CECIL TOWNSHIP MUNICIPAL AUTHORITY v. NORTH AMERICAN SPECIALTY SURETY COMPANY, No. 2:2011cv00608 - Document 20 (W.D. Pa. 2011)
Court Description: MEMORANDUM OPINION re: 7 First MOTION to Dismiss Counterclaim filed by CECIL TOWNSHIP MUNICIPAL AUTHORITY and 15 MOTION to Dismiss Third Party Defendant's Counterclaim filed by CECIL TOWNSHIP MUNICIPAL AUTHORITY. Signed by Judge William L. Standish on 12/15/2011. (md)
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IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA CECIL TOWNSHIP MUNICIPAL AUTHORITY, Plaintiff, vs. NORTH AMERICAN SPECIALTY SURETY COMPANY, Defendant/Third Party Plaintiff, Civil Action No. 11-608 vs. EDWARD T. SITARIK CONTRACTING, INC., BELLA ENTERPRISES, INC., EDWARD T. SITARIK and KARRIE A. SITARIK, Third-Party Defendants. MEMORANDUM OPINION Pending Township dismiss before Municipal with Specialty No. and Contracting, by Inc., Court Authority prej udice American 7) the Third two ("the certain Insurance are Authority"), counterclaims Companyl Party motions Bella Enterprises, Inc., the to by North American") Edward Cecil seeking brought ("North Defendants by (Doc. T. Sitarik Edward T. Si tarik, North American Specialty Insurance Company states that the caption of this matter misidentifies the indemnifying company as North American Specialty Surety Company. By separate Order of Court, the Clerk of Court is directed to amend the caption accordingly. and Karrie A. Sitarik (Doc. No. 15.) For the reasons discussed below, both Motions are granted. I. BACKGROUND A. Factual Histor/ On July 13, Plainti ff 2006, Cecil Township Municipal Authority awarded three publicly bid contracts to a local construction company, Inc. ("Sitarik.") proj ect ("the referred The to Project") , Contract, a Contract. The Contracts as the and Southwest Edward T. Run consisted Collector Authority Sitarik Contracting, covered a Millers of maj or public works Sanitary Sewer Southeast a Contract, maintains ("the Contracts") and Collector an at that Proj ect Interceptor all times, it performed its obligations under the Contracts and was never in default. Under the terms of the Contracts, Sitar i k was required to complete all three parts of the Proj ect by September 17, When it granted failed an to meet extension Southeast Collector complete the this until October Contract and Collector deadline. The was work was not not it 27, requested 2007, until Contract; Interceptor Southwest deadline, to October the extended completed by 2007. and was complete the 29, Contract 2007, for to the after the original those dates and, in The facts in this section are taken from the Complaint, Doc. No.1, Exh. B. 2 , had not been completed as of April 14, proposed a new completion date of June 13, rejected this new date and never 2008, 2008. agreed when Sit k The Authority to any further extensions after the September/October 2007 dates. Moreover, the Authority alleges, the work that had completed by Sitarik failed to meet the plans and spe set forth in the Contracts. Briefly summarized, been cations these problems included failing to: install certain pipes on the line and grade specified; complete trench excavation, backfill, and restoration; replace improvements (e.g., walls, shrubbery) disturbed by the work performed; properly clean and flush the sewer lines debris upon completion of the Project; and to remove install manholes properly, that is, failing to use the specified pipe inverts, anchor the manholes, ensure that manhole joints were watertight, and install steps or rungs as required; properly test the lines upon completion and certifying to the Project engineer that the lines had passed the required tests when in three out of ten did not; install lines between the manholes specifications in the Contracts; according to the properly seal several trench joints; and apply seal and slurry seal coats to certain surfaces. (Complaint, ~~ 12-60.) As required by the Contracts and by the Pennsylvania Public Works Contractors' Bond Law, 8 P.S. 3 § 191 et seq., Sitarik had been required amount of Performance $7,352,693.45, that Bonds is, 100% ("the of the Bonds") in the three Contract which by doing so, Author post These Bonds were provided by North American, prices. obligee to jointly and severally bound itself with Sitarik as an for completion of the Project. According to the y, the Bonds provided that [i]n the event of a default by Sitarik, Defendant North American was bound to either remedy the default, complete the [Project] in accordance with the Contracts' terms and conditions, or obtain and award bids for the completion of the Project, arrange for a contract between the [Authori ty] and the bidder and make available as work progresse [d] sufficient to pay the cost of completion, less the balance of the Contracts' price in an am ount not to exceed [$7,352,693.45.] (Complaint, ~ 64.) According deficiencies to the Authority, listed above, as well each as the of the failure construction to complete the Project on time, was a material breach of the Contracts. June 19, 2008, the Authority, declared Sitarik in default. of the default and acting pursuant to the Contracts, It timely notified North American requested that North American obligations as set out in the Bonds. for performance, so, On perform its Despi te repeated demands North American has neglected or refused to do thereby materially breaching the terms of the Bonds. As a result of North American's breach, the Authority has incurred or will incur monetary damages of at least $658,637.87 in an effort 4 to remedy the deficiencies in Si tarik' s work and complete the Project. Procedural Background B. The procedural somewhat by the history of this case is that multiple counterclaims party complaint have filed. complicated and a third- We summarize each of these, identifying them by the parties involved. Complaint by the Authority against North 1. and North American's counterclaims: Court of Common eas can Plaintiff filed suit in the of Washington County on April and served North American on the same date. 19, 2011, 9, 2011 , On Ma y North American timely removed the case to this Court pursuant to 28 U.S.C. §§ 1441(a) and (b), based on complete diversity of the parties and an amount controversy greater than the statutory by 28 U.S.C. minimum, as requi § 1332. 3 The Autho y did not object to removal. On May Complaint, 9, Authori ty' s North American incorporating counterclaims. contract, 2011, North In several the American allegation in first its to the and two for breach of contrary to the affirmative that Complaint that answer defenses counterclaim alleges the filed it was never in North American states, without objection from the Authority, that it is a corporation organized and existing under the laws of the state of New Hampshire with its ipal place of business in Manchester, New Hampshire. The Authority is a duly organized political subdivision of Washington County , Pennsylvania, with its offices located in Cecil, Pennsylvania. (Notice of Removal, Doc. No.1, <J[<J[ 6-7.) J 5 defaul t of the Contracts, it had breached numerous obligations thereunder by failing to provide accurate information during the bidding process, adequate information during inspections, and (Doc. support. having substantially the the the that or specifications, of in the architectural Counterclaims, complete Authority failed and prosecution required No.4, affirmed plans work under November refused to 3.) <J[ release contract balances and/or retainage. and Sitarik, Si tari k and Karrie A. collectively, "the Bella total Indemnity ("the was the $265, 000 of 2007, in Pursuant to the terms of a 2003, between North Enterprises, Si tari k) despite Contracts December a proper engineering Moreover, General Indemnity Agreement dated October 6, American work, and the and accurate Inc., Edward T. Indemnity Agreement" and, Defendants"), the latter assigned all their rights under the Contracts to North American. North American is therefore entitled to recover from the Authority all sums due to Sitarik as a result of the Authority's breaches of the Contracts and consequential damages in the form of delays, increased costs of performing work under the Contracts, extended field and office Counterclaims, <J[<J[ overhead, and related costs. (Doc. 1-9.) In Counterclaim II, North American alleges that by failing to pay the $265, 000 in contract balances or retainage, having affirmed No.4, substantial completion 6 of the despite work, the Authority has violated the Pennsylvania Prompt C.S. §§ 3931-3939 North American is ("the PPA.") Pay Act, 62 Pa. As a result of that violation, entitled to interest on the unpaid contract balances and/or retainage as well as penalties, attorneys' and costs as provided for in 62 Pa. Counterclaims, ~~ C.S. § 3935. (Doc. fees, No.4, 10-16.) The Authority responded by filing the now-pending motion to dismiss with prejudice Counterclaim II, along with any requests for attributed relief in Count I which might be to the PPA, arguing that such claims are barred by the applicable statute of limitations. 