Business Litigation Update

Pennsylvania Federal Business Decisions

By Bridget M. Gillespie and Henry M. Sneath [Originally published in the Fall 2005 edition of the Pennsylvania Bar Association's Civil Litigation Update]

Writ of Summons Is Not Initial Pleading for Purposes of Removal to Federal Court

The Third Circuit recently settled the issue of whether a writ of summons triggers a defendant's time to remove a case to federal court in Sikirica v. Nationwide Ins. Co., 2005 U.S. App. LEXIS 16077 (3d Cir. August 4, 2005). There, the insured's bankruptcy trustee instituted an action against Nationwide via a writ of summons which was served on Nationwide on April 29, 2002. Earlier in the month, the trustee had demanded $300,000 via a letter to Nationwide. Thus, the trustee argued that Nationwide was on notice of diversity jurisdiction prior to the filing of the complaint. The complaint was filed and served on July 8, 2002 and Nationwide removed the case on July 22, 2002. The trustee filed a motion to remand which the district court denied. The district court then granted Nationwide's motion to dismiss and the trustee appealed.

The plain language of the statute states that removal is triggered by an "initial pleading." 28 U.S.C. § 1446(b). That statute provides:

The notice of removal of a civil action or proceeding shall be filed within thirty days after the receipt by the defendant, through service or otherwise, of a copy of the initial pleading setting forth the claim for relief upon which such action or proceeding is based, or within thirty days after the service of summons upon the defendant if such initial pleading has then been filed in court and is not required to be served on the defendant, whichever period is shorter.

If the case stated by the initial pleading is not removable, a notice of removal may be filed within thirty days after receipt by the defendant, through service or otherwise, of a copy of an amended pleading, motion, order or other paper from which it may first be ascertained that the case is one which is or has become removable, except that a case may not be removed on the basis of jurisdiction conferred by section 1332 of this title more than 1 year after commencement of the action.

28 U.S.C. § 1446(b).

The Third Circuit affirmed, finding that the Supreme Court case of Murphy Bros., Inc. v. Michetti Pipe Stringing, Inc., 526 U.S. 344 (1999), had implicitly overruled Foster v. The Mutual Fire, Marine & Inland Ins. Co., 986 F.2d 48 (3d Cir. 1993), with respect to a writ of summons being sufficient to trigger removal. The Third Circuit also recognized that in Pennsylvania, unlike in New Jersey and other states, a writ of summons generally does not provide information regarding diversity or any other material information about the case and thus interpreting the removal statute to mean that the complaint is the "initial pleading" will make removal uniform throughout the Third Circuit. The court further noted that since the complaint was the initial pleading and the complaint provided notice of the grounds for removal, the second paragraph of § 1446(b), regarding "other papers" providing notice of federal jurisdiction, did not apply because that paragraph only applies if the initial pleading does not provide grounds for removal and the complaint did so provide. Thus, the demand letter sent prior to the writ of summons was irrelevant as an "other paper" and Nationwide's notice of removal 30 days after service of the complaint was timely.

Owners of MBE Sue PMBR Alleging Copyright Infringement

If you have ever wondered where bar review questions come from, you are not alone-the owners of the Multistate Bar Examination have raised that very question in its copyright infringement action against Multistate Legal Studies, Inc., d/b/a PMBR. In National Conference of Bar Examiners v. Multistate Legal Studies, Inc., 2005 U.S. Dist. LEXIS 14774, C.A. No. 04-3282 (E.D. Pa. 2005), the plaintiff alleged that the CEO and another employee of PMBR sat for the Alaska Bar exam in 2003 and attempted to leave the testing room with handwritten notes. Thereafter, the plaintiff reviewed PMBR materials and allegedly found many similar questions to the ones on the bar exam (which are frequently re-used). Plaintiff moved for partial summary judgment. "Copying is proven by showing access to the work and substantial similarity between the two works." Id. at *4 (citation omitted). PMBR argued that the similarity between the questions was due to the fact that the two parties draw material from the same pool of information and thus the similarity is permissible. The plaintiff countered that although some similarity is permissible, "the pool is so large that something more than coincidence must explain how both the MBE and PMBR feature questions based on the same 1908 Vermont Supreme Court case." Id. at *6-7. The court held that trial was necessary to determine the factual questions of whether the questions were impermissibly similar or whether similarity could merely be attributed to reliance on the same source material.

