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


2-23-2004

Brzozowski v. Corr Phy Ser Inc
Precedential or Non-Precedential: Precedential

Docket No. 02-3659




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                                                                   PRECEDENTIAL

    UNITED STATES COURT OF                Mundy
       APPEALS FOR THE                    1845 Walnut Street, 20 th Floor
         THIRD CIRCUIT                    Philadelphia, PA 19103

                                          Attorney for Appellant
            No. 02-3659

                                          Andrew J. Rolfes, Esquire (ARGUED)
    NOREEN A. BRZOZOWSKI,                 Klett Rooney Lieber & Schorling
                                          Two Logan Square, 12 th floor
                          Appellant       Philadelphia, PA 19103-2756
                  v.
                                          Attorneys for Appellee Prison Health
   CORRECTIONAL PHYSICIAN                 Services, Inc.
 SERVICES, INC.; PRISON HEALTH
        SERVICES, INC.

           ____________                                   OPINION

   APPEAL FROM THE UNITED
  STATES DISTRICT COURT FOR               WEIS, Circuit Judge.
   THE EASTERN DISTRICT OF
         PENNSYLVANIA                                    In this Title VII
    (D.C. Civ. No. 00-cv-02590)           employment discrimination case, we
           District Judge:                conclude that when an insolvent
   Honorable Mary A. McLaughlin           employer sells a substantial portion of its
           ____________                   assets to another corporation, that
                                          company may be subject to successor
       Argued October 2, 2003             liability. We also decide that because
                                          substantial portions of Title VII are
   Before: RENDELL, WEIS, and             governed by laches, rather than a statute
       GARTH Circuit Judges.              of limitations, the relation back provision
                                          of Federal Rule of Civil Procedure
      (Filed: February 23, 2004)          15(c)(3) does not apply to the joinder of
            ____________                  the successor corporation as an
                                          additional defendant.
Harold I. Goodman, Esquire (ARGUED)
                                                        Plaintiff was employed by
Raynes, McCarty, Binder, Ross &

                                      1
defendant Correctional Services, Inc.             each to Dr. Umar and his son.
(“Correctional”), from 1991 until she
                                                                 According to the
was discharged in 1996. Correctional
                                                  deposition of Dr. Kenan Umar, the fund
was a subchapter S corporation engaged
                                                  was exhausted in August 2000. After
in the business of supplying medical
                                                  that time, however, it appears that Prison
services to incarcerated inmates in
                                                  paid some debts of Correctional in order
several states. Dr. Kenan Umar and his
                                                  to maintain credibility with the
son Emre Umar each held 50% of the
                                                  Commonwealth of Pennsylvania. The
stock.
                                                  contract between the Commonwealth and
               Alleging gender                    Correctional was one of the assets that
discrimination, plaintiff exhausted EEOC          had been sold to Prison. Other efforts at
administrative requirements and then              collection of receivables and payment of
filed a complaint in the District Court in        creditors were still underway at the time
May 2000, asserting claims under Title            of Dr. Umar’s deposition in February
VII of the Civil Rights Act of 1964, 42           2001. Nonetheless, he stated that
U.S.C. § 2000e, et. seq., and the                 Correctional was “financially defeated”
Pennsylvania Human Rights Act,                    by that point, and that it owed more than
(“PHRA”), 32 Pa. Cons. Stat. Ann. §               it could collect.
951, et. seq. Unknown to plaintiff at the
                                                                 In December 2000, counsel
time, Correctional had agreed in March
                                                  who had been retained to defend
2000 to sell a substantial amount of its
                                                  Correctional in this litigation filed a
assets to Prison Health Services
                                                  petition to withdraw his appearance,
(“Prison”), an organization in a similar
                                                  citing the inability of his client to pay its
business. These assets consisted
                                                  legal fees. Plaintiff asserts that this event
primarily of contracts with various states
                                                  was the first notice she received of the
to provide medical services to prisoners.
                                                  sale of assets and Correctional’s
               The sales agreement                insolvency. After a hearing, the District
disclaimed Prison’s potential liability for       Court granted counsel’s withdrawal
certain law suits and EEOC claims                 motion.
pending against Correctional.
                                                                Soon thereafter, on March
Specifically mentioned were
                                                  14, 2001, plaintiff moved to join Prison
discrimination claims brought by the
                                                  as an additional defendant, alleging that
plaintiff and two other individuals. The
                                                  it was a successor to Correctional. The
agreement also provided for the creation
                                                  District Court sustained Prison’s
of an “oversight committee,” which was
                                                  objections and denied the motion on the
to be responsible for disbursing the $14
                                                  ground that Prison should not be held
million proceeds from the sale to
                                                  responsible on a successor liability
creditors of Correctional. The committee
                                                  theory.
was specifically directed to pay $500,000

