SPI also filed a third-party complaint whether and to what extent Hull shall against the Hull Corporation’s corporate answer for such breaches in relation to officers John Hull and Lewis Hull for Berg Chilling.” JA at 1206-07. In breach of contract, fraud and defending itself in the arbitration Berg misrepresentation. John Hull and Lewis incurred legal fees, including expert Hull then filed a counterclaim against witness fees and costs, of $454,115.26. SPI, maintaining that SPI had a duty to defend and/or indemnify them in this
At the time the arbitration litigation. The district court entered proceedings between Huadu and Berg judgment in favor of John Hull and were pending, Berg, on October 6, 2000, Lewis Hull on SPI’s third-party brought suit against the Hull Corporation complaint against them and entered judgment in favor of SPI and against John Hull and Lewis Hull on John Hull
against you by Berg Chilling as to any and Lewis Hulls’ third-party complaint determination of fact made in the against SPI. These dispositions are not at Arbitration Proceeding common to the issue on this appeal and thus we do not two litigations.” JA at 1179. make further reference to them. appeal. [20] The court further found that agreed to pay Huadu $1,000,000 and to permit Huadu to retain ownership of the under the terms of the Asset Purchase freeze dryers which Huadu and Berg Agreement between SPI and Hull, SPI agreed in their then current condition assumed Hull’s responsibilities for the were valued at $650,000. W e refer to freeze dryers pursuant to the Purchase this $650,000 as an “Equipment Credit.” Order, the Equipment Contract and the Thus, Berg and Huadu valued the Modified Agreement. settlement at $1,650,000. The Settlement Contract provided that in the event that Concluding that Berg, Hull and Berg was successful in this litigation, it SPI were equally at fault for the breach would retain the first $1,650,000 of the of the various agreements to Huadu, the award, Huadu would be entitled to the court apportioned the $1,000,000 next $350,000, and Berg and Huadu damages from the Settlement Contract would share equally in any recovery in equally but separately among Berg, Hull and SPI. [21] The court, however, did not excess of $2,000,000. The $1,650,000 figure clearly was predicated on the hold Hull and SPI jointly and severally payment that Berg made to Huadu in a liable to Berg. Moreover, the court combination of cash and the waiver of declined to grant Berg damages any claim by Berg to reclaim the predicated on the $650,000 Equipment equipment. Credit for the freeze dryers which Huadu
had retained pursuant to the Settlement The litigation in the district court Contract because, in the court’s view, proceeded to trial on January 13, 2003, Berg had not established the value of the where the court at the bench trial heard equipment and did not demonstrate what four days of testimony. In its its costs would have been to retrieve the Memorandum and Order of June 11, equipment or find a purchaser for it if 2003, the district court issued its findings Huadu had not retained it. of fact and conclusions of law. The court determined that the award issued on [20] Berg does assert that the court’s December 7, 2000, by the Arbitration ruling with respect to vouching in was Institute was not binding on Hull because erroneous but indicates that it became Berg failed to vouch it in properly. It moot when the court later found “that further held that SPI was not equitably or SPI and Hull had committed a breach of judicially estopped from arguing that it contract.” Berg br. at 52. did not assume any liability to Berg for the freeze dryers sold to Huadu. Berg [21] The court entered separate judgments does not challenge these findings on this in favor of Berg and against Hull and SPI for $333,333. Thus, the court left Berg with the loss for the remaining $333,334 paid on the Settlement Contract.
The district court rejected Berg’s claim for attorneys’ fees and expert witness fees in the arbitration II. DISCUSSION proceedings, finding that “[w]hile ordinarily Berg Chilling might be entitled A. STANDARDS OF REVIEW to recover such fees, in this case such an award would be unconscionable.” Berg, We exercise plenary review over 2003 W L 21362805, at *11. In support the district court’s legal determinations. of this conclusion the court explained Shire US Inc. v. Barr Labs. Inc., 329 that Berg had not represented Hull and F.3d 348, 352 (3d Cir. 2003). Our SPIs’ interests adequately in the standard of review is plenary with arbitration proceedings. The court also respect to whether the district court stated that “since Berg Chilling was applied the appropriate measure of equally liable with the Defendants contract damages in a legal sense. Scully herein, each must bear its own costs and v. US WATS, Inc., 238 F.3d 497, 507 counsel fees.” Id. The court further (3d Cir. 2001) (citing William B. Tanner found that the Hull Corporation had not Co. v. WIOO, Inc., 528 F.2d 262, 271 breached certain portions of the Asset (3d Cir. 1975)). We review the factual Purchase Agreement with SPI by failing determinations of the district court under to inform SPI of Berg’s threat of a clearly erroneous standard. Medtronic litigation during the summer of 1997. Ave, Inc. v. Advanced Cardiovascular Additionally, it rejected SPI’s claim for Sys., Inc., 247 F.3d 44, 53 (3d Cir. indemnification against Hull. These 2001). A finding of fact is clearly appeals followed. [22] In our opinion we
erroneous when it is “completely devoid deal with the specific issues advanced by of minimum evidentiary support the parties. The Hull Corporation is not displaying some hue of credibility or participating in this appeal. [23]
bears no rational relationship to the supportive evidentiary data.” Kool, Mann, Coffee & Co. v. Coffey, 300 F.3d [22] The district court exercised diversity 340, 353 (3d Cir. 2002) (quoting Hoots jurisdiction pursuant to 28 U.S.C. § 1332 v. Pennsylvania, 703 F.2d 722, 725 (3d and we have jurisdiction under 28 U.S.C. Cir. 1983)). § 1291. [23] It appears that the Hull Corporation is in financial distress and thus,
B.