2. North American's the Indemnity Defendants: third-party complaint against On May 23, 2011, North American filed a third-party complaint against the Indemnity Defendants. No.5, the "Third-Party Complaint.") Indemnity Agreement, North American alleged that in those parties had agreed to indemnify North American for any and all liability, loss, costs, damages, fees of attorneys and consultants and other expenses, including interest, which [North American] may sustain or incur by reason of, or in consequence of, the execution of any bonds issued on behalf of [Sitarik] including attorneys' fees and expenses incurred in enforcing the obligations of any of the Indemnity Defendants under the Indemnity Agreement. (Third-Party Complaint, ~ (Doc. 5.) 7 In addition to the amount of the claim by the Authority $658,637.87 from Sitarik's for damages failure alleged in to timely complete the work required under the Contracts according to the specifications therein, Mack Industries, Inc. North American also alleged that ("Mack"), had filed a claim against the performance bonds and sued North American for some $271,266 due from Sitarik for services and/or materials Mack had provided in connection American, with the Project. Despi te notice from North the Indemnity Defendants have failed to perform their obligations under the Indemnity Agreement. In alleges Count the I of the Indemnity Third- Party Defendants Complaint, have American the Indemnity breached Agreement and seeks a total of $929,904.28, and attorneys' North together with costs fees incurred as a result of its efforts in this lawsuit and the litigation brought by Mack. In demands, another Count the II, North Indemnity provision of American Defendants the alleges have that failed Indemnity Agreement, despite comply to its with namely, to post security in the event claims or demands were made against North American by reason of the issuance of the Bonds. seeks an Order of Court directing the Indemnity North American Defendants to post collateral in the amount of $929,904.28. According to North American, "hold harmless" provisions such as that in the Indemnity Agreement quoted above have been 8 construed as giving rise to a right of contractual exoneration. In Count III, Indemnity costs, North damages, demands for Defendants American demands, all attorneys' fees and judgment against liabilities, expenses, both the losses, past and future, incurred as a consequence of it having issued the Bonds. Finally, is in Counts IV and V, North American alleges that entitled to law respectively, exoneration, liabilit common s, indemnification from Sitarik and for common all law demands, losses, etc. arising by reason of or in consequence of having issued the Bonds. On answer a July to 15, the irmative 2011, the Indemnity Complaint, Third-Party defenses. Defendants stating (Doc. No. 14 .) They filed a did their number not, of however, move to dismiss any of North American's five claims. Authority: Defendants' Indemni ty 3. In the same pleading as claims the against answer the and affirmative defenses to the Third-Party Complaint, Sitarik states two claims against the Authority. that by In Count I, letter of January affirmed that the three completed on However, allowed in to November June 20, 2009, complete its 2, Si tarik refers to the fact 2008, the Contracts December Sitarik work was under ability and willingness to do so. 9 Authority's had 7, and been the substantially December informed it Contracts engineer 20, would 2007. not despite be its Sitarik therefore seeks the unpaid contract balances and/or retainage $265,000, plus consequential damages, in the amount of for the Authority's breach of contract. In Count American, i.e., Authority II, has Sitarik duplicates the claim rai by North by failing to pay the outstanding $265,000, olated the Prompt therefore entitled to penalties, Pay Act interest, and the Sitarik attorneys' is fees and dismiss the costs pursuant to 62 Pa. C.S. § 3935. On August claims 4, brought 2011, the it against Authority by moved Si tarik, to arguing that the contractor did not have standing inasmuch as it had assigned all of its in rights Alternatively, the filed outside the same claims Contracts should statute of parties be to North dismissed as limitations period, reason North American's should be dismissed. The the claims American. having that is, brought under the been PPA ( Doc . No. 15.) having fully briefed t ir respective positions, both Motions are now ripe for consideration. II. JURISDICTION AND VENUE As noted above, U.S.C. as a § 1332. this Court has jurisdiction pursuant to 28 Venue is appropriate in this substantial part of the events giving occurred in this District. st se to the claims 28 U.S.C. § 1391 (a) (2). 10 ct inasmuch III. STANDARD OF REVIEW Federal Rule of Civil pleading which "states a (2) a Procedure claim for 8(a) requires relief must that a contain. short and plain statement of the claim showing that the pleader is entitled to relief." "[e]ach allegation must be The Rule further provides that simple, "[n]o technical form is requi touchstone of Rule 8 (a) (2) " concise, Fed. R. and Civ. P. direct" 8(d). but "The is whether a complaint I s statement of facts is adequate to suggest an entitlement to relief under the legal theory invoked and thereby put the defendant on notice of the nature of the Ant rust Litig., plaintiff I s claim." In 618 F.3d 300, 320, n.18 re Ins. Brokerage (3d Cir. 2010), citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 565, n.10 (2007). In the a 129 S. ermath of Twombly and Ashcroft v. Ct. 1937, 173 L. Ed. 2d 868 Iqbal, U.S. (2009), and the interpretation of those two cases by the United States Court of the Appeals opinions, for the Third Circuit the pleading standards in a series of precedential which allow a complaint to withstand a motion to dismiss pursuant to Federal Rule of vii Procedure 12 (b) (6) See Phillips v. have taken on slightly new parameters. County of Allegheny, f York, ~~~~~~~~~-~~~~ UPMC Shadyside, 578 F.3d 515 F. 3d 224 564 F.3d 636 203 (3d Cir. 11 (3d Cir. (3d Cir. 2009), 2009), Gelman 2008), Fowler v. v. State Farm Mut. Auto. v. Belichick, Ins. Co., 583 F.3d 187 605 F.3d 223 Under the current formulation, sufficiency of "the a thus allegations "are assume plaintiff not the veracity if relief." Santiago v. Cir. not 2010), be they plaintiff plead no the "plausibly the merits. At give because those this it facts stage of (2) and truth," and (3) allegations and entitlement for of 629 an F.3d, at 1947. appears or will the to note conclusions" than a (1) claim;" factual rise 129 S.Ct. it must state assumption Warminster Twp., merely can prove to more well-pleaded quoting Iqbal, dismissed complaint: must to of determine the "are that entitled in considering a motion to the court must take three steps to determine the identify and Mayer (3d Cir. 2010). dismiss under Rule 12 (b) (6), elements (3d Cir. 2009), 121, 130 (3d A complaint may unlikely that ultimately prevail litigation, the the on Court must determine if the plaintiff has sufficiently pled its claims, not whether it can prove Borough of Yardley, them. No. (3d Cir. June 30, 2010), Cu1 inary Serv. 09 4182, pleading standards Del. Valley v. 2010 U.S. App. LEXIS 13485, *10 citing Fowler, 578 F.3d at 213. If the Court determines that the compl the of of Twombly and nt fails to satisfy Iqbal, ordinarily the plaintiff should be given an opportunity to amend its claims to correct the identified deficiencies. However, this opportunity need not 12 515 F.3d at 236. be extended where amendment would be inequitable or futile. CA (W.O. 11-46, Nov. Pa. No. 18, 2011) See, (di a municipality would therefore U.S. 2011 be Dist. (dismissing is futile); claims LEX1S 133404, plaintiff's from such damages Cange 128347, brought Dist. City of *20 puni ti ve smuch as it is well-established immune LEX1S Harris v. ssing the damages claim with prejudice that U.S. 2011 e.g., v. (D. *8 under Markell, 42 CA No. Del. U.S.C. and amendment Nov. §§ 1983 11-764, 7, 2011) and 1985 without leave to amend because the suit was barred by a two-year limi tations period applied to such claims under Delaware law); and Watford v. 102872, suit *10 in New Jersey, CA No. (D. N.J. Sept. which the 9, 2011) plaintiff 2011 U.S. st. LEX1S (dismissing with judice a 11-104, appealed state court decisions regarding post-conviction relief because such claims were barred by IV. Rooker-Feldman doctrine and amendment would be futile.) DISCUSSION A. Motion to Dismiss North American's Counterclaims The 1. parties' arguments: The Authority argues Counterclaim 11,4 in which Defendant alleges it violated the Prompt Pay Act portion of Pennsylvania Procurement Code, In Counterclaim I, North American asserts it is entitled to recover all sums due to Sitarik as a result of the Authority's breaches "pursuant to the Contracts, the Procurement Code, and the Indemnity Agreement." (Counterclai~ I, , 9, emphasis added.) Since North American has not distinguished how the damages due under the I di ffer from those d escribed in Procurement Code in Countercl Countercl II, the Court will fo cus on the latter. 