Pennsylvania Litigation Lawyer & Attorney : Barley Snyder Law Firm : Serving Lancaster, Reading, York, Chambersburg

Last month, the NJ Attorney General filed a petition for a declaration of insolvency and liquidation on behalf of MIIX Insurance Company. Despite the "successful cooperation" which characterized the MIIX rehabilitation effort, the AG's office noted that at year end 2007, MIIX's outstanding claims had the potential to "break the bank." One purpose of the proposed order of liquidation was to allow MIIX's remaining claimants to recover from various state guaranty funds. Here in PA, that means The Pennsylvania Property, Casualty Insurance Gaurantee Association , fondly known as PPCIGA (pronounced pi - guh). Our PPCIGA statute is codified at 40 P.S. Section 991.1801 et. seq.

The Superior Court of NJ, Chancery Division, has at this point entered a stay order, which suspends activity on all litigation matters involving MIIX insured, "pending in NJ or elsewhere."

This is probably a good time to review the basic provisions of our PPCIGA statute.

Per the statute, PPCIGA provides $300,000 per claimant in coverage. However, in 2006, the Superior Court clarified that in cases involving multiple PPCIGA insureds, each insured must be given $300,000 in coverage, regardless of the number of claimants. In other words, you would not have a situation where three insured would have only one $300,000 policy between them because there was only one Plaintiff in the case. See: Valley Medical Facilities, Inc. v. Pennsylvania Property and Cas. Ins. Guar. Ass'n , 902 A.2d 547 (2006). 

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Under Pennsylvania law, it is well established that “when one company sells or transfers all of its assets to another company, the purchasing or receiving company is not responsible for the debts and liabilities of the selling company simply because it acquired the seller’s property.” Continental Ins. Co. v. Schneider, Inc., 582 Pa. 591, 599, 873 A.2d 1286, 1291 (2005). 

However, a party can overcome the general rule of non-liability if it can establish that:

(1)        the purchaser expressly or implicitly agreed to assume liability;

(2)        the transaction amounted to a consolidation or merger;

(3)        the purchasing corporation was merely a continuation of the selling corporation;

(4)        the transaction was fraudulently entered into to escape liability; or 

(5)        the transfer was without adequate consideration and no provisions were made for                                  creditors of the selling corporation.

Id. There is also a product-line exception which requires that the entity selling its assets must cease to exist as a functioning business entity before the purchasing entity can be held liable under a successor theory. See Heritage Realty Management, Inc. v. Symbiot Snow Management Network, LLC, 2007 W.L. 2903941 (W.D. Pa. 2007).

Most cases in this area simply combine the analysis related to the merger and continuation exceptions. See Berg Chilling Systems, Inc. v. Hull Corp., 435 F.3d. 455, 468 (3rd Cir. 2006). In determining whether a transaction is a de facto merger or a continuation, courts look to the following factors:

(1)     There is a continuation of the enterprise of the seller corporation, so that there is a    continuity of management, personnel, physical location, assets, and general business operations;

(2)     There is a continuity of shareholders which results from the purchasing corporation paying for the acquired assets with shares of its own stock, the stock ultimately coming to be held by the shareholders of the seller corporation so that they become a constituent part of the purchasing corporation;

(3)     The seller corporation ceases its ordinary business operations, liquidates, and dissolves as soon as legally and practically possible; and

(4)     The purchasing corporation assumes those obligations of the seller ordinarily necessary for the uninterrupted continuation of normal business operations of the seller corporation. 

Id. (citing Philadelphia Electric Co. v. Hercules, Inc., 762 F.2d 303, 310 (3rd. Cir. 1985) (applying Pennsylvania law))). Significantly, while not all factors are required to weigh in favor of de facto merger to establish successor liability in a given case, Pennsylvania courts (and especially federal district courts within the Commonwealth) do strongly emphasize the “continuity of ownership” factor as the most critical part of this four-factor test. Id. See also Heritage Realty, 2007 W.L. at *8.

There is no bright line rule as to what percentage of ownership must be acquired by the seller in the new company to constitute “continuity of ownership.” Id. However, two recent decisions by the United States Bankruptcy Court in the Eastern District of Pennsylvania have found that ownership interest of 71% and 41.26% in the new company were sufficient to constitute continuity of ownership. Id. (citing In Re: Total Containment, Inc., 335 B.R. 589, 617-18 (Bkrtcy. E.D. Pa. 2005) (71% ownership after transfer is sufficient) and In re Asousa Partnership, 2006 WL 1997426 (Bkrtcy.E.D.Pa. 2005) (41.26% ownership is sufficient).