FAULT AND THE EQUAL according to Berg, the judgment against it is not collectible. We are aware, however, that Hull is seeking insurance against it would be satisfied. See Berg indemnification and consequently it is Chilling Sys. Inc. v. Hull Corp., 70 Fed. possible that ultimately a judgment Appx. 620 (3d Cir. 2003).
APPORTIONMENT OF dryers and modification thereto.” Id. In DAMAGES AMONG BERG, support of this finding, the court cited the HULL AND SPI testimony of Donald Berggren, the
president of Berg. At the trial, Berggren Berg challenges the district testified as to the process of negotiation court’s action in allocating damages to it. with Huadu and Hull prior to Berg The court found that under S.J. Groves & entering into the contract with Huadu to Sons Co. v. Warner Co., 576 F.2d 524, provide the freeze drying system, 527-58 (3d Cir. 1978), it had the indicating that “[w]e would send authority to apportion damages according preliminary specifications off to Hull.” to the relative fault of the three parties, JA at 77. Berg, Hull and SPI. We conclude, however, that it had no basis on which to Though it is unclear from the find Berg at fault for the breach of the foregoing portion of Berggren’s Equipment Contract and Modified testimony whether Huadu or Berg Agreement, and thus the court erred in developed the specifications, review of apportioning any damages to Berg. his testimony as a whole makes it clear
that Berg did not develop the The court found that Berg, Hull specifications for the freeze dryers, but and SPI were equally at fault for the merely forwarded the specifications breach of contract in failing to make a requested by Huadu to Hull during the negotiations. [25] On direct examination, timely shipment of a working freeze drying system to Huadu. In finding that Berggren was asked “[i]n the back and Berg was partly to blame for the breach forth that you described with Huadu, did of contract the court rejected Berg’s Berg Chilling provide technical input on argument that it was a mere the freeze dryers.” JA at 82. He “middleman” between Huadu and Hull. [24]
responded “[w]e weren’t capable of Berg, 2003 WL 21362805, at *11. The court found that Berg was responsible for the late shipment of the machinery and [25] Berggren testified, “Huadu read the damage to one of the freeze dryers through the quote, and there was usually during shipment. The court further generated more – more questions. Every emphasized that, “[m]ore importantly, time we’d send off technical Berg Chilling, like Hull Corporation and specifications, it generated more SPI, took part in the design and/or questions that we would in turn send off approval of the design of the freeze to the various suppliers that – that we had.” JA at 81. Berggren’s testimony is corroborated by the testimony of Wayne [24] In essence this conclusion rejected Hinton, the sales manager at Berg who the view of the Arbitration Institute. worked on the Huadu project. providing technical input. We relied on Indeed, the court recognized that “SPI Hull for that.” JA at 82. performed all work under the Modified
Agreement, including the flawed Berg maintains that the finding by engineering of the modified freeze- the district court that Berg “took part in dryers, the unsuccessful preliminary the design and/or approval of the design testing of the equipment, and the start-up of the freeze dryers and modification activities at the Huadu facility.” Berg, thereto,” was clearly erroneous. We 2003 WL 21362805, at *11. agree. Neither the court nor SPI points to evidence supporting a conclusion that Berg disputes the district court’s Berg played any role other than relaying findings as to its culpability for the information back and forth between breach of the Equipment Contract with Huadu and Hull regarding the Huadu in other respects as well. The specifications of the freeze dryers. In court found that Berg was partially arguing that we should affirm the district responsible for the breach of contract court on this point SPI cites to the because it delivered the freeze dryers late portion of the trial transcript on which to China and one of the dryers was the district court relied. However, as damaged while being transported to stated above, Berggren made clear that Vancouver for shipment. While we Berg did not approve the design of the agree that Berg’s late shipment of the freeze dryers in the sense of judging its machinery qualified as a breach of efficacy, but only forwarded the contract, this approximately one-month specifications requested by its customer, delay was not the reason that Huadu Huadu, to its supplier, Hull, and ultimately refused to accept the attempted to put together an agreement equipment. The record is clear that relying on other entities’ capabilities. All Hull’s difficulty in obtaining a of the testimony at the trial established component of the freeze dryers caused that Hull designed the freeze dryers and most of the delay prior to shipment. attempted to install them successfully in Furthermore, any delay prior to the China. Furthermore, after the closing of the Asset Purchase Agreement, SPI performed all of the obligations of Hull
