Greenway Ctr Inc v. Essex Ins Co

Opinions of the United

2007 Decisions States Court of Appeals

for the Third Circuit

1-30-2007

Greenway Ctr Inc v. Essex Ins Co

Precedential or Non-Precedential: Precedential

Docket No. 05-3782

Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_2007

Recommended Citation

"Greenway Ctr Inc v. Essex Ins Co" (2007). 2007 Decisions. Paper 1696.

http://digitalcommons.law.villanova.edu/thirdcircuit_2007/1696

This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova

University School of Law Digital Repository. It has been accepted for inclusion in 2007 Decisions by an authorized administrator of Villanova

University School of Law Digital Repository. For more information, please contact Benjamin.Carlson@law.villanova.edu.

PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

__________

No. 05-3782

__________

GREENWAY CENTER, INC.

vs.

ESSEX INSURANCE COMPANY

Appellant

ANNETTE MAIONE, Individually and

as Administrator of the Estate of Mark

Willet

__________

On Appeal from the United States District Court

For the Middle District of Pennsylvania

(No. 04-CV-01143)

District Judge: Honorable James M. Munley

__________

Argued on November 27, 2006

___________

Before: FUENTES and GARTH, Circuit Judges, and

POLLAK, District Judge1

(Opinion Filed: January 30 , 2007)

Richard D. Picini, Esq. (argued)

Jennifer L. Casatelli, Esq.

Picillo Caruso O’Toole, P.C.

371 Franklin Avenue

Nutley, NJ 07110

Counsel for Appellant Essex Insurance Company

Ronald V. Santora, Esq. (argued)

Bresset & Santora, LLC

1188 Wyoming Avenue

Forty Fort, PA 18704

Counsel for Appellee Greenway Center, Inc.

Joseph P. Hanyon, Esq. (argued)

Michael B. Kaspszyk, Esq.

Merwine, Hanyon, Kaspszyk, LLP

HC 89, Box 105, Route 940

Pocono Summit, PA 18346

Counsel for Appellee Annette Maione

__________

1

The Honorable Louis H. Pollak, Senior District Judge

for the Eastern District of Pennsylvania, sitting by designation.

-2-

OPINION OF THE COURT

__________

GARTH, Circuit Judge:

This appeal requires us to decide whether the district

court properly held that it was foreclosed by the doctrine of

issue preclusion from making an independent determination

whether appellee Greenway Center, Inc. (“GCI”) is a successor

in interest to Winco Acquisitions, Inc. (“Winco”) – a company

which was insured by appellant Essex Insurance Company

(“Essex”). The district court found that a state court had already

decided the issue – i.e., that GCI is a successor in interest to

Winco, and therefore held that Essex is obligated to defend and

indemnify GCI in the state court action brought by appellee

Annette Maione against GCI. Because we find that the

requirements for the application of issue preclusion have not

been met, we vacate the judgment in favor of GCI and remand

to the district court for an independent determination, on the

merits, of whether GCI is a successor in interest to Winco.

I.

In 1996, Winco, a Pennsylvania Corporation, began

operating a substance abuse detoxification center named

Greenway Center (“Greenway”) in Henryville, Pennsylvania.2

2

GCI was incorporated more than a year after Winco

(which operated Greenway Center) filed in bankruptcy. To

-3-

On June 16, 1997, Winco filed for Chapter 11 bankruptcy in the

United States Bankruptcy Court for the Middle District of

Pennsylvania. Approximately one week later, on June 23, 1997,

Mark Willet was admitted for treatment at Greenway. The

following morning, June 24, 1997, Willet was found dead,

giving rise to a wrongful death action brought in the

Pennsylvania Court of Common Pleas by Annette Maione,

Willet’s wife and administratrix. As a result of this incident, the

Pennsylvania Department of Health revoked Winco’s license to

operate Greenway, and Greenway temporarily ceased operations

in November 1997.

In March 1998, while Winco was still in bankruptcy,

Greenway was reopened by an entity named Healthcare

Management Associates, Inc. (“HMA”), which was authorized

by the Bankruptcy Court to operate the facility as an agent for

Winco. In September 1998, GCI, plaintiff-appellee in the

present case, was incorporated in Pennsylvania by the owners of

HMA. On October 16, 1998, HMA submitted to the Bankruptcy

Court on behalf of Winco a Debtor’s Plan of Reorganization and

a Debtor’s Disclosure Statement.3 On September 7, 1999, the

avoid confusion, we refer to Greenway Center – the facility

operated by Winco and later by GCI – as Greenway, as distinct

from GCI, the corporate entity.