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One of the hottest topics targeted at the aviation industry these days is the public outcry to implement operating rules directed at the airline industry that: (1) recognize certain "rights" for airline passengers; and (2) provide remedies to those persons when such "rights" are violated. Air travel can be for sure a trying experience. Security checkpoints (take off your shoes--remove your laptop to have screened separately), carry on restrictions (deposit liquids, gels, and nail clippers in the box to the side of the conveyor belt please), changed gates, changed baggage claims, rules that "require" you arrive to the airport two hours before your flight and of course, the biggest complaint--delays. These describe only a few common burdens and annoyances the casual and professional traveler must face.

With all of the aforementioned rigors being imposed upon the traveling public, perhaps the industry should not be surprised of the consumer revolt now underway that is sponsored at the top by large well organized consumer advocacy groups and range across the spectrum to individuals voicing their most frequent recent displeasure. A war has been seemingly been waged between the airlines and those groups and individuals tired of their perceived current state of affairs of air travel. The common ground shared by each group, however (or so I choose to believe), in its most basic sense is the continued improvement of the industry.

The airlines point to the matters that do happen legitimately that are not within their control. For example, changes in weather, instructions from air traffic control, unexpected mechanical problems and anyone one or combination of the same have a ripple effect when a legitimate "hiccup" occurs that delays all subsequent events in the chain of air travel. Consumer groups point to actual events of passengers that have been "stuck" sitting on an aircraft whether at the gate or tarmac for four, five or more hours for no seemingly good reason, stories of over-flowing toilets and of course challenge certain operating procedures such as "overbooking" of flights.

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A corrections officer has a duty to protect inmates. If he/she turns a blind eye on threatened or actual physical assaults of inmates for fear of retaliation by coworkers, the officer is not entitled to collect unemployment-compensation benefits after being fired for doing so. See Department of Corrections v. Unemployment Compensation Board of Review, -- A.2d --, No. 1205 D.C. 2006 (Commw. Ct. March 6, 2008).

The Lancaster Service Center and the Commonwealth Court of Pennsylvania agree on that. The Unemployment Compensation Board of Review disagreed, though, and awarded benefits.

On the employer’s appeal, the Commonwealth Court held that the corrections officer was not entitled to benefits because the officer’s fear of retaliation was not good cause for willful misconduct. The misconduct was violating his duty to protect inmates and therefore acting contrary to the employer’s best interests and intentionally disregarding the behavior standards that the employer could expect. (If an employee proves that he/she had good cause for willful misconduct, benefits can be awarded.) As the appellate court put it:

[I]t shocks the conscience of this Court that the Board concluded that a corrections officer who refused to report a threat of violence against an inmate and refuses to render aid to an inmate being beaten could use fear for his own personal safety as good cause justification for his refusal to render aid.

The corrections officer argued that he had good cause for the violations because he feared for his own future safety if his coworkers retaliated against him for thwarting the attack engineered by a fellow corrections officer. No doubt, this is not a position anyone would want to find themselves in. However, the officer’s fear was held not to justify his disregard of what he was hired to do.

The prudent thing for the officer to do would have been to act to protect the inmate, then enlist the employer’s assistance with dealing with any retaliation by coworkers. While that option might not have been appealing to the officer from a practical perspective, his employer had to be able to rely on the officer to discharge his duty of protecting inmates. An employer entity can only act through its representatives.

This decision can apply to other workplaces as well, standing for the general proposition that an employee who willfully violates a job duty because of fear of coworkers’ retaliation must not be awarded unemployment-compensation benefits.

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In at least two instances, DEP has recently begun requiring developers to perform an anti-degradation analysis for on-lot septic systems relative to potential impacts to special protection waters. Both of these matters relate to planning modules for 537 Plan Revisions for subdivisions within the Pine Creek Basin in Berks County. Under the Department’s regulations, when a hydrogeologic study is required to determine potential impacts to groundwater, such study relates to the minimum lot size required to properly assimilate nitrogen from the on-lot systems to ensure that the drinking water wells of down gradient lots are not adversely affected by causing the nitrate level to exceed 10 mg/l. Under DEP’s new position, where the proposed on-lot systems are located within special protection waters, DEP now required an assessment of potential impacts to those waters. There is presently litigation pending before the Environmental Hearing Board relative to the validity of the Department’s new policy, which policy appears to be at odds with the Department’s own anti-degradation policy.      

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The Department of Environmental Protection (“DEP”)has begun implementing “full cost bonding” for non-coal, industrial minerals permits. DEP is requiring additional bonding for all new permits as well as permit revisions and permit renewals. It does not appear that DEP has published the new bonding rates in accordance with the requirements of 25 Pa. Code § 77.202, as such there is some debate as to the propriety of DEP’s new policy. The new bonding rates will typically increase the total bond for a site from three to five times higher than the prior bond amount. Rather than the existing bond rate of $1,000 per acre, the new rates are at least $3140 per acre and depending on the required backfilling may total more than $5,000 per acre.