initial failure of the freeze dryers, Berg under the M odified Agreement. [26] offered to “provide on-site labor to make the necessary refrigeration piping changes to accommodate the new [26] In its brief, SPI cites to a memo condensers.” JA at 2015. But SPI did written by Berg’s president to John Hull not offer evidence that any Berg of the Hull Corporation dated September personnel ever undertook any design or 29, 1997. As a means of reaching a modification work pursuant to the compromise solution in the face of the Modified Agreement. signing of the Modified Agreement to conclude that the factual findings of which extended the deadlines for the the district court with respect to Berg’s completion of the project is irrelevant fault for the breach of the Equipment because Huadu did not refuse to accept Contract and the Modified Agreement the freeze drying machinery in May 1998 lack evidentiary support and thus are on account of the late delivery in 1997. clearly erroneous. Rather, it refused to accept the equipment because, even after the We recognize that, as the various modifications, the freeze dryers Arbitration Institute found, while Berg failed to perform to specifications. was certainly liable to Huadu as a Therefore, any breach of the delivery signatory to the Equipment Contract and dates by Berg set forth in the original Modified Agreement for the failure of Equipment Contract should not have the freeze dryers to function as required been a basis for finding Berg in any way by those agreements, such liability was responsible for the failure of the freeze imposed merely because it did not drying apparatus to function properly. comply with the contract. But Berg’s
liability differs in nature from that of Moreover there is no evidence Hull which was culpable because of its that the damage during the accident technological failures and which as while the equipment was being between Berg and Hull was responsible transported to Vancouver caused the for the freeze dryers not functioning as problems with the freeze dryers. In fact, required by the specifications in the only one of the freeze dryers was Equipment Contract. Moreover, if, on involved in the accident but the record the remand we are ordering, SPI is held clearly shows that the freeze dryer liable on a theory that it is Hull’s problems related to both dryers. Thus, successor SPI will be in the same Huadu declined to accept the freeze position as Hull. Overall, therefore, it is dryers because neither could satisfy the clear that among Berg, Hull and SPI no through-put requirements in the damages should have been assessed Equipment Contract by reason of a against Berg. Thus, the district court design defect in both pieces of clearly erred in apportioning any machinery. Clearly, the design of the freeze dryers by Hull rather than the accident was the cause of the
freeze dryers related to design defects equipment’s failure to function as rather than the accident. The court stated promised. [27] Overall, we are constrained that “[w]ithout remedying the problem associated with the diameter of the pipe, the freeze dryers could not have met the [27] The district court implicitly through-put requirements.” Berg, 2003 recognized that the deficiency with the WL 21362805, at *7. damages to Berg. We therefore will Purchaser will, as reverse the judgment of the district court appropriate, agree to repair to the extent that it allocated any (at the Real Estate or as damages to Berg and will remand the necessary, at the location case to the district court with instructions of the customer) or accept that it vacate that portion of its order for returns of products of the judgment holding Berg responsible for Business shipped by Seller Huadu’s damages. [28] on and prior to the Closing
Date . . . which are defective or which fail to conform to the customer’s
C. THE LIABILITY AND order in accordance with INDEMNIFICATION TERMS the following provisions OF THE ASSET PURCHASE (but Purchaser does not AGREEMENT hereby assume any liability
to any third party claimant. 1. Liability . . .) The next issue we deal with JA at 1848-49 (emphasis added). The
concerns SPI’s challenge to the order for district court concluded that Section 7.8 judgment assessing damages against it of the Asset Purchase Agreement, pursuant to the Asset Purchase entitled Product Warranties, did not Agreement. Section 7.8 of the Asset apply because Huadu never accepted the Purchase Agreement states that: freeze dryers and therefore any work SPI
did was not warranty work governed by Section 7.8. The court stated:
occurred, no ‘warranty’ no inconsistency between Sections 7.8 work was performed. SPI and 1.2(i) of the agreement. Even argues that the work assuming that the Equipment Contract performed after the closing and M odified Agreement constitute of the Asset Purchase purchased assets under the Asset Agreement is warranty Purchase Agreement, it does not follow work within the meaning of that SPI could not limit its liability to Section 7.8 of the Asset third parties with respect to those assets. Purchase Agreement. Furthermore, the district court’s analysis Section 7.8, however, is is flawed because in interpreting the inconsistent with Section Asset Purchase Agreement it looked to 1.2(i) and the side letter Section 7.4 of the Equipment Contract (Ex. P-186), and, therefore, between Huadu and Berg. That does not support SPI’s provision specifies that if the freeze contentions. dryers satisfy the requirements set forth
in that agreement, “[t]his shall be the Berg, 2003 WL 21362805, at *10 n.10. Acceptance of the Equipment by the Section 1.2 lists the purchased assets, and Buyer and shall be considered [the] start subsection (i) includes, in relevant part, of the warranty period.” JA at 782. “all contracts and agreements.” [29] JA at Therefore, the court concluded that the 1825-26. warranty period on the freeze dryers had
not started because Huadu never We reject the district court’s “accepted” them and as a result Section interpretation of the Asset Purchase 7.8 of the Asset Purchase Agreement Agreement as it is clearly erroneous. See could not apply. Medtronic, 247 F.3d at 53 n.2. [30] There is
The district court did not address the obvious differences between the [29] The district court concluded that Asset Purchase Agreement and the Section 1.2 of the Asset Purchase Equipment Contract. For purposes of Agreement was unambiguous and determining whether SPI assumed therefore the agreement between Berg liability for the Huadu Project, it was and Hull to provide two freeze dryers to irrelevant whether Huadu had “accepted” Huadu qualified as a purchased asset. the freeze dryers in accordance with Furthermore, Section 1.3 did not list the Huadu Equipment Contract or Modified Agreement as excluded assets.
