                                                                                                                           Opinions of the United
2004 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


5-25-2004

Berg Chilling Sys v. Hull Corp
Precedential or Non-Precedential: Precedential

Docket No. 03-2977




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"Berg Chilling Sys v. Hull Corp" (2004). 2004 Decisions. Paper 642.
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                PRECEDENTIAL                             v.

  UNITED STATES COURT OF                   HULL CORPORATION;
          APPEALS                          SP INDUSTRIES, INC.,
   FOR THE THIRD CIRCUIT                    d/b/a Hull Company,

                                                  Defendants/Third-Party
    Nos. 03-2977 and 03-3020                      Plaintiffs

                                                        v.
BERG CHILLING SYSTEMS, INC.;
  ACCEPTANCE INSURANCE               VICARB, INC., ALFA LAVAL, INC.
         COMPANY                      ALFA LAVAL VICARB, JOHN L.
                                                 HULL,
               v.                           LEWIS W. HULL,

     HULL CORPORATION;                            Third Party Defendants
     SP INDUSTRIES, INC.,
      d/b/a Hull Company,                         SP INDUSTRIES, INC.,

         Defendants/Third-Party                   Appellant in No. 03-3020
         Plaintiffs

               v.                      On Appeal from the United States
                                                   District Court
VICARB, INC., ALFA LAVAL, INC.       for the Eastern District of Pennsylvania
 ALFA LAVAL VICARB, JOHN L.                  (D.C. Civ. No. 00-05075)
            HULL,                          Honorable Berle M. Schiller,
       LEWIS W. HULL,                              District Judge

         Third Party Defendants
                                             Argued April 21, 2004
         BERG CHILLING
         SYSTEMS, INC.,              BEFORE: SCIRICA, Chief Judge, and
                                        ROSENN and GREENBERG,
         Appellant in No. 03-2977             Circuit Judges

                                           (Filed:    May 25, 2004)
BERG CHILLING SYSTEMS, INC.;
  ACCEPTANCE INSURANCE              John J. Soroko (argued)
         COMPANY                    Patrick J. Loftus
                                    James H. Steigerwald
Duane M orris                                      case, which has an unusual international
1650 Market Street                                 character as it implicates entities from
One Liberty Place, 37th Floor                      four countries on three continents,
Philadelphia, PA 19103-7396                        though not all as parties, arises from the
                                                   failure of a freeze drying system to
   Attorneys for Appellant-Appellee                perform to specifications. Though there
   Berg Chilling Systems, Inc.                     were many factual disputes at the trial,
                                                   the basic circumstances of the case are
Michael O. Adelman (argued)                        clear and we set forth the facts in the
Rebecca S. Rimmer                                  light most supportive of the district
Michael P. Daly                                    court’s result. 1
Drinker, Biddle & Reath
One Logan Square                                          The origin of the case may be
18th & Cherry Streets                              traced to March 30, 1995, when Berg, a
One Logan Square                                   Canadian Corporation,2 entered into a
Philadelphia, PA 19103-6996                        contract with a Chinese Company named
                                                   Huadu Meat Products Company
   Attorneys for Appellee-Appellant SP             (“Huadu”)3 to supply the food freeze
   Industries, Inc.                                drying system (“Equipment Contract”) at
                                                   a cost of $2,800,000 in United States

      OPINION OF THE COURT
                                                     1
                                                      Certain of the various orders and
                                                   determinations to which we make
                                                   reference have not been appealed. The
GREENBERG, Circuit Judge.
                                                   parties’ attorneys took some of the
 I. FACTUAL AND PROCEDURAL                         actions and wrote certain correspondence
HISTORY                                            that we attribute to the parties.

        This matter comes on before this             2
                                                      Berg’s principal place of business is
court on appeals by Berg Chilling                  in Toronto, Ontario.
Systems, Inc. (“Berg”) and SP Industries,
                                                     3
Inc. (“SPI”) from an order for judgment                At various points in the record
entered by the district court on June 11,          reference is made to other Chinese
2003, following a four-day bench trial in          corporate entities related to Huadu, such
this breach of contract action. The                as the China National Overseas Trading
district court set forth its opinion in Berg       Corporation and the Beijing World Trade
Chilling Systems, Inc. v. Hull Corp., No.          Corporation. For simplicity’s sake we
Civ. A. 00-5075, 2003 WL 21362805                  will refer to the entities collectively as
(E.D. Pa. June 10, 2003) (“Berg”). The             Huadu. We also note that Huadu
                                                   sometimes is referred to as Hua Du.

                                               2
dollars. The freeze drying system                  specifications.6 On April 20, 1995, Berg
contained several components which                 formally agreed to purchase two freeze
Berg intended to acquire from                      dryers from Hull for the Huadu freeze
subcontractors and suppliers. Thus, prior          drying system (“Purchase Order”).
to entering into the Equipment Contract,           Under this Purchase Order, Hull assumed
Berg ascertained which manufacturers               responsibility for the design,
would produce the system’s various                 manufacture, start-up and testing of the
component parts.4                                  freeze dryers.7 The freeze dryers were

         Berg approached the Hull                    6
Corporation (“Hull”), a Pennsylvania                  At trial Donald Berggren, the
entity, 5 and asked it to produce the freeze       president of Berg testified:
dryers, a critical component for the
system. In the weeks prior to signing the                We would send preliminary
Equipment Contract with Huadu, Berg                      specifications off to Hull.
was in constant contact with Hull                        They would work up a
regarding the freezer dryers’ technical                  quotation or specification –
                                                         a specification based on the
                                                         information that they
                                                         received. We would take
  4
    Berg manufactured one component of                   it, forward it off to our
the freeze drying system, the blast                      customer, Huadu, and –
freezers. According to the arbitration                   and then they would come
award we describe below, Huadu dealt                     back to us and ask more
with a Canadian company to acquire the                   questions on what we had
freeze drying system in order to take                    previously supplied. We
advantage of financing for the purchase                  then took that information,
available through the Export                             forwarded it back, and so it
Development Corporation of Canada.                       was a back-and-forth
Thus, in the transaction Berg largely was                process of negotiation.
a facilitator for financing and a
coordinator for the supply of other                JA at 77.
companies’ products. This unusual role
                                                     7
in no way diminished Berg’s                           The Purchase Order incorporated the
responsibility to Huadu.                           specifications of the freeze dryers set
                                                   forth in the Equipment Contract between
  5
   Hull has its principal place of                 Berg and Huadu. That contract provided,
business in Pennsylvania. Hull should              “[o]nce the units are mounted in place by
not be confused with the Hull Company              the end user, under supervision by the
which we describe below. Hull is not               Hull Service Engineer, Hull Corporation
participating in this appeal.                      will send a qualified engineer to check

                                               3
required to be able to process a specified       China the damaged freeze dryer was
volume of food at a high quality level           repaired at Huadu’s facility in Beijing.
within a 24-hour period or, in industry          The equipment then was installed and
terms, to meet the “through-put”                 prepared for trial runs.
specifications.
                                                        In April 1997, at the direction of a
        After confirming the delivery date       Hull service technician, preliminary
with Hull, Berg entered into an amended          testing began on the freeze drying
agreement with Huadu specifying a                system. This testing revealed several
delivery date of June 15, 1996, for the          deficiencies in the freeze drying
freeze drying apparatus. Nevertheless,           equipment which led Huadu in early May
the freeze dryers were not shipped until         1997 to send a list of concerns regarding
October 1996 because one of their                the functioning of the machinery to Berg
component parts was not available.               which, in turn, forwarded the list to Hull.
Once Hull completed manufacturing the            Hull then responded to those concerns.
freeze dryers, their shipping to China           Nevertheless the Hull service technician
was delayed further when the vessel on           returned to the United States prior to
which they were to be shipped failed on          conducting performance tests on the
the way to pick up the equipment at the          machinery as required by the Equipment
port in Camden, New Jersey. Berg, who            Contract, an action leading Huadu to
was responsible for shipping the freeze          refuse to accept the freeze drying system.
dryers, then made arrangements for their
transportation on trucks across North                   According to Berg, during the
America to Vancouver, British                    early summer of 1997 Hull refused to
Columbia, for shipment by sea to China.          cooperate with Berg and Huadu in
Unfortunately, one of the trucks, while          addressing the problems with the freeze
en route to Vancouver, was involved in           dryers.9 Huadu obviously was
an accident in which one of the freeze
dryers was damaged.8 Berg did not
repair the damaged freeze dryer prior to           9
                                                       Berg’s president testified at trial:
its shipment by sea to China. Rather,
after the freeze dryers were shipped to
                                                           We were having a very
                                                           tough time obtaining
out the systems, start up the units and                    cooperation [from Hull].
provide on site training for a total of 20                 They didn’t seem to be
days.” JA at 854.                                          interested in working with
                                                           us on the project. They –
  8
    The principle of Murphy’s Law seems                    they were very
to have been at work here: what can go                     uncooperative, and at this
wrong will go wrong.                                       time, we felt that in order