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On February 11, 2008, the United States Department of Labor (DOL) proposed new regulations regarding the Family and Medical Leave Act (FMLA). One topic of the DOL’s many proposals is the waiver of FMLA claims. 

The FMLA contains a provision that makes it unlawful for an employer to interfere with or restrain the exercise of any right protected under the FMLA. The DOL's current regulations regarding this provision state that an employer cannot “induce employees to waive their rights under the FMLA.” As we have reported previously, this language led to a debate among the courts whether employers wishing to resolve FMLA disputes could do so at all, or only with supervision from the DOL or with court approval. The federal court in the Eastern District of Pennsylvania recently held that employers could resolve FMLA disputes already in existence through private separation or settlement agreements, but that the employer could not require employees to waive their future FMLA rights through such a settlement. Dougherty v. Teva Pharmaceuticals USA, No. Civ. A. 05-2336 (E.D. Pa. August 2006). In a contrary ruling, however, the United States Court of Appeals for the Fourth Circuit (embracing federal courts located in Maryland, Virginia, West Virginia, North Carolina and South Carolina) held that the DOL’s waiver regulations prohibited all FMLA settlements without supervision from the DOL or without court approval. Taylor v. Progress Energy, Inc., 493 F.3d 454 (4th Cir. 2007).

The DOL’s proposed regulations, citing efficiency concerns and the public policy of promoting prompt settlements, make it clear that although employers may not enter into agreements that waive an employee’s “prospective rights under FMLA,” they can settle retrospective or existing claims in private agreements without oversight or approval from either the DOL or from a court.

You may submit comments about the proposed regulatory changes electronically at www.regulations.gov until midnight April 11, 2008. 

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On February 7, 2008, the U.S. District Court for the Middle District of Pennsylvania ruled that an invalid release under the Older Workers Benefit Protection Act (OWBPA) does not create an independent cause of action for damages. In Baker v. Washington Group Int’l Inc., the Court rejected the argument by a group of former employees who alleged that because their signed releases which waived potential discrimination claims were invalid under the OWBPA, they were entitled to damages under the Age Discrimination in Employment Act (ADEA).

The terminated employees had been presented with separation agreements and general releases in which they agreed to release and discharge their employer, WGI, for any and all claims, including claims under the ADEA. In return for signing the release, employees were provided with up to four weeks of severance. The employees were given 21 days to sign the release.

The employees sued under the ADEA alleging that WGI had failed to provide them with “sufficient, correct, and proper notice” as mandated for an employee’s waiver of an ADEA claim. Specifically, as required by the OWBPA, WGI had failed to provide the employees with 45 days for review of the release and the employees were not informed in writing of the ages of all individuals selected for termination and the ages of all individuals in the same job classifications who were not selected for termination.

In granting WGI’s motion for judgment on the pleadings, the Court held that the employees could not sue for damages under the ADEA simply based on the employer’s noncompliance with the OWBPA requirements. The employees’ claim against WGI was not based on a contention that the company had discriminated against them on the basis of age, but rather that its release did not comply with the statutory requirements under the OWBPA. Under these circumstances, WGI argued that while the release was admittedly unenforceable, the employees lacked an ADEA claim. The Court agreed, and stated that “virtually every court that has confronted the issue has concluded that the OWBPA’s waiver requirements do not create and independent cause of action.” Further, while an OWBPA violation may negate a waiver, it does not create a right to sue under the ADEA.

The Third Circuit Court of Appeals has yet to rule on this issue; accordingly, the last chapter in this saga has yet to be written.

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A United States District Court for the Middle District of Pennsylvania has held that the policy language which excludes motor vehicles from coverage of a homeowner's policy does not apply to exclude an accident involving an all-terrain vehicle. Therefore, the insurance company which issued the homeowner's policy is required to provide liability coverage for the owner of the ATV.

There have been decisions from Pennsylvania state courts in the past which found that the homeowner's policy exclusion of motor vehicles did apply to the operation of an ATV.   The federal court reasoned otherwise.

Two boys were riding an ATV in 2004 --- "C.L.A." and "J.V."    J.V. was a passenger, riding behind C.L.A.   The ATV was owned by John Angerson, father of C.L.A.   They were riding on land adjacent to the property owned by Mr. Angerson.   Judge John E. Jones, III, found that the registration of an ATV required under Pennsylvania's Snowmobile and All-Terrain Vehicle Law was different from the registration of "motor vehicles" that is required under the Motor Vehicle Code. Therefore, he concluded, an ATV is not a "motor vehicle" and is not excluded from coverage.

Another issue addressed was whether the place where the accident occurred was an insured location, which under the policy would include premises used by the insured in connection with the covered residence and its grounds.    The area where the accident occurred was adjacent to the Angerson land and was regularly used by the Angersons for riding. Therefore, Judge Jones found it to be an insured location.

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