In light of our result we need not [30] SPI regards the Section 7.8 issue as consider this contention as the district being a matter of contractual court’s conclusions cannot survive even construction subject to plenary review. deferential review. extent that it imposes liability on SPI. [31] Section 7.4 of the Equipment Contract. The relevant provision was Section 7.8 of the Asset Purchase Agreement which In considering this point we have made clear that the limitation of liability not overlooked Berg’s contention “that to third parties applied to “products of any purported disclaimer of liability the Business shipped by Seller on and under Section 7.8 would [not] be binding prior to the Closing Date.” JA at 1848- on non-parties to the Hull-SPI 49. It is undisputed that the freeze dryers Agreement, such as Berg.” Berg’s reply were shipped to Huadu prior to the br. at 24. Rather, we reject that argument closing of the Asset Purchase Agreement for if, as is the case, Berg seeks to on October 15, 1997. Therefore, Section impose liability on SPI on the basis of 7.8 of the Asset Purchase Agreement the Asset Purchase Agreement it cannot clearly applies to the dispute between pick and choose which of its provisions SPI and third-party claimant Berg. are applicable. Thus, the exculpatory
language of Section 7.8 binds Berg. Nevertheless the district court held that because “SPI acquired the Hull Our conclusion, however, does Purchase Order and Modified not necessarily free SPI from liability on Agreement” it was “liable for the work it a different theory inasmuch as the district performed under those contracts.” JA at court explained that “[b]ecause SPI’s 24 n.13. Clearly this conclusion was liability is established on this [i.e. incorrect as the plain language of the contractual] basis, it is not necessary to Asset Purchase Agreement precludes a reach Berg Chilling’s arguments related finding of liability against SPI and in to successor liability under the de facto favor of Berg on the basis articulated by merger and continuation doctrines.” the district court, i.e. that SPI assumed Berg, 2003 WL 21362805, at *10 n.13. Hull’s responsibilities by entering into On appeal, Berg renews its argument that the Asset Purchase Agreement. even if SPI is not liable under the terms Moreover, the fact that SPI did not of the Asset Purchase Agreement, it adequately modify the equipment does should be held liable under these not matter as Hull shipped the equipment alternate theories. In view of the before the Hull-SPI closing date and thus SPI could not be liable to Berg under the Asset Purchase Agreement. [31] Berg maintains that Section 7.8 is Accordingly, we will reverse the void as against public policy. Inasmuch judgment of the district court to the as the district court incorrectly interpreted that provision it never reached this issue. On remand, the district court should address Berg’s argument in the first instance.
circumstance that the district court did . . . not address the applicability of successor liability under the de facto merger and (c) the failure to continuation doctrines, we will remand discharge when due any this claim to the district court for an liability or obligation of analysis of SPI’s possible liability on the Seller other than the applicability of these doctrines. [32]
Assumed Liabilities, or any claim against Purchaser
2. Indemnification with respect to any such liability or obligation or SPI challenges the district court’s alleged liability or refusal to grant it indemnification from obligation; Hull. Section 8.2 of the Asset Purchase Agreement provides as follows: (d) any claims by
parties other than 8.2 Indemnification Purchaser to the extent Obligations of Seller. caused by acts or omissions Subject to Section 8.3 of Seller on or prior to the hereof, Seller shall defend, Closing Date, including, indemnify, save and keep without limitation, claims harmless Purchaser, its for Damages which arise or Affiliates and their arose out of Seller’s respective successors and operation of the Business permitted assigns . . . or by virtue of Seller’s against and from all ownership of the Purchased Damages sustained or Assets on or prior to the incurred by any of them Closing Date[.] resulting from or arising out of or by virtue of:
JA at 1852. [33] Section 8.5 of the Asset [32] The district court also should Purchase Agreement sets forth a procedure by which SPI is required to notify Hull of any third-party claim
under this Article VIII shall lodged against SPI. As required by this relieve it of such provision, after receiving a copy of the obligations to the extent summons and complaint in this action, they exist. If an SPI on November 9, 2000, wrote a letter Indemnified Party is to Hull stating: entitled to indemnification against a Third Party
Pursuant to Section 8.5 of Claim, and the the Agreement [34] Indemnifying Party fails to accept a tender of, or assume, the defense of a
the terms and provisions of Third Party Claim pursuant the Asset Purchase to this Section 8.5 . . . the Agreement shall remain in Indemnified Party shall full force and effect, it have the right, without being understood that the prejudice to its right to execution of this letter indemnification hereunder, agreement, and any actions in its discretion exercised taken pursuant hereto, shall in good faith and upon in no way limit, or advice of counsel, to otherwise constitute a contest, defend and litigate waiver of any of the rights such Third Party Claim . . . to which Purchaser is . If, pursuant to this entitled pursuant to the Section 8.5, the Asset Purchase Agreement Indemnified Party so including, without contests, defends, litigates limitation, those provided or settles a Third Party for under Article VIII Claim for which it is thereof. entitled to indemnification hereunder as hereinabove
JA at 1890. provided, the Indemnified [34] Section 8.5 of the Asset Purchase Party shall be reimbursed Agreement provides, in pertinent part: by the Indemnifying Party for the reasonable No failure by an attorneys’ fees and other Indemnifying Party to expenses of defending, acknowledge in writing its contesting, litigating and/or indemnification obligations settling the Third Party you are hereby put on *12. The court relied on Section 8.2(d) notice of the above of the Asset Purchase Agreement, which captioned matter. provided for indemnification by Hull for Purchaser hereby tenders actions brought by third parties related to the defense of the above conduct “prior to the Closing Date.” JA captioned matter to Seller at 1852. Therefore, the district court together with Purchaser’s concluded that the actions taken by SPI demand for in attempting to repair the freeze dryers indemnification. Pursuant after the closing of the Asset Purchase to Section 8.5 of the Agreement were not subject to the Agreement, please indemnification provision of that acknowledge your agreement. indemnification and defense obligations The district court reached its promptly and in writing. conclusion as a consequence of its
misinterpretation of Section 7.8, which, JA at 1184. Hull responded on as explained above, expressly provided December 5, 2000, that “it does not have that SPI “does not hereby assume any an obligation to tender a defense on liability to any third party claimant” for behalf of SP Industries, Inc.” in this any items shipped prior to the closing of matter. JA at 1185. the Asset Purchase Agreement. JA at
1849. Under Section 8.2(c) Hull was The district court rejected SPI’s obligated to defend and indemnify SPI as indemnification claim, stating that “SPI’s to any “liability or obligation of Seller.” argument is unpersuasive because SPI is JA at 1852. Therefore, pursuant to liable . . . for its own post-closing Section 7.8, the Huadu freeze dryers conduct.” Berg, 2003 WL 21362805, at qualified as a “liability or obligation” of
Hull. We do not see why SPI’s inability to overcome Hull’s earlier failure to produce a system complying with the
Claim[s] which are specifications of the Equipment Contract incurred from time to time, should impair SPI’s indemnification forthwith following the claim. In this regard we point out that presentation to the SPI’s inability to modify the equipment Indemnifying Party of to comply with the specifications was at itemized bills for said most a contractual failure. We see no attorneys’ fees and other reason why Hull and SPI should not have expenses. been free to place the losses from the failure as between themselves as they
JA at 1854. saw fit and that is what they did in Section 7.8. this action.” Berg, 2003 WL 21362805, at *10. However, in its prior opinion the Accordingly, we will reverse the court only held that as to any claims order for judgment entered by the district between Hull and SPI related to the court against SPI and in favor of Hull Asset Purchase Agreement the choice of denying SPI’s indemnification claim and law provision in that agreement will remand SPI’s indemnification claim providing that New Jersey law applies to the district court with instructions to governed. Berg Chilling Sys., Inc. v. grant judgment in favor of SPI and Hull Corp., No. CIV. A. 00-5075, 2002 against Hull on this claim. The district WL 31681955, at *5 (E.D. Pa. Nov. 26, court then must make an award pursuant 2002). Therefore, rather than addressing to Section 8.5 of the Asset Purchase whether Berg’s indemnification claim Agreement in favor of SPI and against against both Hull and SPI also should be Hull as to SPI’s “reasonable attorneys’ governed by New Jersey law, the district court merely assumed that it should be. [35] fees and other expenses of defending, contesting, [and] litigating,” this action. On remand the district court must JA at 1854. address Berg’s indemnification claim
against SPI in the first instance, though
D.