                                             4
dissatisfied and thus threatened to send                While Hull, Berg and Huadu were
the equipment back and cancel the                addressing the problems with the freeze
contract. As a result of Hull’s perceived        dryers, Hull, on August 27, 1997, entered
lack of cooperation during that time             into an Asset Purchase Agreement with
period, Berg threatened to sue it. In late       SP Industries, Inc. (“SPI”), a New Jersey
August, however, Berg and Hull began             Corporation,11 providing for SPI to
negotiating a compromise to solve the            acquire Hull’s Food, Drug & Chemical
difficulties with the machinery. These           Division (“FDC division”) which had
negotiations culminated in the signing of        designed and manufactured the freeze
a modified agreement on October 8,               dryers for the Huadu project. Article 1.2
1997, among Huadu, Berg and Hull                 of the Asset Purchase Agreement
designed to address the deficiencies in          between Hull and SPI listed the
the Hull freeze dryers (“Modified                purchased assets, which included “all
Agreement”). 10 The Modified                     contracts and agreements, including,
Agreement set forth performance-level            without limitation, sales orders and sales
goals for the freeze dryers and the              contracts.” 12 JA at 1825-26. Under
required quality level of the product,           Section 7.8, entitled Product Warranties,
providing that “through a cooperative            the agreement provided that “[p]urchaser
effort, Hull and Berg will ensure” that          does not hereby assume any liability to
these standards would be met. JA at              any third party claimant.” 13 JA at 1849.
1074. It established the end of March            Section 10.6 of the Asset Purchase
1998 as the date by which the                    Agreement stated, “[t]his agreement shall
modifications would be completed and             be governed and controlled as to validity,
final acceptance would take place. JA at         enforcement, interpretation, construction,
1074.

                                                   11
                                                     SPI has its principal place of
                                                 business in New Jersey.
       to satisfy our customer’s
                                                   12
       concerns, that we were                         Section 1.3 of the Asset Purchase
       going to have to be looking               Agreement listed assets excluded from
       at performing some of the                 the agreement. The freeze dryers related
       modifications or changes to               to the Equipment Contract were not
       the equipment to try to                   among these excluded assets.
       bring it to specification.
                                                   13
                                                      However, Berg’s president testified
JA at 139.                                       at trial that prior to the signing of the
                                                 Asset Purchase Agreement Hull’s
  10
    Berg’s president testified that its          president informed Berg that any new
threat to sue Hull became moot after the         entity would assume the liabilities of the
signing of the Modified Agreement.               entity being purchased.

                                             5
effect and in all other respects by the           hereby, the terms and provisions of the
internal laws of the State of New Jersey          Asset Purchase Agreement shall remain
applicable to contracts made in that              in full force and effect.” JA at 1890.
State.” JA at 1857.
                                                          Hull and SPI made various public
        Hull and SPI closed on the sale           statements after signing the Asset
provided for by the Asset Purchase                Purchase Agreement to the end that the
Agreement on October 15, 1997, exactly            transaction constituted a merger of SPI
one week after Huadu, Hull and Berg               and Hull’s FDC division. Moreover,
had signed the Modified Agreement. At             Lewis Hull, president of the Hull
the closing on the Asset Purchase                 Corporation, sent a letter to Berg after
Agreement, as a result of concerns that           the Asset Purchase Agreement was
SPI raised about the costs of the                 signed, but before the closing, stating
remaining work on the Huadu freeze                that “[i]f Hull’s freeze drying division
dryers, SPI and Hull entered into a side          should be transferred to another entity,
letter agreement relating to the Huadu            Hull’s responsibility will of course be
project.14 The side letter agreement,             assumed by the successor.” JA at 1020.
which the parties signed on the same day
as the closing on the Asset Purchase                      After the closing, the FDC
Agreement, provided that SPI would                division of the Hull Corporation began
complete any needed design                        operating as a wholly-owned subsidiary
modifications and repairs to the freeze           of SPI under the name Hull Company.
dryers. While SPI agreed to pay the out-          Although SPI through the Hull Company
of-pocket costs for the repairs, Hull             made various modifications to the freeze
agreed to reimburse SPI for a portion of          dryers from late 1997 into early 1998, the
its expenses.15 The side letter agreement         dryers, at least during this period and at
provided that, “[e]xcept as amended               all times material to this litigation, did
                                                  not meet the specifications contained in
  14
                                                  the Modified Agreement. Huadu, which
     Hull at no time during the                   seems to have been quite
negotiations and closing with SPI                 accommodating, agreed, however, to
informed SPI that Berg had threatened to          extend the date set forth in the Modified
file suit against it in connection with the       Agreement for acceptance of the freeze
Huadu project.                                    dryers until April 27, 1998. When it
  15                                              became clear that the freeze dryers would
    Hull agreed to reimburse all of SPI’s
                                                  not satisfy the specifications by that date,
out-of-pocket costs, including payments
                                                  SPI directly requested another extension
to suppliers and travel costs, while SPI
                                                  from Huadu. Huadu granted the request,
agree to absorb the normal payroll
                                                  giving SPI until May 20, 1998, to
expenses of the employees working to fix
                                                  complete modification and testing of the
the freeze dryers.

                                              6
freeze dryers with the understanding that        neither Berg nor SPI made an attempt to
this would be the final extension.               fix these problems or conduct
                                                 performance tests prior to the May 20,
       On May 13, 1998, Huadu sent a             1998 deadline. After it received this
facsimile to Berg with a carbon copy to          letter from Huadu, SPI notified Berg for
the Hull Corporation listing the freeze          the first time that, under Section 7.8 of
dryers’ remaining problems. The                  the Asset Purchase Agreement between
facsimile concluded that because the             SPI and Hull, SPI had not assumed any
freeze dryers still had “fatal                   liability for any work done by Hull or
weakness[es]” that prevented them from           SPI pursuant to the Equipment Contract
meeting the through-put requirements for         or the Modified Agreement.
freeze drying food at the contracted
quality level, they were “not                            In an effort to salvage the
acceptable.” 16 JA at 1113. Nevertheless,        situation after Huadu refused to accept
                                                 the equipment, Berg hired Walter Pebley,
                                                 who had relevant expertise, to go to
  16                                             China and evaluate the problems with the
    In a communication dated May 5,
                                                 freeze dryers. The evidence at the trial
1998, Huadu had informed Berg and the
                                                 indicated that from June to December
Hull Corporation that if the freeze dryers
                                                 1998, “there was a letter writing
did not satisfy the specifications and
                                                 campaign between [Berg] and Huadu, as
could not be accepted, “we will claim for
                                                 [Berg] tried to get Hull back in to do the
returning of goods and for our loss
                                                 necessary changes that they felt were
caused by failure of this project.” JA at
                                                 required to show that the equipment
1106. Section 8.8 of the Equipment
                                                 could work.” JA at 189-91. When
Contract provided:
                                                 Huadu refused to give Hull another
                                                 opportunity to repair the equipment, Berg
       If due to the Seller’s
                                                 sent a letter to Huadu in March 1999
       responsibility the
                                                 purporting to end any obligation under
       performance tests cannot
                                                 the various contracts.
       reach one or several items
       of guarantee figures in
                                                        Pursuant to Section 11.2 of the
       Appendix No. 4 after three
                                                 Equipment Contract, Huadu, on March
       repeated performance tests,
                                                 29, 1999, filed a request for arbitration of
       and in case no other mutual
       agreement can be reached,
       then the Buyer shall have
       the right to terminate the                       equipment item as other
       Contract partially or                            wise agree [sic].
       wholly, relative to the
       value of defective                        JA at 786.

