                                                                                                                           Opinions of the United
1995 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


5-10-1995

Raytech v White
Precedential or Non-Precedential:

Docket 94-1347




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                  UNITED STATES COURT OF APPEALS
                      FOR THE THIRD CIRCUIT

                           ___________

                           No. 94-1347
                           ___________


          RAYTECH CORPORATION,

                                 Appellant,

                         vs.

          EARL WHITE; YVONNE WHITE; PASQUALE DICINTIO;
          MARIE DICINTIO; LARRY BENZIE, EXECUTOR OF THE
          ESTATE OF EDWARD BENZIE; EUGENE
          KLINGENBERGER; MARGIE KLINGENBERGER; JOHN DOE
          & ALL OTHERS SIMILARLY SITUATED;

                                 Appellees.

          CREDITORS' COMMITTEE; OREGON CLAIMANTS,

                                 (Intervenors in District Court)


                           ___________


          APPEAL FROM THE UNITED STATES DISTRICT COURT
            FOR THE EASTERN DISTRICT OF PENNSYLVANIA

                   (D.C. Civil No. 92-cv-01451)

                           ___________


                     ARGUED NOVEMBER 1, 1994

       BEFORE:   SCIRICA, LEWIS and RONEY,* Circuit Judges.

                      (Filed   May 10, 1995)

*
      Honorable Paul H. Roney, United States Circuit Judge for
the Eleventh Circuit Court of Appeals, sitting by designation.
                            ___________


William N. Reed (ARGUED)
Stuart G. Kruger
Watkins, Ludlam & Stennis
633 North State Street
Post Office Box 427
Jackson, MS 39205

          Attorneys for Appellant


Timothy E. Eble (ARGUED)
Ness, Motley, Loadholt, Richardson & Poole
151 Meeting Street
Suite 600
Charleston, SC 29402

          Attorney for Appellees, Earl White and Yvonne
          White, and Eugene Klingenberger and Margie
          Klingenberger


Jan D. Ginsberg
Robert E. Sweeney, Jr. & Co.
55 Public Square
1500 Illuminating Building
Cleveland, OH 44113

          Attorney for Appellee, Larry Benzie, Executor
          of the Estate of Edward Benzie


Robert F. Carter (ARGUED)
Donna Civitello
Carter & Civitello
One Bradley Road
Suite 301
Woodbridge, CT 06525

David M. Lesser
One Bradley Road
Suite 302
Woodbridge, CT 06525

          Attorneys for Appellees, John Doe, and All
          Others Similarly Situated
Michael L. Temin (ARGUED)
Wolf, Block, Schorr & Solis-Cohen
S.E. Corner 15th and Chestnut Streets
Packard Building, 12th Floor
Philadelphia, PA 19102

          Attorneys for Intervenors, Creditors'
          Committee

                            ____________

                        OPINION OF THE COURT
                            ____________



LEWIS, Circuit Judge.

          In this case we must determine whether the appellant,

Raytech Corporation ("Raytech"), a corporate offspring of Raymark

Industries ("Raymark"), is precluded from relitigating the issue

of its successor liability for Raymark's asbestos liabilities.

We conclude that Raytech is collaterally estopped from

relitigating this issue, and will, accordingly, affirm the

district court's ruling to this effect.

                             I.   FACTS

          Beginning in the early 1970s, Raymark, known at that
time as Raybestos-Manhattan, Inc., a manufacturer of asbestos-

containing products, was named as the defendant in thousands of

personal injury complaints around the country.1   As a result of

this burgeoning asbestos litigation, Raymark suffered a severe

financial decline.2   In response to its financial woes, between

1
 .    By June 26, 1988, Raymark had been named as a defendant in
more than 68,000 cases.
2
 .    In 1981, Raymark had a net worth of $112.4 million.    By
1985, the reported net worth had dropped to $3.6 million.
1982 and 1988 Raymark reorganized its corporate structure.

