SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
April 16, 1999
Williams Industries, Incorporated
(Exact name of registrant as specified in its charter)
Virginia 0-8190 54-0899518
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) identification No.)
incorporation)
2849 Meadow View Road, Falls Church, Virginia 22042
(Address of principal executive offices) (Zip Code)
(703) 560-5196
(Registrant's telephone number, including area code)
Not Applicable
(Former names or former address if changes since last report)
ITEM 5. Other Events.
On April 16, 1999, the Virginia Supreme Court issued
its decision in the matter of Industrial Alloy Fabricators,
Inc. and Precision Components Corp. v. Williams Industries,
Inc., Record No. 981093, affirming the decision of the Circuit
Court for the City of Richmond, in favor of Williams
Industries, Inc. The text of the opinion, formatted for
the EDGAR system, is an exhibit to this filing. The official
version of the opinion is available on the Court's Website
at: http://www.courts.state.va.us/opinion/1981093.doc
ITEM 7. Exhibits
EX 99 Decision of the Supreme Court of Virginia
issued April 16, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned hereunto duly
authorized.
WILLIAMS INDUSTRIES, INCORPORATED
Date: April 28, 1999 /s/ Frank E. Williams, III
By: Frank E. Williams, III
President
NOTE: THIS OPINION HAS BEEN REFORMATTED FOR THE EDGAR
SYSTEM, AND THE FOOTNOTES APPEAR AT THE END OF THE DOCUMENT
Present: All the Justices
INDUSTRIAL ALLOY
FABRICATORS, INC., ET AL.
OPINION BY
v. Record No. 981093 CHIEF JUSTICE HARRY L. CARRICO
April 16, 1999
WILLIAMS INDUSTRIES, INC., ET AL.
FROM THE CIRCUIT COURT OF THE CITY OF RICHMOND
Melvin R. Hughes, Jr., Judge
This is an indemnification and warranty case involving
the purchase of corporate assets by Industrial Alloy
Fabricators, Inc. (Industrial Alloy) and Precision
Components Corporation (Precision Components) from Williams
Industries, Inc. (Williams Industries) and IAF Transfer Corporation
(IAF Transfer). From a judgment in favor of Williams Industries
and IAF Transfer, we awarded Industrial Alloy and Precision
Components this appeal.
Industrial Alloy is a Pennsylvania corporation with
its principal place of business in Richmond, Virginia. At all
relevant times, it has been engaged in the business of
providing customers with design and production of custom
pressure vessels, tanks, reactors, distillation columns,
and other process equipment. Precision Components, which is
also a Pennsylvania corporation, is "the majority holder" of
Industrial Alloy. Precision Components' principal place of
business is in York, Pennsylvania.
Williams Industries is a Virginia corporation with its
principal place of business in Fairfax County. IAF
Transfer is also a Virginia corporation based in Fairfax County, and
it is the wholly owned subsidiary of Williams Industries.
IAF Transfer formerly was known as Industrial Alloy
Fabricators, Inc. (a Virginia corporation), but changed its
official corporate name to IAF Transfer Corporation (a
Virginia corporation) about the time the parties entered
into an "Asset Purchase Agreement" (the Agreement), which is at
the heart of the present controversy.
The Agreement is dated October 31, 1994. Pursuant to
its terms, Precision Components and Industrial Alloy (the
Buyers) agreed to purchase for $3,600,000 all the assets,
including the corporate name, of the former Industrial
Alloy Fabricators, Inc. from IAF Transfer and Williams Industries
(the Sellers). The Agreement provided that it was to be
governed by and construed in accordance with the laws of
the Commonwealth of Pennsylvania.
In section 9.1 of the Agreement, the Sellers agreed to
indemnify the Buyers "against and in respect of, any and
all claims, damages, actions, judgments, losses, liabilities,
and expenses, including reasonable fees and disbursements of
counsel, incurred by [the Buyers] arising from or in
connection with . . . (a) all Liabilities of [the Sellers],
whether accrued, absolute, fixed, contingent or otherwise,
other than Assumed Liabilities." The Sellers further
agreed in section 9.1(b) to indemnify the Buyers against "any
breach of any covenant or obligation of [the Sellers] incurred
under this Agreement, or because any representation or warranty
by [the Sellers] contained herein . . . shall be false or
misleading."