                                             7
its claims against Berg with the                          any damage award, as well
Arbitration Institute of the Stockholm,                   as its legal and other costs.
Sweden, Chamber of Commerce. Huadu                        You are further put on
did not attempt to make either Hull or                    notice that Berg will rely
SPI a party to the arbitration.17 But after               on Hull’s refusal to defend
it learned about the institution of the                   the Claimants’ allegations
arbitration proceedings, Berg notified                    as precluding it from
John Hull, the former vice chairman of                    subsequently raising any
the Hull Corporation and a consultant to                  such defence to the
the new Hull Company. Berg wanted                         allegations in any action
Hull to participate in the proceedings and                commenced by Berg
thus it sent a letter dated May 24, 2000,                 against Hull in the event
to John Hull informing “Hull” that it was                 Berg is unsuccessful in
obligated “to participate in the arbitration              defending the arbitration.
and defend its equipment given that it is
a party to the Modified Agreement.” JA             JA at 1182.
at 1181. Berg requested Hull to engage
in a joint defense of Huadu’s claims. JA                   The arbitration proceedings went
at 194. The Berg letter stated that Hull           forward in Stockholm for approximately
had refused to be added as a party to the          one year before, on March 8, 2000, Berg
arbitration or to cooperate in the defense         formally objected to the proceedings on
of the arbitration. JA at 1182. As a               the basis of its assertion that the Hull
result, Berg informed Hull:                        Corporation was a necessary and proper
                                                   party to the arbitration. However, the
               Accordingly, you                    arbitration proceedings continued
       are hereby put on notice                    without any participation from Hull or
       that in the event Berg is                   SPI. 18 On December 7, 2000, the
       unsuccessful in defending
       the arbitration Berg will be
       looking to Hull, and any                      18
                                                       Berg formally informed SPI of the
       successor company to Hull,
                                                   arbitration by letter dated October 3,
       for full contribution and
                                                   2000, in which it stated that the letter, as
       indemnity with respect to
                                                   well as the previous letter of May 24,
                                                   2000, to John Hull, “constitutes written
                                                   notice of the Arbitration Proceeding.”
  17
    This omission is understandable as             JA at 1179. The letter further stated that
Huadu’s contract providing for                     “Berg Chilling hereby requests that you
arbitration was solely with Berg so there          come in and defend the Arbitration
was no way that Huadu could join Hull              Proceeding. Should you not do so, you
or SPI in the arbitration.                         will be bound in any action brought

                                               8
Arbitration Institute issued its award in        and SPI in the district court, asserting
favor of Huadu and against Berg for              claims for breach of contract, breach of
$2,494,034.84, a sum that includes               express warranty, breach of implied
interest.                                        warranty, and indemnity and
                                                 contribution. Hull then filed a cross-
        The arbitrators found that due to        claim against SPI for indemnity or
the inability of the Hull freeze dryers to       contribution. SPI responded by filing a
function as required by the specifications       counter-cross-claim against the Hull
of the Equipment Contract and Modified           Corporation for breach of representation
Agreement, Huadu was entitled to a               and warranty and breach of the
refund of the portion of the purchase            indemnification and defense provisions
price in the Equipment Contract for the          of the Asset Purchase Agreement
freeze dryers but that Berg, upon                between SPI and Hull.19
payment, could reclaim them. Although
the arbitrators recognized that the                      After the conclusion of the
remainder of the freeze drying system            arbitration proceedings and prior to trial
was functional and the only deficiency           in the district court, Berg and Huadu on
was in the Hull-manufactured freeze              June 10, 2002, entered into a Settlement
dryers, it found that “Berg Chilling bears       Contract resolving all claims between
full responsibility towards [Huadu] for          them. In the Settlement Contract Berg
any breaches of contract with relation to
the Hull equipment. It is outside the
scope of this arbitration to determine             19
                                                      SPI also filed a third-party complaint
whether and to what extent Hull shall
                                                 against the Hull Corporation’s corporate
answer for such breaches in relation to
                                                 officers John Hull and Lewis Hull for
Berg Chilling.” JA at 1206-07. In
                                                 breach of contract, fraud and
defending itself in the arbitration Berg
                                                 misrepresentation. John Hull and Lewis
incurred legal fees, including expert
                                                 Hull then filed a counterclaim against
witness fees and costs, of $454,115.26.
                                                 SPI, maintaining that SPI had a duty to
                                                 defend and/or indemnify them in this
      At the time the arbitration
                                                 litigation. The district court entered
proceedings between Huadu and Berg
                                                 judgment in favor of John Hull and
were pending, Berg, on October 6, 2000,
                                                 Lewis Hull on SPI’s third-party
brought suit against the Hull Corporation
                                                 complaint against them and entered
                                                 judgment in favor of SPI and against
                                                 John Hull and Lewis Hull on John Hull
against you by Berg Chilling as to any           and Lewis Hulls’ third-party complaint
determination of fact made in the                against SPI. These dispositions are not at
Arbitration Proceeding common to the             issue on this appeal and thus we do not
two litigations.” JA at 1179.                    make further reference to them.

                                             9
agreed to pay Huadu $1,000,000 and to               appeal.20 The court further found that
permit Huadu to retain ownership of the             under the terms of the Asset Purchase
freeze dryers which Huadu and Berg                  Agreement between SPI and Hull, SPI
agreed in their then current condition              assumed Hull’s responsibilities for the
were valued at $650,000. W e refer to               freeze dryers pursuant to the Purchase
this $650,000 as an “Equipment Credit.”             Order, the Equipment Contract and the
Thus, Berg and Huadu valued the                     Modified Agreement.
settlement at $1,650,000. The Settlement
Contract provided that in the event that                    Concluding that Berg, Hull and
Berg was successful in this litigation, it          SPI were equally at fault for the breach
would retain the first $1,650,000 of the            of the various agreements to Huadu, the
award, Huadu would be entitled to the               court apportioned the $1,000,000
next $350,000, and Berg and Huadu                   damages from the Settlement Contract
would share equally in any recovery in              equally but separately among Berg, Hull
excess of $2,000,000. The $1,650,000                and SPI.21 The court, however, did not
figure clearly was predicated on the                hold Hull and SPI jointly and severally
payment that Berg made to Huadu in a                liable to Berg. Moreover, the court
combination of cash and the waiver of               declined to grant Berg damages
any claim by Berg to reclaim the                    predicated on the $650,000 Equipment
equipment.                                          Credit for the freeze dryers which Huadu
                                                    had retained pursuant to the Settlement
        The litigation in the district court        Contract because, in the court’s view,
proceeded to trial on January 13, 2003,             Berg had not established the value of the
where the court at the bench trial heard            equipment and did not demonstrate what
four days of testimony. In its                      its costs would have been to retrieve the
Memorandum and Order of June 11,                    equipment or find a purchaser for it if
2003, the district court issued its findings        Huadu had not retained it.
of fact and conclusions of law. The court
determined that the award issued on                   20
December 7, 2000, by the Arbitration                    Berg does assert that the court’s
Institute was not binding on Hull because           ruling with respect to vouching in was
Berg failed to vouch it in properly. It             erroneous but indicates that it became
further held that SPI was not equitably or          moot when the court later found “that
judicially estopped from arguing that it            SPI and Hull had committed a breach of
did not assume any liability to Berg for            contract.” Berg br. at 52.
the freeze dryers sold to Huadu. Berg                 21
                                                         The court entered separate judgments
does not challenge these findings on this
                                                    in favor of Berg and against Hull and SPI
                                                    for $333,333. Thus, the court left Berg
                                                    with the loss for the remaining $333,334
                                                    paid on the Settlement Contract.

                                               10
        The district court rejected Berg’s
claim for attorneys’ fees and expert
witness fees in the arbitration                                II. DISCUSSION
proceedings, finding that “[w]hile
ordinarily Berg Chilling might be entitled         A.     STANDARDS OF REVIEW
to recover such fees, in this case such an
award would be unconscionable.” Berg,                      We exercise plenary review over
2003 W L 21362805, at *11. In support              the district court’s legal determinations.
of this conclusion the court explained             Shire US Inc. v. Barr Labs. Inc., 329
that Berg had not represented Hull and             F.3d 348, 352 (3d Cir. 2003). Our
SPIs’ interests adequately in the                  standard of review is plenary with
arbitration proceedings. The court also            respect to whether the district court
stated that “since Berg Chilling was               applied the appropriate measure of
equally liable with the Defendants                 contract damages in a legal sense. Scully
herein, each must bear its own costs and           v. US WATS, Inc., 238 F.3d 497, 507
counsel fees.” Id. The court further               (3d Cir. 2001) (citing William B. Tanner
found that the Hull Corporation had not            Co. v. WIOO, Inc., 528 F.2d 262, 271
breached certain portions of the Asset             (3d Cir. 1975)). We review the factual
Purchase Agreement with SPI by failing             determinations of the district court under
to inform SPI of Berg’s threat of                  a clearly erroneous standard. Medtronic
litigation during the summer of 1997.              Ave, Inc. v. Advanced Cardiovascular
Additionally, it rejected SPI’s claim for          Sys., Inc., 247 F.3d 44, 53 (3d Cir.
indemnification against Hull. These                2001). A finding of fact is clearly
appeals followed.22 In our opinion we              erroneous when it is “completely devoid
deal with the specific issues advanced by          of minimum evidentiary support
the parties. The Hull Corporation is not           displaying some hue of credibility or
participating in this appeal. 23                   bears no rational relationship to the
                                                   supportive evidentiary data.” Kool,
  22
                                                   Mann, Coffee & Co. v. Coffey, 300 F.3d
     The district court exercised diversity        340, 353 (3d Cir. 2002) (quoting Hoots
jurisdiction pursuant to 28 U.S.C. § 1332          v. Pennsylvania, 703 F.2d 722, 725 (3d
and we have jurisdiction under 28 U.S.C.           Cir. 1983)).
§ 1291.
  23
      It appears that the Hull Corporation
is in financial distress and thus,                 B.     FAULT AND THE EQUAL
according to Berg, the judgment against
it is not collectible. We are aware,
however, that Hull is seeking insurance            against it would be satisfied. See Berg
indemnification and consequently it is             Chilling Sys. Inc. v. Hull Corp., 70 Fed.
possible that ultimately a judgment                Appx. 620 (3d Cir. 2003).

