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BERG CHILLING SYSTEMS INC. v. HULL CORPORATION

August 3, 2004.

BERG CHILLING SYSTEMS INC., Plaintiff,
v.
HULL CORPORATION, et al., Defendants.



The opinion of the court was delivered by: BERLE M. SCHILLER, District Judge

MEMORANDUM AND ORDER

Plaintiff Berg Chilling Systems, Inc. ("Berg") brings this action against Defendants Hull Corporation ("Hull") and SP Industries, Inc. ("SPI") seeking contractual damages and indemnification from settlement payments made by Berg to Huadu Meat Products Company ("Huadu"). After a bench trial, the Court entered a judgment on June 10, 2003 (the "District Court Order"), Berg Chilling Sys., Inc. v. Hull Corp., Civ. No. 00-5275, 2003 WL 21362805 (E.D. Pa. June 10, 2003), which was reversed on appeal by the United States Court of Appeals for the Third Circuit on May 25, 2004 (the "Third Circuit Opinion"), Berg Chilling Sys., Inc. v. Hull Corp., 369 F.3d 745 (3d Cir. 2004). Presently before this Court are several issues remanded by the Court of Appeals.

I. BACKGROUND*fn1

  In 1995, Berg contracted to provide an industrial freeze-drying system to Huadu, a Chinese company. Id. at 747. Berg then contracted with Hull to obtain the freeze dryers that comprised a significant portion of the freeze-drying system. Id. at 748. Various problems arose in Hull's delivery of the freeze dryers to Berg and Berg's subsequent shipment of them to Huadu, as a result of which the freeze dryers did not function properly when Huadu received them in April 1997. Id. at 748-49.

  On August 27, 1997, while Huadu, Hull, and Berg were attempting to negotiate a solution to the freeze dryer situation, Hull entered into an Asset Purchase Agreement ("the Agreement") with SPI. Id. at 749. Pursuant to the Agreement, the food, drug, and chemical ("FDC") division of Hull, which was the division that had produced the freeze dryers for Berg, was sold to SPI. Id. In exchange, SPI gave Hull $6 million cash (Asset Purchase Agreement § 3.1) and assumed some of the FDC division's operating liabilities (Asset Purchase Agreement § 2.1). The Asset Purchase Agreement also contained, inter alia, a choice-of-law provision requiring the application of New Jersey law (Asset Purchase Agreement § 10.6), and a clause providing that SPI "does not assume any liability to any third party claimant" (Asset Purchase Agreement § 7.8).

  Prior to closing on the asset sale, the president of Hull sent a letter to Berg stating that if the FDC division were sold to another corporation, Hull's responsibility to Berg would be transferred to "the successor." Berg Chilling, 369 F.3d 745 at 750. Hull and SPI also made public statements characterizing their transaction as a merger of SPI and the FDC division. Id. After the closing, SPI operated the former FDC division as a division of SPI known as the "Hull Company," id., and named Hull's chairman the honorary chairman of the new division. (See R. at 192-93 (Jan. 14, 2003).)

  Through the Hull Company, SPI attempted to repair the Huadu freeze dryers, but was unsuccessful. Berg Chilling, 369 F.3d 745 at 750. Accordingly, Huadu filed an international arbitration action against Berg on March 29, 1999. Id. at 750-51. Berg requested that Hull engage in a joint defense against Huadu, but Hull refused to participate in the proceedings. Id. at 751. On December 7, 2000, Huadu won an arbitral award of approximately $2.5 million against Berg. Id. at 752. The arbitrators expressly declined to make any findings concerning Hull's liability to Berg for any portion of this award. Id.

  While the arbitration proceedings were ongoing, Berg filed suit against Hull and SPI in this Court, seeking, inter alia, indemnification from any damages awarded to Huadu in the arbitration. Id. Hull and SPI then filed cross-claims against each other for indemnification. Id. After the arbitration award but before the District Court action had advanced significantly, Berg and Huadu entered into a settlement agreement under which Berg agreed to refund $1 million to Huadu. Id. Berg also agreed to allow Huadu to retain the freeze dryers — an "equipment credit" that Berg and Huadu valued at $650,000. Id.

  This Court held a bench trial in January 2003 and issued its ruling on June 11, 2003, entering judgment: (a) against Berg on its claim for indemnification from the equipment credit and attorneys' fees and costs; (b) in favor of Berg and against Hull for one-third of the $1 million settlement payment; (c) in favor of Berg and against SPI for another one-third of that payment; and (d) against each of Hull and SPI on their respective cross-claims for indemnification. Berg Chilling, 2003 WL 21362805, at *12-13. Berg and SPI appealed the portions of these decisions adverse to them,*fn2 and the Third Circuit reversed, holding that: (a) Hull is liable to Berg in the amount of $1 million plus the equipment credit*fn3 and attorneys' fees and costs incurred in the arbitration proceeding; and (b) Hull is liable to SPI for indemnification, including attorneys' fees and costs. Berg Chilling, 369 F.3d at 766. The Third Circuit remanded the question of whether SPI is liable to Berg and, if so, whether SPI and Hull's liability is several or joint and several. Id.

  Hull is not participating in these remand proceedings, as it is no longer in business and has no assets. (Mot. of Gregory Liacouras, Esq. and Liacouras & Smith, LLP for Leave to Withdraw as Counsel for Hull Corporation at 1); see also Berg Chilling, 369 F.3d at 753 & n. 23.

  II. DISCUSSION

  The Third Circuit held that § 7.8 of the Asset Purchase Agreement, which provides that SPI "does not assume any liability to any third party claimant," precluded a finding that SPI was liable to Berg on the basis of the Agreement. The Third Circuit noted, however, that SPI could be held liable to Berg if § 7.8 were void as against public policy. In addition, the appellate court directed this Court to determine whether SPI is liable to Berg under the doctrine of successor liability. Each of these issues is discussed below.

  A. Validity of § 7.8 of the Asset Purchase Agreement

  In a prior opinion, this Court held that the interpretation of the Asset Purchase Agreement is governed by New Jersey law pursuant to the Agreement's choice-of-law clause. Berg Chilling Sys., Inc. v. Hull Corp., Civ. No. 00-5075, 2002 WL 31681955, at *5 (E.D. Pa. Nov. 26, 2002). Although the Third Circuit reversed the extension of this holding to Berg's indemnification claims against Hull and SPI, the Third Circuit Opinion did not address or call into question this Court's holding that the choice-of-law clause governs interpretation of the contract itself. See Berg, 369 F.3d at ...


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