                                              2
               After the District Court            support appellate jurisdiction under 28
denied reconsideration or certification of         U.S.C. § 1291. Lockett v. General Loan
a controlling issue of law, Correctional           Finance Co. of Downtown, 623 F.2d
stipulated that judgment be entered                1128 (5 th Cir. 1980); 15B Charles Alan
against it and in favor of plaintiff for           Wright, Arthur R. Miller & Edward H.
$150,000. In addition, it was agreed that          Cooper, Federal Practice and Procedure §
plaintiff would not sue or seek to collect         3914.18 (2d ed. 1991 ed.). Here,
the judgment from Dr. Umar or any other            however, the judgment against
individual associated with Correctional.           Correctional gives us jurisdiction.
In accordance with the stipulation, the            Although entered by consent, it is
District Court entered judgment on                 unconditional, and will remain
August 28, 2002.                                   undisturbed no matter what our ruling on
                                                   the interlocutory order denying the
               Plaintiff has appealed,
                                                   joinder of Prison. See Bethel v.
arguing that a Title VII claimant in
                                                   McAllister Bros., 81 F.3d 376 (3d Cir.
appropriate circumstances may be
                                                   1996). See also Kahn v. Chase
entitled to the benefit of successor
                                                   Manhattan Bank, 91 F.3d 385, 388 (2d
liability. Prison maintains that
                                                   Cir. 1996).
Correctional was in a precarious
financial position before March 2000 and                          Prison cites Federal Home
the sale of assets had no real effect on the       Loan Mortgage Corp. (“Freddie Mac”) v.
plaintiff’s ability to recover money               Scottsdale Ins. Co., 316 F.3d 431 (3d Cir.
damages. Thus, Prison asserts that                 2003), and Verzilli v. Flexon, Inc., 295
successor liability should be inapplicable         F.3d 421 (3d Cir. 2002), where we
in this instance. Prison also contends             concluded that a consent judgment was
that this Court lacks jurisdiction because         conditional and therefore not final. As
the plaintiff consented to the judgment            we observed in Verzilli, a party’s
against Correctional and, in the                   standing to appeal a consent judgment
alternative, that plaintiff’s claim is time-       requires a reservation of that right.
barred because the relation-back                   Verzilli, 295 F.3d at 423. The intention
provision of Federal Rule of Civil                 to appeal was not included in the
Procedure 15(c)(3) is not applicable.              stipulation here, but it was made clear in
                                                   the letter by plaintiff’s counsel to the
                     I.
                                                   District Court forwarding the stipulation
               We will first address the           for approval and filing.
contention that we lack appellate
                                                                 In the letter, counsel
jurisdiction because the order of the
                                                   explained that the consent judgment
District Court refusing joinder of an
                                                   would “permit Ms. Brzozowski to take
additional party is interlocutory.
                                                   an appeal of the final judgment to pursue
Ordinarily, such an order does not
                                                   her successor liability claim against

                                               3
Prison Health Services, Inc.” Although it           example, when a successor continues to
would have been the better practice to              operate the business without substantial
add a statement to that effect in the               change, the employees will assume that
stipulation itself, we are satisfied that the       their job situations will also remain the
letter was adequate to establish the                same and that past unfair labor practices
plaintiff’s intent to appeal. We conclude,          will be remedied. Failure to meet these
therefore, that the objections to our               expectations may well result in the labor
jurisdiction must be denied.                        unrest which federal labor policies are
                                                    designed to avoid. Id. at 425.
                     II.
                                                                   Moreover, the avoidance of
                The substantive aspects of
                                                    labor strife, prevention of a deterrent
the plaintiff’s appeal challenge the
                                                    effect on rights granted employees under
District Court’s refusal to apply the
                                                    the National Labor Relations Act, and
successor liability doctrine. At common
                                                    protection for victimized employees are
law, where one corporation sells or
                                                    important goals which can be achieved at
transfers all or a substantial part of its
                                                    minimal cost to a successor. The
assets to another, the transferee does not
                                                    expense resulting from successor liability
become liable for the debts and
                                                    can be considered in setting the price
liabilities, including torts, of the
                                                    paid for the business, or through the
transferor. Poulis v. Clark Equipment
                                                    inclusion of an indemnity clause in the
Co., 802 F.2d 75 (3d Cir. 1986). There
                                                    purchase agreement. Id. at 425.
are certain exceptions to that general
rule. A purchaser may be liable where it                           Similarly, in John Wiley &
expressly assumes liability, the                    Sons, Inc. v. Livingston, 376 U.S. 543,
transaction amounts to a consolidation or           549 (1964), the Court recognized that
merger, the transaction is fraudulent and           employees and their union generally do
intended to escape liability, or the                not take part in the negotiations resulting
purchaser is a mere continuation of the             in a change of corporate ownership and,
seller. 15 Fletcher, Cyclopedia of the              thus, are placed at a disadvantage. As a
Law of Private Corporations, § 7122                 result, the objectives of national labor
(rev. perm. ed. 1983).                              policy must balance an employer’s
                                                    option to rearrange its business with
               The Supreme Court has
                                                    “some protection for employees from a
expanded the common law rule in the
                                                    sudden change in the employment
field of labor relations. In Golden State
                                                    relationship.” Id. at 549
Bottling Co. v. NLRB, 414 U.S. 168
(1973), the Court recited the general                               In EEOC v. MacMillan
sucessorship principle but found that               Bloedel Containers, Inc., 503 F.2d 1086
federal labor relations policy required             (6 th Cir. 1974), the Court of Appeals
consideration of additional factors. For            noted that Title VII was molded to a