13 must be dismissed because North American's claims were made more than a year after the statute of limitations period for bringing such a claim had expired. v. Cont'l Ins. v. Nationwide Co., Ins. Relying on 42 Pa. C.S. 932 A.2d 877, 5524(5), Ash § (Pa. 2007), 416 F.3d 214, Co., 885 and Sikirica 225 (3d Cir. 2005), the Authori ty contends that North American's statutory claim for a penalty and attorneys' fees would be barred as an original action because of the statute of limitations and therefore may not be brought as a counterclaim. of Its Motion to Dismiss, Lund, 314 F.Supp. 749, Doc. 751 (Plaintiff's Brief in Support No.8, (W.O. Pa. ting Gumienik v. at 5, 1970.)) The Authority argues in the alternative that Counterclaim II must be dismissed because North American has, in effect, conceded in its answer to the Complaint that the Authority did not act in a vexatious and arbitrary manner by withholding $265,000 due to Sitarik and thus failed to state a claim for bad faith as required by § 3935. (Id. at 6-7.) North American responds that the damages provided for in § 3395 are not, as the Authority claims, "civil penalties U because such damages are payable to the aggrieved contractor as opposed to a governmental entity and are remedial rather than penal in nature. year North American proposes that instead of finding a two- limitations reasoning of period the applies, Court of the Common 14 Court Pleas should in follow the Mastercraft Woodworking Co. v. Jim Lagana Plumbing & Heating, & C. 5 th 251 (Berks County C.C.P. 2009), and Inc., hold 9 Pa. D. that the Counterclaims are timely inasmuch as they were filed within the four-year statute of limitations actions under 42 Pa. Opposition to Moreover, C.S. Motion North 5525. § to American period to contract (Brief of Defendant. Dismiss, denies applying Doc. it No. has 10, conceded .in at 3-4.) that the Authority did not act in bad faith when it withheld the final contract balances and/or retainage. statute We begin with a Applicable law: 2. on which (Id. at 5-6.) Counterclaim II is based, review of the limiting discussion to the factors which are relevant herein. of the Pennsylvania Code states the law our Title 62 pertaining to procurement of public works by Commonwealth "agencies, II a term which includes municipal authorities such as Plaintiff. 39 of the Procurement Code, Chapter pertaining to contracts for public works, addresses such matters as preliminary provisions, general prompt provisions, payment provisions. The portion Subchapter 0, of payment schedules, 62 Pa. C.S. Chapter §§ 39 and substantial/final 3901-3942. known as the Prompt Pay Act, sets out the provisions requiring payments by the Commonwealth agency to the contractor and the contractor to its subcontractors. payment of "The purpose contractors by of the Act government 15 is to ensure prompt agencies and, in turn, subcontractors with the by provisions Structural Group, 2009 U.S. general, contractors Dist. the of Inc. v. LEXIS statute for a work performed contract Liberty Mut. 18587, *6 requires Ins. (M.D. the a for Co., Pa. agency in public CA No. Mar. to accordance 5, make work.u 07-1793, 2009). progress In and final payments to its contractors 5 "strictly in accordance with the contractU (§ 3932) and provides payments are not timely made. government agency may for interest when such The PPA further provides that the withhold payment for deficiency items, again consistent with the terms of the contract, but must notify the contractor of what those deficiencies are within the period specified by the contract or application for payment is made. The 3935 ent portion led of the "Penalty Prompt and within 15 days after the Id., § 3934. Pay Act Attorney in question Fees. u here Omitting is § those portions not relevant herein, this section provides: (a) Penalty. If. .a claim with. .a court of competent jurisdiction is commenced to recover payment due under this subchapter and it is determined that the government agency. . has failed to comply with the payment terms of this subchapter,. . the court may award, in addition to all other damages due, a penalty equal to 1% per month of the amount that was wi thheld in bad faith. An amount shall be deemed to have been withheld in bad faith to the extent that the withholding was arbitrary or vexatious. An amount shall not be deemed to have been withheld in bad faith to the extent it was withheld pursuant to section 3934 Parallel provisions for contractors paying subcontractors also apply, but have been omitted from the remainder of this discussion. 5 16 (relating claims) . to withholding of payment for good faith (b) Attorney Fees. -- Notwithstanding any agreement to the contrary, the prevailing party in any proceeding to recover any payment under this subchapter may be awarded a reasonable attorney fee in an amount to be determined by the. . court. . , together with expenses, if it is determined that the government agency. .acted in bad ith. An amount shall be deemed to have been withheld in bad faith to the extent that the withholding was arbitrary or vexatious. 6 62 Pa. C.S. § 3935. The parties' arguments focus on the length of the period in which a claim under § 3395 must be brought. While application of the statute of limitations is usually an affirmative defense, it may be proper grounds for dismissal under Rule 12(b) (6). the allegations. statute of "If .show that relief is barred by the applicable subject to dismissal for failure to state a claim." See Jones v. Bock, 549 U.S. 199, 215 Leveto v. 258 F.3d 156, (2007), limitations, citing, the complaint inter alia, is Lapina, The terms "arbitrary" and "vexatious" are not defined in the Prompt Pay Act or elsewhere in the Procurement Code. "Absent a definition in a statute, statutes are presumed to employ words in their popular and plain everyday sense, and popular meanings of such words must prevail." Cummins v. Atlas R.R. Const. Co., 814 A.2d 742, 747 (Pa. Super. Ct. 2006) (internal quotation omitted.) In the context of the Prompt Pay Act, "arbitrary" has been held to mean "based on random or convenient selection or choice rather than on reason or nature," and "vexatious" defined as "a legal strategy without sufficient ground in either law or in fact and serving the sole purpose of causing annoyance." Pietrini Corp. v. Agate Constr. Co., 901 A.2d 1050, 1053 (Pa. Super. Ct. 2006) (internal quotations and alterations omitted) i see also Thunbe v. Strause 682 A.2d 295, 299 (Pa. 1996) (using the same definitions.) Because we dismiss Counterclaim II as untimely, we need not reach Plaintiff's second argument that North American has conceded that the Authority's actions were neither arbitrary nor vexatious. 