3

At the non-jury trial held before the district court on

April 19, 2005, Wallace Slatinsky, a former executive director

and a shareholder of HMA testified that HMA was formed for

-4-

Bankruptcy Court entered an order confirming the plan. After

the plan was confirmed, HMA continued to operate Greenway

until the Pennsylvania Department of Health license was

transferred to GCI in January 2002. GCI then began operating

Greenway.

Beginning at least as early as February 3, 1997, Essex

issued a general liability insurance policy covering certain

liabilities arising from the operation of Greenway. The named

insured on the policy was “Winco Acquisition, Inc. d/b/a

Greenway Center.” The policy contained a non-assignability

clause, which states: “Your rights and duties under this policy

may not be transferred without our written consent except in the

case of death of an individual named insured.”

the purpose of operating Greenway Center, because the

Pennsylvania Department of Health had withdrawn Winco’s

license to operate the facility. In order to reinstate Greenway’s

license, the Pennsylvania Department of Health imposed upon

HMA several requirements including a condition that none of

the ownership or management of Winco would be involved in

HMA while HMA was operating the facility.

-5-

II.

On June 23, 1999, appellee Annette Maione, Mark

Willet’s wife and the administratrix of his estate, filed a

wrongful death action in the Court of Common Pleas of Monroe

County (the “state court action”). Maione named as defendant

in the action only GCI and not Winco. GCI was not a named

insured on Essex’s policy.

Essex initially engaged attorney Frank Baker to represent

GCI in the state court action. However, at some point Essex

came to the conclusion that GCI was not insured under its policy

and, on December 28, 1999, Essex sent GCI a letter formally

denying coverage in the state court action. On or about March

30, 2000, Baker formally withdrew from representing GCI.

Because GCI did not come into existence until a year

after Willet’s death and Winco’s bankruptcy, that entity – GCI

– could only be held liable for the death if it were found to be a

successor in interest to Winco. Thus, by filing her action against

GCI, Maione had named the wrong defendant.

On July 21, 2000, in an effort to remedy her error,

Maione filed a second wrongful death action in the Court of

Common Pleas of Monroe County – this action named Winco as

defendant. Essex retained counsel to defend Winco, its named

insured, in this second action. On December 31, 2001, this

second action was dismissed on the grounds that Willett had

died in 1997 and thus the two-year statute of limitations had

-6-

expired.

III.

On June 3, 2002, Maione filed a Motion to Correct Name

of Defendant in the state court action. The motion sought an

order “allowing [Maione] to amend the caption so as to name

the defendant as “Winco Acquisition, Inc. d/b/a Greenway

Center” or “Greenway Center, Inc. as successor in interest to

Winco Acquisition, Inc.” In support of this motion, Maione

asserted that:

On the date that the subject writ of summons was

served, both Greenway Center, Inc. and Winco

Acquisition, Inc. d/b/a Greenway Center operated

under the identical name, “Greenway Center”,

operated the identical business at the identical

mailing address and at the identical location

where the death of plaintiff’s decedent occurred.

....

Allowing a correction of the name of the

defendant will allow the court to secure a

determination of this case based upon the merits

rather than a mere technicality.

App. at 106-7.

Essex engaged Frank Baker (the same attorney it had

retained to defend Winco in the second wrongful death action,

-7-

which had been dismissed) to file on behalf of Winco4 a Petition

to Intervene to oppose Maione’s motion to amend. In the

Petition, Winco asserted that “the plaintiff’s motion is an

improper attempt to join Winco well after the expiration of the

statute of limitations.” Together with the Petition to Intervene,

Winco also filed an Answer to Plaintiff’s Motion to Correct

Name of Defendant. In the Answer, Winco stated that GCI “has

never been, nor is now, a partner with Winco Acquisition, Inc.”

Winco further argued that “Winco Acquisition, Inc. is an

entirely separate and distinct legal entity from Greenway Center,

Inc.,” and that “the plaintiff’s attempt to improperly substitute

or add Winco to this case beyond the expiration of the statute of

limitations would be highly prejudicial to Winco.” An

evidentiary hearing on the motion was held on September 17,

2002.

IV.