                                                4
large degree on the National Labor                 predecessor to provide adequate relief
Relations Act, including its relief                directly.” Id. at 401. This Court has
provisions. The Court specifically noted           committed itself to recognizing
“the emphasis that both Acts place on              successorship liability in the appropriate
extending protection to and providing              Title VII context. 1 Although the
relief for the victims of prohibited               underpinnings of successor liability have
practices,” and concluded that this                been derived from equitable principles,
federal policy is “sufficient, in our view,        they are nonetheless legal considerations
to warrant imposing liability on a                 which, when satisfied as they are here,
corporate successor for Title VII                  warrant the application of the doctrine.
violations of the predecessor company.”
                                                                  The plaintiff’s motion for
Id. at 1091. However, liability in this
                                                   permission to file an amended complaint
context “must be determined on a case-
                                                   alleges that each of the Rego tests is met.
by-case basis.” Id.
                                                   Notice is not an issue; the agreement of
                 In Rego v. ARC Water              sale between Prison and Correctional
Treatment Co. of Pennsylvania, 181 F.3d            specifically refers to the plaintiff’s claim.
396 (3d Cir. 1999), we recognized that,            Prison assertedly has continued
in employment discrimination cases, “the           Correctional’s operations and work
doctrine of successor liability applies            force. Correctional’s financial debacle
where the assets of the defendant-                 makes it unable to satisfy the plaintiff’s
employer are transferred to another                monetary claims and it cannot reinstate
entity.” Rego, 181 F.3d at 401. An                 her.
aggrieved employee may enforce a claim
                                                                 We cannot discern any
or judgment against a successor that
                                                   undue prejudice to the imposition of
would have been valid against the
                                                   successor liability should plaintiff be
predecessor. The doctrine is “derived
from equitable principles, and fairness is
the prime consideration in its application
                                                                  1
. . .” Id. at 401.                                                  Other Courts of Appeals
                                                   have articulated a similar view. See, e.g.,
               Citing Criswell v. Delta
                                                   Rojas v. TK Communications, Inc., 87
Airlines, Inc., 868 F.2d 1093, 1094 (9 th
                                                   F.3d 745 (5 th Cir. 1996) (discussing
Cir. 1989), Rego listed three principal
                                                   successor liability in the Title VII
factors applicable to successor liability in
                                                   context); EEOC v. G-K-G, Inc., 39 F.3d
the employment discrimination field:
                                                   740 (7 th Cir. 1994) (same); Slack v.
“(1) continuity in operations and work
                                                   Havens, 522 F.2d 1091 (9 th Cir. 1975)
force of the successor and predecessor
                                                   (same); Trujillo v. Longhorn Mfg. Co.,
employers; (2) notice to the successor-
                                                   Inc., 694 F.2d 221 (10 th Cir. 1982)
employer of its predecessor’s legal
                                                   (same); In re Nat’l Airlines, Inc., 700
obligation; and (3) ability of the
                                                   F.2d 695 (11th Cir. 1983) (same).

                                               5
able to establish the validity of her claim.                       Relying on the opinion of
And, because the potential for this                the Court of Appeals for the Seventh
obligation has been well-established in            Circuit in Musikiwamba v. Essi, Inc.,
the law for some time, there is nothing            760 F.2d 740 (7 th Cir. 1985), the District
unfair about its application at this               Court concluded that enforcing successor
juncture. We note that Prison included             liability in the case before us would be
an indemnity clause in the agreement of            unfair. In Musikiwamba the Court of
sale. Realistically, it is probably of no          Appeals stated that, “[u]nless
value now, but the existence of such a             extraordinary circumstances exist, an
provision was cited in Golden State                injured employee should not be made
Bottling Co. as a factor supporting                worse off by a change in the business.
successor liability. Prison might have             But neither should an injured employee
made provisions for meeting                        be made better off.” Id. at 750. The
Correctional’s obligation to plaintiff             District Court reasoned that here
through a lower price or an escrow                 “successor liability should not be
arrangement. On the other hand, the                imposed if the predecessor was in
plaintiff had no knowledge of the asset            financial ruin prior to, and not as a result
sale and no opportunity to protect her             of, a sudden sale of assets.” The Court
claim. The fact that Prison did not take           believed that giving an employee the
appropriate steps to insulate itself does          right to pursue a claim against the
not serve to make application of                   successor in this situation does not
successor liability unfair in the                  protect preexisting rights, “but instead
circumstances. Prison had means at its             creates new rights.”
disposal to anticipate such a situation and
                                                                  Preliminarily, we note that
offset expected costs associated with a
                                                   the Court of Appeals for the Seventh
potential claim like that of the Plaintiff.
                                                   Circuit in a later opinion substantially
               We are struck by the                weakened the comment it made in
agreement’s provision for establishment            Musikiwamba. In EEOC v. Vucitech,
of an interim committee to oversee the             842 F.2d 936, 946 (7 th Cir. 1988), the
distribution of the $14 million sale               Court wrote, “[w]e do not understand
proceeds. This arrangement provided an             these decisions to have imposed an
opportunity for Prison to guard itself to          ironclad requirement in all cases of
some extent from claims like that of               successor liability.” Rather, emphasis
plaintiff. In this connection, too, a              should be on balancing the interest in
reasonable person might question the               “sanctioning unlawful conduct and the
payment of $1 million to Dr. Umar and              interest in facilitating the market in
his son, the two stockholders of                   corporate and other productive assets.”
Correctional, without any consideration            Id. Moreover, no other court has adopted
of the plaintiff’s claim.                          an expanded view of successor liability


                                               6
similar to the one espoused by                     establishment of liability for the alleged
Musikiwamba.                                       wrongful act. In that setting, a plaintiff’s
                                                   claim should not be weakened or
               Concededly, the language
                                                   improved by presenting it against the
in Musikiwamba is somewhat confusing,
                                                   successor rather than the guilty
at least when read as an assertion that it
                                                   predecessor whose wrongdoing underlies
is somehow unfair to provide a plaintiff
                                                   the claim.
with a better chance of recovering
damages in a Title VII case from a                                We conclude that the
successor rather than a penniless                  District Court erred in refusing to allow
predecessor. To the extent that the                joinder of Prison as an additional
plaintiff gains another source for                 defendant. The plaintiff should be given
satisfaction of her claim, of course, she is       the opportunity to establish her claim of
better off than the claimant whose only            successor liability. We caution,
recourse is against a defunct or insolvent         however, that should the cause continue
defendant. However, the mere                       to the merits, the plaintiff may not simply
substitution of a responsible defendant            rely on the consent judgment arranged
for an insolvent one is not a basis for            with Correctional. Prison was not a party
denying successor liability.                       to the stipulation for a judgment and
                                                   must be afforded the opportunity to
                The notion that successor
                                                   defend itself against the claim de novo.
liability cannot be invoked where it
would leave the creditor “better off”is a                              III.
curious one. The doctrine of successor
                                                                  Prison contends that as a
liability is premised on the idea that the
                                                   separate and independent ground the
creditor cannot obtain satisfaction from
                                                   District Court should be affirmed
the predecessor. To read this factor, or
                                                   because the plaintiff’s effort to add
to impose a new one to require a court to
                                                   Prison as a defendant was untimely and
look at whether the creditor is better off,
                                                   the claim would not relate back to the
seems to undermine the basic rationale
                                                   date of the original complaint under
underlying the doctrine. Moreover, we
                                                   Federal Rule of Civil Procedure 15(c)(3).
note that, as a factual matter, there was
                                                   Conceding that the original complaint
money available here for creditors that
                                                   was filed against Correctional within the
was disbursed without regard to the
                                                   90-day “limitations period” set out in 42
possibility that the plaintiff might
                                                   U.S.C. § 2000(e)-5(f)(1),2 Prison argues,
succeed in her claim.
              Although we do not agree
                                                                  2
with the District Court’s application of                             The relevant portion of
Musikiwamba, there is an area where it             that statute states that “if a charge filed
might have some relevance: the                     with the Commission ... is dismissed by
                                                   the Commission, or if within one