Pursuant to this restructuring, Raybestos-Manhattan became

Raymark Industries and Raytech, and, significantly, Raytech

obtained ownership of Raybestos-Manhattan's two historically

lucrative businesses, but without the drain of the asbestos-

related litigation.3
3
 .    The steps in the restructuring are described in graphic
detail by the United States District Court for the District of
Oregon in Schmoll v. ACandS, Inc., 703 F. Supp. 868, 870-71 (D.
Or. 1988). We recount these steps here. STEP 1: In 1982,
Raybestos-Manhattan changed its name to Raymark Industries and
created Raymark Corporation as a holding company for Raymark
Industries. Raymark Corporation's only asset was the stock of
Raymark Industries. In 1985 Raymark Industries' assets included
an operating division, Wet Clutch & Brake, and the stock of a
German subsidiary, Raybestos Industrie -- Products G.m.b.H.
("RIPG") STEP 2: In June 1986, Raymark Corporation created
Raytech as a wholly owned subsidiary. STEP 3: Raytech then
created Raysub as a wholly owned subsidiary. Raytech and Raysub
were created solely to carry out the merger described in STEP 4.
See Schmoll, 703 F. Supp. at 870. STEP 4: In October 1986,
Raymark Corporation merged into Raysub, with Raymark Corporation
surviving as a wholly-owned subsidiary of Raytech. In this
merger, each outstanding share of Raymark common stock was
converted into one share of Raytech stock. Raytech, designated
the "holding company," was entirely owned by the former
shareholders of Raymark Corporation. As a result of this merger,
Raytech, the parent of Raysub, became the parent of Raymark
Corporation. Raytech then owned 100 percent of the stock of
Raymark Corporation, which owned 100 percent of the stock of
Raymark Industries. STEP 5: In 1987, Raytech purchased Raymark
Industries' two most profitable assets, the Wet Clutch & Brake
Division and the stock of RIPG. Raytech purchased the Wet Clutch
& Brake Division for $76 million. Payment consisted of
approximately $15 million in cash, $10 million worth of Raytech
stock at closing with another $6 million in stock to be
transferred later, and $46 million in unsecured notes. The Wet
Clutch & Brake Division, the largest of Raymark Industries'
business operations, had significant profit potential. Raytech
purchased the RIPG stock owned by Raymark Industries for $8.2
million. This sale included a cash payment of $3.9 million, with
the balance financed by an unsecured note. Significantly, the
asbestos claims against Raymark Industries did not arise from
either the Wet Clutch & Brake Division or RIPG. See id. at 871
          In 1988, Raymond Schmoll brought one of the many

asbestos-related lawsuits brought against Raymark and Raytech.

See Schmoll v. ACandS, Inc., 703 F. Supp. 868 (D. Or. 1988).   Mr.

Schmoll sued Raymark and Raytech in the United States District

Court for the District of Oregon, seeking damages for injuries

allegedly caused by his inhalation of asbestos dust from products

manufactured or sold by the defendants.   Schmoll and

Raymark/Raytech agreed to submit to the district court the

question whether Raytech was a successor in liability to Raymark

Industries.   Following receipt of extensive briefing on the

issue, the district court found that Raytech was a successor in

liability to Raymark Industries for Raymark's production, sale

and distribution of products containing asbestos, and that

Raytech was legally responsible for Raymark's strict liability

torts.   Schmoll, 703 F. Supp. at 875.

          In March of 1989, Raytech filed a petition under

Chapter 11 of the Bankruptcy Code in the United States Bankruptcy

Court for the District of Connecticut.    Raytech then filed this

adversary proceeding seeking a declaratory judgment that it is

not liable for the asbestos-related torts of Raymark.    At

Raytech's behest, the adversary proceeding was transferred to the
(..continued)
(footnotes omitted). STEP 6: In 1988, Raytech sold Raymark
Corporation, and thus Raymark Industries, to Asbestos Litigation
Management ("ALM"), a wholly-owned subsidiary of Litigation
Control Corporation ("LCC"), whose business includes claims
processing, document control and retention, and other services to
companies involved in complex litigation, for $1 million.
Asbestos Litigation Management paid $50,000 in cash and a
$950,000 unsecured promissory note for all Raymark Corporation's
assets and liabilities.
United States District Court for the District of Connecticut.

The district court sought briefing on the question of the

preclusive effect of the Schmoll decision upon Raytech's

declaratory judgment action, and concluded in light of the

arguments presented that Schmoll collaterally estopped Raytech

from relitigating the issue of its successor liability for the

asbestos-related torts of Raymark.