On October 9, 2002, the state court, per Judge Peter J.

O’Brien, Pennsylvania Court of Common Pleas, issued a

decision and order granting Maione’s motion to the extent of

4

Baker was retained specifically to represent Winco’s –

not Essex’s – interests. See Baker Dep. at 63 (“I thought that

[Maione’s motion] would be prejudicial to my then client,

Winco”). This is confirmed by exhibit 12 to the Baker

Deposition, which is a letter from Baker’s firm to Essex

confirming that it would “draft the intervention motion asking

the court to allow Winco Acquisition to appear as a party of

record.”

-8-

amending the caption in the state court action to rename the

defendant as “Greenway Center, Inc. as successor in interest to

Winco Acquisitions, Inc.” Because the crucial issue presented

in the present appeal is the effect of this decision on the issue

raised in this action – i.e., whether, under Pennsylvania law,

GCI is a successor in interest to Winco and therefore responsible

for its liabilities and entitled to rights under its insurance

contract, Judge O’Brien’s decision merits a detailed discussion.

In the “Findings of Fact” section of his opinion, Judge

O’Brien stated that the facility to which Willet was admitted

was, “both prior to the admission of Plaintiff’s decedent and

through the current date . . . identified and operated as

‘Greenway Center.’” He further found that, in the fall of 1998,

Winco submitted a Debtor’s Plan of Reorganization to the

United States Bankruptcy Court for the Middle District of

Pennsylvania. The opinion then quotes the following provision

contained in the Plan, adding emphasis as below:

Class 5 – Equity Security Holders. An Equity

Security Holder is a party which has equity or an

investment interest in the Debtor. With respect to

the herein Chapter 11 case, the Equity Security

Holders are the shareholders. This class is

impaired, and shall surrender ownership in the

debtor corporation upon confirmation. THIS

PLAN WILL NOT VIOLATE THE ABSOLUTE

PRIORITY RULE BECAUSE THE

SHAREHOLDERS ARE NOT RETAINING

-9-

THEIR STOCK AND ALL STOCK SHALL BE

VESTED IN GREENWAY CENTER, INC. See

11U.S.C. Section 1129(b).

Judge O’Brien also found that the attorney who had

executed the Debtor’s Plan of Reorganization on behalf of

Winco had specifically represented to the Bankruptcy Court that

all of the stock of Winco Acquisition, Inc. would be vested in

Greenway Center, Inc.” Apparently based upon the foregoing,

Judge O’Brien concluded that “Greenway Center, Inc. was set

up to assume the stock from Winco Acquisition, Inc. when the

bankruptcy was closed, and to act as its successor in operating

the facility in Henryville.”

The “Discussion” portion of Judge O’Brien’s decision

consists, in pertinent part, of the following:

In the case at bar, it is apparent that Greenway

Center, Inc. is the successor in interest to Winco

Acquisition, Inc. by virtue of the Reorganization

Plan confirmed by the Bankruptcy Court. It is

further evident that the initial process was served

on the appropriate representative of either or both

corporate entities and there is no prejudice to any

party in allowing this action to continue. As the

Supreme Court observed in Paulish v. Bakaitis,

supra:

Since from the record it is clear that

the same Bertocci business

enterprise was involved throughout,

-10-

there is here no substitution of

parties, but the correction of the

designation under which the right

party was originally sued.

Therefore, we will allow the requested relief.

It is significant that Judge O’Brien’s opinion contains no

discussion of Pennsylvania “successor in interest” law. Indeed,

the decision cites no legal authority whatsoever with respect to

the liability of a successor corporation under Pennsylvania law.

The decision does, however clearly hold that “Greenway Center,

Inc. is the successor in interest to Winco Acquisition, Inc. by

virtue of the Reorganization Plan confirmed by the Bankruptcy

Court.”

V.

In 2003, GCI filed the present declaratory judgment

action in the Monroe County Court of Common Pleas seeking

a declaration that, because GCI is named in the state court action

as a “successor to Winco Acquisition, Inc.,” Essex has an

obligation to defend and indemnify it in Maione’s state court

wrongful death action. On May 26, 2004, Essex removed the

action to the United States District Court for the Middle District

of Pennsylvania. On April 19, 2005, a non-jury trial was held

before Judge James M. Munley. Maione, as well as GCI and

Essex, participated in the trial.