                                               7
however, that the time had expired as to           Prison is contending that the 90-day
derivative claims that could be brought            period is a statute of limitations for Title
against it as a successor.                         VII claims, and plaintiff’s failure to
                                                   comply with Rule 15(c)(3) bars relation
               Federal Rule of Civil
                                                   back.
Procedure 15(c)(3) provides that an
amendment to a complaint relates back to                          The basic flaw in Prison’s
the date of the original pleading when (1)         argument is that Title VII does not
permitted by the statue of limitations             contain a statute of limitations applicable
applicable to the action; (2) the claim or         to joinder in the situation here.
defense arose out of the occurrence set
                                                                  Title VII sets a 300-day
forth in the original pleading; or (3) the
                                                   time limit after the discriminatory action
amendment changes a party and the
                                                   occurred to present a claim to the EEOC,
foregoing (2) is satisfied. When
                                                   and a 90-day period for filing suit in the
“relation-back” is based on (3), the new
                                                   District Court after receipt of a notice of
party must also have received notice of
                                                   right-to-sue letter from the agency. The
the suit within the period set under Rule
                                                   Act does not address the question
4(m), must not be prejudiced in
                                                   presented here – whether an additional
maintaining a defense, and should have
                                                   defendant may be joined after the 90-day
known that, but for a mistake in identity,
                                                   period has expired.
the suit would have been brought against
it.                                                                Generally, in federal
                                                   litigation, if Congress does not provide a
               Prison asserts that it had no
                                                   limitations period , courts look to
notice of the lawsuit within the 120-day
                                                   analogous state statutes for the
period under Rule 4(m). In essence,
                                                   appropriate time within which a suit must
                                                   be brought. 3 Title VII is an exception to
                                                   that policy. In Occidental Life Ins. Co.
hundred and eighty days from the filing            v. EEOC, 432 U.S. 355 (1977), the Court
of such charge ... the Commission has              held that absorption of state limitations
not filed a civil action under this
section,... [or] has not entered into a
                                                                  3
conciliation agreement to which the                                 In 1990, Congress
person aggrieved is a party, the                   enacted 28 U.S.C. § 1658 providing that
Commission ... shall so notify the person          except as otherwise provided by law, a
aggrieved and within ninety days after             four-year statute of limitations would
the giving of such notice a civil action           apply to the civil actions commenced
may be brought against the respondent              thereafter. It was amended in 2002 with
named in the charge ... by the person              respect to securities litigation. The
claiming to be aggrieved...” 42 U.S.C.             statute has no application to Title VII,
2000(e)-5(f)(1).                                   which was enacted before 1990.

                                               8
would be inconsistent with the                    Those cases involved situations in which
congressional intent underlying Title VII.        the plaintiff did not file a proper
That case was not a suit by an individual,        complaint within the 90-day period and
but by the EEOC which is not bound by             are thus distinguishable from the
the 90-day limitation of Title VII.               litigation here where the original
Nevertheless, the refusal to look to state        complaint was timely filed.
statutes of limitations has been cited in
                                                                 Generally, when no
individual suits as well. See, e.g., Burgh
                                                  specified or analogous statute of
v. Borough Council of the Borough of
                                                  limitations applies to a cause of action,
Montrose, 251 F.3d 465 (3d Cir. 2001);
                                                  laches must be considered. A Title VII
Cleveland Newspaper Guild, Local 1 v.
                                                  defendant who has been prejudiced
Plain Dealer Publishing Co., 839 F.2d
                                                  because of a delay in the administrative
1147 (6 th Cir. 1988) (en banc).
                                                  process does have the right to invoke the
               Just as MacMillan Bloedel          equitable defense of laches. “In addition
held that a plaintiff need not repeat the         to other equitable defenses . . . an
administrative process for the benefit of         employer may raise a laches defense,
a successor corporation, we see no                which bars a plaintiff from maintaining a
reason why the 90-day restriction must            suit if he unreasonably delays in filing a
be applicable to a defendant joined after         suit and as a result harms the defendant.”
the plaintiff has timely filed suit against       National Railroad Passenger Corp. v.
the original employer. See MacMillan              Morgan, 536 U.S. 101, 121 (2002). This
Bloedel, 503 F.2d at 1093. The plaintiff          Court, along with a number of other
here “name[d] those who were known to             Courts of Appeals, has cited that
[her] and could have been charged                 principle in cases where the EEOC has
during the period of limitations,” and            unduly delayed an individual claimant’s
requiring more could encourage evasion            law suit before issuing a right-to-sue
through corporate transfers and would             letter. Waddell v. Small Tube Produce
frustrate the equitable power of the Court        Products, Inc., 799 F.2d 69 (3d Cir.
to make plaintiff whole. Id.                      1986). 4
               Courts have strictly
construed the 90-day limitations period                         4
                                                                    Other cases of
against plaintiffs who either misnamed
                                                  administrative delay invoking laches
the appropriate party in their complaint,
                                                  with differing results are Bernard v. Gulf
see e.g., Williams v. Army & Air Force
                                                  Oil Co., 596 F.2d 1249 (5 th Cir. 1979);
Exchange Serv., 830 F.2d 27 (3d Cir.
                                                  Cleveland Newspaper Guild, Local 1 v.
1987), or have otherwise entirely failed
                                                  The Plain Dealer Pub. Co., 839 F.2d
to meet the filing requirements in the
                                                  1147 (6 th Cir. 1988); Jeffries v. Chicago
statute. See Baldwin Co. Welcome
                                                  Transit Authority, 770 F.2d 676 (7 th Cir.
Center v. Brown, 466 U.S. 147 (1984).
                                                  1985); Brown v. Continental Can Co.,

