Not Precedential

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT
___________
No. 10-3495
___________
DARREN JOHNSON,
Appellant
v.
DOCTOR STEMPLER; DOCTOR DENNIS MOYER, COMMISSIONER
MARTIN HORN; PRISON HEALTH SERVICES, INC.;
CORRECTIONAL PHYSICIAN SERVICES, INC
____________________________________
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Civil No. 2-00-cv-00711)
Magistrate Judge: Honorable Jacob P. Hart (by consent)
____________________________________
Submitted Pursuant to Third Circuit LAR 34.1(a)
April 11, 2011
Before: BARRY, JORDAN AND GARTH, Circuit Judges
(Opinion filed: April 13, 2011)
_________
OPINION
_________
PER CURIAM
Darren Johnson, a prisoner of the Commonwealth of Pennsylvania, appeals from
an order denying his Motion for Relief from Judgment under Fed. R. Civ. P. 60(b)(2).
We will affirm.
I.
In 1999, while incarcerated at SCI-Graterford, Johnson suffered a knee injury. He
filed suit under 42 U.S.C. 1983 in 2000, claiming that he had received inadequate and
delayed treatment in violation of his rights under the Eighth Amendment to the United
States Constitution, which led to permanent damage. See Johnson v. Stempler, No. 00711, 2005 U.S. Dist. LEXIS 765, at *12 (E.D. Pa. Jan. 18, 2005).
Among those named in the suit as defendants were Correctional Physician
Services, Inc. (CPS) and Prison Health Services, Inc. (PHS), a subsidiary of American
Service Group, Inc. (ASG). CPS is a private corporation [that was] contracted to
provide medical services for inmates at SCI-Graterford, by employing doctors as
independent contractors for on-site care and by arranging aspects of off-site care when
necessary. See Johnson v. Stempler, No. 00-711, 2007 U.S. Dist. LEXIS 21726, at *2
(E.D. Pa. Mar. 27, 2007).1 PHS replaced CPS as the medical contractor for the institution
pursuant to an Asset Purchase Agreement (APA) executed on March 29, 2000, which
transferred CPSs assets to PHS in exchange for $14,000,000, some of which was to be
used to compensate CPSs two shareholders and some of which was to be reserved for
CPSs creditors. The two shareholders of CPS were also to take roles as consultants at
PHS. Significant to the instant appeal, PHS agreed to assume all liabilities arising after
CPS and PHS, despite being private entities, are subject to suit under 42 U.S.C.
1983 because they exercise powers that were traditionally the prerogative of the
state, act in close concert with state officials, and are significantly entangled with
traditional state activities. See Kach v. Hose, 589 F.3d 626, 646 (3d Cir. 2009).
2
the Closing Date with respect to the provision of services to inmates covered by the PA
Contract, and explicitly declined to assume any liability or obligation of [CPS]
whatsoever which accrued at any time on or prior to the Closing Date, whether or not
such liability or obligation arises prior or subsequent to the Closing Date, including . . .
litigation or claims. APA 3.1, .3. Following the transfer of assets, it appears that
CPS was quickly depleted of any remaining funds and ceased to function.2
On January 18, 2005, the District Court partly granted defendants motion for
summary judgment, dismissing all claims against PHS but sustaining some claims against
CPS. In dismissing the claims against PHS, the District Court reasoned that Johnsons
injury predated PHSs assumption of duties at Graterford; as Johnson offered no
evidence to show that PHS was involved with medical care at SCI-Graterford at that
time, [PHS could] bear no liability for the events giving rise to this suit. Stempler, 2005
U.S. Dist. LEXIS 765, at *1617.
Counsel was then appointed to represent Johnson. Following a protracted
discovery battlewhich led the District Court to sanction CPS on January 30, 2006
Johnson belatedly acquired access to the APA. On March 1, 2006, he filed a Motion for
Relief from Judgment under Fed. R. Civ. P. 60(b)(2), arguing that the APA demonstrated
PHSs assumption of relevant liabilities from CPS and asking for PHS to be reinstated as
For example, on September 6, 2007, counsel for CPS requested to withdraw, as he