Two witnesses testified at trial: Wallace Slatinsky,

former executive director of Greenway and a principal of GCI,

-11-

and Richard Dowling, a senior claims examiner at Essex.

Slatinsky testified, in relevant part, that, while Winco’s

proposed bankruptcy plan called for all Winco stock to be

vested in GCI, no such stock transfer ever took place. Slatinsky

also testified that Winco remained in existence after the

bankruptcy plan was confirmed,5 and that Winco was not

involved with Greenway Center or any other facility, after that

time. Maione and GCI also introduced into evidence certain

filings that HMA had submitted to the Bankruptcy Court on

behalf of Winco. At the conclusion of the trial, counsel for all

parties presented their closing arguments. GCI and Maione both

argued that the doctrine of issue preclusion applies to bar the

court from considering, on the merits, whether GCI is a

successor in interest to Winco because that issue had already

been determined by the state court. GCI and Maione also

argued that, under substantive Pennsylvania law, GCI was a

successor in interest to Winco. Essex disputed both of these

claims.

The district court first scrutinized Judge O’Brien’s

opinion and determined that the state court had, in fact, already

5

Slatinsky testified that a decision was made to continue

Winco’s corporate existence because Winco was party to many

of the service contracts with surrounding counties and several

insurance companies from which Greenway Center obtained

business. HMA and GCI chose not to renegotiate the contracts

to name HMA or GCI because doing so would have been

“inconvenient.”

-12-

decided the issue presented in this action – i.e., whether GCI is

a successor in interest to Winco. The district court then applied

the five-part test set forth in Veltri v. New Kensington, 601 A.2d

392 (Pa. Commw. Ct. 1991) to determine whether issue

preclusion applies to that finding.6

6

Under Veltri, issue preclusion applies only if:

(1) the issue decided in the prior

case is identical to one presented in

the later case; (2) there was a final

judgment on the merits; (3) the

party against whom the plea is

asserted was a party or in privity

with a party in the prior case; (4)

the party or person privy to the

party against whom the doctrine is

asserted had a full and fair

opportunity to litigate the issue in

the prior proceeding and (5) the

determination in the prior

proceeding was essential to the

judgment.

Id. at 395.

The fifth Veltri requirement is not found in Pennsylvania

law as established by the Pennsylvania Supreme Court. See

Shaffer v. Smith, 543 Pa. 526, 529, 673 A.2d 872, 874 (1996),

and infra.

-13-

The district court found that, in the present case, each of

the requirements under Veltri had been met. The district court

began by finding that the first and second requirements had been

satisfied – i.e., that the issue in the present action is identical to

that decided by the state court and that the state court decision

constitutes a “final judgment.” Dist. Ct. Op. at 5. As to the

third requirement, the district court found that Essex, by virtue

of its retention of counsel on behalf of Winco, was in privity

with a party to the state court action:

[C]ounsel [hired by Essex] . . . filed a motion to

intervene on behalf of Winco, which the state

court eventually denied as moot as it found

Greenway to be Winco’s successor. Accordingly,

Essex or Winco who was in privity with Essex as

its insured was involved in the underlying action.

Id. (emphasis added).

The district court thus held that Winco was “involved in

the underlying action” and that Essex was in privity with Winco

as a result of the insurer-insured relationship that existed

between them. Finally, the district court found that the fourth

Veltri factor – that Essex had a full and fair opportunity to

litigate the issue before the state court – had also been met:

[Essex] filed a brief with regard to the motion to

-14-

amend the caption, and its counsel was present at

the hearing. The state court judge provided him

the opportunity to participate at the hearing, and

an opportunity to submit law after the hearing.

He was also provided the opportunity to object to

exhibits, questions, and witnesses.

Id. at 6 (internal citations omitted).

The district court therefore found that it was “precluded

from readdressing th[e] issue” of whether GCI is a successor in

interest to Winco and held that, pursuant to the state court order,

GCI is a successor in interest to Winco. As a result, on July 18,

2005, Judge Munley issued a Memorandum and Verdict in favor

of GCI, finding that issue preclusion applied and that, pursuant

to Judge O’Brien’s state court ruling, Essex is therefore liable to

defend and indemnify GCI in Maione’s state court action.

Because it found issue preclusion applicable, the district court

did not make its own determination, on the merits, whether GCI

is a successor in interest to Winco. This timely appeal followed.

VI.