BERG’S INDEMNIFICATION [35] In any event, there is no conflict
CLAIM AGAINST HULL AND
between Pennsylvania or New Jersey law
SPI
with respect to the indemnification issue. See Duall Bldg. Restoration, Inc. v. 1143
1. Indemnification East Jersey Ave. Assoc., Inc., 652 A.2d 1225, 1233-34 (N.J. Super. Ct. App. Div.
The district court did not directly 1995) (affirming trial court holding that address Berg’s claim for indemnification paint manufacturer had duty to indemnify against Hull and SPI, although by finding builder who used manufacturer’s paint that Berg was partially at fault for the on a building when the paint peeled off); breach of contract to Huadu, it implicitly Moscatiello v. Pittsburgh Contractors rejected it. Therefore, the district court Equip. Co., 595 A.2d 1198, 1201-02 (Pa. did not analyze whether Pennsylvania or Super. Ct. 1991) (affirming decision that New Jersey law applies to this claim. At seller of concrete paving equipment was the beginning of the breach of contract entitled to indemnification for damage section of its opinion, the district court award in underlying breach of contract indicated that “[i]n a previous action from manufacturer of machinery memorandum addressing the parties’ because seller was “mere conduit”). In motions for summary judgment, I fact Duall cited Moscatiello and followed determined that New Jersey law governs it. based on our analysis of both 2. Attorneys’ fees and costs Pennsylvania and New Jersey law, we hold that Berg is entitled to Berg sought to recover its indemnification against Hull as the attorneys’ fees and expert witness fees manufacturer of the freeze drying from Hull and SPI in connection with the equipment. As explained earlier, Berg defense of the arbitration proceedings in primarily served as the distributor of the Sweden. The district court rejected this equipment and negotiated the agreement claim, stating that: with Huadu. Hull designed the freeze dryers and shouldered the responsibility While ordinarily Berg to install them. Furthermore, under the Chilling might be entitled Equipment Contract and the Modified to recover such fees, in this Agreement, Hull was required to conduct case such an award would testing to ascertain the functionality of be unconscionable. As the equipment. discussed above, Berg
Chilling did not adequately The determination of the viability represent the interests of of Berg’s claim for indemnification from Hull Corporation, or, by SPI must await the conclusions of the extension, SPI, and for this district court on remand. If the district reason it cannot recover its court decides that SPI is liable as a fees. Moreover, since Berg successor to Hull under the de facto Chilling was equally liable merger or continuation doctrines, the with the Defendants herein, court then will have to analyze whether each must bear its own Berg is entitled to common law costs and counsel fees. indemnification from SPI. However, if the district court rejects the successor Berg, 2003 WL 21362805, at *11. The liability claim then there will be no basis district court previously had noted that in upon which Berg can assert an the arbitration proceedings Berg offered indemnification claim against SPI the testimony of its expert, Walter because Section 7.8 of the Asset Pebley, that the freeze dryers “could Purchase Agreement negates the produce quality product but at possibility of SPI assuming Hull’s significantly lower through-puts.” JA at liability by reason of the failure of the 519-20; see also JA at 489 (stating that freeze dryers which had been shipped to he testified at the arbitration proceeding Huadu. [36] that “the equipment would function but
not at the through-put rates in the contract specifications”). The court contractual provision providing for characterized this as testimony offered by attorneys’ fees, Berg cannot prevail on Berg “that the freeze dryers were this claim. improperly designed.” Berg, 2003 WL 21362805, at *8. The court then As with Berg’s indemnification concluded that “[s]uch testimony did not claim against Hull and SPI, the district represent the interests of Hull court did not state whether it was Corporation.” applying Pennsylvania or New Jersey law
on the attorneys’ fees and costs issue. In Berg argues that the adequacy of their briefs in this court neither Berg nor its representation efforts in the arbitration SPI directly addresses which law should are irrelevant in determining whether it is apply. However, Berg relies solely upon entitled to attorneys’ fees. Inasmuch as Pennsylvania law in arguing for Berg was not primarily the cause of attorneys’ fees and costs while SPI points Huadu suffering damage and Hull and to both New Jersey and Pennsylvania law SPI did not overcome the equipment’s on the indemnification issue. See Fleck deficiencies as contemplated by the v. KDI Sylvan Pools, Inc., 981 F.2d 107, Modified Agreement, Berg contends that 117 (3d Cir. 1992) (finding that under the district court should have awarded it Pennsylvania law “an indemnitee may all damages flowing from that failure, recover attorney’s fees and costs incurred including reasonable attorneys’ fees and in defense of the liability indemnified costs. Berg further maintains that the against from the indemnitor”); McAdam court’s rejection of Berg’s claims was v. Dean Witter Reynolds, Inc., 896 F.2d anomalous because “[t]he court 750, 777 (3d Cir. 1990) (finding that disallowed as part of Berg’s damages its New Jersey law requires a stronger litigation expenses in the Arbitration showing than other states in order to based on the very same testimony which overcome the presumption in New Jersey the court itself later found to be true and that “attorneys’ fees are not a recoverable conclusive and the basis for holding item of damages”). defendants liable in the instant case!” Berg’s br. at 55. Berg stresses that due Inasmuch as the district court to the clear defects in the freeze dryers, it based its denial of attorneys’ fees in part defended the machinery at the arbitration on its finding the Berg was partially at “as best we could.” JA at 200. fault for the breach of the Equipment
