The opinion of the court was delivered by: Cindrich, District Judge.
Judge McCune of the United States District Court for the
Western District of Pennsylvania dismissed the complaint in its
entirety pursuant to a motion to dismiss filed by WCI. The United
States Court of Appeals for the Third Circuit later affirmed in
part and reversed in part Judge McCune's decision, concluding
that PBGC had stated viable claims at Counts One and Four of the
amended complaint. Pension Benefit Guaranty Corp. v. White
Consolidated Industries, Inc., 998 F.2d 1192 (3d Cir. 1993)
("PBGC v. WCI"). Count One charges that WCI is liable for the
unfunded pension liabilities pursuant to 29 U.S.C. § 1362
("Section 1362") because the WCI-BKC sale transaction was a
"sham," having no legitimate business purpose or economic effect.
Count Four charges that WCI is also liable for the unfunded
pension liabilities pursuant to 29 U.S.C. § 1369 ("Section
1369") because a principal purpose of WCI's decision to
consummate the WCI-BKC sale transaction was to evade pension
liabilities. The court remanded the case to the district court
for further proceedings on these counts.
PBGC filed a motion for summary judgment prior to trial seeking
judgment in its favor on a counterclaim in recoupment asserted by
WCI. PBGC also moved to strike several estoppel defenses asserted
by WCI as affirmative defenses. The court reviewed the parties'
briefs and related submissions and heard oral argument on both
motions. The court issued a ruling from the bench granting both
motions and informed the parties that a written opinion would be
issued. 3/12/97 Trans. (Doc. No. 193) at pp. 139-67. Following is
the opinion which more fully explains the basis for the court's
Summary judgment is mandated where the pleadings and evidence
on file show there is no genuine dispute of material fact, and
that the moving party is entitled to judgment as a matter of law.
Fed. R.Civ.P. 56(c). Summary judgment is appropriate against a
party who fails to make a showing sufficient to establish the
existence of an element essential to that party's case on which
it will bear the burden of proof at trial. Celotex Corp. v.
Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265
(1986). A genuine issue does not arise unless the evidence,
viewed in the light most favorable to the non-moving party, would
allow a reasonable jury to return a verdict for that party.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-49, 106
S.Ct. 2505, 91 L.Ed.2d 202 (1986). A fact is material when it
might affect the outcome of the suit under governing law. Id.
at 248, 106 S.Ct. 2505. In reviewing any facts alleged to create
a genuine issue, if the court concludes that "the record taken as
a whole could not lead a rational trier of fact to find for the
non-moving party, there is no `genuine issue for trial,'" and
summary judgment must be granted. Matsushita Elec. Ind. Co. v.
Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89
L.Ed.2d 538 (1986).
Similarly, WCI's Third, Fifth, and Sixth affirmative defenses
are equitable estoppel defenses which are based on the same
alleged PBGC misrepresentations which it cites in support of its
counterclaim in recoupment. Specifically, the Third affirmative
defense asserts that PBGC's claims are barred by the doctrines of
equitable estoppel, waiver and laches due to PBGC's affirmative
misconduct of making intentional, fraudulent misrepresentations
to WCI. Id. at 8. The Fifth affirmative defense asserts that
PBGC's claims are barred because of its fraudulent and
inequitable conduct toward WCI. Id. The Sixth affirmative
defense asserts that PBGC's claims are barred because senior PBGC
officials negligently supervised the officials responsible for
processing and taking administrative action on the Notice of
Reportable Event as it applied to the WCI-BKC sale. Id.
PBGC makes several arguments in support of its motions which we
address in turn.
1) Essential Elements of Recoupment Claim and Estoppel
"Recoupment is a common law, equitable doctrine that permits a
defendant to assert a defensive claim aimed at reducing the
amount of damages recoverable by a plaintiff." United States v.
Keystone Sanitation Co., Inc., 867 F. Supp. 275, 282 (M.D.Pa.
1994). A recoupment claim may be based on any type of claim so
long as it (1) arises from the same transaction or occurrence as
the plaintiff's suit; (2) seeks relief of the same kind or
nature; and (3) seeks an amount not in excess of the plaintiff's
claim. F.D.I.C. v. Hulsey, 22 F.3d 1472, 1487 (10th Cir. 1994);
Livera v. First Nat. State Bank of New Jersey, 879 F.2d 1186,
1195-96 (3d Cir. 1989); Keystone, 867 F. Supp. at 282.
WCI's counterclaim in recoupment is based upon alleged
negligent and fraudulent misrepresentation. In Pennsylvania, the
tort of negligent misrepresentation is defined as:
One who, in the course of his business, profession or
employment, or in any other transaction in which he
has a pecuniary interest, supplies false information
for the guidance of others in their business
transactions, is subject to liability for pecuniary
loss caused to them by their justifiable reliance
upon the information, if he fails to exercise
reasonable care or competence in obtaining or
communicating the information.
Browne v. Maxfield, 663 F. Supp. 1193, 1202 (E.D.Pa. 1987)
(quotation and citation omitted). False information may be
supplied "either directly or indirectly, by nondisclosure of
material facts." Id. (citation omitted).
"To prove fraudulent misrepresentation a plaintiff must prove
(1) a misrepresentation; (2) a fraudulent utterance thereof; (3)
an intention by the maker that the recipient will thereby be
induced to act; (4) justifiable reliance by the recipient on the
misrepresentation and (5) damage to the recipient as the
proximate result." Id. (quotation omitted). A false
representation is fraudulent when it is made "knowingly, or in
conscious ignorance of the truth, or recklessly without caring
whether it be true or false." Id. (quotation omitted). Also, a
must be proved by clear and convincing evidence, as opposed to
the lower preponderance of the evidence standard. Id.
Thus, "the elements that negligent and fraudulent
misrepresentation have in common are false information,
justifiable reliance, causation, and pecuniary loss. The
distinguishing elements are the state of mind of the person who
supplied the information and the standard of proof that must be
met by the plaintiff." Id.
To succeed on a traditional estoppel defense, a defendant must
prove (1) a misrepresentation by the plaintiff; (2) which he or
she reasonably relied upon; (3) to his or her detriment. United
States v. Asmar, 827 F.2d 907, 912 (3d Cir. 1987). A pivotal
issue is whether PBGC is a government entity which we address
infra. Although the Supreme Court has suggested in dicta on
several occasions that there might be some situation where
estoppel against the government could be appropriate, the Court
has never decided the issue and "has reversed every finding of
estoppel that [it] has reviewed." Office of Personnel Management
v. Richmond, 496 U.S. 414, 421-22, 110 S.Ct. 2465, 110 L.Ed.2d
387 (1990). In Richmond, a more recent case in which it has
addressed the issue, the Court stopped just short of holding that
estoppel can never be asserted against the government. The Court
[w]hether there are any extreme circumstances that
might support estoppel in a case not involving
payment from the Treasury is a matter we need not
address. As for monetary claims, it is enough to say
that this Court has never upheld an assertion of
estoppel against the Government by a claimant seeking
public funds. In this context there can be no
estoppel, for the courts cannot estop the
Id. at 434, 110 S.Ct. 2465. While we believe the Supreme
Court's treatment leads to only one conclusion, the Third Circuit
has held otherwise and found that estoppel may be asserted as an
equitable defense against a government claim if a defendant
satisfies the additional burden of establishing "some affirmative
misconduct on the part of the government officials." ...