             The case was then transferred, pursuant to 28 U.S.C.

section 1412, to the United States District Court for the Eastern

District of Pennsylvania.4    In early 1994, the district court

certified for immediate appeal the Connecticut district court's

ruling that Raytech was estopped from denying successor

liability.

                                 II.

             We review for abuse of discretion whether the district

court properly applied the doctrine of collateral estoppel.

McLendon v. Continental Can Co., 908 F.2d 1171, 1177 (3d Cir.

1990) (citing Park Lane Hosiery Co. v. Shore, 439 U.S. 322, 331

(1979)).     Our standard of review is not affected by the fact that

this case involves the application of offensive collateral

estoppel.5    As the Supreme Court indicated in Park Lane Hosiery,

4
.     28 U.S.C. § 1412 provides:

             A district court may transfer a case or
             proceeding under title 11 to a district court
             for another district, in the interest of
             justice or for the convenience of the
             parties.
5
 .    Offensive collateral estoppel occurs whenever a plaintiff
seeks to estop a defendant from relitigating an issue which the
the application of offensive collateral estoppel is also within

the discretion of the trial court.    Park Lane Hosiery, 439 U.S.

at 331.    Therefore, in reviewing the district court's decision to

apply offensive collateral estoppel, we are bound by the abuse of

discretion standard.   Id.

            Application of collateral estoppel requires

consideration of a number of factors.    Traditionally, courts have

required the presence of four factors before collateral estoppel

may be applied:    (1) the identical issue was previously

adjudicated; (2) the issue was actually litigated; (3) the

previous determination was necessary to the decision; and (4) the

party being precluded from relitigating the issue was fully

represented in the prior action.     United Industrial Workers v.

Government of the Virgin Islands, 987 F.2d 162, 169 (3d Cir.

1993).    The Supreme Court has also recognized, however, that

(..continued)
defendant previously litigated and lost against another
plaintiff. Park Lane Hosiery Co. v. Shore, 439 U.S. 322, 329
(1979). In actuality, this case involves, as did Park Lane
Hosiery, the use of offensive non-mutual collateral estoppel.
The use of offensive collateral estoppel here is said to be "non-
mutual" because Earl White and the other defendants in Raytech's
declaratory judgment action -- present or future claimants
against Raytech -- are seeking to bind Raytech to a judgment in a
previous case -- Schmoll -- to which they themselves cannot be
bound. See Id. at 327 n.7 (stating that it is a violation of due
process for a judgment to be binding on a litigant who was not a
party or a privy and therefore has never had an opportunity to be
heard (citing Blonder-Tongue Laboratories, Inc. v. University of
Illinois Foundation, 402 U.S. 313, 329 (1971))). For the sake of
simplicity we will refer to the operative concept as "offensive
collateral estoppel," though it is understood that every
reference in this opinion to "offensive collateral estoppel" is
actually a reference to "offensive non-mutual collateral
estoppel."
collateral estoppel is inappropriate if facts essential to the

earlier litigated issue have changed.    Montana v. United States,

440 U.S. 147 (1979).   Finally, in cases involving the offensive

use of collateral estoppel, the Supreme Court has instructed that

courts must take special care to ensure that its application does

not work unfairness to party against whom estoppel is asserted.

          Of the traditional four factors relevant to collateral

estoppel, only one -- whether there is an identity of issues --

is pressed by Raytech in this appeal.    Raytech also contends,

however, that facts essential to the Schmoll decision have

changed, and that the application of offensive collateral

estoppel would inflict unfairness upon it.       We will address each

of these arguments in turn.

                       A.   Identity of Issues

          Raytech concedes that the only element of the four-part

collateral estoppel test at issue in this appeal is whether the

issue before the court in Schmoll is identical to the issue

raised by Raytech in its declaratory judgment action before the

district court in Connecticut.    To defeat a finding of identity

of the issues for preclusion purposes, the difference in the

applicable legal standards must be "substantial."      See 1B Moore's
Federal Practice ¶ .443[2] at 572 ("To avoid collateral estoppel

on the ground that the facts found in the first action have a

different legal significance in the second suit, it is necessary

to show that the difference in significance is substantial.");