Contract and M odified Agreement with SPI counters that because the Huadu, we must remand this claim to district court found Berg to be at fault in that court for further consideration in part, it was not entitled to attorneys’ fees light of our rejection of this finding. and costs. SPI argues, alternatively, that First, the court should address whether in the absence of a relevant statutory or Pennsylvania or New Jersey law applies to Berg’s claim for attorneys’ fees and the arbitration proceedings. costs incurred in the arbitration proceedings, though the choice may not The district court found that Berg be necessary if the court concludes that was not entitled to attorneys’ fees they are the same or that regardless of because it failed to represent Hull and which state’s law applies its result would SPIs’ interests adequately in the
arbitration. [37] We reject this basis for be the same. The court also should address the issue of successor liability denying Berg’s claim for attorneys’ fees. with respect to SPI to determine whether Berg’s entitlement vel non for attorneys’ it might have any liability for attorneys’ fees from Hull and SPI is grounded on its fees if Berg is entitled to them under claim for indemnification. If Berg is either Pennsylvania or New Jersey law. entitled to indemnification from Hull, As stated above, if SPI is not liable as a SPI or both, then the district court must successor to Hull under either the de analyze whether, under New Jersey or facto merger or continuation doctrines, Pennsylvania law, such indemnification then Section 7.8 of the Asset Purchase includes the attorneys’ fees and expert Agreement bars any liability against it, witness fees incurred by Berg in the including liability for attorneys’ fees and arbitration proceedings. Any costs. consideration of the adequacy of Berg’s
representation of Hull and SPI in the As for the claim of attorneys’ fees arbitration proceedings is irrelevant. against Hull (and SPI should the district court find it liable as a successor to Hull), the district court erred in stating [37] We question the district court’s that “since Berg Chilling was equally conclusion that inasmuch as Berg’s liable with the Defendants herein, each testimony was “that the freeze dryers must bear its own costs and counsel were improperly designed [the] fees.” Berg, 2003 WL 21362805, at *11. testimony did not represent the interests Berg had not brought a motion for of Hull Corporation.” While the court’s attorneys’ fees incurred in the present view of the testimony may be accurate, action. Rather, it sought attorneys’ fees we do not believe that the viability of an and costs from the arbitration indemnification claim for fees and costs proceedings which arose out of the should depend on the indemnitee dispute involving the freeze drying disregarding the facts in the applicable equipment. As explained above, if on proceeding. In short, if, as clearly was remand the district court determines that the case, Hull improperly designed the either Hull or SPI has a duty to equipment then Berg was not required to indemnify Berg, such indemnification fabricate a defense in the arbitration should include the reasonable attorneys’ proceedings to justify its claim for fees and expert witness fees incurred in indemnification. Moreover, it is significant that whether they were reasonable and to even though Hull and SPI had received issue an appropriate award. notice of the arbitration proceedings, both stood on the sidelines during them requiring Berg to defend the equipment. [38]
E.
JOINT AND SEVERAL Now Hull and SPI have engaged in
LIABILITY
Monday morning quarterbacking in assailing the defense provided by Berg.
Berg maintains that the district The record clearly shows that given the court erred in failing to hold Hull and circumstances in which it found itself SPI jointly and severally liable for the Berg defended the deficient machinery as $333,000 each party was required to pay best it could. The district court should to Berg. In its Memorandum and Order, not have rewarded Hull and SPI for their the district court stated that “Berg lack of participation in the arbitration Chilling has not provided any persuasive proceedings. authority for holding defendants jointly and severally liable in a breach of
SPI further contends that the contract action when the plaintiff has attorneys’ fees and costs which Berg also been shown to have been at fault.” [39] expended were unreasonable. If the Berg, 2003 WL 21362805, at *11 n.16. machinery was as deficient as Berg Therefore, the district court entered claimed before the district court, then, in judgment in favor of Berg and against SPI’s view, Berg spent an unreasonable Hull in the amount of $333,333 and in amount of money defending machinery favor of Berg and against SPI for the that according to Berg was indefensible. same amount. Should the district court find that Berg is entitled to attorneys’ fees, it must
We need not address this issue at determine the appropriate amount to this time because we hold that under award. The district court should conduct Section 7.8 of the Asset Purchase a thorough analysis of the attorneys’ fees Agreement SPI is not liable for the and costs expended by Berg in the defective freeze drying machinery and arbitration proceeding to determine the issue of joint and several or only several liability ultimately may not be material in this case. As stated above, on [38] However, at one point SPI did write remand the district court must address a letter to Berg putting forth various Berg’s claim that SPI is liable as a arguments that it should use in defending successor to Hull under the de facto the freeze dryers during the arbitration proceedings. Berg’s president testified at merger and continuation doctrines. If, $650,000. The court rejected Berg’s after conducting this analysis the court claim for damages predicated on the finds that SPI is liable, it should make $650,000 Equipment Credit, stating that detailed findings of fact and conclusions Berg “has not established that this of law as to whether SPI and Hull should amount accurately reflects the value of be held jointly and severally liable. [40] On the equipment. In addition, even if the the other hand, if the district court finds $650,000 figure were accurate, it does that SPI is not liable to Berg as a not take into account the costs Berg successor to Hull under either the de Chilling would have incurred in facto merger or continuation doctrines, retrieving the equipment and/or finding then SPI would have no liability and the another purchaser for the equipment.” issue of joint and several liability would Berg, 2003 WL 21362805, at *11. be moot.