17 161 (3d Cir. 2001) under Rule 12 (b) (6) its face"); Berman, see 38 F.3d ("a complaint may be subject to when an affirmative defense. also 1380, Oshiver 1384 v. n.1 "Iw]hile the language of Fed. Levin, (3d Civ. R. P. . appears on Fishbein, Cir. 1994), 8(c) dismissal Sedran stating & that indicates that a statute of limitations defense cannot be used in the context of a Rule 12 (b) (6) motion to di smiss, an exception is made where the complaint facially shows noncompliance with the limitations period and the affirmative defense clearly appears on the face of the pleading." Title 62 does not state the period of time in which a claim thereunder contends must that be brought. claims As brought noted under above, the the Prompt Authority Pay Act are subject to the two-year limitations period for bringing certain actions commonly thought of as tortious, invoking an "action forfeiture." upon 42 Pa. C.S. a § 5524(5). argues that the four-year pe contract correct should and a Counterclaim Counterc II and, If statute to a civil penalty or Conversely, North American od applicable to actions based in applied. two-year for the the of Authority's limitations extent it reasoning is period applies, invokes the PPA, im I, must be dismissed as untimely. 3. that be statute because a claimant is Discussion the Authority has and conclusion: the better argument 18 The Court on the concludes limitations period to be applied to a claim brought pursuant to that North American's claims are time-barred. § 3395 and In arriving at this conclusion, we have enjoyed almost no direction from either the Pennsylvan Pennsylvania 1998 when courts law. the Pennsylvania or Somewhat prompt courts pay have federal the surprisingly, provisions addressed courts in were the the period since enacted, statute of applying only limitations question and they have reached conflicting decisions. Colonial Sur. Co. Pa. Dist. & Cnty. v. Dec. LEXIS 304 two-year statute of Company, Inc., v. Warminster Twp., (Buc limitations), Jim Lagana No. two Compare 2006-09619-19, C.C.P. 2008) 2008 (applying a with Mastercraft Woodworking Plumbing Heating, & Inc., supra highest court of nding that a four-year period applied.)7 As is well-established, "[w]hen the a state has not addressed an issue of law, a federal court sitting in diversity must predict how that court would decide the issue were it confronted with the problem. Auto. Ins. Co., Erie R.R. Co. arriving at intermediate Nelson v. State Farm Mut. 988 F.Supp. 527, 528-529 (E.D. v. Provident Nat. u Tompkins, Bank, that 994 304 F.2d 1039, prediction, appellate U.S. court the 64 (1938), and Packard v. 1046 (3d Cir. federal court opinions as ting Pa. 1997), 1993). may "indicia u In look to of the Since Colonial Surety and Mastercraft were handed down in 2008 and 2009, no opinion published on LEXIS has cited to them for any reason. 7 19 McNasby v. highest court's likely decision. Co., Inc., may 888 F.2d 270, also look decisions, 281 (3d Cir. "relevant to considered dicta, Crown Cork & Seal 1989). The federal court precedents, state scholarly works, analogous and any other reliable data tending convincingly to show how the highest court in the state would decide the issue at hand. 529, Packard, quoting Ortho 994 F.2d at 622 F.2d 657, there is no decision by the 1046; see 661-662 state's Nelson, 1/ (3d Cir. highest at McKenna also id. v. 1980) court (where on the "precise question at issue in a particular setting," the court must "isolate including the analogous court's law.") either those cases probable that that the Colonial disposition to the Surety would provide This Court is not bound, Structural Group, regard factors or of a inform "useful decision," indications particular however, the its question of by the decisions of Mastercraft court. See Inc., 2009 U.S. Dist. LEXIS 18587 at *9 ("With decisions of Pennsylvania's lower courts, the decision of a trial court in one Pennsylvania county is no more binding upon a trial court of another county than it is upon the Supreme Court of Pennsyl vania--which see also Packard, 994 federal consider court may F. 2d at 1047, lower is to say, noting, state court not however, at all"); that the decisions to be "more predictive" of the highest court's decision on a point of state law than conflicting federal court opinions. 20 If a statute does not provide a limitations period and the Pennsylvania Supreme Court has not ruled on the question, courts will generally limitations period." apply "the close analogous Woody v. State Farm Fire and Cas. Co., F.Supp. 691, 693 (E.D. Pa. 1997) Our most other conclusion that a (0' 965 ruled by Ash, supra.) two-year statute of limitations should apply to claims which seek remedies under § 3395 is based on (1) review analogous what statutory (2) Court; of decisions; consider interpretation review (3) we of by be most closely Pennsylvania the Supreme and itself, stage for limitations Mastercraft consideration of the term "bad fai th" and how i. e. , the law i and reference (4) to the language of the "a penalty" government agency has acted in bad faith. the the the applies in contract and tort statute to the Supreme question Court's Ash v. the We begin by setting analysis Cont'l where of Ins. the Co., statute 932 A.2d of 877 (Pa. 2007). In 1981, the pennsylvania Supreme Court declined to create an independent common law cause of action for holders reason whose other claims than D'Ambrosio v. A.2d (Pa. 966 had what the Pennsylvania 1981). been denied insureds Nat'l There, "[aJlthough the seriousness of the Mut. by saw the as insurer bad Casualty Court 'bad faith' 21 insurance policy stated faith. Ins. Co., instead no See 431 that conduct by insurance carriers cannot made dramatic, by enacting 1171.1 or go et seq. recognized Unfair Insurance ("UIPAIf), acts that or the which the UIPA can those Id. only at under "to the "insurance bad 1990, faith enacted what statute," 42 P.S. the by Court State but declined are it was up to whether sanctions required to is Pa. the Pennsylvania referred C.S. § to as 8371, (I) Award interest on the amount of the claim from the date the claim was made by the insured in an amount equal to the prime rate of interest plus 3%. (2) Award punitive damages against the insurer. 42 Pa. C.S. § 8371. costs and attorney fees against Actions on insurance policies. 22 deter Id. at 970. In an action arising under an insurance policy, if the court finds that the insurer has acted in bad f ai th toward the insured, the court may take all of the following actions: court §§ The provides: (3) Assess insurer. If judicially creating a determine [UIPA] already fifteen "unfair 969. In response to the decision in D'Ambrosio, in 40 concluding instead that Legislature created Act, by private action, conduct which is less than scrupulous." legislature, has i th conduct enforced statutory sanctions by Pennsylvania beyond Practices practices." separate cause of action, the Legislature identified some Insurance Commissioner and not to supplement our sweeping efforts to curb the bad the deceptive unrecognized, the the which In which what has has been caused described considerable as "an unfortunate confusion," the omission insurance bad faith statute does not establish the limitations period in which See Haugh v. Allstate Ins. claims thereunder must be brought. Co., 322 F.3d 227, Pennsylvania question 233 state arrived (3d Cir. courts at and 4 (see, 5 § to No. courts conclusions, tort addressing some actions set this applying out in the 42 Pa. supra, and Liberty Mut. Fire Ins. e. g., Nelson, Corry Indus., Between 1990 and 2007, federal different two-year period applicable C. S. 2003). Co. v. 97-172, *14 (W.O. Pa. Mar. 30, 2000)), while others applied the six-year "catch-all" period of 42 Pa. and Miller v. Ins. Cincinnati 2000 U.S. C.S. § Co., 5527 Oist. (e.g., CA No. LEXIS 11735, supra, Woody, 08-1223, 1997 U.S. Oist. LEXIS 23725, *1 (E.O. Pa. July 8, 1997).) The Court issue after November Brent complaint Continental 21, and finally 2000, Kathy for for On of before Insurance fire Ash. breach came damage May 3, contract; the Pennsylvania Company to denied real 2002, Supreme coverage on property owned by the Continental Ashes filed asserted a their claim was barred by the policy's one-year statute of limitations On June 23, period. leave to under § 2003, amend complaint 8371. their the plaintiffs to include filed a Continental opposed the motion, 23 bad a motion faith for claim arguing such a claim was untimely since it was subject to the two-year statute of limitations applicable to tort-like actions. § 5524 (7). Despite the plaintiffs' See 42 Pa. C.S. argument that the claim was a hybrid tort-contract action and therefore subject to the sixyear "catch-all" period of Continental's motion for § summary contract claim and denied as amend the complaint, 5527 (b), the judgment futile trial as court to the breach of the plaintiffs' having determined that created tort action," the bad faith claim did, as granted a motion to "statutorily in fact, have to be brought wi thin two years of the date on which coverage was denied. case The