                                              11
       APPORTIONMENT OF                            dryers and modification thereto.” Id. In
       DAMAGES AMONG BERG,                         support of this finding, the court cited the
       HULL AND SPI                                testimony of Donald Berggren, the
                                                   president of Berg. At the trial, Berggren
        Berg challenges the district               testified as to the process of negotiation
court’s action in allocating damages to it.        with Huadu and Hull prior to Berg
The court found that under S.J. Groves &           entering into the contract with Huadu to
Sons Co. v. Warner Co., 576 F.2d 524,              provide the freeze drying system,
527-58 (3d Cir. 1978), it had the                  indicating that “[w]e would send
authority to apportion damages according           preliminary specifications off to Hull.”
to the relative fault of the three parties,        JA at 77.
Berg, Hull and SPI. We conclude,
however, that it had no basis on which to                  Though it is unclear from the
find Berg at fault for the breach of the           foregoing portion of Berggren’s
Equipment Contract and Modified                    testimony whether Huadu or Berg
Agreement, and thus the court erred in             developed the specifications, review of
apportioning any damages to Berg.                  his testimony as a whole makes it clear
                                                   that Berg did not develop the
        The court found that Berg, Hull            specifications for the freeze dryers, but
and SPI were equally at fault for the              merely forwarded the specifications
breach of contract in failing to make a            requested by Huadu to Hull during the
timely shipment of a working freeze                negotiations.25 On direct examination,
drying system to Huadu. In finding that            Berggren was asked “[i]n the back and
Berg was partly to blame for the breach            forth that you described with Huadu, did
of contract the court rejected Berg’s              Berg Chilling provide technical input on
argument that it was a mere                        the freeze dryers.” JA at 82. He
“middleman” between Huadu and Hull. 24             responded “[w]e weren’t capable of
Berg, 2003 WL 21362805, at *11. The
court found that Berg was responsible for
the late shipment of the machinery and               25
                                                        Berggren testified, “Huadu read
the damage to one of the freeze dryers
                                                   through the quote, and there was usually
during shipment. The court further
                                                   generated more – more questions. Every
emphasized that, “[m]ore importantly,
                                                   time we’d send off technical
Berg Chilling, like Hull Corporation and
                                                   specifications, it generated more
SPI, took part in the design and/or
                                                   questions that we would in turn send off
approval of the design of the freeze
                                                   to the various suppliers that – that we
                                                   had.” JA at 81. Berggren’s testimony is
                                                   corroborated by the testimony of Wayne
  24
    In essence this conclusion rejected            Hinton, the sales manager at Berg who
the view of the Arbitration Institute.             worked on the Huadu project.

                                              12
providing technical input. We relied on             Indeed, the court recognized that “SPI
Hull for that.” JA at 82.                           performed all work under the Modified
                                                    Agreement, including the flawed
        Berg maintains that the finding by          engineering of the modified freeze-
the district court that Berg “took part in          dryers, the unsuccessful preliminary
the design and/or approval of the design            testing of the equipment, and the start-up
of the freeze dryers and modification               activities at the Huadu facility.” Berg,
thereto,” was clearly erroneous. We                 2003 WL 21362805, at *11.
agree. Neither the court nor SPI points
to evidence supporting a conclusion that                   Berg disputes the district court’s
Berg played any role other than relaying            findings as to its culpability for the
information back and forth between                  breach of the Equipment Contract with
Huadu and Hull regarding the                        Huadu in other respects as well. The
specifications of the freeze dryers. In             court found that Berg was partially
arguing that we should affirm the district          responsible for the breach of contract
court on this point SPI cites to the                because it delivered the freeze dryers late
portion of the trial transcript on which            to China and one of the dryers was
the district court relied. However, as              damaged while being transported to
stated above, Berggren made clear that              Vancouver for shipment. While we
Berg did not approve the design of the              agree that Berg’s late shipment of the
freeze dryers in the sense of judging its           machinery qualified as a breach of
efficacy, but only forwarded the                    contract, this approximately one-month
specifications requested by its customer,           delay was not the reason that Huadu
Huadu, to its supplier, Hull, and                   ultimately refused to accept the
attempted to put together an agreement              equipment. The record is clear that
relying on other entities’ capabilities. All        Hull’s difficulty in obtaining a
of the testimony at the trial established           component of the freeze dryers caused
that Hull designed the freeze dryers and            most of the delay prior to shipment.
attempted to install them successfully in           Furthermore, any delay prior to the
China. Furthermore, after the closing of
the Asset Purchase Agreement, SPI
performed all of the obligations of Hull
                                                    initial failure of the freeze dryers, Berg
under the M odified Agreement. 26
                                                    offered to “provide on-site labor to make
                                                    the necessary refrigeration piping
                                                    changes to accommodate the new
  26
    In its brief, SPI cites to a memo               condensers.” JA at 2015. But SPI did
written by Berg’s president to John Hull            not offer evidence that any Berg
of the Hull Corporation dated September             personnel ever undertook any design or
29, 1997. As a means of reaching a                  modification work pursuant to the
compromise solution in the face of the              Modified Agreement.

                                               13
signing of the Modified Agreement                to conclude that the factual findings of
which extended the deadlines for the             the district court with respect to Berg’s
completion of the project is irrelevant          fault for the breach of the Equipment
because Huadu did not refuse to accept           Contract and the Modified Agreement
the freeze drying machinery in May 1998          lack evidentiary support and thus are
on account of the late delivery in 1997.         clearly erroneous.
Rather, it refused to accept the
equipment because, even after the                        We recognize that, as the
various modifications, the freeze dryers         Arbitration Institute found, while Berg
failed to perform to specifications.             was certainly liable to Huadu as a
Therefore, any breach of the delivery            signatory to the Equipment Contract and
dates by Berg set forth in the original          Modified Agreement for the failure of
Equipment Contract should not have               the freeze dryers to function as required
been a basis for finding Berg in any way         by those agreements, such liability was
responsible for the failure of the freeze        imposed merely because it did not
drying apparatus to function properly.           comply with the contract. But Berg’s
                                                 liability differs in nature from that of
        Moreover there is no evidence            Hull which was culpable because of its
that the damage during the accident              technological failures and which as
while the equipment was being                    between Berg and Hull was responsible
transported to Vancouver caused the              for the freeze dryers not functioning as
problems with the freeze dryers. In fact,        required by the specifications in the
only one of the freeze dryers was                Equipment Contract. Moreover, if, on
involved in the accident but the record          the remand we are ordering, SPI is held
clearly shows that the freeze dryer              liable on a theory that it is Hull’s
problems related to both dryers. Thus,           successor SPI will be in the same
Huadu declined to accept the freeze              position as Hull. Overall, therefore, it is
dryers because neither could satisfy the         clear that among Berg, Hull and SPI no
through-put requirements in the                  damages should have been assessed
Equipment Contract by reason of a                against Berg. Thus, the district court
design defect in both pieces of                  clearly erred in apportioning any
machinery. Clearly, the design of the
freeze dryers by Hull rather than the
accident was the cause of the
                                                 freeze dryers related to design defects
equipment’s failure to function as
                                                 rather than the accident. The court stated
promised.27 Overall, we are constrained
                                                 that “[w]ithout remedying the problem
                                                 associated with the diameter of the pipe,
                                                 the freeze dryers could not have met the
  27
    The district court implicitly                through-put requirements.” Berg, 2003
recognized that the deficiency with the          WL 21362805, at *7.

                                            14
damages to Berg. We therefore will                        Purchaser will, as
reverse the judgment of the district court                appropriate, agree to repair
to the extent that it allocated any                       (at the Real Estate or as
damages to Berg and will remand the                       necessary, at the location
case to the district court with instructions              of the customer) or accept
that it vacate that portion of its order for              returns of products of the
judgment holding Berg responsible for                     Business shipped by Seller
Huadu’s damages.28                                        on and prior to the Closing
                                                          Date . . . which are
                                                          defective or which fail to
                                                          conform to the customer’s
C.        THE LIABILITY AND                               order in accordance with
          INDEMNIFICATION TERMS                           the following provisions
          OF THE ASSET PURCHASE                           (but Purchaser does not
          AGREEMENT                                       hereby assume any liability
                                                          to any third party claimant.
          1. Liability                                    . . .)