In section 2.2 of the Agreement, the Buyers assumed
certain liabilities shown on an October 31, 1994 balance
sheet as well as liabilities or obligations arising under
certain contracts. Section 2.1 provided, however, that,
except for the assumed liabilities, the Buyers would not be
"liable for any debt, claim, responsibility, damages,
fines, penalties, costs, expenses, liability or obligation of [the
Sellers] . . . whether disclosed or undisclosed . . . fixed
or contingent [and] whether due or to become due."
Section 6.14 of the Agreement provided that the
Sellers shall comply with the provisions of the Virginia Bulk
Sales Act, Code sections 8.6-101 through -111, "in connection
with this sale of assets."[note 1] In this section of the
Agreement, the Sellers also warranted that "there are no
creditors of any type or nature which have not specifically
been disclosed by identity and amount" to the Buyers.
Section 9.3 of the Agreement required the "Indemnified
Party" to notify the "Indemnifying Party" by registered
mail whenever any claim for indemnification arises under the
Agreement. Section 9.4 gives the "Indemnifying Party" the
right to participate in the defense of any claim or demand
by any third party against the "Indemnified Party." And
section 9.5 provided that "the Indemnified Party shall make
no settlement of any claim that would give rise to
liability on the part of the Indemnifying Party under an indemnity
contained in this Section 9 without the written consent of
the Indemnifying Party." (Emphasis added.)
At the time the parties entered into the Agreement in
October 1994, there was pending in the United States
District Court for the Middle District of North Carolina a products
liability action which had been initiated on March 31,
1994, by Unitex Chemical Corporation against the former
Industrial Alloy Fabricators, Inc. Unitex Chemical Corp. v.
Industrial Alloy Fabricators, Inc., No. 2:94CV00164 (M.D. N.C.,
Greensboro Div.) (the North Carolina litigation). It was
stipulated below that the Buyers, prior to their purchase
of the assets in question, received a letter signed by counsel
for the Sellers which provided a description and analysis
of litigation pending against the former Industrial Alloy
Fabricators, Inc., including the North Carolina
litigation. It was further stipulated that the letter was incorporated
by reference into the Agreement. However, it is undisputed
that the claim asserted in the North Carolina litigation was not
one of the liabilities assumed by the Buyers pursuant to
section 2.2 of the Agreement.
Core States Bank, N.A. (the Bank), had agreed to
finance the Buyers' acquisition of the assets, and the Bank wanted
to protect the collateral that would act as security for the
debt. Although the Agreement required the Sellers to
furnish the Buyers a list of the Sellers' creditors and the Buyers
had requested such a list, none had been furnished as the
date approached for closing under the Agreement, and the
Bank refused to release the funds. As a direct result, the
parties and the Bank entered into an escrow agreement,
which provided for the establishment of an escrow account to
ensure the Sellers' compliance with the Virginia Bulk Sales Act.
Although the Sellers believed the Bulk Sales Act did not
apply to the transaction involved in the Agreement, they
acquiesced in and agreed to the Buyers' publication of a
notice in the Richmond Times-Dispatch of the Buyers' intent
to pay the Sellers' debts in full.[note 2]
The notice, prepared by the Buyers' then counsel,
stated that a bulk transfer was about to be made by the former
Industrial Alloy Fabricators, Inc., as the seller, to the
new Industrial Alloy Fabricators, Inc., as the buyer, and that
"Buyer has become bound by the terms of a certain agreement
between it and Seller to pay Seller's debts in full." The
notice appeared in the newspaper on November 3 and 10,
1994. The parties then proceeded to close the transaction for the
asset purchase.
On September 18, 1995, Unitex Chemical Corporation,
the plaintiff in the North Carolina litigation, filed a
complaint against the Buyers in the United States District Court for
the Eastern District of Virginia alleging a violation of
the Bulk Sales Act for the Buyers' failure to give Unitex
notice of the asset transfer. Unitex Chemical Corp. v. Industrial
Alloy Fabricators, Inc., Civil Action No. 3:95CV777 (E.D.