Superior Court agreed with this decision and the was basis. appealed to the Pennsylvania Supreme Court that the Pennsylvania of tort claims limitations period. s Judicial Code, which civil actions in general, limitations periods number this Ash, 932 A.2d at 878. The Supreme Court agreed with the lower courts. noted on subject to the two It first establishes identi es a year-statute of Contract and similar claims are subject to "The following actions are subject to a two-year limitations period: (1) An action for assault, battery, false imprisonment, false arrest, malicious prosecution or malicious abuse of process. (2) An action to recover damages for injuries to the person or for the death of an individual caused by the wrongful act or neglect or unlawful violence or negligence of another. (3) An action for taking, detaining or injuring personal property, including actions for specific recovery thereof. (4) An action for waste or trespass of real property. (5) An action upon a statute for a civil penalty or forfeiture. (6) An action against any officer of any government unit for the nonpayment of money or the nondelivery of property collected upon on execution or 8 24 a four-year statute of limitations, 9 exempt from any limitations period a few (42 Pa. civil C.S. § actions 5531), are and a "catch-all" period applies to any civil action not specifically assigned to one of the enumerated periods (id., § 5527 (b) ,10 Ash, 932 A.2d at 879-880. As had the Superior Court in its discussion of the subject, the Supreme Court recognized that since 1990 when the bad statute was divided on enacted, the Pennsylvania question of the and period federal in courts which such ith had been a claim otherwise in his possession. (7) Any other action or proceeding to recover damages for injury to person or property which is founded on negligent, intentional, or otherwise tortious conduct or any other action or proceeding sounding in trespass, including deceit or fraud, except an action or proceeding subject to another limitation specified in this subchapter." 42 Pa. C.S. § 5524. 9 "The following types of actions are subject to a four-year statute of limi tations: (I) An action upon a contract, under seal or otherwise, for the sale, construction or furnishing of tangible personal property or fix t u res. ( 2 ) An y act ion sub j e c t to 13 Pa . C . S. § 2 72 5 ( r e 1 at in g to statute of limitations in contracts for sale). (3) An action upon an express contract not founded upon an instrument in writing. (4) An action upon a contract implied in law, except an action subj ect to another limitation specified in this subchapter. (5) An action upon a judgment or decree of any court of the United States or of any state. (6) An action upon any official bond of a public official, officer or employee. (7) An action upon a negotiable or nonnegotiable bond, note or other similar instrument in writing. Where such an instrument is payable upon demand, the time wi thin which an action on it must be commenced shall be computed from the later of either demand or any payment of principal of or interest on the instrument. (8) An action upon a contract, obligation or 1 iabili ty founded upon a writing not specified in paragraph (7), under seal or otherwise, except an action subj ect to another limitation specified in this subchapter." 42 Pa. C.S. § 5525. 10 Section 5527(b) states: "Other civil action or proceeding. Any civil action or proceeding which is neither subject to another limitation specified in this subchapter nor excluded from the application of a period of limitation by section 5531 (relating to no limitation) must be commenced within six years." 42 Pa. C.S. § 5527. 25 could be brought. See Ash, 932 A.2d at 880-881, The Court quoted with approval, by Court of Pennsylvania Appeals Supreme in however, Haugh, Court would several points which find citing cases. a concluded 8371 § raised that claim the sounds primarily in tort because: courts have historically treated bad faith actions as torts; a bad faith action is based on tort-like standards of care; the greater number of the most recent decisions from Pennsylvania courts have treated a § 8371 claim as separate and distinct from the underlying contract action against the insurer; the maj ori ty of states recognizing a of action characterize it as a tort; bad faith cause courts have a duty to construe § 8371 to prevent an absurd result and it is unlikely the legislature intended to provide a six-year limitations period for a § 8371 claim--which sounds in tort and contract- when the limitations periods for each of those claims are generally two and four years; [and]. under Pennsylvania law, punitive damages are typically only awarded in tort actions. Ash, 932 A.2d at citing Haugh, 880-881, 322 F.3d at 235-236 (other citations omitted.) The Court then considered each of the plaintiffs' for arguments the It rejected construed six-year the statute argument that in pari ma teria Consumer Protection Law of limitations the with bad the ("UTPCPL"), 26 period. faith Unfair 73 P.S. statute Trade § first should Practices be and 201-1 et seq., and thus would be subject to six-year statute of limitations set out in § 5527(b). Ash, id. at 881-882. The Court pointed out that unlike the UTPCPL which covered a wide range of deceptive acts or trade practices, the bad faith insurance concerned only with "the duty of good the parties' contract dischargers] its Metropolitan Life Moreover, in and the Ins. Co., by at A.2d which insurer v. quoting 882, 186, an 199 (Pa. 2007). unlike the UTPCPL which was to be liberally construed order to protect Pennsylvania decepti ve business practices applies Id. 928 was ith and fair dealing in manner obligation[s.]" statute only where the consumers in general, insured has from fraud the bad faith filed "an action and statute arising under an insurance policyll against his insurer, i.e., it applies only to narrow classes of plaintiffs and defendants. Next, the Court action brought under a tort action, considered the Ashes' argument that an 8371 is more like a contract action than § despite the availability of punitive damages, because the statute clearly states that such an action "aris[es] under an principles. law of torts, near as distinct insurance policy," thereby invoking contract The plaintiffs also argued that the purpose of the i. e., possible to "put an inj ured person in a position as to his position prior from the punitive objective of § to the 8371. tort," Moreover, was if the Legislature had intended to create a statutory tort when it 27 enacted § 8371, it would have done so expressly. these arguments, the Court concluded that statutorily-created tort, the Pennsyl van D' Ambrosio tort had had done suggested, cause of action 8371 is, § in fact, a and agreed with the lower courts that legislature court Rejecting all i. e., for i th bad precisely statutorily in the what the recognize a insurance context. Ash, id. at 882-883. Finally, have the identified Supreme Court noted that a key difference Pennsylvania courts between tort actions and contract actions: tort actions result from "breaches of dut imposed by a actions law as arise matter of "breaches from social of policy," duties while contract imposed by consensus agreements between particular individuals." A.2d at 884 that in determined (internal quotation omitted.) enacting that § the 8371, other the mutual Ash, 932 The Court concluded Legislature protections s had afforded apparently to insurance policyholders by the UIPA were "insufficient to curtail certain bad faith acts interest to enact at 885. by § insurers and that it was in the 8371 as an additional protection." Because the duty under § public Ash, id. 8371 is imposed by law as a matter of social policy, rather than one agreed upon by mutual consensus, recover damages an action to for duty derives primarily from the law of torts. 