                                                                                                                           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Precedential or Non-Precedential: Precedential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




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                                        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-