Va., Richmond Div.) (the Virginia Bulk Sales litigation).
In their answer filed January 6, 1996, the Buyers responded
that they "were not required to provide [Unitex notice] because
the transaction was exempted, pursuant to Virginia Code
section 8.6-103." Unitex then sought leave to amend its
complaint to seek a declaratory judgment that the Buyers
had assumed the debts of the former Industrial Alloy
Fabricators, Inc. by virtue of the notice published in the Richmond
Times-Dispatch.
The district court never ruled on Unitex's motion to
amend because, on March 20, 1996, the Buyers entered into a
"Stipulation and Settlement Agreement" with Unitex "to
settle all claims asserted" in the Virginia Bulk Sales
litigation. Pursuant to this agreement, Unitex dismissed the Virginia
Bulk Sales litigation in exchange for the Buyers' agreement
to pay any judgment returned for Unitex in the North
Carolina litigation.
The Sellers were aware of the filing of the complaint
in the Virginia litigation and of the fact that depositions
were scheduled to be taken in the case. However, the Buyers
neither gave the Sellers prior notice of the settlement of
the litigation nor sought their consent to the terms of the
settlement agreement.
The Buyers participated in settlement discussions
concerning the claim asserted in the North Carolina
litigation and ultimately contributed $300,000 toward
settlement of that claim. The parties to the litigation
entered into a "Settlement Agreement and Mutual Release of
All Claims" dated June 10, 1996.
The Buyers then made demand upon the Sellers to comply
with the indemnification provisions of the Agreement. The
Sellers made no response to the demand, and, on October 3,
1996, the Buyers filed in the court below a two-count
motion for judgment against the Sellers seeking to recover the
$300,000 the Buyers had contributed to settlement of the
North Carolina litigation, plus attorneys' fees and costs.
In Count I of the motion for judgment, the Buyers
alleged a breach of warranty by the Sellers for their
failure to disclose all the creditors of the former Industrial
Alloy Fabricators, Inc. In Count II, the Buyers sought to
enforce the indemnification provisions of the Agreement. In their
grounds of defense, the Sellers responded, inter alia, that
they were not liable to the Buyers because the sums for
which the Buyers sought indemnification "were the product of a
settlement [of the Virginia Bulk Sales litigation] of which
[the Sellers] were given no advance notice, and to which
[the Sellers] did not consent."
Both the Buyers and the Sellers filed motions for
summary judgment. The trial court denied the Buyers'
motion and took the Sellers' motion under advisement. At a bench
trial, the Sellers contended that the Buyers were not
entitled to recover because they failed to give notice of,
or obtain the Sellers' consent to, the settlement of the
Virginia Bulk Sales litigation, as required by sections 9.3
and .5 of the Agreement. The Buyers contended that the
notice and consent provisions of the Agreement were not
applicable because the Sellers' liability to indemnify the
Buyers did not arise from the settlement of the Virginia
Bulk Sales litigation. Rather, the Buyers said, the Sellers'
liability was a preexisting obligation arising from the
publication in the Richmond Times-Dispatch of the notice
whereby the Buyers agreed to be bound to pay the Sellers'
obligations in full, in which publication the Sellers
acquiesced.
Upon conclusion of the trial, the court issued a
letter opinion, which it incorporated into its final order by
reference. The court rejected the Buyers' contention that
the notice and consent provisions of the Agreement were not
applicable and agreed with the Sellers that the Buyers'
"failure to adhere to [the consent requirement of] Section
9.5 of the Asset Purchase Agreement will preclude the
[Buyers] from obtaining indemnification for their
contribution to the North Carolina litigation."
As noted previously, the Agreement provides that it is
to be governed by and construed in accordance with the laws
of the Commonwealth of Pennsylvania. In that Commonwealth,
"indemnification clauses are generally 'not favored by the
law' and are subject to a strict construction compelling an
interpretation 'against the party seeking their protection.'"