                                              9
               The application of laches is         emphasized that there must be more than
in accord with Title VII, which “vests              inexcusable delay. Plaintiff must also
District Courts with broad discretion to            show that the delay caused a
award ‘appropriate equitable relief to              disadvantage in establishing and
remedy unlawful discrimination.’” Local             asserting a defense.
28 of the Sheet Metal Workers’ Int’l v.
                                                                   The relation back
EEOC, 478 U.S. 421, 446 (1986). The
                                                    provisions of Rule 15 are primarily
Courts are empowered to order “such
                                                    concerned with alleviating unfair
affirmative action as may be appropriate,
                                                    prejudice in circumstances involving
which may include, but is not limited to,
                                                    statutes of limitations. It has no
reinstatement or hiring of employees . . .
                                                    controlling force where, as here, a
or any other relief as the court deems
                                                    defendant’s remedy is provided by the
appropriate. 42 U.S.C. § 2002(e)-
                                                    equitable doctrine of laches.
(5)(g).” Id. at 466.
                                                                   In this case, the timeliness
                Prison is not left without a
                                                    issue in terms of the 90-day period in the
defense. When laches applies, a plaintiff
                                                    context of a statute of limitations was
may not be entitled to relief if her
                                                    raised in the District Court, but it was not
conduct of the case has improperly and
                                                    ruled upon. On remand, the parties may
substantially prejudiced the other party.
                                                    bring the issue to the court’s attention.
See Albermarle Paper Co. v. Moody, 422
                                                    As we observed in Waddell, the decision
U.S. 405, 424 (1975). In Jeffries v.
                                                    to consider a laches defense is within the
Chicago Transit Authority, 770 F.2d 676
                                                    sound discretion of the trial court which,
(7 th Cir. 1985), the Court held that the
                                                    of course, must make the requisite
plaintiff had inexcusably failed to prod
                                                    findings. The District Court must
the excessively slow administrative
                                                    consider whether the plaintiff’s conduct
proceedings and the delay materially
                                                    was unreasonable and whether the
prejudiced the defendant. Accordingly,
                                                    defendant was materially prejudiced.
the plaintiff was found guilty of laches.
In National Assn. of Gov’t Employees v.                           Accordingly, the order
City Public Serv. Board, 40 F.3d 698 (5 th          denying plaintiff the right to join Prison
Cir. 1994), on the other hand, the Court            as an additional defendant is reversed,
                                                    and the case is remanded to the District
                                                    Court for further proceedings consistent
765 F.2d 810 (9 th Cir. 1985); Brown-               with this Opinion.
Mitchell v. Kansas City Power & Light
Co., 267 F.3d 825 (8 th Cir. 2001);
Howard v. Roadway Express, Inc., 726
F.2d 1529 (11th Cir. 1984); Rozen v.
District of Columbia, 702 F.2d 1202
(D.C. Cir. 1983).

                                               10
Garth, Circuit Judge, dissenting:                  of the majority.6
                                                                         I.
               The majority of this panel                         “Equity” has been said to
has remanded M s. Brzozowski’s case to             be “the body of principles constituting
the District Court for further inquiry into        what is fair and right . . . the recourse to
the timeliness of her attempt to amend             principles of justice to correct or
her Complaint to add Prison as a                   supplement the law as applied to
defendant.5 I am pleased that the                  particular circumstances.” Black’s Law
majority has seen fit to remand, but               Dictionary 560 (7th ed. 1999). As this
distressed that it has not affirmed in toto        Court has stated, successor liability is a
the District Court’s judgment which                doctrine derived from equitable
denied M s. Brzozowski relief. I                   principles, and the principle of fairness is
therefore respectfully dissent.                    the prime consideration in its
                                                   application. Rego v. ARC Water
               Considering (1) the
                                                   Treatment Co. of Pa., 181 F.3d 396, 401
equitable nature of the “successor
                                                   (3d Cir. 1999). That doctrine, however,
doctrine,” (2) the prejudice that Prison
                                                   has necessarily been qualified. In Ed
would suffer if M s. Brzozowski were
allowed to amend her Complaint, and (3)
the inescapable conclusion that Ms.                               6
Brzozowski’s desire to add Prison as a                                 The policy underlying the
                                                   successor doctrine is designed to protect an
defendant represents the paradigm search
                                                   employee when the ownership of his
for the deepest available pocket, it is            employer suddenly changes. See, e.g., Rojas
evident to me that the District Court              v. TK Communications, Inc., 87 F.3d 745,
correctly denied Ms. Brzozowski’s                  750 (5th Cir. 1996) (“Although developed in
motion to join Prison as an additional             the context of labor relations, the doctrine of
defendant and that Prison should prevail.          successor liability has been extended to
The polestar of the “successor doctrine”           claims asserted under Title VII and related
is equity, and I suggest strongly that             statutes. . . . [T]he successor doctrine arises
equity has not triumphed in the opinion            in the context of discrimination cases in
                                                   situations where the assets of a defendant
                                                   employer are transferred to another entity.
                                                   Thus, the purpose of the doctrine is to ensure
                                                   that an employee’s statutory rights are not
              5
                 The majority’s opinion has        “vitiated by the mere fact of a sudden
referred to CPS, Ms. Brzozowski’s original         change in the employer’s business.””). But
employer and the seller of assets, as              by the same token, while an employee’s
“Correctional.” It has also referred to the        right should not be diminished, neither
defendant-successor as “Prison.” For ease          should it be enhanced. Musikiwamba v.
of reference, I have adopted the same              ESSI, Inc., 760 F.2d 740, 750 (7th Cir. 1985)
nomenclature.