Essex argues before us that the requirements for applying

issue preclusion in the present context have not been met. To

determine whether Essex is barred by the doctrine of issue

preclusion from disputing its liability to defend and indemnify

GCI because of the state court order, we must look to the law of

the adjudicating state, which is Pennsylvania. See O'Leary v.

-15-

Liberty Mutual Ins. Co., 923 F.2d 1062, 1064 (3d Cir. 1991);

Gregory v. Chehi, 843 F.2d 111, 116 (3d Cir. 1988). Under

Pennsylvania law, issue preclusion applies only where the

following four requirements are satisfied:

(1) the issue decided in the prior adjudication was

identical with the one presented in the later

action; (2) there was a final judgment on the

merits; (3) the party against whom the plea is

asserted was a party or in privity with a party to

the prior adjudication; and (4) the party against

whom it is asserted has had a full and fair

opportunity to litigate the issue in question in a

prior action.

Shaffer v. Smith, 543 Pa. 526, 529, 673 A.2d 872, 874 (Pa.

1996); Safeguard Mut. Ins. Co. v. Williams, 463 Pa. 567, 574,

345 A.2d 664, 668 (Pa. 1975); see also Greenleaf v. Garlock,

Inc., 174 F.3d 352, 357-358 (3d Cir. 1999); Dici v.

Commonwealth of Pa., 91 F.3d 542, 548 (3d Cir. 1996). The

party asserting issue preclusion, here appellees GCI and Maione,

bear the burden of proving its applicability to the case at hand.

Dici, 91 F.3d at 548.

Essex argues that none of the four Shaffer (Greenleaf)

criteria is satisfied in this case. Essex’s arguments with respect

to the first two Shaffer requirements have little merit and we

readily dispose of them.

-16-

With respect to the first Shaffer requirement – identity of

the issues in the present and prior adjudications – Essex argues

that the state court decision did not decide the substantive

question of law presented in this action – i.e., whether, under

Pennsylvania law, GCI is deemed a successor in interest to

Winco. Essex asserts that the state court ruling was merely

procedural: it allowed an amendment to the case caption but did

not determine any substantive rights or obligations of the

parties. That this is so, argues Essex, is evident from the

Discussion section of the state court decision, which does not

address or cite any legal authority relating to Pennsylvania

successor in interest law.

Essex’s arguments is directly contradicted by the

language of the state court decision. The state court, whether

right or wrong, clearly held – as a matter of substantive law –

that GCI was a successor in interest to Winco: “Greenway

Center, Inc. is the successor in interest to Winco Acquisition,

Inc. by virtue of the Reorganization Plan confirmed by the

Bankruptcy Court.” It is true that the state court opinion lacks

a detailed discussion of successor in interest law. However, the

state court did provide some reasoning for its holding by citing

Winco’s proposed bankruptcy plan, which provided that, upon

confirmation, all Winco stock was to be vested in GCI.

Essex also argues that Judge O’Brien’s state court

decision is not a “final judgment” for the purposes of applying

the doctrine of issue preclusion. In Shaffer, the Pennsylvania

-17-

Supreme Court looked to section 13 of the Restatement

(Second) of Judgments to define “final judgment” in the “issue

preclusion” context:

[F]or purposes of issue preclusion (as

distinguished from merger and bar), “final

judgment” includes any prior adjudication of an

issue in another action that is determined to be

sufficiently firm to be accorded preclusive effect.

Shaffer, 673 A.2d at 875 (quoting Restatement (Second) of

Judgments § 13 (1982)).

We do not agree with Essex’s argument that the state

court opinion is not a “final judgment.” There is nothing

“tentative” or non-final about Judge O’Brien’s decision. See

Greenleaf, 174 F.3d at 358 (quoting Restatement (Second) of

Judgments § 13 comment g (1982)). Nor is there anything to

suggest that the state court decision, which was reached upon

written submissions by all parties and an evidentiary hearing,

was not adequately deliberate and firm. Id. We therefore

conclude that the state court decision was a “final judgment” for

issue preclusion purposes.

We now turn to the third and fourth Shaffer requirements

– i.e., that the party against whom “issue preclusion” is asserted

was a party, or in privity with a party, in the prior adjudication,

and that it had a full and fair opportunity to litigate the issue in

-18-

question. Here our analysis leads to a far different result than

that reached by the district court.

VII.

Was Essex a Party, or in Privity with a Party, to the State

Court Action?