      The next issue we deal with                   JA at 1848-49 (emphasis added). The
concerns SPI’s challenge to the order for           district court concluded that Section 7.8
judgment assessing damages against it               of the Asset Purchase Agreement,
pursuant to the Asset Purchase                      entitled Product Warranties, did not
Agreement. Section 7.8 of the Asset                 apply because Huadu never accepted the
Purchase Agreement states that:                     freeze dryers and therefore any work SPI
                                                    did was not warranty work governed by
                                                    Section 7.8. The court stated:
     28
     We realize that the order for
                                                                  At various points
judgment in terms did not hold Berg at
                                                          during the trial and in
fault but in substance it did exactly that
                                                          related briefing, certain
as the court only assessed against Hull
                                                          parties have referred to the
and SPI two-thirds of the $1,000,000
                                                          work performed on the
paid pursuant to the Settlement Contract
                                                          Huadu Project as
by Berg to Huadu. In fact, the entire
                                                          ‘warranty’ work. Because
$1,000,000 plus, as will be seen,
                                                          ‘warranty’ work would
$650,000 for the Equipment Credit,
                                                          have begun only after
should be assessed against Hull.
                                                          Huadu’s final acceptance
Whether these also should have been
                                                          of the freeze dryers (Ex. P-
assessed against SPI will have to await
                                                          20, Section 7.4) and final
determination on the remand with respect
                                                          acceptance never actually
to its possible successor liability.

                                               15
       occurred, no ‘warranty’                     no inconsistency between Sections 7.8
       work was performed. SPI                     and 1.2(i) of the agreement. Even
       argues that the work                        assuming that the Equipment Contract
       performed after the closing                 and M odified Agreement constitute
       of the Asset Purchase                       purchased assets under the Asset
       Agreement is warranty                       Purchase Agreement, it does not follow
       work within the meaning of                  that SPI could not limit its liability to
       Section 7.8 of the Asset                    third parties with respect to those assets.
       Purchase Agreement.                         Furthermore, the district court’s analysis
       Section 7.8, however, is                    is flawed because in interpreting the
       inconsistent with Section                   Asset Purchase Agreement it looked to
       1.2(i) and the side letter                  Section 7.4 of the Equipment Contract
       (Ex. P-186), and, therefore,                between Huadu and Berg. That
       does not support SPI’s                      provision specifies that if the freeze
       contentions.                                dryers satisfy the requirements set forth
                                                   in that agreement, “[t]his shall be the
Berg, 2003 WL 21362805, at *10 n.10.               Acceptance of the Equipment by the
Section 1.2 lists the purchased assets, and        Buyer and shall be considered [the] start
subsection (i) includes, in relevant part,         of the warranty period.” JA at 782.
“all contracts and agreements.” 29 JA at           Therefore, the court concluded that the
1825-26.                                           warranty period on the freeze dryers had
                                                   not started because Huadu never
       We reject the district court’s              “accepted” them and as a result Section
interpretation of the Asset Purchase               7.8 of the Asset Purchase Agreement
Agreement as it is clearly erroneous. See          could not apply.
Medtronic, 247 F.3d at 53 n.2.30 There is
                                                           The district court did not address
  29
                                                   the obvious differences between the
    The district court concluded that              Asset Purchase Agreement and the
Section 1.2 of the Asset Purchase                  Equipment Contract. For purposes of
Agreement was unambiguous and                      determining whether SPI assumed
therefore the agreement between Berg               liability for the Huadu Project, it was
and Hull to provide two freeze dryers to           irrelevant whether Huadu had “accepted”
Huadu qualified as a purchased asset.              the freeze dryers in accordance with
Furthermore, Section 1.3 did not list the
Huadu Equipment Contract or Modified
Agreement as excluded assets.
                                                   In light of our result we need not
  30
    SPI regards the Section 7.8 issue as           consider this contention as the district
being a matter of contractual                      court’s conclusions cannot survive even
construction subject to plenary review.            deferential review.

                                              16
Section 7.4 of the Equipment Contract.             extent that it imposes liability on SPI.31
The relevant provision was Section 7.8
of the Asset Purchase Agreement which                       In considering this point we have
made clear that the limitation of liability        not overlooked Berg’s contention “that
to third parties applied to “products of           any purported disclaimer of liability
the Business shipped by Seller on and              under Section 7.8 would [not] be binding
prior to the Closing Date.” JA at 1848-            on non-parties to the Hull-SPI
49. It is undisputed that the freeze dryers        Agreement, such as Berg.” Berg’s reply
were shipped to Huadu prior to the                 br. at 24. Rather, we reject that argument
closing of the Asset Purchase Agreement            for if, as is the case, Berg seeks to
on October 15, 1997. Therefore, Section            impose liability on SPI on the basis of
7.8 of the Asset Purchase Agreement                the Asset Purchase Agreement it cannot
clearly applies to the dispute between             pick and choose which of its provisions
SPI and third-party claimant Berg.                 are applicable. Thus, the exculpatory
                                                   language of Section 7.8 binds Berg.
        Nevertheless the district court
held that because “SPI acquired the Hull                   Our conclusion, however, does
Purchase Order and Modified                        not necessarily free SPI from liability on
Agreement” it was “liable for the work it          a different theory inasmuch as the district
performed under those contracts.” JA at            court explained that “[b]ecause SPI’s
24 n.13. Clearly this conclusion was               liability is established on this [i.e.
incorrect as the plain language of the             contractual] basis, it is not necessary to
Asset Purchase Agreement precludes a               reach Berg Chilling’s arguments related
finding of liability against SPI and in            to successor liability under the de facto
favor of Berg on the basis articulated by          merger and continuation doctrines.”
the district court, i.e. that SPI assumed          Berg, 2003 WL 21362805, at *10 n.13.
Hull’s responsibilities by entering into           On appeal, Berg renews its argument that
the Asset Purchase Agreement.                      even if SPI is not liable under the terms
Moreover, the fact that SPI did not                of the Asset Purchase Agreement, it
adequately modify the equipment does               should be held liable under these
not matter as Hull shipped the equipment           alternate theories. In view of the
before the Hull-SPI closing date and thus
SPI could not be liable to Berg under the
Asset Purchase Agreement.                            31
                                                        Berg maintains that Section 7.8 is
Accordingly, we will reverse the
                                                   void as against public policy. Inasmuch
judgment of the district court to the
                                                   as the district court incorrectly
                                                   interpreted that provision it never
                                                   reached this issue. On remand, the
                                                   district court should address Berg’s
                                                   argument in the first instance.

                                              17
circumstance that the district court did                             . . .
not address the applicability of successor
liability under the de facto merger and                           (c)    the failure to
continuation doctrines, we will remand                    discharge when due any
this claim to the district court for an                   liability or obligation of
analysis of SPI’s possible liability on the               Seller other than the
applicability of these doctrines.32                       Assumed Liabilities, or any
                                                          claim against Purchaser
       2. Indemnification                                 with respect to any such
                                                          liability or obligation or
       SPI challenges the district court’s                alleged liability or
refusal to grant it indemnification from                  obligation;
Hull. Section 8.2 of the Asset Purchase
Agreement provides as follows:                                   (d)     any claims by
                                                          parties other than
       8.2    Indemnification                             Purchaser to the extent
       Obligations of Seller.                             caused by acts or omissions
       Subject to Section 8.3                             of Seller on or prior to the
       hereof, Seller shall defend,                       Closing Date, including,
       indemnify, save and keep                           without limitation, claims
       harmless Purchaser, its                            for Damages which arise or
       Affiliates and their                               arose out of Seller’s
       respective successors and                          operation of the Business
       permitted assigns . . .                            or by virtue of Seller’s
       against and from all                               ownership of the Purchased
       Damages sustained or                               Assets on or prior to the
       incurred by any of them                            Closing Date[.]
       resulting from or arising
       out of or by virtue of:

                                                   JA at 1852.33 Section 8.5 of the Asset

  32
     The district court also should
                                                     33
determine whether to apply New Jersey                  The execution of the side letter
or Pennsylvania law to Berg’s successor            agreement between Hull and SPI in
liability claims against SPI, though it            relation to the Huadu Project did not alter
may not need to make a choice if the law           SPI’s rights under the Asset Purchase
of the states is the same or the result            Agreement as that letter provided that:
would be the same under either state’s
law.                                                      Except as amended hereby,