Lackie v. Niagara Mach. & Tool Works, 559 F. Supp. 377, 378
(E.D.Pa. 1983) (quoting Dilks v. Flohr Chevrolet, Inc., 192
A.2d 682, 687 (Pa. 1963)); see also Kiewit Eastern Co. v. L
& R Constr. Co., 44 F.3d 1194, 1202 (3d Cir. 1995)
(Pennsylvania law requires that an indemnity agreement be
strictly construed against party asserting it.)
In the interpretation of a contract, Pennsylvania law
requires that "'each and every part of it must be taken
into consideration and given effect, if possible, and the
intention of the parties must be ascertained from the
entire instrument.'" Bethlehem Steel Corp. v. MATX, Inc., 703
A.2d 39, 42 (Pa. Super. 1997) (quoting Marcinak v. Southeastern
Greene School District, 544 A.2d 1025, 1027 (Pa. Super.
1988)); see also Department of Transp. v. Manor Mines, Inc.,
565 A.2d 428, 432 (Pa. 1989) (when interpreting a contract,
court must give effect to all its provisions).
With respect to indemnification, the common law of
Pennsylvania requires that "[w]hen a party settles a claim
with an injured individual, then sues the party primarily
responsible for the harm for indemnity, the settling party
must prove[, inter alia,] that proper notice was given to
the party from whom it seeks indemnity." Consolidated Rail
Corp. v. Youngstown Steel Door Co., 695 F. Supp. 1577, 1581
(E.D.Pa. 1988); see also Tugboat Indian Co. v. A/S Ivarans
Rederi, 5 A.2d 153, 156 (Pa. 1939) (one secondarily liable
for injury may recover indemnity from one primarily
responsible provided he has given proper notice).
On appeal, the Buyers contend, as they contended below,
that the notice and consent provisions of the Agreement did
not apply to their settlement of the Virginia Bulk Sales
litigation because that "settlement did nothing more than
recognize an obligation previously created [upon the Buyers]
by virtue of the Bulk Sales Act public notice." The Buyers
state that section 9.5 requires consent when a settlement
"would give rise to liability on the part of the Indemnifying
Party." They then note that in Plymouth Township v. Borough
of Larksville, 110 A. 801 (Pa. 1920), the Pennsylvania
Supreme Court defined the term "liability" as including
"every kind of obligation, even obligations that are
unascertained or imperfect." Id. at 802.
From this, the Buyers argue that, "even though the
monetary amount of the obligation to Unitex was unascertained
at the time of the Agreement, liability still attached to
Buyers at the time of the Bulk Sales Act public notice in
November, 1994," and that it was this event, which had the
Sellers' approval, and not the settlement of the Virginia
Bulk Sales litigation, which "gave rise to the Sellers'
indemnification liability." Hence, the Buyers conclude, the
settlement of the Virginia litigation "had no legal
significance," and the trial court erred when it selected the
settlement "as the triggering event."
We disagree with the Buyers' conclusion. To adopt their
view would, contrary to Pennsylvania law, require a strict
construction of the indemnification provisions of the
Agreement against the Sellers, rather than the Buyers, fail
to give effect to each and every part of the Agreement, deny
the Sellers the right to prior notice as provided by
section 9.3 of the Agreement and Pennsylvania common law, and
effectively write the consent provision of section 9.5 out of
the Agreement.
Although we express no opinion on the subject, the
Buyers may be correct in saying, as they say on brief, that
upon publication of the Bulk Sales notice, they "became
unconditionally liable to pay the North Carolina product
liability claim." However, as the Sellers point out,
section 9.5 of the Agreement "by its terms is not concerned
with the time at which the basis of Buyers' liability . . .
arose" but, instead, "the event triggering the [Buyers']
obligation to seek and obtain the [Sellers'] consent is the
[Buyers'] 'settlement of any claim that would give rise to
liability on the part of the [Sellers] under an indemnity
contained in [the Agreement].'"
In other words, section 9.5 contemplates that regardless
of the point in time at which liability may arise against the
Buyers for a claim within the intendment of the Agreement, it
is not the attachment of such liability to the Buyers but the
subsequent settlement of the claim that is decisive. Under
the terms of section 9.5, not until that time arrives does
there exist a "settlement . . . that would give rise to
liability on the part of the Indemnifying Party under an
indemnity contained in [the Agreement]." The settlement of
the Virginia Bulk Sales litigation was such a settlement, the
Sellers' consent thereto was required, and, in the words of
the trial court, the Buyers' "failure to [obtain the consent]
will preclude [them] from obtaining indemnification for their
contribution to [settlement of] the North Carolina
litigation."