28 a breach of that Consequently, as a tort action, claims under 8371 are subject to the two-year § statute of limitations of 42 Pa. C.S. § 5524. Ash, id. We turn to the question of whether the reasoning of Ash is equally applicable to the statute regard to the Prompt Pay Act. be only two relies reported on Colonial cases Surety, of limitations As noted above, addressing where this issue with there appear to issue. aintiff the primary issue focused on the rights of Colonial as the surety who had paid bond claims for a number of subcontractors after the prime contractor ceased work on an uncompleted Colonial Surety, road unjust enrichment, breach of fiduciary duty and equitable lien (all of which held were statute of by claims the limitations), for court the Dec. Township. contract, several & Cnty. Warminster *1 *2. with Dist. in LEXIS 304, Along 2008 Pa. project breach to surety be of subject to company also a four-year claimed that the Township had violated of the Pennsylvania Procurement Code. After addressing the question when the statute of limitations had begun to run on the claims brought by Colonial, the court stated -- without further analysis or discussion -- that "[t]he statute of limitations for claims alleging Pennsylvania Procurement Code is two years." violation I . at *7, of the citing 42 Pa. C.S. § 5524. 11 11 We note that this decision was affirmed without opinion and further appeal was denied by the Pennsylvania Supreme Court. See, 29 Mastercraft Plumbing American, analysis. Woodworking Heating, & is more There, Company, Inc. , on the point case and subcontractor v. Inc. relied provides Mastercraft Jim upon a by more sued Lagana North detailed Lagana for failing to pay for work Mastercraft had performed in connection with the renovation of two public schools. Laguna argued that Mastercraft's claim should be dismissed because it was brought under § 3395 and thus limi tations of 42 Pa. subject C. S. period for contract claims. bad faith claim. In § to 5524 (7), the two-year statute of rather than the four-year The court agreed and dismissed the arriving at this conclusion, it made several points, many of which rested on its reading of Ash: The bad faith provision of the PPA appears to be modeled on a similar, but not identical, provision of the Contractor and Subcontractor Payment Act,12 73 Pa. C.S. § 512, which mandates a non-discretionary penalty of 1% per month for payments wrongfully withheld and states that attorneys' fees "shall be" awarded to the prevailing partYi by comparison, the court is given respectively, 984 A.2d 1005 (Pa. Super. ct. 2009), and 991 A.2d 309 (Pa. 2010). This fact, however, is of little importance. See Burgoon v. Zoning Hearing Bd., 277 A.2d 837, 841 (Pa. Commw. Ct. 1971), quoting Kramer v. Guarantee Trust & Safe Deposit Co., 33 A. 1047, 1048 (Pa. 1896), for the principle that "the allowance or refusal of the appeal must not be taken as an indication of any opinion on the merits of the decision or the correctness of the application of legal principles in the particular case." 12 The Contractor and Subcontractor Payment Act, 73 P. S. § 501 seq. , applies generally to all construction contracts in Commonwealth. The Mastercraft court concluded that because contract in question pertained to work done on two public schools invol ved a government agency, the more specific provl.s1.ons of Pennsylvania Public Works Procurement Code, 62 Pa. C.S. § 3901 seq., should apply. Mastercraft, 9 Pa. D. & C. at 256-260. 30 et the the and the et only discretionary power to award the same penalties under § 3395. Mastercra , 9 Pa. D. & C. 5 th at 260. A bad faith action under § 8371 is not related to nor does it depend on the underlying contract claim. Rather, it is recognized as distinct, unlike a claim under § 3395 which requires an initial finding that the government agency breached the underlying contract before bad i th can be und. Mastercraft, id. at 264-265. Section 8371 does not limit the amount of punitive damages, while the PPA limits the penalty to 1% per month plus attorneys' fees, a distinction the court perceived as a legislative intent to provide additional compensation in the nature of recoupment of attorneys' fees expended as the result of being forced to litigate the matter and the loss of the use of funds rather than a form of punishment. rd. at 265. Section 3395 "focuses on redress to an aggrieved party, not the furtherance of social policy by providing a deterrent to entities with financial or positional advantage from engaging in improper conduct or delays." Id. at 265. In sum, the Mastercraft court concluded, the penalty and es provision of § 3395 "does not provide a separate attorneys' claim under tort, but allows additional damages on a contractual claim initiated under statute of its limitations Mastercraft, 9 Pa. D. & provisions," under 42 Pa. and thus C.S. § the four-year 5525 applied. C. 5 th at 265. We disagree with the reasoning of the Mastercraft court and believe faith the claim Pennsylvania brought Supreme under § statute of limitations period. for this conclusion, again Court 3395 is would subject find to that a a bad two-year We offer the following reasons limiting 31 our discussion to the context of a dispute between a government agency and a contractor rather than between a contractor and a subcontractor. ¢ Section specific 3395 action contractor by a may be invoked withholding government only payments agency for one otherwise and only when due law, a two-year limitations pe to which, od applies. a is a Claims of whether in the insurance context or in general, historically been treated as torts, of to there finding that the withholding was done in bad faith. bad faith, type have under Pennsylvania See Haugh, 322 F.3d at 234-235, and n. 13, discussing cases. ¢ Sections 8371 and 3395 have common than acknowledged by the court more characteristics in in Mastercraft. First, both statutes apply only in very narrow circumstances. As the Court pointed out in Ash, § 8731 applies only to actions between insurers and insureds where the parties are bound by contract; the same applies in the case of § 3395, where the only litigants are contractors on public works paid for by government agencies. Second, unlike a bad faith claim arising in a routine breach of contract case where either party can claim the other has acted in bad faith, the statutory bad faith claim can only be brought against the insurer or the government agency. to the reasoning in Mastercraft, nothing Third, prevents a contrary litigant from proceeding simultaneously with both a bad faith breach of contract claim and a bad faith tort 32 claim under § 8371. See Ash, 932 A. 2d at 883-884 and n. 2, discussing the distinction between the contractual duty of good faith and the duty imposed by statute. In fact, unless barred by the gist of the action doctrine,13 such a practice differences in the statute contract and tort claims. is fairly of common, limitations despite periods for the the We see no reason a contractor could not similarly proceed with a bad faith breach of contract claim and a claim for limi tations damages periods. under § Fourth, 3395, contrary regardless to the of dif ing Mastercraft view that a bad faith action under § 8371 is not related to and does not depend on the underlying contract claim, Court of Appeals in Pol sell i 126 F.3d 524, 531 (3d Cir. v. the Third Circuit Nationwide Mut. 1997), Fire Ins. Co., has pointed out that "while a section 8371 bad faith claim itself is created by statute, claim has its genesis in the policy of insurance." the The Polselli Court also acknowledged that a bad faith claim "depends on the See Bes Med.Int'l Inc. CA No. 071709 et al., 2011 U.S. Dist. LEXIS 123845, *98-*100 and n.34 (W.D. Pa. Oct. 25, 2011), where this Court summarized the gist of the action doctrine. Briefly stated, it is a common law theory "designed to maintain the conceptual distinction between breach of contract claims and tort claims" by precluding plaintiffs from "recasting ordinary breach of contract claims into tort claims." eToll, Inc. v. Elias/Savion Adver., 811 A.2d 10, 14 (Pa. Super. Ct. 2002) (internal citation omitted). The doctrine bars tort claims: (1) arising solely from a contract between the parties i (2) where the duties allegedly breached were created and grounded in the contract itself; (3) where the liability stems from a contract; or (4) where the tort claim essentially duplicates a breach of contract claim or the success of which is wholly dependent on the terms of a contract. Hart v. Arnold, 884 A.2d 316, 340 (Pa. Super. Ct. 2005) (citations omitted) . 