A Lackawanna County judge declined to dismiss a railroad employer from a lawsuit in which six former workers were suing the company for alleged negligent exposure to coal dust, ruling that the employer failed to raise, as an affirmative defense in a new matter, a waiver issue that otherwise could have insulated it from liability.

The judge, however, dismissed the defendant shortly thereafter, ruling from the bench at a Frye hearing last week, according to the plaintiffs’ attorney, Gerard J. Martillotti.

Martillotti declined further comment.

As for the waiver issue, Court of Common Pleas Judge Terrence R. Nealon said the defense failed to raise the issue at the appropriate time. In a February 6 opinion, Nealon said defendant Delaware and Hudson Railway Co.’s argument regarding an asset purchase agreement (APA) on a 1991 acquisition of the company raised facts that, if true, would have defeated the Federal Employers’ Liability Act claims facing the company, even if the allegations in the plaintiffs’ lawsuit were accepted as true.

That is, if not for the fact that D&H did not raise the argument until last year, when discovery was closed and the case was certified for trial.

Writing in Dennis v. Delaware and Hudson Railway, Nealon noted the purpose of the rule requiring defendants to raise affirmative defenses in a new matter is to notify plaintiffs of relevant defenses they, in turn, have to rebut.

D&H had argued it purchased the company "’free and clear of any and all liens, claims, encumbrances, charges and interests’" facing its predecessor.

The plaintiffs, on the other hand, in their supplemental briefs, had sought to avoid the application of the general principle that the purchaser of a corporation’s assets does not assume the liabilities of the selling corporation. The plaintiffs argued that the asset sale of the former Delaware and Hudson Railway company was a de facto merger or that the new company was, as Nealon phrased the plaintiffs’ argument, "merely a continuation of the selling corporation."

To establish either of those exceptions to the otherwise general rule that asset purchasers do not assume a seller’s liability, a plaintiff needs to produce evidence regarding the continuity of management, personnel, location, business operations and shareholders between an old company and the new one, Nealon said.

"If D&H had asserted the APA as an affirmative defense in its new matter in 2005, plaintiffs would have been notified of that defense and afforded the opportunity [to] conduct relevant discovery in an effort to establish a de facto merger or mere continuation exception," Nealon said.

The plaintiffs’ claims, Nealon said, involved alleged negligent occupational exposures to coal dust during periods of employment with the old company.

In the late 1980s, the old D&H filed for bankruptcy and was eventually sold to Canadian Pacific Ltd., which formed a corporate entity, D&H Corp., to prepare for the purchase.

In 1990, a trustee approved Canadian Pacific’s proposal to purchase substantially all of D&H’s property for $25 million, plus the assumption of certain liabilities.

Shortly thereafter, the U.S. Bankruptcy Court for the District of Delaware entered an order approving the APA.

The underlying lawsuit actually first came as several lawsuits in 2005, but Nealon, in an opinion from last fall, ruled to consolidate the cases of the railroad worker plaintiffs because all of their cases involved a common question of law or fact.

In this case, it turned out to be both, as the men are all seeking solely non-economic damages under FELA for their exposure to toxic dust and fumes.

Nealon then denied the bid of D&H to keep the matters separate in order to avoid prejudice and jury confusion.

At that time, there were eight plaintiffs; as of Nealon’s February 6 opinion on the affirmative defense issue, there were six.

Following the Frye hearing, it was unclear whether the plaintiffs would appeal the decision. As of press time, Nealon had not issued an opinion on that issue.

D&H’s attorney, J. Lawson Johnston of Pion, Johnston, Nerone, Girman, Clements & Smith in Pittsburgh, did not return a call requesting comment.

Ben Present can be contacted at 215-557-2315 or bpresent@alm.com. Follow him on Twitter @BPresentTLI. •

(Copies of the 20-page opinion in Dennis v. Delaware and Hudson Railway, PICS No. 13-0365, are available from Pennsylvania Law Weekly. Please call the Pennsylvania Instant Case Service at 800-276-PICS to order or for information.) •