accord Jim Beam Brands Co. v. Beamish & Crawford Ltd., 937 F.2d
729, 734 (2d Cir. 1991) ("Issues that may bear the same label are
nonetheless not identical if the standards governing them are

significantly different."); James Talcott, Inc. v. Allahabad

Bank, Ltd., 444 F.2d 451, 459 n.8 (5th Cir. 1971) ("There are

circumstances when the same historical factual circumstances may

be involved in the two actions, but the legal significance of the

fact differs in the two actions because different legal standards

are simultaneously applicable to it.    This is a very narrow

exception to the rule with respect to identity of issues,

however, and is applicable only when there is a demonstrable

difference in the legal standards by which the facts are

evaluated.").   To resolve this issue, we must, of course,

identify the precise question or questions at issue both in

Schmoll and in this case.

          In Schmoll, the court faced the issue "whether Raytech

is liable as a successor for Raymark Industries' production, sale

and distribution of products containing asbestos."     Schmoll, 703

F. Supp. at 869.    This issue necessitated a determination of

whether the transfers of corporate assets resulting in the

formation of Raytech were designed to escape asbestos-related

liability.   See Schmoll, 703 F. Supp. at 872.   In its complaint

in this case, Raytech states that it seeks "a declaratory

judgment that it is not liable for the asbestos-related personal

injury claims asserted against Raymark Corporation and/or Raymark

Industries, Inc."    Raytech's complaint further specifies that it

seeks a declaration that "[u]nder the applicable law, neither

Raytech nor any non-filing subsidiary is a successor in interest"

to either Raymark Corporation or Raymark Industries.
           At first blush, the issues presented by the two cases

appear identical.   And while we believe them to be identical in

the final analysis, we acknowledge that the question of their

identity is more difficult than it might at first seem.

           In Schmoll, the court sought to determine whether under

Oregon law, Raytech was liable as a successor for Raymark's

asbestos-related liability.   See Schmoll, 703 F. Supp. at 872

n.6.   In this case, the district court faced the question

whether, under some undetermined "applicable law," Raytech is

liable as a successor for Raymark's asbestos-related liability.

According to Raytech, in all jurisdictions except the state of

Oregon, fraudulent conduct in connection with a corporate sale of

assets must be found before successor liability may be imposed.

Thus, Raytech contends, in Schmoll, a case decided under Oregon

law, the court did not decide the very issue presented by this

case, namely, whether the transactions creating Raytech were

carried out fraudulently in order to escape liability.     "Any fair

reading of the Schmoll opinion," Raytech argues, "reveals

immediately that the Court not only did not decide the fraud

issue, it obviously did not consider fraud to be an element of

the `fraudulent transaction' exception under Oregon law."

          Raytech's arguments to the contrary notwithstanding,

Oregon's law of successor liability is neither substantially nor

even demonstrably different from the law of successor liability

applicable in other jurisdictions.   An examination of court's

analysis in Schmoll reveals that the issue presented and
determined in Schmoll is identical to the issue presented for
determination in this case.     In Schmoll the court began its

analysis by stating that "Oregon courts reject transfers of

corporate assets designed to escape liability."     Schmoll, 703 F.

Supp. at 872.   The court proceeded to assess the effects of the

asset transfer involved in the creation of Raytech:
          Raymark Industries had valuable assets, RIPG
          and Wet Clutch & Brake. It conveyed these
          assets to Raytech, which was owned by Raymark
          Industries' former shareholders. This
          transaction left Raymark Industries with
          staggering asbestos liabilities, unprofitable
          operations, unsecured notes, and stock which
          could not be sold in large blocks without a
          deep discount.

               Present and future asbestos tort
          claimants, as Raymark Industries' potential
          creditors, were likewise left with little in
          the transaction. The money Raytech paid for
          Raymark Industries' profit-generating assets
          will not adequately compensate present and
          future claimants. If Raytech escapes
          liability for Raymark Industries' torts,
          these creditors will no longer have access to
          Raymark Industries' valuable assets or to the
          potential stream of profits generated by
          these assets.