                                              11
Peters Jewelry Co., Inc. v. C&J Jewelry                             In Rego, where we adopted
Co., Inc., et al, 124 F.3d 252, 274 (1st             the doctrine of successor liability, we
Cir. 1997), the First Circuit said that “the         specified that the District Court should
successor doctrine is derived from equity            analyze a successor claim by considering
principles and it would be grossly unfair,           three principal factors before making a
except in the most exceptional                       successor liability determination: (1)
circumstances, to impose successor                   continuity in operations and work force
liability on an innocent purchaser when              of the successor and predecessor
the predecessor is fully capable of                  employers; (2) notice to the successor
providing relief.”                                   employer of its predecessor’s legal
                                                     obligation; and (3) ability of the
               The Seventh Circuit added
                                                     predecessor to provide adequate relief
to the equitable gloss of the successor
                                                     directly. Rego, 181 F.3d at 402
liability doctrine when, using some of
                                                     (emphasis added).
the same language, it stated:
                                                                     To this extent and to this
       the successor doctrine is
                                                     point, the majority opinion and I are in
       derived f r o m e q u ity
                                                     complete agreement. However, where
       principles, and it would be
                                                     we part company is in our analysis of the
       grossly unfair, except in the
                                                     third prong of Rego. That is, could
       most exceptional
                                                     financially insolvent Correctional (the
       circumstances, to impose
                                                     predecessor and Ms. Brzozowski’s
       successor liability on an
                                                     original employer) provide adequate
       innocent purchaser when
                                                     relief directly to Ms. Brzozowski? Is it
       the predecessor is fully
                                                     fair and equitable to burden Prison with
       capable of providing relief
                                                     the obligation to provide relief to Ms.
       or when the successor
                                                     Brzozowski when that relief was the
       would not have the
       opportunity to protect itself.
Musikiwamba v. ESSI, Inc., 760 F.2d                  determination are not equitable but “legal
740, 750 (7th Cir. 1985). Other courts               determinations.” Maj. Op. at 11. These
have chimed in to the same effect. See,              legal considerations are not defined, and it is
e.g., Criswell v. Delta Air Lines, 868               unclear from whence they are derived or
F.2d 1093, 1094 (9th Cir. 1989) (citing              why they overrule, or allow the majority to
                                                     overlook, the inherent inequity of the result
to Musikiwamba, 760 F.2d at 750).7
                                                     reached here.
                                                                     Moreover, as the majority
                                                     opinion points out, because of the equitable
               7
                 The majority acknowledges           nature of the successor doctrine, it is laches,
that the successor doctrine has equitable            and not the statute of limitations, which
“underpinnings,” but asserts that the factors        must be applied in cases such as this one,
employed in making a successor liability             which seek equitable relief.

                                                12
primary responsibility and charge of her          predecessor to provide adequate relief
original employer, Correctional? I                directly.” This is a mandate of our
answer these questions by concluding              jurisprudence. Yet the majority opinion,
that the principles of justice – those            without recognition of this standard,
principles which embrace fairness and             provides “. . . the mere substitution of a
rightful conduct – as applied to the              responsible defendant [Prison] for an
particular circumstances of this case,            insolvent one [Correctional] is not a
require that the successor doctrine               basis for denying successor liability.”
should not place Ms. Brzozowski in a              Maj. Op. at 15. I suggest that a re-
better position than she was in before            writing of an established formula
Prison entered the arena.                         adopted by this Court can be
                                                  accomplished only by an en banc Court.
               The majority dismisses this
                                                  See 3d Cir. Internal Operating
crucial principle, imbedded in the third
                                                  Procedures § 9.1 (“. . . [N]o subsequent
prong of Rego’s formula (i.e., the ability
                                                  panel overrules the holding in a
of the predecessor to provide relief
                                                  precedential opinion of a previous panel.
directly), as undermining the rationale
                                                  Court en banc consideration is required
upon which the successor doctrine is
                                                  to do so.”).
based. See Maj. Op. at 15. I cannot
agree. The majority fails to recognize                                II.
the importance of Correctional’s initial
                                                                Judge Swygert, writing in
responsibility to discharge Ms.
                                                  Musikiwamba,8 held that while an
Brzozowski’s claim if she were
                                                  employee injured by her original
successful in her discrimination action,
                                                  employer (here Correctional) should not
particularly in light of Correctional’s
                                                  be made worse off after the employer’s
receipt of $14 million and the Umars’
                                                  successor (here Prison) took over,
receipt of $1 million. Moreover,
                                                  neither should she profit and be better
Correctional had agreed with Prison that
any liability that might arise out of Ms.
Brzozowski’s claim was to be
                                                                8
Correctional’s responsibility. The                                 The majority opines that
majority opinion’s position completely            EEOC v. Vucitech, 842 F.2d 936, 946 (7th
eliminates the third prong of this Court’s        Cir. 1988), weakened the doctrine of
Rego doctrine, which looks first to the           Musikiwamba when it emphasized that a
                                                  balancing test should gloss the
predecessor – here, Correctional – for
                                                  Musikiwamba successor doctrine. See Maj.
relief.                                           Op. at 14. While I do not read Vucitech in
              For successor liability to          the same illiberal manner as the majority
attach, we have provided in Rego, supra,          does, I suggest that under any balancing
and I have emphasized, that the Court             standard, the balance ends up in favor of
                                                  Prison under the circumstances which I
must look to the “ability of the
                                                  outline here.