Berg maintains that this finding was clearly erroneous. In support of this argument, Berg contends that the best
F. THE EQUIPM ENT CREDIT evidence of the value of the equipment was the $650,000 value agreed to by it As stated above, when Berg and Huadu in their arms-length entered into a Settlement Contract with negotiation. Berg contends that Huadu Huadu, in addition to making a payment had an incentive to set the lowest of $1,000,000, it agreed to permit Huadu possible value for the equipment because to retain the freeze drying equipment. In it was entitled to receive additional the Settlement Contract Berg and Huadu moneys from Berg only if Berg was agreed that in their current condition the successful in this action and made a freeze dryers should be valued at recovery in excess of $1,650,000, a
figure representing Berg’s payment to it in cash and Huadu’s right to retain the equipment. Thus, if the value had been [40] In denying Berg’s claim that SPI and less Huadu would have been more likely Hull should be held jointly and severally to share in a recovery in this action as its liable the district court did not address threshold for participation would have whether Pennsylvania or New Jersey law been reduced pro tanto. Berg further applies. Furthermore, the court did not argues that because the freeze dryers analyze the prevailing case law or were purchased from Hull for explain the reasons for denying relief to $1,150,000, and they could produce Berg. On remand it will have an quality product at lower through-puts, opportunity to conduct such an analysis $650,000 was a reasonable value for the and reach a conclusion in accordance equipment. Finally, Berg points to the with our instructions if the issue is fact that neither Hull nor SPI offered any germane and its resolution is necessary. evidence to refute the $650,000 figure i.e. damages in the amount of the agreed and that their position at trial was that the valuation of the equipment, then equipment complied with the contract damages were established with precision. specifications.
We have not lost sight of the As might be expected, SPI reality that it undoubtedly would have contends that the district court’s denial of been expensive for Berg to recover the equipment, a point SPI advances. [41] the $650,000 claim for damages was not clearly erroneous. It argues that Berg Nevertheless we think that it would failed to proffer sufficient evidence as to prove too much to deny Berg a recovery the value of the equipment and as a result by reason of that circumstance. After all, the district court correctly declined to any time that an entity makes a payment engage in “guess work.” SPI’s br. at 49. in kind it relieves itself of expenses
relating to the item involved. For We recognize that damages must example, if an entity settles a dispute by be proven to a reasonable degree of conveying real estate the entity will certainty, Pugh v. Holmes, 405 A.2d 897, relieve itself of expenses for taxes, 909-10 (Pa. 1979); William B. Tanner maintenance and insurance. But still it is Co., 528 F.2d at 271-72, though absolute fair to say that the value of the real estate precision is not required. Bigelow v. reflects the amount of the settlement. RKO Radio Pictures Inc., 327 U.S. 251, Thus, we will not deny Berg the 264, 66 S.Ct. 574, 579-80 (1946). $650,000 recovery on the theory that it Considering the governing legal saved money by leaving the equipment
with Huadu. [42] principles and the evidence presented at trial, we conclude that the district court’s denial of the $650,000 in damages was [41] SPI contends that except for Huadu’s clearly erroneous. While it is true that retention of the equipment Berg would Berg did not supply evidence with “have been contractually required to respect to the value of the equipment remove the freeze dryers from Huadu’s apart from the figure it negotiated with facilities.” SPI’s br. at 49. SPI, Huadu for the Settlement Contract, still however, does not refer to the contractual in the unusual circumstances here in provision that imposes this duty. But which it was clearly in Huadu’s interest even if it is correct our result would be to value the equipment at the lowest the same. possible value in order to enhance its chances of sharing in a possible district [42] Berg points out that Huadu and Berg court recovery in this case the district were aware that Berg avoided costs by court should have had confidence in that not having to take possession of the figure. Furthermore, if the methodology equipment and this factor “presumably for computation of damages is accepted, [was] considered by [them] in their arms- Overall, we are satisfied that III. CONCLUSION inasmuch as there was no valid reason to reject the claim for damages predicated We will reverse the order of the on the value of the equipment, the district district court entered June 11, 2003, to court’s decision rejecting damages the extent that we have explained and predicated on the Equipment Credit was will remand the matter to the district “completely devoid of minimum court for further proceedings. The court evidentiary support displaying some hue erred in finding Berg equally at fault of credibility or bears no rational with Hull and SPI and indeed at fault at relationship to the supportive evidentiary all. We therefore will remand this case data.” Kool, 300 F.3d at 353 (citation for the district court to vacate that omitted). Thus, we will reverse it. [43] portion of its decision holding Berg
equally at fault for Huadu’s damages or at fault at all. Inasmuch as the district
length negotiations in which they arrived court’s denial of attorneys’ fees to Berg at the market value of $650,000.” Berg’s was based in part on its faulty finding br. at 62. that Berg was partially culpable for the defective freeze dryers, we must remand [43] Actually there is another possible that claim as well for further basis to reject Berg’s claim. Berg asserts consideration in light of our opinion. that it had “rights to [the] equipment” and relinquished them to Huadu as a