                                              18
Purchase Agreement sets forth a
procedure by which SPI is required to
notify Hull of any third-party claim
                                                under this Article VIII shall
lodged against SPI. As required by this
                                                relieve it of such
provision, after receiving a copy of the
                                                obligations to the extent
summons and complaint in this action,
                                                they exist. If an
SPI on November 9, 2000, wrote a letter
                                                Indemnified Party is
to Hull stating:
                                                entitled to indemnification
                                                against a Third Party
       Pursuant to Section 8.5 of
                                                Claim, and the
       the Agreement34
                                                Indemnifying Party fails to
                                                accept a tender of, or
       the terms and provisions of              assume, the defense of a
       the Asset Purchase                       Third Party Claim pursuant
       Agreement shall remain in                to this Section 8.5 . . . the
       full force and effect, it                Indemnified Party shall
       being understood that the                have the right, without
       execution of this letter                 prejudice to its right to
       agreement, and any actions               indemnification hereunder,
       taken pursuant hereto, shall             in its discretion exercised
       in no way limit, or                      in good faith and upon
       otherwise constitute a                   advice of counsel, to
       waiver of any of the rights              contest, defend and litigate
       to which Purchaser is                    such Third Party Claim . . .
       entitled pursuant to the                 . If, pursuant to this
       Asset Purchase Agreement                 Section 8.5, the
       including, without                       Indemnified Party so
       limitation, those provided               contests, defends, litigates
       for under Article VIII                   or settles a Third Party
       thereof.                                 Claim for which it is
                                                entitled to indemnification
JA at 1890.                                     hereunder as hereinabove
                                                provided, the Indemnified
  34
   Section 8.5 of the Asset Purchase            Party shall be reimbursed
Agreement provides, in pertinent part:          by the Indemnifying Party
                                                for the reasonable
       No failure by an                         attorneys’ fees and other
       Indemnifying Party to                    expenses of defending,
       acknowledge in writing its               contesting, litigating and/or
       indemnification obligations              settling the Third Party

                                           19
       you are hereby put on                      *12. The court relied on Section 8.2(d)
       notice of the above                        of the Asset Purchase Agreement, which
       captioned matter.                          provided for indemnification by Hull for
       Purchaser hereby tenders                   actions brought by third parties related to
       the defense of the above                   conduct “prior to the Closing Date.” JA
       captioned matter to Seller                 at 1852. Therefore, the district court
       together with Purchaser’s                  concluded that the actions taken by SPI
       demand for                                 in attempting to repair the freeze dryers
       indemnification. Pursuant                  after the closing of the Asset Purchase
       to Section 8.5 of the                      Agreement were not subject to the
       Agreement, please                          indemnification provision of that
       acknowledge your                           agreement.
       indemnification and
       defense obligations                                The district court reached its
       promptly and in writing.                   conclusion as a consequence of its
                                                  misinterpretation of Section 7.8, which,
JA at 1184. Hull responded on                     as explained above, expressly provided
December 5, 2000, that “it does not have          that SPI “does not hereby assume any
an obligation to tender a defense on              liability to any third party claimant” for
behalf of SP Industries, Inc.” in this            any items shipped prior to the closing of
matter. JA at 1185.                               the Asset Purchase Agreement. JA at
                                                  1849. Under Section 8.2(c) Hull was
        The district court rejected SPI’s         obligated to defend and indemnify SPI as
indemnification claim, stating that “SPI’s        to any “liability or obligation of Seller.”
argument is unpersuasive because SPI is           JA at 1852. Therefore, pursuant to
liable . . . for its own post-closing             Section 7.8, the Huadu freeze dryers
conduct.” Berg, 2003 WL 21362805, at              qualified as a “liability or obligation” of
                                                  Hull. We do not see why SPI’s inability
                                                  to overcome Hull’s earlier failure to
                                                  produce a system complying with the
       Claim[s] which are
                                                  specifications of the Equipment Contract
       incurred from time to time,
                                                  should impair SPI’s indemnification
       forthwith following the
                                                  claim. In this regard we point out that
       presentation to the
                                                  SPI’s inability to modify the equipment
       Indemnifying Party of
                                                  to comply with the specifications was at
       itemized bills for said
                                                  most a contractual failure. We see no
       attorneys’ fees and other
                                                  reason why Hull and SPI should not have
       expenses.
                                                  been free to place the losses from the
                                                  failure as between themselves as they
JA at 1854.
                                                  saw fit and that is what they did in

                                             20
Section 7.8.                                       this action.” Berg, 2003 WL 21362805,
                                                   at *10. However, in its prior opinion the
        Accordingly, we will reverse the           court only held that as to any claims
order for judgment entered by the district         between Hull and SPI related to the
court against SPI and in favor of Hull             Asset Purchase Agreement the choice of
denying SPI’s indemnification claim and            law provision in that agreement
will remand SPI’s indemnification claim            providing that New Jersey law applies
to the district court with instructions to         governed. Berg Chilling Sys., Inc. v.
grant judgment in favor of SPI and                 Hull Corp., No. CIV. A. 00-5075, 2002
against Hull on this claim. The district           WL 31681955, at *5 (E.D. Pa. Nov. 26,
court then must make an award pursuant             2002). Therefore, rather than addressing
to Section 8.5 of the Asset Purchase               whether Berg’s indemnification claim
Agreement in favor of SPI and against              against both Hull and SPI also should be
Hull as to SPI’s “reasonable attorneys’            governed by New Jersey law, the district
fees and other expenses of defending,              court merely assumed that it should be.35
contesting, [and] litigating,” this action.                On remand the district court must
JA at 1854.                                        address Berg’s indemnification claim
                                                   against SPI in the first instance, though


D.     BERG’S INDEMNIFICATION                        35
                                                        In any event, there is no conflict
       CLAIM AGAINST HULL AND
                                                   between Pennsylvania or New Jersey law
       SPI
                                                   with respect to the indemnification issue.
                                                   See Duall Bldg. Restoration, Inc. v. 1143
       1. Indemnification
                                                   East Jersey Ave. Assoc., Inc., 652 A.2d
                                                   1225, 1233-34 (N.J. Super. Ct. App. Div.
       The district court did not directly
                                                   1995) (affirming trial court holding that
address Berg’s claim for indemnification
                                                   paint manufacturer had duty to indemnify
against Hull and SPI, although by finding
                                                   builder who used manufacturer’s paint
that Berg was partially at fault for the
                                                   on a building when the paint peeled off);
breach of contract to Huadu, it implicitly
                                                   Moscatiello v. Pittsburgh Contractors
rejected it. Therefore, the district court
                                                   Equip. Co., 595 A.2d 1198, 1201-02 (Pa.
did not analyze whether Pennsylvania or
                                                   Super. Ct. 1991) (affirming decision that
New Jersey law applies to this claim. At
                                                   seller of concrete paving equipment was
the beginning of the breach of contract
                                                   entitled to indemnification for damage
section of its opinion, the district court
                                                   award in underlying breach of contract
indicated that “[i]n a previous
                                                   action from manufacturer of machinery
memorandum addressing the parties’
                                                   because seller was “mere conduit”). In
motions for summary judgment, I
                                                   fact Duall cited Moscatiello and followed
determined that New Jersey law governs
                                                   it.

                                              21
based on our analysis of both                             2. Attorneys’ fees and costs
Pennsylvania and New Jersey law, we
hold that Berg is entitled to                             Berg sought to recover its
indemnification against Hull as the                attorneys’ fees and expert witness fees
manufacturer of the freeze drying                  from Hull and SPI in connection with the
equipment. As explained earlier, Berg              defense of the arbitration proceedings in
primarily served as the distributor of the         Sweden. The district court rejected this
equipment and negotiated the agreement             claim, stating that:
with Huadu. Hull designed the freeze
dryers and shouldered the responsibility                  While ordinarily Berg
to install them. Furthermore, under the                   Chilling might be entitled
Equipment Contract and the Modified                       to recover such fees, in this
Agreement, Hull was required to conduct                   case such an award would
testing to ascertain the functionality of                 be unconscionable. As
the equipment.                                            discussed above, Berg
                                                          Chilling did not adequately
        The determination of the viability                represent the interests of
of Berg’s claim for indemnification from                  Hull Corporation, or, by
SPI must await the conclusions of the                     extension, SPI, and for this
district court on remand. If the district                 reason it cannot recover its
court decides that SPI is liable as a                     fees. Moreover, since Berg
successor to Hull under the de facto                      Chilling was equally liable
merger or continuation doctrines, the                     with the Defendants herein,
court then will have to analyze whether                   each must bear its own
Berg is entitled to common law                            costs and counsel fees.
indemnification from SPI. However, if
the district court rejects the successor           Berg, 2003 WL 21362805, at *11. The
liability claim then there will be no basis        district court previously had noted that in
upon which Berg can assert an                      the arbitration proceedings Berg offered
indemnification claim against SPI                  the testimony of its expert, Walter
because Section 7.8 of the Asset                   Pebley, that the freeze dryers “could
Purchase Agreement negates the                     produce quality product but at
possibility of SPI assuming Hull’s                 significantly lower through-puts.” JA at
liability by reason of the failure of the          519-20; see also JA at 489 (stating that
freeze dryers which had been shipped to            he testified at the arbitration proceeding
Huadu. 36                                          that “the equipment would function but
                                                   not at the through-put rates in the

  36
   In any event, under Section 8.2 of the
Asset Purchase Agreement SPI would be              entitled to indemnification from Hull.