had been informed by the former president and shareholder of CPS that CPS had no
assets and no ability to pay him for the defense. Mot. of Alan S. Gold, Esq., to
Withdraw 6, ECF No. 155.
3
a defendant in the suit. The District Court denied this motion on October 5, 2006,
observing that it was untimely filed but also briefly addressing the merits.
CPS filed a second motion for summary judgment, which was denied by the
District Court on March 27, 2007. Johnson secured a default judgment against CPS on
March 28, 2008, see Order, ECF No. 165, and was awarded $65,000 in damages.3 He
appealed the adverse rulings, and while we affirmed the majority of the District Courts
dispositions, we vacated its denial of Johnsons Rule 60(b)(2) motion; as Rule 60(b)
applies only to final judgments, the one-year time limitation imposed by the Rule does
not apply to situations where the order in question was not properly appealable in the first
place. Johnson v. Stempler, 373 F. Appx 151, 156 (3d Cir. 2010).
On remand, the District Court considered three issues: 1) whether the contractual
language of the APA suggested an assumption of responsibility for suits arising out of
pre-agreement conduct; 2) whether the doctrine of de facto merger established PHS as the
successor in interest to CPS, regardless of the APA; and 3) whether this Courts holding
in Brzozowski v. Correctional Physician Services, Inc., 360 F.3d 173 (3d Cir. 2004),
which found potential for successor liability in a Title VII claim involving the selfsame
APA in controversy in the instant suit, would compel a finding of PHS as the successor in
interest to CPS. See id. at 179. The District Court held that 1) the plain language of the
The default judgment stemmed from CPSs failure to acquire new counsel after the
withdrawal of its prior counsel. CPS and its representatives also failed to participate
at the hearing to determine appropriate damages. See 5/28/2008 Tr. 3:1015, ECF
No. 177.
4
APA did not support an assumption of liability, 2) no de facto merger existed under either
Pennsylvania law or federal common law, and 3) Brzozowski was not analogous and did
not establish successor liability in all situations arising out of this APA. As discovery of
the Asset Purchase Agreement would not have changed the outcome of trial under Rule
60, the District Court denied the motion. Johnson v. Corr. Physician Servs., 725 F.
Supp. 2d 481, 49091 (E.D. Pa. 2010). This appeal followed.
II.
We have jurisdiction under 28 U.S.C. 1291,4 and review the District Courts
denial of a Fed. R. Civ. P. 60(b)(2) motion for abuse of discretion. Compass Tech. v.
Tseng Lab., 71 F.3d 1125, 1130 (3d Cir. 1995). An abuse of discretion may be found
when the district courts decision rests upon a clearly erroneous finding of fact, an errant
conclusion of law or an improper application of law to fact. Morris v. Horn, 187 F.3d
333, 341 (3d Cir. 1999) (internal quotations, citations omitted).
III.
The general rule of corporate successorship accepted in most states is nonliability for acquiring corporations . . . [but] [t]he purchaser may be liable where: (1) it
assumes liability; (2) the transaction amounts to a consolidation or merger; (3) the
Johnson filed a Fed. R. Civ. P. 60(b)(6) motion on August 15, 2010; accordingly,
our jurisdiction was forestalled pursuant to Fed. R. App. P. 4(a)(4)(B)(i). See
Carrascosa v. McGuire, 520 F.3d 249, 253 (3d Cir. 2008). The District Court denied
the motion on August 31, 2010. The 60(b)(6) motion is not before us, as Johnson has
not amended his Notice of Appeal. See Fed. R. App. P. 4(a)(4)(B)(ii).
5
transaction is fraudulent and intended to provide an escape from liability; or (4) the
purchasing corporation is a mere continuation of the selling company. United States v.
Gen. Battery Corp., 423 F.3d 294, 305 (3d Cir. 2005) (citations omitted). Johnson raises
options (1), (2), and a variation of (4).
A) Contract Interpretation and Liability under the APA

Johnson argues that the APA proves that PHS assumed a financial obligation for
his injury, as the liability arising therefromwhich he defines as the legal obligation of
an actual judgmentdid not materialize until the default judgment was entered against
CPS, long after the execution of the APA.5 PHS counters that this definition of
liability is unworkable and was not contemplated by the parties to the agreement. The
District Court agreed with PHS, finding Johnsons proffered definition of liability
(derived from its Blacks Law Dictionary entry) to be unduly cumbersome and ultimately
nonsensical in the context of the APA. Johnson, 725 F. Supp. 2d at 487. Accordingly,
PHS [was] not liable regarding the medical care offered to Johnson because it occurred
before the closing date. Id.
Johnson also argues that, if liability means the basis of the claim, he should still
prevail, as his 1983 suit did not mature until after he had exhausted his
administrative remedies as required by the PLRA. To the extent that this alternative
argument is properly before us, it is meritless, as it is based on a faulty premise. See,
e.g., Brown v. Valoff, 422 F.3d 926, 94243 (9th Cir. 2005) (tolling statute of
limitations during exhaustion of administrative remedies); Johnson v. Rivera, 272
F.3d 519, 522 (7th Cir. 2001) (same).
6
The paramount goal of contract interpretation [in Pennsylvania] is to determine