13 33 existence statute of a predicate allows a contract plaintiff to cause "enforce contractual duty of good faith." similar contract-based but Id. of an at independent A finding possibility interest that on of the the bad faith 530. contractor amount may withheld be in bad the implicit We conclude a cause under and insurer's contemplated by the Legislature when enacting ¢ action" of action was raises the 3395. § 3395 § awarded 1% faith. per This month is in addition to the "ordinary" interest to which it is entitled if progress See 62 and Pa. final C.S. payments are not made 3932(c) and 3941(b). §§ in a timely manner. Such an additional award could be construed as a means of punishment or deterrence because is available that re twice under the statutorily mandated Pennsylvania law. See 41 interest usually 202, stating P. S. § rence to the "legal rate of interest," unless otherwise specified in the document or law in question, "shall be construed to refer to the rate of interest of six per cent per Moreover, annum." it commercial borrowing, is far in excess and as such, of current rates for an award at that rate would be more than a simple recoupment by the contractor for the time value of money. ¢ action Both by the § 8371 court and after § 3395 finding contemplate bad faith. discretionary Section 8371 states that if the court finds that the insurer has acted in bad 34 fai th, it "may" take certain actions; Section 3395 states that if the court finds that the government agency failed to comply with terms the addition payment to all of the other damages statute, due, a it "may award, penalty equal to in 1% per month of the amount that was withheld in bad faith." ¢ As stated in Ash, the duty of good faith codified in § 8371 was "imposed by law as a matter of social policy." 932 A.2d at 885. that "the clear playing field are working Constr. Co., The Pennsylvania Superior Court has indicated intent public legislati ve the Prompt intent that is to and subcontractors 1055 (Pa. Super. the Superior to provide more for breach of contract. Pay Act level the when they projects." 901 A.2d 1050, implies statement of between contractors on Ash, To than ct. 2006). Court a the contrary, This recognized simple legal by enacting § a remedy 3395, the Legislature could be seen as promoting a public policy goal parallel to that of § 8371 -- deterring the larger entity that controls the purse strings - the insurance company or government agency from using its economic power to coerce or manipulate "the little guy." See Pietrini Corp., id. at 1054 (the penalty provision of the PPA was intended to negate "harsh negotiating tactics" verging on coercion by compelling the government to act in good faith with its contractors.) 35 We also reject North American's argument that the sanctions provided by § 3395 do not constitute a "civil penalty or fine H because the monies are not paid to the public fisc but rather to the aggrieved litigant. (Doc. in 42 Pa. Cons. Stat. Ann. § for a civil penalty or for actions that are 93-2145, 1993), 1993 U.S. Dist. concluding that 10 at 4 and n. 5524(5}, an iture' penal, compensatory in nature." No. encompasses statutory civil punitive, Zarwin & Baum, LEXIS 18055, because "As used 'action upon a statute deterrent, Cohen v. 3.) *6-*7 29 (E.D. U.S.C. § and P.C., Pa. nonCA No. Dec. 22, 1132 (a) (I) (A) provided a monetary penalty when the administrator of an ERISA covered plan failed to comply with a participant's request for information, for such 5524(5} in the absence of a statute of limitations period breach should of be fiduciary applied. duty claims Other in ERISA Penhsylvania self, courts § have allowed recovery under this same "civil penalty" provision where the fine or other monetary payment is made not to a government For instance, enti ty but to the inj ured party. Hudson Bank, held that P.S. § 312 F. the Supp.2d 705, defendants were 716 (E.D. subject to in Ortlieb v. Pa. 2004), the court the penalties of 21 682 after they failed to enter satisfaction on mortgages for the plaintiff's real property within 45 days of his payment of the outstanding amount and his request that the mortgages be so marked. The penalty for that failure under the statute is a 36 fine in an not to payable amount "the party concluded that Mar. claims C.S. the See also Estate of the 2005), affirming than two years of Ortlieb v. the court statute of because they were based on before dist ct he filed Hudson United Bank, 04-2024 and 04-2261, 2005 U.S. App. LEXIS 5175, 30, mortgage, The were barred by the 5524(5) § amount aggrieved. H parties satisfy made more Id. suit. Nos. to or Ortlieb's limitations in 42 Pa. requests exceeding court, *7 (3d Cir. including the application of § 5524(5). Finally and most obviously, the argument that the Legislature did not intend to make the damages available under § 3395 a "penal ty" uses that ignores word. exact directed that the caption The of the Pennsylvania in interpreting a statute, provision, Supreme Court Inc. v. CoreStates Bank, N.A., 2002). "In ascertaining such intent, has the role of the court is to "give effect to the intent of the Legislature." Motors, which Pantuso 798 A.2d 1277,1282 (Pa. section headings and titles may be used as an aid" and "words and phrases must be understood according to their common noted that "a penalty. probably which is explici t "remedy," actual is damages, designed to usage." but prevent fixed, as instance), a the use of the word "penal tyH for Id. Court in Pantuso not as a pre-estimate of punishment, breach." the Id. threat of Given the (as opposed to "damages" or and the fact 37 The that it is fixed in the statute as "equal to 1% per month of the amount that was withheld in bad faith," we believe it would be contrary to the intent of the Legislature to view § 3395 as anything other than a civil penalty. Therefore, claim under 62 According to we find that the limitations period in which a Pa. C. S. North 3395 must be brought § American's own allegations, is two years. the bad faith claim accrued in 2008,14 when the Authority advised Sitarik that its work on continued to (Do c . 4, No . violation of 2011, is it believe the the Project withhold <J[ <J[ the 5- 6 , was the contract 11-12 . ) Prompt Pennsylvania balances Because Pay Act barred by the substantially was two-year Supreme not the Court and but retainage. Counterclaim filed statute complete, of would until May for 11, limitations we apply and will therefore be dismissed with prejudice. B. Motion to Dismiss the Indemnity Defendants' Claims 1. The parties' arguments: Plaintiff's first argument regarding Count II of Sitarik's complaint is identical According to the Counterclaims, the Authority advised Sitarik that its work on the Project was substantially complete by letter dated January 2, 2008. North American was advised of Sitarik's default in June 2008. The Contract provisions regarding the date by which the contract balances and retainage were to be paid following substantial completion are not in evidence. However, there is no evidence to show that the claim accrued only after May 11, 2009, the first day of the two-year period prior to the date on which the Counterclaims were filed. If such evidence existed, North American surely would have pointed to it as another means to defeat the Authority's argument that the claim was untimely under a two-year statute of limitations period. 14 38 to the that argument is, the applied claim to is Counterclaim II subject to a by North American, two-year statute of limi tat ions and therefore untimely. For the reasons discussed at for length attorneys' above, fees, Sitarik's claim interest, penalties, and other relief stemming from the Authority's purported violation of the PPA is dismissed with prejudice. As noted above, Sitarik also seeks damages for breach of contract by the Authority for such things as failing to provide accurate information during the bidding process and the prosecution of the work, as well as breaching its obligation to provide specifications, adequate plans, engineering support. and and The Authority argues that this claim must be dismissed because Si tarik assigned all the architectural Indemnity Agreement to North of American, its the rights latter under is the real party in interest and Sitarik lacks standing to bring this action. Specifically, Sitarik assigned its rights to the balance of the contract payments and retainage to North American in Paragraph 5 of the Indemnity Agreement which states that Sitarik and the other Indemnity Defendants are assigning "all of their rights under the contracts referred to in such bonds, including. (c} any and all sums due or which may thereafter become due under such contracts." In response, Indemnity (Doc. No. 16 at 7-S.