The Buyers, however, cite a statement in the trial
court's letter opinion that "a liability or debt cannot be
'pre-existing' if it has yet to be imposed." The Buyers then
argue that if the publication of the Bulk Sales notice did
not impose indemnification liability upon the Sellers then
the liability was not imposed until the Buyers contributed
the $300,000 toward settlement of the North Carolina
litigation. This settlement, the Buyers say, occurred with
the Sellers approval, as demonstrated by two letters written
by the Sellers' corporate counsel shortly before the $300,000
was paid.
However, the trial court made the explicit finding that
"[n]either letter evinces 'consent' by the [Sellers] to the
Virginia settlement nor is it a waiver of the consent
requirement under the Agreement." Our reading of the two
letters satisfies us of the correctness of the trial court's
finding. Indeed, the first letter, addressed to the Buyers'
counsel, while noting that the addressee earlier had been
authorized to contribute $300,000 toward the effort to settle
the North Carolina litigation, stated that "[t]here has not
been any waiver, settlement or other understanding between
[the Buyers] and [the Sellers] regarding the efforts to
settle or defend this case, and all rights have been reserved
as asserted in the various correspondence or otherwise."
The second letter, addressed directly to Precision
Components, while urging the Buyers to settle the North
Carolina litigation, stated that "[the Sellers] believe that
your voluntary assumption of the Unitex claim under [the
agreement settling the Virginia Bulk Trades litigation],
without notice to or consent by us, relieves us of any
obligation to indemnify you for the claim and constitutes a
violation of the Asset Purchase Agreement."
Finally, the Buyers argue that the trial court erred in
denying them recovery on the breach of warranty claim alleged
in Count I of their motion for judgment. The Buyers base
this claim upon a purported violation by the Sellers of
section 6.14 of the Agreement, which required the Sellers to
furnish the Buyers a list of creditors as described by Code
section 8.6-104 of the Bulk Sales Act and to warrant "that
there are no creditors of any type or nature which have not
specifically been disclosed by identity and amount to [the
Buyers.]" The Buyers complain that the Sellers did not
provide them with a list of creditors and did not
specifically disclose all creditors by identity and amount.
The Buyers assert that the trial court implicitly held
that the Buyers' failure to comply with the consent provision
of section 9.5 "cut off their breach of warranty claim."
However, we find nothing in the trial court's letter opinion
or final order to support this argument. Rather, in its
letter opinion, the trial court adopted the Sellers' proposed
findings of fact and conclusions of law. Included was a
finding that any failure of the Sellers to furnish a list of
creditors was not the proximate cause of any damage to the
Buyers since they had sufficient information from "the due
diligence performed on [the Sellers]" to satisfy "any
obligations [the Buyers] had under section 8.6-104 [and section
105] of the [Bulk Sales] Act to send notices to [the Sellers']
creditors."
Furthermore, as the Sellers point out, "the only
creditor of [the former Industrial Alloy Fabricators, Inc.]
relevant to this litigation is Unitex, and it is undisputed
that Sellers specifically disclosed to Buyers the existence
of Unitex's outstanding claim . . . well in advance of the
closing date of the asset purchase." Hence, any discussion
of the Sellers' failure to furnish a list of irrelevant
creditors would be purely academic.
For the reasons assigned, we will affirm the judgment of
the trial court.
Affirmed.
Footnotes moved to end:
1 The Code sections formerly comprising the Bulk Sales
Act, sections 8.6-101 through 111, were repealed in 1997 and
replaced by Code sections 8.6A-101 through -110. 1997 Va.
Acts ch. 121. Because this litigation arose prior to the
revision, we will cite to the previous sections.
2 Code section 8.6-103(6) provided an exception to the
Bulk Sales Act for "[t]ransfers to a person maintaining a
known place of business in this State who becomes bound to
pay the debts of the transferor in full and gives public
notice of that fact."