                                              22
contract specifications”). The court                 contractual provision providing for
characterized this as testimony offered by           attorneys’ fees, Berg cannot prevail on
Berg “that the freeze dryers were                    this claim.
improperly designed.” Berg, 2003 WL
21362805, at *8. The court then                              As with Berg’s indemnification
concluded that “[s]uch testimony did not             claim against Hull and SPI, the district
represent the interests of Hull                      court did not state whether it was
Corporation.”                                        applying Pennsylvania or New Jersey law
                                                     on the attorneys’ fees and costs issue. In
        Berg argues that the adequacy of             their briefs in this court neither Berg nor
its representation efforts in the arbitration        SPI directly addresses which law should
are irrelevant in determining whether it is          apply. However, Berg relies solely upon
entitled to attorneys’ fees. Inasmuch as             Pennsylvania law in arguing for
Berg was not primarily the cause of                  attorneys’ fees and costs while SPI points
Huadu suffering damage and Hull and                  to both New Jersey and Pennsylvania law
SPI did not overcome the equipment’s                 on the indemnification issue. See Fleck
deficiencies as contemplated by the                  v. KDI Sylvan Pools, Inc., 981 F.2d 107,
Modified Agreement, Berg contends that               117 (3d Cir. 1992) (finding that under
the district court should have awarded it            Pennsylvania law “an indemnitee may
all damages flowing from that failure,               recover attorney’s fees and costs incurred
including reasonable attorneys’ fees and             in defense of the liability indemnified
costs. Berg further maintains that the               against from the indemnitor”); McAdam
court’s rejection of Berg’s claims was               v. Dean Witter Reynolds, Inc., 896 F.2d
anomalous because “[t]he court                       750, 777 (3d Cir. 1990) (finding that
disallowed as part of Berg’s damages its             New Jersey law requires a stronger
litigation expenses in the Arbitration               showing than other states in order to
based on the very same testimony which               overcome the presumption in New Jersey
the court itself later found to be true and          that “attorneys’ fees are not a recoverable
conclusive and the basis for holding                 item of damages”).
defendants liable in the instant case!”
Berg’s br. at 55. Berg stresses that due                     Inasmuch as the district court
to the clear defects in the freeze dryers, it        based its denial of attorneys’ fees in part
defended the machinery at the arbitration            on its finding the Berg was partially at
“as best we could.” JA at 200.                       fault for the breach of the Equipment
                                                     Contract and M odified Agreement with
         SPI counters that because the               Huadu, we must remand this claim to
district court found Berg to be at fault in          that court for further consideration in
part, it was not entitled to attorneys’ fees         light of our rejection of this finding.
and costs. SPI argues, alternatively, that           First, the court should address whether
in the absence of a relevant statutory or            Pennsylvania or New Jersey law applies

                                                23
to Berg’s claim for attorneys’ fees and            the arbitration proceedings.
costs incurred in the arbitration
proceedings, though the choice may not                     The district court found that Berg
be necessary if the court concludes that           was not entitled to attorneys’ fees
they are the same or that regardless of            because it failed to represent Hull and
which state’s law applies its result would         SPIs’ interests adequately in the
be the same. The court also should                 arbitration.37 We reject this basis for
address the issue of successor liability           denying Berg’s claim for attorneys’ fees.
with respect to SPI to determine whether           Berg’s entitlement vel non for attorneys’
it might have any liability for attorneys’         fees from Hull and SPI is grounded on its
fees if Berg is entitled to them under             claim for indemnification. If Berg is
either Pennsylvania or New Jersey law.             entitled to indemnification from Hull,
As stated above, if SPI is not liable as a         SPI or both, then the district court must
successor to Hull under either the de              analyze whether, under New Jersey or
facto merger or continuation doctrines,            Pennsylvania law, such indemnification
then Section 7.8 of the Asset Purchase             includes the attorneys’ fees and expert
Agreement bars any liability against it,           witness fees incurred by Berg in the
including liability for attorneys’ fees and        arbitration proceedings. Any
costs.                                             consideration of the adequacy of Berg’s
                                                   representation of Hull and SPI in the
        As for the claim of attorneys’ fees        arbitration proceedings is irrelevant.
against Hull (and SPI should the district
court find it liable as a successor to
Hull), the district court erred in stating           37
                                                        We question the district court’s
that “since Berg Chilling was equally
                                                   conclusion that inasmuch as Berg’s
liable with the Defendants herein, each
                                                   testimony was “that the freeze dryers
must bear its own costs and counsel
                                                   were improperly designed [the]
fees.” Berg, 2003 WL 21362805, at *11.
                                                   testimony did not represent the interests
Berg had not brought a motion for
                                                   of Hull Corporation.” While the court’s
attorneys’ fees incurred in the present
                                                   view of the testimony may be accurate,
action. Rather, it sought attorneys’ fees
                                                   we do not believe that the viability of an
and costs from the arbitration
                                                   indemnification claim for fees and costs
proceedings which arose out of the
                                                   should depend on the indemnitee
dispute involving the freeze drying
                                                   disregarding the facts in the applicable
equipment. As explained above, if on
                                                   proceeding. In short, if, as clearly was
remand the district court determines that
                                                   the case, Hull improperly designed the
either Hull or SPI has a duty to
                                                   equipment then Berg was not required to
indemnify Berg, such indemnification
                                                   fabricate a defense in the arbitration
should include the reasonable attorneys’
                                                   proceedings to justify its claim for
fees and expert witness fees incurred in
                                                   indemnification.

                                              24
        Moreover, it is significant that           whether they were reasonable and to
even though Hull and SPI had received              issue an appropriate award.
notice of the arbitration proceedings,
both stood on the sidelines during them
requiring Berg to defend the equipment.38
Now Hull and SPI have engaged in                   E.        JOINT AND SEVERAL
Monday morning quarterbacking in                             LIABILITY
assailing the defense provided by Berg.
The record clearly shows that given the                    Berg maintains that the district
circumstances in which it found itself             court erred in failing to hold Hull and
Berg defended the deficient machinery as           SPI jointly and severally liable for the
best it could. The district court should           $333,000 each party was required to pay
not have rewarded Hull and SPI for their           to Berg. In its Memorandum and Order,
lack of participation in the arbitration           the district court stated that “Berg
proceedings.                                       Chilling has not provided any persuasive
                                                   authority for holding defendants jointly
        SPI further contends that the              and severally liable in a breach of
attorneys’ fees and costs which Berg               contract action when the plaintiff has
expended were unreasonable. If the                 also been shown to have been at fault.” 39
machinery was as deficient as Berg                 Berg, 2003 WL 21362805, at *11 n.16.
claimed before the district court, then, in        Therefore, the district court entered
SPI’s view, Berg spent an unreasonable             judgment in favor of Berg and against
amount of money defending machinery                Hull in the amount of $333,333 and in
that according to Berg was indefensible.           favor of Berg and against SPI for the
Should the district court find that Berg is        same amount.
entitled to attorneys’ fees, it must
determine the appropriate amount to                        We need not address this issue at
award. The district court should conduct           this time because we hold that under
a thorough analysis of the attorneys’ fees         Section 7.8 of the Asset Purchase
and costs expended by Berg in the                  Agreement SPI is not liable for the
arbitration proceeding to determine                defective freeze drying machinery and
                                                   the issue of joint and several or only
                                                   several liability ultimately may not be
  38
                                                   material in this case. As stated above, on
     However, at one point SPI did write           remand the district court must address
a letter to Berg putting forth various             Berg’s claim that SPI is liable as a
arguments that it should use in defending          successor to Hull under the de facto
the freeze dryers during the arbitration
proceedings. Berg’s president testified at
                                                        39
trial that Berg did in fact assert some of             As explained above, the district court
these defenses in the arbitration.                 erred in finding Berg partially at fault.