} Sitarik argues that although it and the other Defendants assigned all 39 of their interest in the contracts to condi tions, North American, it did so only under none of which has not yet occurred. certain Specifically, the Indemnity Agreement provides: The [Indemnity Defendants] hereby assign, transfer, pledge and convey to [North American] (effective as of the date of each such bond, but only in the event of default, breach or failure as referred to in preceding Section 4 (c) ), as collateral security, to secure the obligations hereunder and any other indebtedness and liabilities of the [Indemnity Defendants] to [North American], all of their rights under the contracts referred to in such bonds, including their right, title and interest in and to (c) any and all sums due or which may be thereafter become due under such contracts, and all sums due or to become due on all other contracts, bonded or unbonded, in which any or all the [Indemnity Defendants] have an interest. (Brief in Opposition to Motion to Dismiss, Doc. No. Brief," at 3; see also Doc. No. 14, Exh. A, Ij[ 18, "Sitarik Indemnity Agreement, 5.) Paragraph 4(c) of the Indemnity Agreement in turn provides: If any such bond be given in connection with a contract, [North American] in its sole discretion is hereby authorized but not required. (c) in the event of any breach or default in the performance of the contract, or the breach of this Agreement or of any bond connected therewith, or the failure to diligently prosecute the work under the contract. , to take possession of the work under the contract and, at the expense of the [Indemnity Defendants], to complete the contr act or cause the same to be completed. Indemnity Agreement, Sitarik collateral argues security, Ij[ 4. that North since the American 40 assignment received was only a given as qualified interest "commensurate (Sitarik Brief at (Pa. 1939).) 4, with the debt quoting Seip v. Since North or liability Laubach, American's secured." 4 A.2d 149, 151 to the ght enforce assigned interests is subject to Sitarik's default, which it has denied, the Sitarik Authority question of retains under the the whether Sitarik is a trans unless the did prosecute until or law: by assignee." time as the default not on its common Supreme Court, extinguishes the obligor Legal and Capital, law principles "[a] n assignment v. Loss "Ul timately, 2005) Sch. Dist. ("Crawford") A.2d 1167, i v. see 1172 A.2d that 299, (Pa. to to the Prof' 1 Liab. (Pa. 2000) . 302 shoes of the assignor." Commonwealth, also right right Medical an assignee stands in the Crawford Cent. assignor's transfers LLC 750 Fund, the Catastrophe 687 against r of property or a right from one person to another; performance Ltd., such did Under Pennsylvania qualified, (Pa. claims (Sitarik Brief at 3-4.) Applicable recognized by to Contracts performance is resolved. 2. right Smith Super. v. Ct. 888 A.2d 616, Cumberland 1997) 620 Group, ("Where an assignment is effective, the assignee stands in the shoes of the assignor and assumes all of his rights," including the "benefits and "the remedies the assignor's assignor right to once possessed.") performance extinguished and the assignee acquires a 41 by Simultaneously, the obligor similar right is to such performance." Wilcox v. Regester, 207 A.2d 817, 820 (Pa. 1965.) This makes the assignee "the one who, by the substantive law of the state, has the duty or right sought to be enforced" and, as such, the Materials 2003) i real v. party in interest. Corrpro Cos., Wilcox, id. 292 F. Soc' y Am. for Testing 713, 718 (E.D. Supp.2d ("the assignee is usually the re & Pa. party in interest and an action on the assignment must be prosecuted in his name.") This requirement is reflected in the Federal Rules of Civil Procedure which provide that "[ e] very action shall be prosecuted in the name of the real party in interest." Fed. R. Civ. P. 17(a). "[A]n assignment will ordinarily be construed in accordance with the rules circumstances document." governing surrounding Crawford, contract the interpretation execution 888 A.2d at 623. of As the and assignment summarized by the Pennsylvania Supreme Court, [t] he fundamental rule in interpreting a contract is to ascertain and give effect to the intent of the contracting parties. The intent of the parties to a wri tten agreement is embodied in the writing itself. Courts do not assume a contract's language was chosen carelessly, nor do they assume the parties were ignorant of the meaning of the language employed. When contractual language is clear and unequivocal, its meaning must be determined by its contents alone. [A court] may not modify the plain meaning of the contract under the guise of interpretation. Crawford, id. (internal quotations and citations omitted.) 42 the Discussion and conclusion: 3. 4 and 5 of the Indemnity Agreement, As we read Paragraphs the plain meaning of Paragraph 5 is that Sitarik and the other Indemnity Defendants intended to assign to North American all of their rights under the Contracts, including their right to any payments due thereunder from the Authority. The assignment would be effective as of the date of each performance or other bond issued by North American on behalf of the Indemnity Defendants, case (Complaint, was July 13, 2006. Exh. which I.) in this However, for North American to step entirely into the Indemnity Defendants' shoes, i.e., taking on their rights and obligations, another Indemn the performance Agreement fail In y Defendant would have to either or of the any bond Contracts, issued in (2) breach connection (1) Sitarik or default in the Indemnity therewith, or (3) to diligently perform the work required by the Contracts. other words, obligations and the its event rights triggering - including both the North right American's to sums due under the Contracts -- was the occurrence of one of those three events. We agree with Sitarik's interpretation of Paragraphs 4 and 5 of the Indemnity Agreement up to this point. Where because it we part has ways denied with that Sitarik it assignment did not become effective. was is ever its in argument that default, the If this were the intent of the parties, the Indemnity Defendants could defeat any operation 43 of the assignment provisions simply by denying they had defaulted on the Contracts, breached the Indemnity Agreement, or failed to diligently perform the work required. to "default," therefore, The reference must refer to a declaration of default by the government agency, just as the reference to a "failure" to diligently perform the work required under the contracts must logically refer to a claim by the contracting entity that this had occurred. that the The interpretation proposed by Sitarik would mean assignment unless or until resol ved, the for Indemnity believe that, to North American would not be effective the question of the claim of default had been example, by Defendants logically, agreement between the Authority and or through litigation. We do the parties could have intended of the not this result. This interpretation assignment provision of the Indemnity Agreement is also consistent with the language of the three performance bonds for the Proj ect. (Complaint, Exh. 1.) The Bonds provided that North American would act as surety for a fixed amount for each of the three Contracts with the condition that if Sitarik obligations void." and under "promptly the and Contracts, faithfully the Bonds would be The Bonds further provided that declared Contracts, by [the Authority] North American to be "may promptly 44 perform[ed]" "null its and if Sitarik "shall be, in default" remedy the under the default or shall promptly" contractor American to complete complete and the the Contracts them. In Authority or arrange other (as words, obligee for another Si tarik, the North Bonds) all expected North American to take over and complete the Contracts when Sitarik was declared to be in default, not when the question of whether default had occurred was finally resolved. According to the Authority, not later than June 19, 2008. 4 and 5 of the and/or caused ght Defendants to retainage, sue a for for right all payment it purposes, of the exercised in against the Authority for breach of contract. Sitarik has the assignment no standing to pursue this and contract its acquired balances Counterclaim Thus, we conclude action against Authority and will dismiss its claims in their entirety. An appropriate Order follows. December to North American thus stepped into the shoes of Indemni ty Sitarik's This act, by virtue of Paragraphs Indemnity Agreement, become ef the it declared Sitarik in default )j~ 2011 William LV: tandish United States District Judge 45 the
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