Schmoll, 703 F. Supp. at 873.    Based largely upon these indicia

of bad intent, the court concluded that although the corporate

restructuring met the technical formalities of corporate form,

because they were "designed with the improper purpose of escaping

asbestos-related liabilities," there was "no just reason to

respect the integrity of the transactions."    Id. at 874.   Raymark

had made substantial profits from the production of asbestos-

containing products, and the Schmoll court was not going to let

it avoid liability by transferring its profitable assets while
leaving of itself "no more than a corporate shell unable to

satisfy its asbestos-related obligations."   Id.

          As already noted, Raytech has sought to distinguish

Schmoll's successor liability analysis from the successor

liability analysis required in "every other jurisdiction"

principally by pointing out Schmoll's failure to make an explicit

finding that the transactions giving rise to Raytech involved

"fraudulent" conduct.   Again, according to Raytech, in every

jurisdiction but Oregon, the law requires a specific finding of

fraud before successor liability may be imposed.    This simply is

not the case.6   To impose liability on the successor corporation,

the law in every jurisdiction, including Oregon, requires a

finding that the corporate transfer of assets "is for the

fraudulent purpose of escaping liability."   Fletcher Cyclopedia

of the Law of Private Corporations § 7122 at 232.    The word


6
 .    It is a "well-settled rule of corporate law [that] where
one company sells or transfers all of its assets to another, the
second entity does not become liable for the debts and
liabilities, including torts, of the transferor." Polius v.
Clark Equipment Co., 802 F.2d 75, 77 (3d Cir. 1986). This then
is the general rule of successor liability, recognized in all
jurisdictions: when a corporation purchases all or most of the
assets of another corporation, the purchasing corporation does
not assume the debts and liabilities of the selling corporation.
See 15 Fletcher Cyclopedia of the Law of Private Corporations
§ 7122 at 232. There are four widely recognized exceptions to
this general rule. The successor corporation does inherit
liability where (1) the purchaser expressly or implicitly agrees
to assume liability, (2) the purchase is a de facto consolidation
or merger, (3) the purchaser is a mere continuation of the
seller, or (4) the transfer of assets is for the "fraudulent
purpose of escaping liability." Id. The parties dispute neither
the nation-wide applicability of the general rule nor the
presence in every jurisdiction of the four exceptions.
"fraudulent," as it appears in Fletcher's Cyclopedia, the very

source cited by Raytech as setting forth the four exceptions to

successor non-liability "recognized in all jurisdictions" (see

n.6 supra), characterizes or modifies not the actual means of the

transfer of assets or the conduct undertaken in furtherance

thereof, but rather the purpose of such transfer.   Under

Fletcher's articulation of the exception, transferring corporate

assets for the purpose, or with the intention, of escaping

liability is, by definition, a transfer of assets with fraudulent

purpose.

           As the district court observed, implicit in Schmoll is

the finding that the transfer of corporate assets giving rise to

Raytech, undertaken for the purpose or with the intent of

escaping liability, was a transfer undertaken with fraudulent

purpose or intent.   Even though the court in Schmoll omitted the

word "fraudulent" in the course of its successor liability

analysis, the indicia of improper purpose upon which the Schmoll

court largely relied are the same factors that Raytech itself

acknowledges are generally considered by courts when determining

whether a transfer of corporate assets was undertaken for the

fraudulent purpose of escaping liability.   Thus, the issue

addressed and resolved by Schmoll is "in substance the same"
issue Raytech has raised in this case; accordingly, we conclude

that the collateral estoppel doctrine's identity of issues

requirement is satisfied in these circumstances.    See Montana v.
United States, 440 U.S. 147, 155 (1979) (the identity of issues
requirement is fulfilled where the issues in the current case are

"in substance the same" as those previously resolved).7

             B.   Change in Facts Essential to Schmoll

          As noted above, even if all four requirements of

collateral estoppel are met, changes in "controlling" facts, that

is, facts "essential to a judgment" will render collateral

estoppel inapplicable in a subsequent action raising the same

issues.   Montana, 440 U.S. at 155, 159.   Raytech contends that

facts essential to the judgment in Schmoll have changed and that

it should not be collaterally estopped from raising the successor

liability issue again in this case.