                                             13
off with a successor who was “better              utterly unconscionable:
heeled.”
       [A]n injured employee
                                                  1.           Correctional, Ms.
       should not be made worse
                                                               Brzozowski’s original
       off by a change in the
                                                               employer, was a failing
       business.        But neither
                                                               company and had no assets
       should an injured employee
                                                               with which to respond to
       be made better off...
                                                               her claim of
       Imposing liability on a
                                                               discrimination.
       suc c e s so r w h e n a
       predecessor could have
       provided no relief
                                                  2.           The District Court found
       whatsoever is likely to
                                                               that the financial troubles
       s e v e r e l y in h i b i t t h e
                                                               experienced by the
       reorganization or transfer of
                                                               predecessor, Correctional,
       assets of a failing business.
                                                               existed before Correctional
       A company on the verge of
                                                               sold its assets to the
       bankruptcy may find itself
                                                               successor, Prison. Because
       deluged with meretricious
                                                               Correctional could not
       claims for employment
                                                               provide any recovery to
       discrimination as employees
                                                               Ms. Brzozowski before the
       see the prospect of a deep-
                                                               sale transaction took place,
       pocket to provide relief.
                                                               she was not adversely
Musikiwamba v. ESSI, Inc., 760 F.2d                            impacted by the sale of
740, 750-51 (7th Cir. 1985) (emphasis                          assets.
added).
Accord EEOC v. Vucitech, 842 F.2d
                                                  3.           The sale of assets did not
936, 945 (7th Cir. 1988) (J. Posner).
                                                               cause Correctional’s
                Because the successor                          inability to provide relief to
inquiry is fact-specific, and because its                      Ms. Brzozowski, and
prime consideration is fairness to the                         Correctional’s poor
parties, see Rego, 181 F.3d at 401, 403,                       financial status remained
it is clear to me that the equities here                       unchanged after the sale of
counsel against holding Prison liable as a                     its assets to Prison.
successor. I believe that consideration of
the following uncontroverted evidence
renders a liability determination against         4.           Although Prison paid $14
Prison thoroughly inequitable – indeed,                        million as part of the asset

                                             14
     purchase, Correctional                   the monies which
     made no provision to                     Correctional received from
     respond to Ms.                           Prison, was Ms.
     Brzozowski’s claim of                    Brzozowski’s agreement
     discrimination out of those              not to pursue either
     funds.                                   Correctional or its
                                              principals. Rather, after
                                              consenting to a judgment
5.   The principals of                        in the sum of $150,000
     Correctional, Dr. Kenan                  against Correctional – a
     Umar and Emre Umar,                      judgment which she knew
     each received $500,000                   was uncollectible – she
     from the purchase price of               agreed to limit collection of
     Correctional’s assets, but               this judgment against
     neither of them made any                 Correctional alone and to
     provision out of these                   forego seeking collection
     monies to respond to Ms.                 of the judgment against
     Brzozowski’s claim,                      Dr. Kenan Umar or any
     although the discrimination              other individual associated
     which Ms. Brzozowski                     with Correctional. She did
     charges occurred during                  so, knowing at the time
     their tenure at                          that Correctional was
     Correctional.                            judgment-proof.


6.   Astonishingly, Ms.                  8.   These actions were taken
     Brzozowski never sought                  by Ms. Brzozowski,
     to obtain relief from either             Correctional and the
     of the principals (who were              Umars, despite the fact that
     charged with corporate                   the asset purchase
     misconduct in state court)               agreement specified that
     by piercing the                          Prison would not be
     Correctional corporate veil              responsible for Ms.
     in order to recover under                Brzozowski’s
     her claim.                               discrimination claim.
                                              Indeed, Prison, through the
                                              agreement, expressly
7.   Compounding her desire to                excluded itself from
     forego relief from her                   liability for her claim at the
     original employer out of                 time that it paid