Plaintiff Fails to State Claim for Breach of Alleged Oral Contract

In Midnet, Inc. v. Pharmacia Corp., 2005 U.S. Dist. LEXIS 11085 (3d Cir. 2005), the plaintiff alleged that an oral contract resulted from business negotiations and the defendant breached that contract when it broke off the negotiations of a written contract and refused to provide the $2,000,000 worth of funding. The plaintiff also alleged claims of promissory estoppel and fraudulent misrepresentation. The defendant countered that the negotiations involved whether to continue a trial business arrangement that had been in place pursuant to a written contract that required any future agreement to continue the relationship to be in writing and thus no oral contract could have been entered much less breached. The district court granted the defendant's motion to dismiss and the Third Circuit affirmed, albeit on other grounds. Judge Shapiro, writing for the court, noted that oral waivers of conditions or oral modifications of written contracts, even ones requiring modifications to be in writing, are permissible but must be proven by clear and convincing evidence. Id. at *10 (relying on Somerset Community Hosp. v. Allan Mitchell & Assocs., 685 A.2d 141, 146 (Pa. Super. 1996) and Gloeckner v. School Dist. of Baldwin Tp., 175 A.2d 73, 75 (Pa. 1961)). The court held that as a matter of law and in light of the exhibits attached to the complaint, the plaintiff had failed to allege sufficient facts to show the defendants intended to waive the requirement of a written agreement. This failure doomed all three claims because an oral contract could not have been formed and it was unreasonable to rely on the oral assertions under the circumstances.

Successor Liability Under CERCLA: Third Circuit Continues Federal Common Law Analysis

In United States v. General Battery Corp., 2005 U.S. App. LEXIS 19216 (3d Cir. 2005), the Third Circuit declined the defendant's invitation to overrule Smith Land & Improvement Corp. v. Celotex Corp., 851 F.2d 86 (3d Cir. 1988), wherein the court held that successor liability under CERCLA is governed by federal common law, not individual state law. In so holding, the majority rejected the opinions of the First and Ninth Circuits and dissenting Judge Rendell that recent Supreme Court pronouncements counsel against displacement of state law when construing federal statutes and stated:

To summarize, the Supreme Court has neither overruled nor directly undermined Smith Land. Furthermore, a uniform federal standard is appropriate under Kimbell Foods and O'Melveny: (1) the nature of the federal program, a comprehensive federal liability statute, counsels in favor of national uniformity; (2) a uniform successor liability standard is necessary to advance CERCLA's remedial objectives and to facilitate a fluid market in corporate and brownfield assets; and (3) uniform application of the majority state standard accords proper respect to commercial relationships predicated on the majority state law. Therefore, we will apply "the general doctrine of successor liability in operation in most states." Smith land, 851 F.2d at 92.

General Battery, at *25-26.

The court went on to hold that the asset purchase by the defendant's predecessor of the defunct corporation constituted a de facto merger based on the four-part test under the majority standard. The facts central to the court's holding were the defunct corporation's sole shareholder obtained shares in the purchasing corporation essentially equal to that corporation's founders and obtained a seat on the board of directors; the purchasing corporation bought all equipment, continued manufacturing the same type of batteries, the work force and managers retained their positions; the defunct corporation ceased all operations and completely liquidated and dissolved after a brief waiting period; and the purchasing corporation assumed all obligations of the defunct corporation. The court also rejected the defendant's argument that imposition of successor liability years after the asset purchase defeats the expectations of the parties. The court noted that the general de facto merger standard tracks Pennsylvania law therefore the parties should not be surprised by the holding and "CERCLA by its very nature upsets party expectations." Id. at *40.

In closing, the court briefly addressed the district court's alternative holding and held that the "substantial continuity" theory is not a proper basis for successor liability under CERCLA and is inconsistent with United States v. Bestfoods, 524 U.S. 51 (1998).

Issue Preclusion Does Not Apply to All Trial Court Findings If Case Is Appealed and Appellate Court Affirms on Only One Issue

In Chemi Spa v. Glaxosmithkline, 2005 U.S. Dist. LEXIS 14424 (E.D. Pa. 2005), the district court held that only a portion of another district court's findings invalidating a patent were entitled to preclusive effect in an unlawful monopolization claim because only one aspect of that district court's holding was affirmed on appeal to the Third Circuit. In Chemi Spa, the plaintiff sued the defendant for unlawful monopolization of the market for nabumetone, alleging the defendant filed an invalid patent, then filed patent infringement actions against two of the plaintiff's potential American customers who had filed an abbreviated new drug application for nabumetone. The filing of the patent infringement actions resulted in an automatic 30-month stay of approval of those applications and an inability of the customers to buy and sell the plaintiff's nabumetone.

In the patent case, the district court held that the patent was invalid and unenforceable for two reasons-anticipated by prior art and inequitable conduct. On appeal, the Third Circuit affirmed as to the first and did not reach the latter issue. Chemi Spa asked the court to give preclusive effect to a number of findings from the district court in the patent litigation. The court refused to give such effect to all but three findings-those related to the finding of invalidity as anticipated by prior art-because "[w]here a district court judgment is based on alternative grounds and only one of those grounds is affirmed on appeal, only the findings essential to the ground which was affirmed can be subject to issue preclusion." Id. at *10.