          Raytech argues that central to the Schmoll court's

successor liability analysis was its view that Raymark would not

realize the full benefit of the sale to Raytech of RIPG and Wet

Clutch & Brake.   Indeed, the Schmoll court observed that at the

time of the sale of these assets to Raytech, Raymark received the


7
 .    Entangled within its argument that Oregon law is outside
the realm of traditional successor liability law is Raytech's
argument that Schmoll was simply wrongly decided. However, we
need not dwell on this contention. Any argument that the
successor liability issue was erroneously decided in Schmoll is
wholly without relevance to our collateral estoppel inquiry. "A
judgment merely voidable because based on an erroneous view of
the law is not open to collateral attack." Federated Department
Stores, Inc. v. Moitie, 452 U.S. 394, 398 (1981). Not only is
the argument that Schmoll was wrongly decided irrelevant, it is
brought before a tribunal thousands of miles from whence it
arose. The remedy for a wrongly decided district court case from
the District of Oregon is, of course, appeal to the Ninth Circuit
and possible review by the Supreme Court. Raytech did in fact
appeal Schmoll to our sister court of appeals -- and lost. See
Schmoll v. ACandS, Inc., 977 F.2d 499 (9th Cir. 1992). Raytech
apparently did not seek Supreme Court review.
lion's share of the purchase price in the form of unsecured notes

and Raytech stock that could not be sold in large blocks without

a deep discount.    See Schmoll, 703 F. Supp. at 873.   According to

Raytech, the facts regarding Raytech's payment for the assets

purchased from Raymark have changed dramatically since Schmoll

was decided.    Raytech argues that the evidence available now,

which was not and could not have been presented to the court in

Schmoll, establishes that all notes made payable to Raymark by

Raytech are current and all stock payments have been made in cash

in lieu of stock at Raymark's request.    Raytech further notes

that of the $85.1 million Raytech agreed to pay for the assets in

question, Raytech has paid in excess of $63 million to date.

Thus, Raytech argues, with these new facts in hand, facts which

it considers "essential to the judgement" for purposes of

assessing the applicability of collateral estoppel, the court in

Schmoll would not have imposed successor liability upon it.

          We begin by parsing an old, familiar source to acquire

a sense of what "essential" encompasses in this context.     That

which is indispensably necessary or requisite is commonly

referred to as "essential."    See Blacks Law Dictionary 490 (5th
ed. 1979).    Under the generally accepted meaning of the term, a

fact may be deemed essential to a judgment where, without that

fact, the judgment would lack factual support sufficient to

sustain it.    See id. ("[t]hat which is required for the continued

existence of a thing" is essential).    What facts were essential

to the Schmoll decision, is, of course, the question.     To answer

this question, we turn again to the Schmoll opinion.
            In deciding to impose successor liability upon Raytech,

the court in Schmoll relied in part upon the presence of direct

evidence of intent to avoid liability.        For example, the court

relied upon statements made by participants in the suspect

transactions indicating that the elaborate transfer of assets had

been designed specifically to effect the avoidance of liability.

Schmoll, 703 F. Supp. at 873-74.     The court noted Raymark's 1985

annual report, in which the company articulated its long term

strategy:
            to protect and enhance shareholder
            investment, to maximize the amounts available
            for deserving asbestos-injured claimants and
            to limit exposure for asbestos claims only to
            businesses currently threatened, thus
            enabling our other businesses and any new
            business opportunities to grow, unshadowed by
            the cloud of asbestos liability.


Schmoll, 703 F. Supp. at 873-74.     The court also noted the

statements of John Kutzler and Craig Smith, holders of various

high-level positions at both Raymark and Raytech.       Mr. Kutzler

had stated that the intention of the restructuring "`was to

remove an asset through different ownership from the exposure of

the asbestos litigation.'"      Id. at 874.    Mr. Smith testified that

the restructuring had been designed to insulate Raytech from

Raymark's liabilities.    Id.

            The court also examined the overall context of the

corporate restructuring, finding that it smacked of dubious

intent.
            Raymark Corporation changed from the parent
            of Raymark Industries to the subsidiary of
            Raytech to the subsidiary of ALM. Raytech
            purchased Raymark Corporation's two valuable
           assets and then sold the remainder to ALM for
           $1 million. It is inconceivable that in an
           arms-length corporate transaction, a buyer
           would have purchased an entity [i.e., Raymark
           Corporation] so lacking in assets and laden
           with liabilities.