the intent of the parties. NOVA Chems., Inc. v. Sekisui Plastics Co., 579 F.3d 319, 323
(3d Cir. 2009) (citations omitted). There is a strong argument to be made that the parties
did not wish to subject PHS to suit for violations that occurred before it acquired CPSs
assets. For example, the language of section 3.1 of the APA takes pains to distinguish
liabilities occurring before and after the closing date from liabilities derived from preclosing-date responsibilities that become effective only after the closing date. Section
3.1(ii) provides for the assumption of all accrued current liabilities of [CPS] as of the
Closing Date with respect to the Business with respect to payroll and accrued vacation
pay to the extent attributable to any payroll period ending after the Closing Date that
relates to the operation of the Business prior to and after the Closing Date. By contrast,
section 3.1(iii), relied upon by Johnson, only mentions liabilities arising after the
Closing Date with respect to the provision of services to inmates covered by the PA
Contract.
We are not unsympathetic to Johnsons argument, especially given the convoluted
verbiage of the APA, but our standard of review is not de novo, and Johnson has not
shown why the District Courts conclusion is either legally erroneous or factually
unsupportable. Therefore, we are unable to find that the District Court abused its
discretion on this ground.
B) De-Facto Merger
A de facto merger inquiry investigates whether a transaction labeled Asset
Purchase Agreement in fact constituted a merger a determination that does not arise
purely from the agreement itself. Berg Chilling Sys. v. Hull Corp., 435 F.3d 455, 465
(3d Cir. 2006). Under the majority standard, elements of a de facto merger include: 1)
continuity of management, personal, physical location, assets, and general business
operations; 2) continuity of shareholders; 3) rapid liquidation of the seller corporation and
cessation of business; and 4) uninterrupted continuation of business and assumption of
liabilities.6 Gen. Battery Corp., 423 F.3d at 305.
We agree with the District Court that there is no evidence of factors 1 and 2. The
two shareholders of CPS, while assuming consultancy positions at PHS, took on no
equity shares or leadership roles in PHS.7 The District Court did not abuse its discretion
in finding there to be no de facto merger.
As observed by the District Court, Pennsylvania explicitly requires the existence of

continuity of ownership in order to consider the de facto merger doctrine, although the
matter is currently before its Supreme Court. See Fizzano Bros. Concrete Prods. v.
XLN, Inc., 973 A.2d 1016, 1020 (Pa. Super. Ct. 2009), allocatur granted, 994 A.2d
1081 (Pa. 2010).
7
In fact, it appears that the shareholders started another prison healthcare company in
the wake of the CPS sale. See Gary Craig, Lawsuits Entangle Jail-Care Provider,
Rochester Democrat & Chron., Mar. 20, 2010.
8
C) Brzozowski Liability
Lastly, Johnson argued that Brzozowski compels a finding of successor liability.
Brzozowski examined the same APA in the context of a Title VII employment
discrimination suit, and held that the District Court erred in refusing to allow joinder of
[PHS] as an additional defendant in a suit against CPS. Brzozowski, 360 F.3d at 179.
We agree with the District Court that Brzozowski was premised on the specific concerns
raised by employment liability actions, and was indeed based on an analysis of factors
applicable to successor liability in the employment discrimination field. Id. at 179
(citing Rego v. ARC Water Treatment Co. of Pennsylvania, 181 F.3d 396, 401 (3d Cir.
1999)) (emphasis added). It does not command a similar outcome here.
IV.
As the District Court did not abuse its discretion in denying the Rule 60(b)(2)
motion, we will affirm its judgment. PHSs motion for leave to file an amended appellee
brief is denied as unnecessary.

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UNITED STATES COURT OF APPEALS

For example, on September 6, 2007, counsel for CPS requested to withdraw, as he

A) Contract Interpretation and Liability under the APA

The paramount goal of contract interpretation [in Pennsylvania] is to determine

As observed by the District Court, Pennsylvania explicitly requires the existence of

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