                                              25
merger and continuation doctrines. If,             $650,000. The court rejected Berg’s
after conducting this analysis the court           claim for damages predicated on the
finds that SPI is liable, it should make           $650,000 Equipment Credit, stating that
detailed findings of fact and conclusions          Berg “has not established that this
of law as to whether SPI and Hull should           amount accurately reflects the value of
be held jointly and severally liable.40 On         the equipment. In addition, even if the
the other hand, if the district court finds        $650,000 figure were accurate, it does
that SPI is not liable to Berg as a                not take into account the costs Berg
successor to Hull under either the de              Chilling would have incurred in
facto merger or continuation doctrines,            retrieving the equipment and/or finding
then SPI would have no liability and the           another purchaser for the equipment.”
issue of joint and several liability would         Berg, 2003 WL 21362805, at *11.
be moot.
                                                           Berg maintains that this finding
                                                   was clearly erroneous. In support of this
                                                   argument, Berg contends that the best
F.        THE EQUIPM ENT CREDIT                    evidence of the value of the equipment
                                                   was the $650,000 value agreed to by it
        As stated above, when Berg                 and Huadu in their arms-length
entered into a Settlement Contract with            negotiation. Berg contends that Huadu
Huadu, in addition to making a payment             had an incentive to set the lowest
of $1,000,000, it agreed to permit Huadu           possible value for the equipment because
to retain the freeze drying equipment. In          it was entitled to receive additional
the Settlement Contract Berg and Huadu             moneys from Berg only if Berg was
agreed that in their current condition the         successful in this action and made a
freeze dryers should be valued at                  recovery in excess of $1,650,000, a
                                                   figure representing Berg’s payment to it
                                                   in cash and Huadu’s right to retain the
     40                                            equipment. Thus, if the value had been
    In denying Berg’s claim that SPI and
                                                   less Huadu would have been more likely
Hull should be held jointly and severally
                                                   to share in a recovery in this action as its
liable the district court did not address
                                                   threshold for participation would have
whether Pennsylvania or New Jersey law
                                                   been reduced pro tanto. Berg further
applies. Furthermore, the court did not
                                                   argues that because the freeze dryers
analyze the prevailing case law or
                                                   were purchased from Hull for
explain the reasons for denying relief to
                                                   $1,150,000, and they could produce
Berg. On remand it will have an
                                                   quality product at lower through-puts,
opportunity to conduct such an analysis
                                                   $650,000 was a reasonable value for the
and reach a conclusion in accordance
                                                   equipment. Finally, Berg points to the
with our instructions if the issue is
                                                   fact that neither Hull nor SPI offered any
germane and its resolution is necessary.

                                              26
evidence to refute the $650,000 figure               i.e. damages in the amount of the agreed
and that their position at trial was that the        valuation of the equipment, then
equipment complied with the contract                 damages were established with precision.
specifications.
                                                             We have not lost sight of the
        As might be expected, SPI                    reality that it undoubtedly would have
contends that the district court’s denial of         been expensive for Berg to recover the
the $650,000 claim for damages was not               equipment, a point SPI advances. 41
clearly erroneous. It argues that Berg               Nevertheless we think that it would
failed to proffer sufficient evidence as to          prove too much to deny Berg a recovery
the value of the equipment and as a result           by reason of that circumstance. After all,
the district court correctly declined to             any time that an entity makes a payment
engage in “guess work.” SPI’s br. at 49.             in kind it relieves itself of expenses
                                                     relating to the item involved. For
        We recognize that damages must               example, if an entity settles a dispute by
be proven to a reasonable degree of                  conveying real estate the entity will
certainty, Pugh v. Holmes, 405 A.2d 897,             relieve itself of expenses for taxes,
909-10 (Pa. 1979); William B. Tanner                 maintenance and insurance. But still it is
Co., 528 F.2d at 271-72, though absolute             fair to say that the value of the real estate
precision is not required. Bigelow v.                reflects the amount of the settlement.
RKO Radio Pictures Inc., 327 U.S. 251,               Thus, we will not deny Berg the
264, 66 S.Ct. 574, 579-80 (1946).                    $650,000 recovery on the theory that it
Considering the governing legal                      saved money by leaving the equipment
principles and the evidence presented at             with Huadu.42
trial, we conclude that the district court’s
denial of the $650,000 in damages was                  41
clearly erroneous. While it is true that                 SPI contends that except for Huadu’s
Berg did not supply evidence with                    retention of the equipment Berg would
respect to the value of the equipment                “have been contractually required to
apart from the figure it negotiated with             remove the freeze dryers from Huadu’s
Huadu for the Settlement Contract, still             facilities.” SPI’s br. at 49. SPI,
in the unusual circumstances here in                 however, does not refer to the contractual
which it was clearly in Huadu’s interest             provision that imposes this duty. But
to value the equipment at the lowest                 even if it is correct our result would be
possible value in order to enhance its               the same.
chances of sharing in a possible district              42
                                                         Berg points out that Huadu and Berg
court recovery in this case the district
                                                     were aware that Berg avoided costs by
court should have had confidence in that
                                                     not having to take possession of the
figure. Furthermore, if the methodology
                                                     equipment and this factor “presumably
for computation of damages is accepted,
                                                     [was] considered by [them] in their arms-

                                                27
        Overall, we are satisfied that                        III. CONCLUSION
inasmuch as there was no valid reason to
reject the claim for damages predicated                    We will reverse the order of the
on the value of the equipment, the district        district court entered June 11, 2003, to
court’s decision rejecting damages                 the extent that we have explained and
predicated on the Equipment Credit was             will remand the matter to the district
“completely devoid of minimum                      court for further proceedings. The court
evidentiary support displaying some hue            erred in finding Berg equally at fault
of credibility or bears no rational                with Hull and SPI and indeed at fault at
relationship to the supportive evidentiary         all. We therefore will remand this case
data.” Kool, 300 F.3d at 353 (citation             for the district court to vacate that
omitted). Thus, we will reverse it.43              portion of its decision holding Berg
                                                   equally at fault for Huadu’s damages or
                                                   at fault at all. Inasmuch as the district
length negotiations in which they arrived          court’s denial of attorneys’ fees to Berg
at the market value of $650,000.” Berg’s           was based in part on its faulty finding
br. at 62.                                         that Berg was partially culpable for the
  43                                               defective freeze dryers, we must remand
     Actually there is another possible
                                                   that claim as well for further
basis to reject Berg’s claim. Berg asserts
                                                   consideration in light of our opinion.
that it had “rights to [the] equipment”
and relinquished them to Huadu as a
                                                          The district court also erred in its
portion of the settlement. See, e.g.,
                                                   interpretation of Section 7.8 of the Asset
Berg’s reply br. at 43. It squarely bases
this right on its “payment of the
[arbitration] award.” Berg’s br. at 3.
While it is true that under the arbitration        settlement was reached the parties’ rights
award if Berg had paid Huadu the cash              under the arbitration award were
awarded it could have taken the freeze             superseded. Viewed from this
dryers back, this recapture merely would           perspective by giving up the equipment
have lessened the value of Huadu’s                 Berg suffered no damage and thus, other
recovery. Yet when Berg settled by                 than for its expenses its damages were
paying the $1,000,000 and allowing                 only $1,000,000 not $1,650,000. But we
Huadu to retain the equipment, it is not           make no ruling on this point for while
clear that it gave up anything it had a            SPI contends that Berg did not show that
right to reclaim as it appears that Huadu          it was entitled to the $650,000 in
had paid 97% of the purchase price                 damages related to the Equipment Credit,
specified in the Equipment Contract and            SPI predicates this contention on a theory
thus we do not understand why Berg                 relating to the possible value of the
under the contract could have reclaimed            equipment and not on the theory we
the equipment. Of course, once the                 advance.

                                              28
Purchase Agreement between Hull and                 should enter judgment in favor of SPI
SPI, and as a result incorrectly held SPI           and against Hull on SPI’s
liable for breach of the Equipment                  indemnification claim. The district court
Contract and M odified Agreement. 44                in entering the judgment should
Under Section 7.8 of the Asset Purchase             determine the reasonable attorneys’ fees
Agreement, SPI did not agree to assume              and costs which SPI expended in
any liability as to third-party claimants           defending this litigation and issue an
such as Berg for any machinery shipped              award pursuant to Section 8.5 of the
prior to the closing of the agreement.              Asset Purchase Agreement in its favor
Because the district court made this                and against Hull.
finding, it did not address Berg’s claims
that SPI was liable as a successor to Hull                  We also find that Berg is entitled
under the de facto merger and                       to indemnification from Hull and we will
continuation doctrines. Accordingly, we             reverse the order for judgment to the
will remand this matter for the court to            extent that it denied that claim and will
consider SPI’s successor liability on               remand the matter to the district court to
these theories and, if it is liable, also to        enter a judgment for indemnification.
consider Berg’s claim that Hull and SPI             But Berg’s claim for indemnification
should be held jointly and severally liable         from SPI must await the determination of
to it.                                              the district court on remand on Berg’s
                                                    successor liability arguments under the
        The court also erred in denying             de facto merger and continuation
SPI’s claim for indemnification from                doctrines. Finally, we will reverse the
Hull and we accordingly will reverse the            judgment to the extent that it denied Berg
order for judgment to the extent it did so.         recovery of damages based on the
Under Section 8.2(c) of the Asset                   $650,000 Equipment Credit and will
Purchase Agreement, Hull was obligated              reverse the order of the district court to
to defend and indemnify SPI as to any               the extent that it denied these damages.
“liability or obligation of Seller.” On
remand, the district court should vacate                   As between themselves Berg and
the order denying indemnification and               SPI shall bear their own costs on this
                                                    appeal but costs shall be taxed in favor of
                                                    each of them against the Hull
  44                                                Corporation.
     Berg maintains that Section 7.8 is
void as against public policy. Inasmuch
as the district court incorrectly
interpreted that provision it never
reached this issue. On remand, the
district court should address Berg’s
argument.

                                               29