                                    15
               Correctional $14 million               Brzozowski’s ability to collect a money
               for its assets.9                       judgment. It is obvious that Ms.
                                                      Brzozowski, realizing this, decided to
                                                      amend her complaint to add a deep
                     III.                             pocket defendant – in this case, Prison.
                                                      It is clear to me, as it should be to
               The recitation of these
                                                      everyone, that the sale of Correctional’s
uncontroverted facts inexorably leads to
                                                      assets to Prison did not and would not
the conclusion that it would be
                                                      have harmed Ms. Brzozowski, and it
inequitable and unfair to hold Prison
                                                      certainly did not offend Rego because it
liable as a successor to Correctional
                                                      would not make Ms. Brzozowski worse
simply in order to enhance Ms.
                                                      off. And, there is no doubt that Ms.
                                                      Brzozowski, under her interpretation of
               9
                                                      successor liability which has been
                  It is beyond per adventure          acceded to by the majority of the Court
that Prison would have paid substantially             here, will be far better off if Prison’s
less than the $14 million purchase price for
                                                      resources are made available to her.
Correctional’s assets, had Prison been
obliged to respond to Ms. Brzozwski’s                                It is also clear that before
discrimination claim. The $14 million                 Correctional (and the Umars) received
purchase price was agreed to only after Ms.           $14 million from Prison, Correctional
Brzozowski’s suit was specifically excluded           had no ability to provide an adequate
in the sales agreement, thereby leaving any
                                                      legal remedy for Ms. Brzozowski
judgment obtained by Ms. Brzozowski to be
satisfied by Correctional. The majority’s
                                                      because, as the District Court held,
assertion that Prison should have anticipated         Correctional was completely unable to
it would be held liable as a successor                satisfy any judgment that Ms.
therefore makes no sense, and leaves no               Brzozowski obtained against it.
successor entity – a purchaser – with any             Accordingly, as the District Court stated
customary means to exclude claims in a                and as I agree, the equitable principle –
contract of sale with the seller. The majority        the third prong of Rego – which
cites Golden State Bottling Co., Inc. v.              underlies the successor liability doctrine,
N.L.R.B., 414 U.S. 168, 187 (1973), as                i.e. protecting employees when the
stating, “the expense resulting from                  ownership of their employer changes, is
successor liability can be considered in              not implicated in this case. It should be
setting the price for the business, or through
                                                      remembered that Correctional retained
the inclusion of an indemnity clause in the
purchase agreement.” Maj. Op. at 9.                   liability for Ms. Brzozowski’s claim in
However, an indemnity agreement with                  the asset purchase agreement, but it
Correctional would have been senseless in             simply could not and did not provide for
light of the financial condition of that              any recovery made by Ms. Brzozowski
company.                                              before the sale transaction took place,


                                                 16
although it could well have done so after                                IV.
its sale of assets. This fact alone is the
                                                                    I note that Ms.
critical factor in determining whether
                                                     Brzozowski, in her motion to join Prison
successor liability may be imposed.
                                                     as an additional defendant, relied upon
               Dr. Umar testified that               Fed. R. Civ. P. 20, “Permissive Joinder
Correctional’s poor financial status was             of Parties.” Instead, Fed. R. Civ. P. 15,
one of the motivating factors behind the             “Amended and Supplemental
sale of assets to Prison. When the                   Pleadings,” would have been the
subsequent actions of Ms. Brzozowski,                appropriate Rule under which to proceed
the Umars and Correctional are                       in this instance. That Rule, however,
considered in light of the financially               requires that the newly added defendant
insolvent condition of Correctional (and             has received notice and will not be
I have listed those actions above), it is            prejudiced. In this case, there is no
apparent that Ms. Brzozowski now seeks               question that Prison had received notice
a right which the successor liability                of Ms. Brzozowski’s claim because
doctrine has not afforded her, and to                Prison had expressly disclaimed
which she is not entitled. She has no                responsibility for it in the sales
right to assess Prison for monetary                  agreement. By doing so, Prison did not
damages when she could not under any                 have to reserve monies for that claim,
circumstances have received them from
her employer, which was the responsible
party for any discriminatory acts she
                                                     improperly appropriated and distributed the
suffered.10                                          monies that were paid, and it was because
                                                     both Correctional and its principals
                                                     “improperly appropriated” the $14 million
               10
                   I have difficulty                 purchase price (including the $500,000 paid
understanding the emphasis that the majority         to each of the Umars) that resulted in an
places on “corporate tools at its disposal to        inability to satisfy Ms. Brzozowski’s claim.
effectively anticipate such a situation and                           The third prong of Rego
offset expected costs associated with a              provides, as I have stated, that before a
potential claim like that of Ms.                     successor can be liable, it must be shown
Brzozowski.” In this case, the parties did           that there was an “ability of the predecessor
utilize their “corporate tools” – did                [in this case, Correctional] to provide
anticipate the Brzozowski situation – did            adequate relief directly.” The majority
adjust the purchase price because they               opinion appears to abandon this third factor
anticipated that situation, and Prison took          when it inappropriately analyzes the facts of
every step that it could to ensure that Ms.          this case where there is no speculation
Brzozowski’s claim against the employer              whatsoever that Brzozowski would be better
which allegedly discriminated against her            off by ignoring the predatory conduct of
would be discharged by the discriminating            Correctional and its principals and pursuing
entity. Moreover, it was Correctional that           Prison.

                                                17
and consequently did not reduce its $14              Ms. Brzozowski or her original
million purchase price. See note 5,                  employer, Correctional.
supra.
                                                                    I therefore respectfully
              I make mention of this here            dissent from the majority’s judgment,
not because I make an issue of the                   which would hold Prison liable, subject
manner in which, or the Rule by which,               only to a further analysis concerning the
Ms. Brzozowski has sought to join                    relevance of laches or the statute of
Prison as a defendant in this action.                limitations – an analysis in which I do
Rather, I do so because Rule 15(c)(3)                not engage, as I see no need for it.
and the “successor doctrine”’s
application here to Prison, which was
rejected by the District Court and by me,
emphasize that there should be no
prejudice to the defendant who is joined.
Here, as I have pointed out, Prison had
no part in any discriminatory actions
claimed by Ms. Brzozowski. In addition,
Prison recognized that she had brought a
claim against Correctional, and therefore
sought to relieve itself of any obligation
to her. In such a situation, it is quite
understandable why the District Court
Judge, acknowledging the prejudice
which Prison would suffer, refused to
add Prison as a defendant. How can one
say she abused her discretion? I, for one,
cannot.
               In light of the uncontested
facts which I have related, it is apparent
that by failing to consider these
circumstances, the majority has
inequitably ordered Prison to respond, to
its detriment and prejudice, to Ms.
Brzozowski despite the third prong of
the Rego successor liability analysis. If
the successor liability doctrine is rooted
in equitable principles, as it is, then it is
evident to me that the equities all lie in
Prison’s favor, and none lie in favor of

                                                18