Schmoll, 703 F. Supp. at 874.   The court was also deeply troubled

by the fact that Raytech was entirely owned by the former

shareholders of Raymark Industries, so that the exact same

shareholders who once owned a company, i.e., Raymark Industries,

possessing both profitable assets and staggering asbestos

liabilities, now owned a company, i.e., Raytech, possessing

profitable assets and no asbestos liability.   The ownership of

ALM, the entity upon which Raytech foisted Raymark's asbestos

liabilities, also factored into the court's decision to impose

successor liability.   ALM was a wholly owned subsidiary of the

Litigation Control Corporation.   Craig Smith was a division

president at Raymark Corporation from 1980 to 1985.   In 1985,

Smith became president and chief executive officer of Raymark.

By the time Schmoll was decided, Smith had become president and

chief executive officer of Raytech, and had established the

Litigation Control Corporation.   Moreover, at the time Schmoll

was decided, Smith owned 45 percent of the shares of the

Litigation Control Corporation, with his son owning another 15

percent.   This is precisely why the court doubted the bona fides

of the sale of Raymark to ALM following the purchase by Raytech

of Raymark's profitable assets.   While the court also placed some

emphasis upon the facts that Raytech had passed unsecured notes

and Raytech stock of questionable value to Raymark as part of the
purchase price for RIPG and Wet Clutch & Brake, the court appears

to have been equally troubled by the fact that the restructuring

left Raymark's creditors without access to the potential stream

of profits generated by RIPG and Wet Clutch & Brake.     See

Schmoll, 703 F. Supp. at 873.    This latter concern would have

been warranted regardless of the value of the consideration

passed by Raytech to Raymark.

          Based upon all of these considerations, the Schmoll

court imposed successor liability upon Raytech.     And for the

following reasons, we believe the court would have done so even

if it had known of Raytech's continued payments of its note and

stock obligations.

             First, Raytech's contention in this appeal that

"essential facts" have changed is in fact an updated version of a

similar argument it made on appeal of the Schmoll decision before

the Court of Appeals for the Ninth Circuit.    In its brief filed

in the Ninth Circuit, Raytech urged (with citations to the trial

court record) that the court consider that "[a]s of the time of

trial, Raytech had paid Raymark each of the note and stock

payments required by the contracts for the purchase and sale of

GmbH and WC&B."    Thus, while Raytech has paid substantially more

of its note and stock obligations since the time of the Schmoll
trial, and in that sense, certain facts have changed, it cannot

be argued that the basic fact of Raytech's payment on the notes

was unknown to the Schmoll court when it imposed successor

liability.
          We also note that it was not the failure or the

inadequacy of consideration proffered by Raytech for the purchase

of Raymark's profitable assets that so deeply troubled the court

in Schmoll; instead the court viewed the transaction as rife with

improper intent, due in part to the type of consideration passed.

Whether Raytech paid on the unsecured notes or not, the notes

remained unsecured.   And while the Schmoll court relied upon the

unsecured status of the notes to confirm its view that the

transaction was not an arm's-length deal, it never per se

addressed the collectibility of the notes, or the prospect of

payments being made pursuant to them.   We agree with the

Committee of Unsecured Creditors of Raytech Corporation:    had the

Schmoll court compared the value of the consideration paid by

Raytech to Raymark to the value of the assets transferred, and

had it found the value of the former significantly less than the

latter because of doubts as to the ability or willingness of

Raytech to honor its obligations, then Raytech's "changed

essential facts" argument might have force.   Supplemental Brief

of Appellees Committee of Unsecured Creditors of Raytech

Corporation at 7.   But that is not what happened.   The Schmoll
court did not address the likelihood that the notes given by

Raytech would not be paid.

          In light of the fact that evidence of payment on the

notes during the one year preceding the Schmoll trial was placed

before both the Schmoll court and the Ninth Circuit, coupled with

the fact that neither the district court in Schmoll nor the Ninth
Circuit on Raytech's appeal were particularly impressed by the
fact of Raytech's payments, we conclude that Raytech's evidence

of additional payments on the notes and stock obligations does

not establish a change in facts essential to the Schmoll

judgment.