The district court also erred in its portion of the settlement. See, e.g., interpretation of Section 7.8 of the Asset Berg’s reply br. at 43. It squarely bases this right on its “payment of the [arbitration] award.” Berg’s br. at 3. While it is true that under the arbitration settlement was reached the parties’ rights award if Berg had paid Huadu the cash under the arbitration award were awarded it could have taken the freeze superseded. Viewed from this dryers back, this recapture merely would perspective by giving up the equipment have lessened the value of Huadu’s Berg suffered no damage and thus, other recovery. Yet when Berg settled by than for its expenses its damages were paying the $1,000,000 and allowing only $1,000,000 not $1,650,000. But we Huadu to retain the equipment, it is not make no ruling on this point for while clear that it gave up anything it had a SPI contends that Berg did not show that right to reclaim as it appears that Huadu it was entitled to the $650,000 in had paid 97% of the purchase price damages related to the Equipment Credit, specified in the Equipment Contract and SPI predicates this contention on a theory thus we do not understand why Berg relating to the possible value of the under the contract could have reclaimed equipment and not on the theory we the equipment. Of course, once the advance. Purchase Agreement between Hull and should enter judgment in favor of SPI SPI, and as a result incorrectly held SPI and against Hull on SPI’s liable for breach of the Equipment indemnification claim. The district court Contract and M odified Agreement. [44] in entering the judgment should Under Section 7.8 of the Asset Purchase determine the reasonable attorneys’ fees Agreement, SPI did not agree to assume and costs which SPI expended in any liability as to third-party claimants defending this litigation and issue an such as Berg for any machinery shipped award pursuant to Section 8.5 of the prior to the closing of the agreement. Asset Purchase Agreement in its favor Because the district court made this and against Hull. finding, it did not address Berg’s claims that SPI was liable as a successor to Hull We also find that Berg is entitled under the de facto merger and to indemnification from Hull and we will continuation doctrines. Accordingly, we reverse the order for judgment to the will remand this matter for the court to extent that it denied that claim and will consider SPI’s successor liability on remand the matter to the district court to these theories and, if it is liable, also to enter a judgment for indemnification. consider Berg’s claim that Hull and SPI But Berg’s claim for indemnification should be held jointly and severally liable from SPI must await the determination of to it. the district court on remand on Berg’s
successor liability arguments under the The court also erred in denying de facto merger and continuation SPI’s claim for indemnification from doctrines. Finally, we will reverse the Hull and we accordingly will reverse the judgment to the extent that it denied Berg order for judgment to the extent it did so. recovery of damages based on the Under Section 8.2(c) of the Asset $650,000 Equipment Credit and will Purchase Agreement, Hull was obligated reverse the order of the district court to to defend and indemnify SPI as to any the extent that it denied these damages. “liability or obligation of Seller.” On remand, the district court should vacate As between themselves Berg and the order denying indemnification and SPI shall bear their own costs on this
appeal but costs shall be taxed in favor of each of them against the Hull Corporation. [44] Berg maintains that Section 7.8 is void as against public policy. Inasmuch as the district court incorrectly interpreted that provision it never reached this issue. On remand, the district court should address Berg’s argument.
NOTES
[11] SPI has its principal place of business in New Jersey. to satisfy our customer’s
[12] Section 1.3 of the Asset Purchase concerns, that we were going to have to be looking Agreement listed assets excluded from at performing some of the the agreement. The freeze dryers related modifications or changes to to the Equipment Contract were not the equipment to try to among these excluded assets. bring it to specification.
[13] However, Berg’s president testified at trial that prior to the signing of the JA at 139. Asset Purchase Agreement Hull’s
[10] Berg’s president testified that its president informed Berg that any new threat to sue Hull became moot after the entity would assume the liabilities of the signing of the Modified Agreement. entity being purchased.
[28] We realize that the order for At various points judgment in terms did not hold Berg at during the trial and in fault but in substance it did exactly that related briefing, certain as the court only assessed against Hull parties have referred to the and SPI two-thirds of the $1,000,000 work performed on the paid pursuant to the Settlement Contract Huadu Project as by Berg to Huadu. In fact, the entire ‘warranty’ work. Because $1,000,000 plus, as will be seen, ‘warranty’ work would $650,000 for the Equipment Credit, have begun only after should be assessed against Hull. Huadu’s final acceptance Whether these also should have been of the freeze dryers (Ex. P- assessed against SPI will have to await 20, Section 7.4) and final determination on the remand with respect acceptance never actually to its possible successor liability.
[33] The execution of the side letter determine whether to apply New Jersey or Pennsylvania law to Berg’s successor agreement between Hull and SPI in liability claims against SPI, though it relation to the Huadu Project did not alter may not need to make a choice if the law SPI’s rights under the Asset Purchase of the states is the same or the result Agreement as that letter provided that: would be the same under either state’s law. Except as amended hereby,
[36] In any event, under Section 8.2 of the Asset Purchase Agreement SPI would be entitled to indemnification from Hull.
[39] As explained above, the district court trial that Berg did in fact assert some of these defenses in the arbitration. erred in finding Berg partially at fault.