It is undisputed that Essex was not a party to the state

court action presided over by Judge O’Brien. The parties in that

action were Maione and GCI. The question that arises now,

therefore, is whether Essex was “in privity with a party to the

prior adjudication.” Shaffer, 673 A.2d at 874 (emphasis added).

The district court concluded that, because Winco filed a

Petition to Intervene in opposition to Maione’s motion to amend

the caption, Winco was “involved in the underlying action,”

Dist. Ct. Op. at 5, and that therefore Essex, as Winco’s insurer,

was in privity with a party – i.e., Winco, in the state court

action. However, the record reveals that Winco never was, in

fact, a party to the state court action. More importantly, even if

Winco had been a party, Essex could not, and would not, be

deemed in privity with Winco, despite their insurer-insured

relationship, since Winco and Essex had conflicting interests in

the outcome of Maione’s motion. See Vaksman v. Zurich

General Accident & Liability Insurance Co., 172 Pa. Super. 588,

94 A.2d 186 (1953); Ranger Ins. Co. v. General Acci. Fire &

Life Assurance Corp., 800 F.2d 329 (3d Cir. 1986). Hence, we

disagree with the district court’s conclusion that Essex was in

-19-

privity with a party to the prior adjudication. Shaffer, 673 A.2d

at 874.

The district court, without discussion or analysis, stated

that Winco was “involved in the underlying action,” apparently

finding this sufficient to render it a party for “issue preclusion”

purposes. However, as we remarked above, it is clear that

Winco was never a named party to the state court action. We

recognize that Winco filed a Petition to Intervene to oppose

Maione’s motion to amend. However, Winco’s Petition to

Intervene was “dismissed as moot.” The unambiguous meaning

of Judge O’Brien’s ruling is that Winco was not permitted to

interpose a response to Maione’s motion to amend the caption.

That Winco’s attorney may have had an opportunity to

participate in the proceeding before Judge O’Brien in order to

oppose Maione’s motion, did not render it a party to the state

court action for the purposes of issue preclusion.

More importantly, even if Winco could be considered a

party to the state court action by virtue of its Petition to

Intervene, no privity would exist between Essex and Winco,

despite their relationship as insurer and insured, because, as

demonstrated infra, they had conflicting interests in the outcome

of Maione’s motion to amend the caption.

Privity is defined as a “mutual or successive relationship

to the same rights of property. In its broadest sense, ‘privity’ is

defined as mutual or successive relationships to the same right

-20-

of property, or such an identification of interest of one person

with another as to represent the same legal right.” Ammon v.

McCloskey, 440 Pa. Super. 251, 261 (Pa. Super. Ct.

1995)(quoting Black’s Law Dictionary (5th ed. 1979). To

determine how this concept should be applied in the present

context, we look to Pennsylvania law.

The Pennsylvania Supreme Court has held that, in

general, for issue preclusion purposes, an insurer is in privity

with its insured. See Dally v. Pennsylvania Threshermen &

Farmers' Mutual Casualty Insurance Co., 374 Pa. 476, 478-79,

97 A.2d 795 (1953). However, the Pennsylvania Superior Court

has recognized an important exception to this rule: where the

insurer’s interests conflict with those of its insured, the insurer

is not later barred by issue preclusion from presenting its own

position.

In Vaksman v. Zurich General Accident & Liability

Insurance Co., 172 Pa. Super. 588, 94 A.2d 186 (1953), the

plaintiff, Vaksman, had a policy that covered injuries “caused by

accident.” Id. at 187 (emphasis added). Vaksman was sued by

a third party, Mousley, who claimed that Vaksman had

negligently injured Mousley. The insurer, Zurich, refused to

defend the action, contending that it was not liable under the

policy because, Zurich alleged, Vaksman had intentionally – not

accidentally – injured Mousley. Mousley then obtained a

judgment against Vaksman, who turned around and sued Zurich

to recover the monies it had paid to Mousley. When Zurich

-21-

pleaded as a defense that Vaksman had intentionally injured

Mousley, Vaksman asserted that Zurich was barred by issue

preclusion from so pleading by virtue of the earlier adjudication

in which Vaksman was found to have injured Mousley

negligently.

