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August 24, 1999


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 ruling.

I. Standard of Decision

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).

II. Analysis

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

i) Recoupment Claim

"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 fraudulent representation 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.

ii) Estoppel Defense

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 held that,

  [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." ...

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