APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA. (D.C. Civil No. 92-cv-01451).
Before: Scirica, Lewis and Roney,*fn* Circuit Judges.
In this case we must determine whether the appellant, Raytech Corporation ("Raytech"), a corporate offspring of Raymark Industries ("Raymark"), is precluded from relitigating the issue of its successor liability for Raymark's asbestos liabilities. We conclude that Raytech is collaterally estopped from relitigating this issue, and will, accordingly, affirm the district court's ruling to this effect.
Beginning in the early 1970s, Raymark, known at that time as Raybestos-Manhattan, Inc., a manufacturer of asbestos-containing products, was named as the defendant in thousands of personal injury complaints around the country.*fn1 As a result of this burgeoning asbestos litigation, Raymark suffered a severe financial decline.*fn2 In response to its financial woes, between 1982 and 1988 Raymark reorganized its corporate structure. Pursuant to this restructuring, Raybestos-Manhattan became Raymark Industries and Raytech, and, significantly, Raytech obtained ownership of Raybestos-Manhattan's two historically lucrative businesses, but without the drain of the asbestos-related litigation.*fn3
In 1988, Raymond Schmoll brought one of the many asbestos-related lawsuits brought against Raymark and Raytech. See Schmoll v. ACandS, Inc., 703 F. Supp. 868 (D. Or. 1988). Mr. Schmoll sued Raymark and Raytech in the United States District Court for the District of Oregon, seeking damages for injuries allegedly caused by his inhalation of asbestos dust from products manufactured or sold by the defendants. Schmoll and Raymark/Raytech agreed to submit to the district court the question whether Raytech was a successor in liability to Raymark Industries. Following receipt of extensive briefing on the issue, the district court found that Raytech was a successor in liability to Raymark Industries for Raymark's production, sale and distribution of products containing asbestos, and that Raytech was legally responsible for Raymark's strict liability torts. Schmoll, 703 F. Supp. at 875.
In March of 1989, Raytech filed a petition under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Connecticut. Raytech then filed this adversary proceeding seeking a declaratory judgment that it is not liable for the asbestos-related torts of Raymark. At Raytech's behest, the adversary proceeding was transferred to the United States District Court for the District of Connecticut. The district court sought briefing on the question of the preclusive effect of the Schmoll decision upon Raytech's declaratory judgment action, and concluded in light of the arguments presented that Schmoll collaterally estopped Raytech from relitigating the issue of its successor liability for the asbestos-related torts of Raymark.
The case was then transferred, pursuant to 28 U.S.C. section 1412, to the United States District Court for the Eastern District of Pennsylvania.*fn4 In early 1994, the district court certified for immediate appeal the Connecticut district court's ruling that Raytech was estopped from denying successor liability.
We review for abuse of discretion whether the district court properly applied the doctrine of collateral estoppel. McLendon v. Continental Can Co., 908 F.2d 1171, 1177 (3d Cir. 1990) (citing Park Lane Hosiery Co. v. Shore, 439 U.S. 322, 331, 58 L. Ed. 2d 552, 99 S. Ct. 645 (1979)). Our standard of review is not affected by the fact that this case involves the application of offensive collateral estoppel.*fn5 As the Supreme Court indicated in Park Lane Hosiery, the application of offensive collateral estoppel is also within the discretion of the trial court. Park Lane Hosiery, 439 U.S. at 331. Therefore, in reviewing the district court's decision to apply offensive collateral estoppel, we are bound by the abuse of discretion standard. Id.
Application of collateral estoppel requires consideration of a number of factors. Traditionally, courts have required the presence of four factors before collateral estoppel may be applied: (1) the identical issue was previously adjudicated; (2) the issue was actually litigated; (3) the previous determination was necessary to the decision; and (4) the party being precluded from relitigating the issue was fully represented in the prior action. United Industrial Workers v. Government of the Virgin Islands, 987 F.2d 162, 169 (3d Cir. 1993). The Supreme Court has also recognized, however, that collateral estoppel is inappropriate if facts essential to the earlier litigated issue have changed. Montana v. United States, 440 U.S. 147, 59 L. Ed. 2d 210, 99 S. Ct. 970 (1979). Finally, in cases involving the offensive use of collateral estoppel, the Supreme Court has instructed that courts must take special care to ensure that its application does not work unfairness to party against whom estoppel is asserted.
Of the traditional four factors relevant to collateral estoppel, only one -- whether there is an identity of issues -is pressed by Raytech in this appeal. Raytech also contends, however, that facts essential to the Schmoll decision have changed, and that the application of offensive collateral estoppel ...