                     C.    Fairness Considerations

            The Supreme Court has granted district courts "broad

discretion" to determine when a plaintiff who has met the

requisites for the application of collateral estoppel may employ

that doctrine offensively.      See Park Lane Hosiery Co. v. Shore,

439 U.S. 322 (1979).      In an attempt to provide general guidance

as to the exercise of that discretion, the Court explained that:
          If a defendant in the first action is sued
          for small or nominal damages, he [or she] may
          have little incentive to defend vigorously,
          particularly if future suits are not
          foreseeable. Allowing offensive collateral
          estoppel may also be unfair to a defendant if
          the judgment relied upon as a basis for the
          estoppel is itself inconsistent with one or
          more previous judgments in favor of the
          defendant. Still another situation where it
          might be unfair to apply offensive estoppel
          is where a second action affords the
          defendant procedural opportunities
          unavailable in the first action that could
          readily cause a different result . . . . The
          general rule should be that in cases where a
          plaintiff could easily have joined in the
          earlier action or where, either for the
          reasons discussed above or for other reasons,
          the application of offensive estoppel would
          be unfair to a defendant, a trial judge
          should not allow the use of offensive
          collateral estoppel.
Id. at 330-31 (citations and footnotes omitted).    A finding of

fairness to the defendant is thus a necessary premise to the

application of offensive collateral estoppel.8

          In arguing that it would be unfairly penalized if

collaterally estopped from relitigating the successor liability

issue, Raytech places principal reliance, again, upon its

argument that critical facts have changed.9    As should be clear

from our prior discussion, we do not agree that facts essential

to the Schmoll decision have changed.     But it is also beyond

debate that certain facts have changed.    In the aftermath of the

Schmoll decision, for instance, Raytech has paid over to Raymark

considerable additional sums of money.10    The question is, do the
8
 .    This notion of fairness reflects the equitable nature of
issue preclusion generally. See Jack Faucett Associates v.
American Tel. & Tel., 744 F.2d 118, 125 (D.C. Cir. 1984). The
Court of Appeals for the Fifth Circuit has commented that
offensive collateral estoppel is "even a cut above [collateral
estoppel] in the scale of equitable values." Nathans v. Sun Oil
Co. (Delaware), 705 F.2d 742, 744 (5th Cir. 1983).
9
 .    Most of the other points Raytech makes in support of its
fairness argument are, in actuality, attempts by Raytech to
challenge the Schmoll opinion on the merits. As for Raytech's
argument that it could not have foreseen the import of the
Schmoll case at the time the case was litigated, we agree with
the district court that the record only serves to belie this
position and suggests instead that Raytech was well aware of the
stakes involved in Schmoll. The Schmoll court itself observed
that the parties submitted thousands of pages of documents and
deposition transcripts for its consideration regarding the
successor liability issue. See Schmoll, 703 F. Supp. at 869.
10
 .    According to Raytech, Raytech has paid Raymark over
$63 million to date for the sale of RIPG and Wet Clutch & Brake.
While we do not know how much of this money Raytech has paid
since the handing down of the Schmoll decision, we think it safe
to conjecture that Raytech has paid over to Raymark several tens
of millions of dollars since Schmoll was decided.
factual changes that have occurred render the application of

collateral estoppel unfair to Raytech?     We do not think so.

          In the wake of Schmoll, Raytech has had every incentive

to act in a manner so as to fortify its argument that it should

not be collaterally estopped from relitigating the issue of its

successor liability.    Moreover, equitable appearances have, no

doubt, been shaded to Raytech's advantage as a result of its

continued payments on the unsecured notes.     However, while we

fully understand that it would be unfortunate from Raytech's

perspective were the district court's application of collateral

estoppel allowed to stand, we fail to see how such an eventuality

might be deemed "unfair" to Raytech as that term is utilized in

Park Lane Hosiery.    We have already concluded that the Schmoll

court would reach the same result were it now presented with the

issue of Raytech's successor liability, changes in facts

notwithstanding.     The necessary implication of this conclusion is

that Raytech will suffer absolutely no unfairness should the

district court's application of collateral estoppel stand.

                           III.   CONCLUSION

          Having found the requisite identity of issues, and

having concluded that essential facts have not changed between

the time Schmoll was decided and the time the district court
applied the doctrine of collateral estoppel in this case, we

cannot but conclude that the district court did not abuse its
discretion in barring the relitigation of Raytech's successor

liability. We will, therefore, affirm.
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