The Pennsylvania Superior Court held that, while

insurers and insureds generally are in privity for purposes of

issue preclusion, in the case before it such a finding would be

erroneous because, in the prior adjudication, the interests of the

insurer, Zurich, and its insured, Vaksman, conflicted on the

point in issue – i.e., intentional versus negligent action. Id. at

188. Noting that in the prior adjudication it was in Zurich’s

interest that the Vaksman’s action be characterized as

“intentional” while it was in Vaksman’s interest that it be

characterized as “accidental,” the court reasoned that it would be

unfair to bind Zurich to the prior judgment when Zurich, by

virtue of its duty to its insured, could not assert the position that

was in its best interest in that action. Therefore, the court held

that the insurance company, Zurich, was not in privity with its

insured, Vaksman, and thus issue preclusion did not apply. Id.

at 188-89.

This court applied the principle of Vaksman in Ranger

Ins. Co. v. General Acci. Fire & Life Assurance Corp., 800 F.2d

329 (3d Cir. 1986). Ranger involved the following facts. An

accident victim named Gaylor was seriously injured while riding

in a van driven by a Delaware County employee. The County

-22-

had a comprehensive liability policy issued by Ranger. The

County and Gaylor agreed upon a settlement. At a hearing to

review the proposed settlement, the court considered a petition

by a woman named Rossi, who sought to be declared Gaylor’s

common law wife, so as to qualify her for a share of the

proposed settlement. Her petition was denied on the grounds

that there was no common law marriage between Rossi and

Gaylor, and the settlement, in which Rossi did not participate,

was therefore approved. Ranger then filed an action for

declaratory judgment against General Assurance Company,

contending that under an insurance policy that General had

issued to Rossi and that provided spousal benefits, General, and

not Ranger, was liable for the damages sustained by Gaylor.

Central to Ranger’s claim was that there had been a common

law marriage between Gaylor and Rossi.

We held that issue preclusion did not prevent Ranger

from re-litigating the marital-status issue, despite the fact that

Ranger’s insured, the County, had been a party to the settlement

hearing at which the state court expressly held that there was no

common law marriage. Relying on Vaksman, we held that issue

preclusion was not appropriate because, in the context of the

settlement proceeding, Ranger’s interest vis-a-vis the

marital-status issue conflicted with the County’s interest:

The purpose of the proceeding was to seek court

approval of a settlement proposed by the county

and Gaylor, and it was in that proceeding that

Rossi presented her marital petition. Because it

-23-

was in the county's interest that the court approve

the proposed settlement and because the record

makes clear that the court's granting of Rossi's

petition would have jeopardized that settlement,

it was in the county's interest that the court reject

the petition. Yet, it clearly was in Ranger’s

interest that the court grant Rossi’s petition. This

was so because Rossi had taken out a policy with

General that extended benefits to the insured’s

spouse and thus might have covered Gaylor if he

were determined to be Rossi's spouse. And, if

General's policy had covered Gaylor, General --

and not Ranger -- might have been liable to

compensate Gaylor for the injuries for which he

had sued Delaware County.

Ranger and Delaware County therefore had

conflicting interests vis-a-vis the disposition of

Rossi's marital-status petition. Thus we conclude

that under Pennsylvania law Ranger and the

county were not in privity with respect to the

adjudication of the marital-status petition. The

district court erred, therefore, in concluding that

that prior adjudication collaterally estops Ranger

from litigating the issue in its suit against General.

Id. at 332-33 (emphasis added).

Vaksman and Ranger control the outcome of the present

case. Even assuming that Essex’s insured, Winco, was a party

to the underlying state action (and it is evident that Winco was

-24-

not), it is clear that the interests of Essex and Winco conflicted

with respect to Maione’s motion to amend the caption. That

motion sought to amend the caption to name as defendant either

“Winco Acquisition, Inc. d/b/a Greenway Center” or “Greenway

Center, Inc. as successor in interest to Winco Acquisition, Inc.”

Winco had an interest in opposing the first of these

alternatives – i.e., “Winco Acquisition, Inc. d/b/a Greenway

Center” because if the caption were thus amended, it would

make Winco subject to liability as the defendant in the case.

However, Winco had, at best, no interest at all in whether the

caption was changed to “Greenway Center, Inc. as successor in

interest to Winco Acquisition, Inc” inasmuch as such an

amendment would have no bearing on Winco’s liability. In such

a case, Essex would be obligated to defend and indemnify

Winco’s successor in interest, GCI.7

Essex, on the other hand, had a strong interest in

opposing both of the proposed amendments, for Essex would be

7

We reject Essex’s argument that, even if GCI is found

to be a successor in interest to Winco, the no assignment clause

in the insurance policy it issued to Winco prevents the transfer

of rights under the policy from Winco to GCI. See Northern

Ins. Co. v. Allied Mut. Ins. Co., 955 F.2d 1353, 1358 (9th Cir.

1992) (holding that rights under an insurance contract issued to

a predecessor corporation are transferred to the corporate

successor despite the existence of a “no assignment” clause in

the insurance contract).

-25-

liable to defend and indemnify Winco or its successor regardless

of whether Winco itself was the named defendant or whether

GCI was determined to be Winco’s successor in interest for the

purpose of assuming Winco’s liabilities. Thus, even assuming

that Winco was a party to the underlying state action, Vaksman

and Ranger establish that Essex was not in privity with Winco

for the purpose of applying issue preclusion.

In her brief, Maione also argues that Essex was in privity

with GCI in the underlying state court action. Maione argues

that “Essex had a mutual and contractual interest with GCI in

the state court action to the extent that it assigned the counsel

who entered his appearance and participated in the state court

action.” We reject this argument. It is true that Essex

mistakenly retained counsel on behalf of GCI in 1999 before it

became aware that GCI and Winco were distinct entities. But

counsel initially retained by Essex to represent GCI withdrew

his appearance on behalf of GCI more than two years before

Maione even filed her motion to amend. When Maione filed her

motion to amend, Essex retained counsel solely to protect

Winco’s interests. See supra note 4.

We therefore hold that, because Essex was not a party,

nor in privity with GCI or any other party, to the underlying

state court action, the doctrine of issue preclusion does not

-26-

apply.8 In this respect, the district court erred.

8

Maione and GCI also argue that the doctrine of judicial

estoppel should bar Essex from denying coverage to GCI.

Maione and GCI argue that, because Essex initially retained

counsel to represent GCI, it is now estopped from denying GCI

rights under the policy Essex issued to Winco. This argument

has no merit. As stated in text, Essex retained counsel for GCI

only because it was unclear whether that entity was insured

under its policy. Immediately upon discovering that GCI was

not its insured, Essex withdrew from the defense of GCI and

issued a letter to GCI denying coverage. It is undisputed that

GCI is not the named insured on the policy Essex issued to

Winco.

The doctrine of judicial estoppel applies only if (1) the

party against whom it is sought has taken a position inconsistent

with a position previously taken; and (2) the party took “either

or both of the inconsistent positions in bad faith– i.e., “with

intent to play fast and loose” with the court. Klein v. Stahl

GMBH & Co., 185 F.3d 98, 111 (3d Cir. 1999). Here, there is

no evidence that Essex acted in bad faith; to the contrary, it

properly undertook a defense of GCI until it had enough

information to determine that GCI was not its insured and

therefore not entitled to coverage. Accordingly, judicial

estoppel is inapplicable.

-27-

VIII.

Did Essex Have a “Full and Fair” Opportunity to Litigate

the Issue of GCI’s Successorship to Winco?

It is axiomatic that, because Essex was not a party, or in

privity with a party, to the underlying state court action, it also

did not have a full and fair opportunity to litigate the issue

whether GCI was a successor in interest to Winco. Both Maione

and GCI argue, and the district court found, that Frank Baker,

the attorney Essex retained to intervene in the state court

proceedings on behalf of Winco, had the opportunity to

participate in the hearing on Maione’s motion to amend, object

to exhibits and questions, and give testimony. Whether or not

this is true, it is entirely beside the point: Baker was retained to

represent the interests of Winco and, as we have discussed,

Winco’s interests were far different from those of Essex. As a

result, at no time during any of the proceedings did Essex have

an opportunity to present its own position that GCI was not a

successor in interest to Winco.

IX.

Because the district court found issue preclusion

applicable, it did not reach the merits of the issue whether GCI

is, under substantive Pennsylvania law, a successor in interest to

Winco for the purposes of assuming Winco’s liabilities and

obtaining rights under its insurance contract with Essex. We

will therefore vacate the District Court’s judgment in favor of

-28-

GCI and remand to the District Court to make an independent

determination of this issue on the merits. In so doing, the

district court may, of course, take any additional evidence or

hold such further hearings as it deems necessary.

-29-